Securities Law & Instruments

Headnote

Exemptive Relief Applications in Multiple Jurisdictions -- exemption granted from the requirement to include financial statements in an information circular for an entity participating in an arrangement -- the information circular will be sent to the trust's unitholders in connection with a proposed internal reorganization pursuant to which its business operations will be conducted through a corporate entity -- the arrangement does not contemplate the acquisition of any additional interest in any operating assets or the disposition of any of the trust's existing interests in operating assets.

Applicable Legislative Provisions

National Instrument 51-102 Continuous Disclosure Obligations, s. 13.1.

Form 51-102F5 Information Circular, Item 14.2.

Citation: True Energy Trust, Re, 2009 ABASC 463

September 18, 2009

IN THE MATTER OF

THE SECURITIES LEGISLATION OF

ALBERTA AND ONTARIO

(the Jurisdictions)

AND

IN THE MATTER OF

THE PROCESS FOR EXEMPTIVE RELIEF

APPLICATIONS IN MULTIPLE JURISDICTIONS

AND

IN THE MATTER OF

TRUE ENERGY TRUST (the Trust or the Filer) AND

TRUE ENERGY INC. (True Energy)

DECISION

Background

The securities regulatory authority or regulator in each of the Jurisdictions (Decision Maker) has received an application from the Filer for a decision under the securities legislation of the Jurisdictions (the Legislation) exempting the Filer from the requirement under item 14.2 of Form 51-102F5 Information Circular (the Circular Form) of the Legislation to provide: (i) the financial statements of True Energy for the financial years ended December 31, 2008 and December 31, 2007; and (ii) comparative financial statements for the financial period ended June 30, 2009 (collectively, the Financial Statements) in the management information circular (the Circular) to be prepared by the Filer and delivered to the holders (True Unitholders) of trust units (True Units) of the Trust in connection with a special meeting (True Meeting) of True Unitholders expected to be held in October 2009 for the purposes of considering a plan of arrangement under the Business Corporations Act (Alberta) (the Arrangement) resulting in the internal reorganization of trust structure of the Trust into a corporate structure (collectively, the Exemption Sought).

Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a dual application):

(a) the Alberta Securities Commission is the principal regulator for this application;

(b) the Filer has provided notice that Subsection 4.7(1) of Multilateral Instrument 11-102 Passport System (MI 11-102) is intended to be relied upon in British Columbia, Saskatchewan, Manitoba, Québec, New Brunswick, and Nova Scotia; and

(c) the decision is the decision of the principal regulator and evidences the decision of the securities regulatory authority or regulator in Ontario.

Interpretation

Terms defined in National Instrument 14-101 Definitions and MI 11-102 have the same meaning if used in this decision, unless otherwise defined.

Representations

This decision is based on the following facts represented by the Filer:

The Trust and True Energy

The Trust

This decision is based on the following facts represented by the Filer:

The Trust and True Energy

The Trust

1. The Trust is an unincorporated trust established under the laws of the Province of Alberta pursuant to an amended and restated Trust Indenture dated May 21, 2008. The principal office of the Trust is located in Calgary, Alberta.

2. The Trust is a reporting issuer or the equivalent under the securities legislation of each of the provinces of Canada. To its knowledge, the Trust is not in default of securities legislation in any jurisdiction of Canada.

3. The True Units are listed on the Toronto Stock Exchange (TSX) under the symbol "TUI.UN".

4. The Trust has $86,250,000 principal amount of 7.50% convertible unsecured subordinated debentures outstanding (the Debentures). The Debentures are currently listed and posted for trading on the TSX under the symbol "TUI.DB".

True Energy

5. True Energy is the operating entity of the Trust and is a corporation amalgamated under the laws of the Province of Alberta. The principal office of True Energy is located in Calgary, Alberta.

