NDT Energy Ltd. - MRRS Decision

Decision

Headnote

Mutual Reliance Review System for Exemptive Relief Applications and Multilateral Instrument 11-101 Principal Regulator System - National Instrument 51-102, s. 13.1 Continuous Disclosure Obligations - Exemption from requirement in item 14.2 of Form 51-102F5 to include prospectus-level disclosure in an Information Circular - relief from the requirement to provide three years of audited financial statements in an information circular for a business that constitutes a significant probable acquisition, provided that acceptable alternative disclosure is provided - acquired assets are interests in oil and gas properties -- financial statements for acquired assets do not exist.

Applicable Legislative Provisions

National Instrument 51-102 Continuous Disclosure Obligations -- ss 8.3, 8.4, 8.5, 8.10, s.13.1 -- Form 51-102F5 Information Circular, item 14.2.

OSC Rule 45-501 General Prospectus Requirements, ss. 6.4, 6.6.

CSA Staff Notice 42-303 Prospectus Requirements.

National Instrument 52-107 Acceptable Accounting Principles, Auditing Standards and Reporting Currency.

Citation: NDT Energy Ltd., 2006 ABASC 1403

May 25, 2006

IN THE MATTER OF

THE SECURITIES LEGISLATION OF

ALBERTA AND ONTARIO (THE JURISDICTIONS)

AND

IN THE MATTER OF

THE MUTUAL RELIANCE REVIEW SYSTEM

FOR EXEMPTIVE RELIEF APPLICATIONS

AND

IN THE MATTER OF

NDT ENERGY LTD. (NDT)

 

MRRS DECISION DOCUMENT

Background

1. The local securities regulatory authority or regulator (the Decision Makers) in the Jurisdiction has received an application from NDT for a decision under the securities legislation of the Jurisdictions (the Legislation) that NDT be exempt from the requirements of the Legislation to include 3 years of audited financial statements in an information circular for a business that constitutes a significant probable acquisition in respect of a business for which securities are being distributed (the Requested Relief).

Application of Principal Regulator System

2. Under Multilateral Instrument 11-101 Principal Regulator System (MI 11-101) and the Mutual Reliance Review System for Exemption Relief Applications:

2.1 the Alberta Securities Commission is the principal regulator for NDT;

2.2 NDT is relying on the exemption in Part 3 of MI 11-101 in British Columbia; and

2.3 this MRRS decision document evidences the decision of each Decision Maker.

Interpretation

3. Defined terms contained in National Instrument 14-101 Definitions have the same meaning in this decision unless they are otherwise defined in this decision.

Representations

4. This decision is based on the following facts represented by NDT:

4.1 NDT was incorporated under the laws of the Province of British Columbia and NDT's head office is located in Calgary, Alberta.

4.2 The common shares of NDT were formally listed and posted for trading on the TSX Venture Exchange but were delisted on January 12, 2006.

4.3 NDT is a reporting issuer in the provinces of Alberta, British Columbia and Ontario.

4.4 To its knowledge, NDT is not in default of any of its obligations as a reporting issuer pursuant to the applicable securities legislation in any of the provinces in which it is a reporting issuer.

4.5 NDT has entered into a plan of arrangement (the Arrangement) dated April 13, 2006 whereby it will be acquiring all of the issued and outstanding common shares of Pegasus Oil & Gas Inc. (Pegasus).

4.6 As part of the Arrangement, Class A shares of NDT will be issued to shareholders of Pegasus.

4.7 Pegasus was incorporated under the laws of the Province of Alberta and Pegasus' head office is located in Calgary, Alberta.

4.8 The common shares of Pegasus are not listed or posted for trading on any stock exchange.

4.9 Pegasus is not a reporting issuer or its equivalent in any jurisdiction.

4.10 During its current financial year, Pegasus has entered into a letter of intent to acquire certain oil and gas interests from Daylight Energy Trust (the Daylight Assets).

4.11 The acquisition of the Daylight Assets constitutes a "significant probable acquisition" for Pegasus under the Legislation.

4.12 NDT is preparing an information circular (the Information Circular) in connection with a special meeting of its securityholders which is expected to be held on June 7, 2006;

4.13 The Information Circular will contain, among other things, prospectus level disclosure of the business and affairs of each of NDT and Pegasus and the particulars of the Arrangement;

4.14 Pursuant to item 14.2 of Form 51-102F5, because the Arrangement is a restructuring transaction under which securities are to be changed, exchanged, issued, or distributed, and because the acquisition of the Daylight Assets is a "significant probable acquisition" under the Legislation, NDT is required to include certain annual and interim financial statement disclosure in the Information Circular in respect of the Arrangement, including annual financial statements for each of the 3 most recently completed financial years of the Daylight Assets (the Daylight Disclosure Requirements).

4.15 Pursuant to Canadian Securities Administrators (CSA) Staff Notice 42-303 (the Staff Notice), an issuer may submit an application to the provincial and territorial securities regulatory authorities requesting relief from certain requirements of the prospectus rules that are not consistent with National Instrument 51-102 Continuous Disclosure Obligations (NI 51-102).

4.16 Pursuant to the Staff Notice, the CSA have indicated that they are generally prepared to recommend that relief be granted from the significance tests for determining if a business acquisition is significant and the financial statements required to be included in a prospectus on the condition that the issuer applies the significance tests set out in section 8.3 of NI 51-102 and provides the financial statements specified in section 8.5 of NI 51-102.

4.17 The financial statement requirements set forth in section 8.5 of NI 51-102 reference the financial statements described in section 8.4 of NI 51-102. Section 8.10 of NI 51-102 does, however, provide exemptions from certain of the financial statement disclosure requirements set forth in section 8.4 where the acquisition is of an interest in an oil and gas property and the requirements of section 8.10 are met. As a result, an issuer relying on exemptive relief under the Staff Notice may, if they are able to rely on the exemptions contained in section 8.10, provide the alternative disclosure allowed under section 8.10, where applicable, instead of the financial statements set forth in section 8.4.

4.18 The Daylight Assets are interests in oil and gas properties, financial statements do not exist for the Daylight Assets, the acquisition of the Daylight Assets will not constitute a reverse take-over, the Daylight Assets do not constitute a "reportable segment" of the vendor and the disclosure required in a business acquisition report under paragraphs (e) and (f) of section 8.10 of NI 51-102 for the Daylight Assets will be included in the Information Circular.

4.19 NDT proposes to include in the Information Circular certain annual financial information, including audited schedules of revenue, royalties and operating expenses for the three years ending December 31, 2005 for the Daylight Assets, such operating statements being those specified in section 8.10 of NI 51-102 and being in excess of that required pursuant to section 8.4 of NI 51-102. (collectively, with the disclosure required in a business acquisition report under paragraphs (e) and (f) of section 8.10, the Alternative Disclosure).

4.20 The Alternative Disclosure will comply with National Instrument 52-107 Acceptable Accounting Principles, Auditing Standards and Reporting Currency.

Decision

5. The Decision Makers being satisfied that they have jurisdiction to make this decision and that the relevant test contained under the Legislation has been met, the Requested Relief is granted and the Daylight Disclosure Requirements shall not apply to NDT, provided that NDT include the Alternative Disclosure in the Information Circular.

"Mavis Legg", CA
Manager, Corporate Finance
Alberta Securities Commission