6. All of the issued and outstanding common shares of True Energy (the True Shares) are owned by the Trust. Exchangeable shares of True Energy (the Exchangeable Shares) are held by the public but such Exchangeable Shares are considered "designated exchangeable securities" under National Instrument 51-102 Continuous Disclosure Obligations (NI 51-102) as the Exchangeable Shares provide the holders thereof with economic and voting rights substantially similar to the True Units.

7. True Energy is a reporting issuer in all the provinces of Canada but is exempt from most continuous reporting requirements under section 13.3 of NI 51-102. To its knowledge, True Energy is not in default of securities legislation in any jurisdiction of Canada.

8. The True Shares and the Exchangeable Shares are not listed or posted for trading on any exchange or quotation and trade reporting system.

Arrangement

9. As part of the Arrangement, through a number of steps (i) the Trust will be dissolved; (ii) in connection with such dissolution, the True Units will be surrendered for cancellation and common shares (New True Shares) of a new corporation to be formed pursuant to the Arrangement (New True) will be distributed to True Unitholders on a one-for-one basis; (iii) holders of Exchangeable Shares will receive New True Shares based on the exchange ratio for such Exchangeable Shares; and (iv) New True will own, directly or indirectly, all of the existing assets and assume all of the existing liabilities of the Trust (including the Trust's outstanding Debentures), effectively resulting in the internal reorganization of the Trust's trust structure into a corporate structure.

10. As one step in the Arrangement, True Energy will amalgamate with True Newco Inc., which is wholly-owned subsidiary of the Trust, which does not presently carry on any business, to form a new corporation (True Amalco). As another step in the Arrangement, True Amalco will amalgamate with another new corporation incorporated to take part in the Arrangement to form New True. True Energy may therefore be considered the predecessor entity of New True as the business of True Energy will form the basis of the business of New True.

11. Although the above steps of the Arrangement may be amended slightly the result will remain the same. Following the completion of the Arrangement: (i) the sole business of New True will be the current business of the Trust; (ii) New True would be a reporting issuer or the equivalent under the securities legislation in all of the provinces of Canada; and (iii) the New True Shares would, subject to approval by the TSX, be listed on the TSX.

12. Pursuant to the Trust's constating documents and applicable securities laws, the True Unitholders and holders of Exchangeable Shares (collectively, the True Securityholders) will be required to approve the Arrangement at the True Meeting. The Arrangement must be approved by not less than two-thirds of the votes cast by True Securityholders at the True Meeting. The True Meeting is anticipated to take place in late October 2009 and the Circular is expected to be mailed in mid-to-late September 2009.

13. The Arrangement will be a "restructuring transaction" under NI 51-102 in respect of the Trust and therefore would require compliance with item 14.2 of the Circular Form.

14. The Filer is applying for an exemption pursuant to section 13.1 of NI 51-102 from the requirement of item 14.2 of the Circular Form that, pursuant to item 32.2(1) of Form 41-101F1 Information Required in a Prospectus (Prospectus Form), the financial statements of New True, which include the financial statements of True Energy, its predecessor entity, for the financial years ended December 31, 2008 and December 31, 2007 and comparative interim financial statements for the financial period ended June 30, 2009 be included in the Circular that would be mailed to the True Unitholders in connection with the Arrangement.

15. The rights of True Unitholders, holders of Exchangeable Shares and holders of Debentures in respect of New True following the Arrangement will be substantially equivalent to the rights the True Securityholders and holders of Debentures currently have in respect of the Trust and True Energy, as applicable, and their relative interest in the business carried on by New True will not be affected by the Arrangement.

16. The only securities that will be distributed to True Securityholders pursuant to the Arrangement will be the New True Shares.

17. While changes to the consolidated financial statements of New True will be required to reflect the organization structure following the Arrangement, the financial position of New True will be substantially the same as reflected in the Trust's audited annual consolidated financial statements most recently filed or required to have been filed under Part 4 of NI 51-102 prior to the date of the Circular and the unaudited interim consolidated financial statements of the Trust most recently filed or required to have been filed under Part 4 of NI 51-102 prior to the date of the Circular.

18. In particular, the entity that exists both before and subsequent to the Arrangement would be substantially the same given the fact that the assets and liabilities of the enterprise, from both an accounting perspective and economic perspective, are not changing based on the Arrangement. However, as the tax structure will be changing from that of an income trust to a corporation, the tax advantages of the income trust structure would be lost. As a result, the only reconciling items would be with respect to both the current and future income tax due to the elimination of the deduction for the interest on certain promissory notes between the Trust and subsidiaries of the Trust and on an inter-company net profit interests. This would therefore require these entities to use tax pools to shield their taxability therefore creating a future income tax liability and to the extent that the income could not be shielded by tax pools, it would trigger cash taxes.

Financial Statement Disclosure In The Circular

19. Item 14.2 of the Circular Form requires, among other items, that the Circular contain the disclosure (including financial statements) prescribed under securities legislation and described in the form of prospectus that New True would be eligible to use immediately prior to the sending and filing of the Circular for a distribution of its securities. Therefore, the Circular must contain the disclosure in respect of New True prescribed by the Prospectus Form. As New True will not be in existence on the date of the Circular, item 32.1(a) of the Prospectus Form requires that the financial statements of True Energy be included as it is the predecessor entity that will form the basis of the business of New True.

20. Item 32.2(1) of the Prospectus Form requires the Trust to include certain annual financial statements of True Energy in the Circular, including: (i) an income statement, a statement of retained earnings, and a cash flow statement of True Energy for each of the financial years ended December 31, 2008, December 31, 2007 and December 31, 2006; and (ii) a balance sheet of True Energy as at the end of December 31, 2008 and December 31, 2007. Under item 32.4(a) of the Prospectus Form the income statement, statement of retained earnings and the cash flow statement for the year ended December 31, 2006 are not required to be included in the Circular as True Energy is a reporting issuer. In addition, item 32.3(1) of the Prospectus Form requires the Trust to include certain comparative interim financial statements of True Energy in the circular, including (i) a comparative income statement, a statement of retained earnings, and cash flow statement of True Energy for the interim period ended June 30, 2009 and (ii) a balance sheet of True Energy as at the end of June 30, 2009.

21. The Arrangement will not result in a change in beneficial ownership of the assets and liabilities of the Trust and New True will continue to carry on the business of True Energy following the Arrangement. The Arrangement will be an internal reorganization and the True Securityholders will, following completion of the Arrangement, be the shareholders of the continuing entity. Accordingly, no acquisition will occur as a result of the Arrangement and therefore the significant acquisition financial statement disclosure requirements contained in the Prospectus Form are inapplicable.

22. The financial statements of the Trust are reported on a consolidated basis, which includes the financial results for True Energy. True Energy does not report its financial results independently from the consolidated financial statements of the Trust. The Financial Statements, if prepared, would not include the accounts of the Trust. Management believes the Financial Statements are not relevant and could be misleading since there are transactions between True Energy and the Trust that eliminate when consolidation is performed at the trust level. To present the Financial Statements, which would exclude accounts of the Trust, would present the effects of only one side of the financing activities between True Energy and the Trust. This would result in intra-group liabilities and intra-group interest expense being reflected on the Financial Statements. As a result, the presentation of these intra-group transactions, that will be eliminated upon completion of the Arrangement, would present a confusing (and potentially misleading) picture of financial performance.

23. The Arrangement will be a reorganization undertaken without dilution to the True Securityholders or additional debt or interest expense incurred by New True.

24. The Circular will contain prospectus level disclosure in accordance with the Prospectus Form (other than the Financial Statements) and will contain sufficient information to enable a reasonable securityholder to form a reasoned judgement concerning the nature and effect of the Arrangement.

Decision

Each of the Decision Makers is satisfied that the decision meets the test set out in the Legislation for the Decision Maker to make the decision.

The decision of the Decision Makers under the Legislation is that the Exemption Sought is granted.

"Blaine Young"
Associate Director, Corporate Finance