Securities Law & Instruments

Headnote

National Policy 11-203 Process For Exemptive Relief Applications in Multiple Jurisdictions- Application for exemptive relief to permit issuer and underwriter, acting as agent for the issuer, to enter into equity distribution agreement to make "at the market" (ATM) distributions of trust units to investors through the facilities of the Toronto Stock Exchange (TSX) -- ATM distributions to be made pursuant to shelf prospectus procedures in Part 9 of NI 44-102 Shelf Distributions -- issuer will issue a press release and file agreement on SEDAR -- application for relief from prospectus delivery requirement -- delivery of prospectus not practicable in circumstances of an ATM distribution -- relief from prospectus delivery requirement has effect of removing two-day right of withdrawal and remedies of rescission or damages for non-delivery of the prospectus -- application for relief from certain prospectus form requirements -- standard certification by issuer does not work in an ATM distribution since no other supplement to be filed in connection with ATM distribution -- relief granted to permit modified forward-looking certificate language -- relief granted on terms and conditions set out in decision document -- decision will terminate 25 months after the issuance of a receipt for the shelf prospectus.

Applicable Legislative Provisions

Securities Act, R.S.O. 1990, c.S.5, as am., ss. 71(1), 71(2), 133, 147.

Applicable Ontario Rules

National Instrument 44-101 Short Form Prospectus Distributions, Part 8; and Item 20 of Form 44-101F1.

National Instrument 44-102 Shelf Distributions, Part 9; and s. 1.1 of Appendix A.

Citation: NAL Energy Corporation, Re, 2011 ABASC 240

April 20, 2011

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

NAL ENERGY CORPORATION (THE ISSUER)

AND CANACCORD GENUITY CORP.

(Canaccord And,

Collectively With The Issuer, The Filers)

DECISION

Background

The securities regulatory authority or regulator in each of the Jurisdictions (the Decision Makers) has received an application from the Filers for a decision under the securities legislation of those jurisdictions (the Legislation) for the following relief (the Exemption Sought):

(a) that the requirement that a dealer, not acting as agent of the purchaser, who receives an order or subscription for a security offered in a distribution to which the prospectus requirement applies, deliver to the purchaser or its agent the latest prospectus (including the applicable prospectus supplement(s) in the case of a base shelf prospectus) and any amendment to the prospectus (the Prospectus Delivery Requirement) does not apply to Canaccord or any other Toronto Stock Exchange (the TSX) participating organization or other market participant acting as selling agent for Canaccord (each such other organization or market participant, a Selling Agent) in connection with at-the-market distributions (each, an ATM Distribution), as defined in National Instrument 44-102 Shelf Distributions (NI 44-102), made by the Issuer pursuant to the Equity Distribution Agreement (as defined below); and

(b) that the requirement to include in a prospectus supplement:

(i) a certificate of the Issuer in the form specified in section 2.1 of Appendix A to NI 44-102; and

(ii) a statement respecting purchasers' statutory rights of withdrawal and remedies of rescission or damages in substantially the form prescribed in Item 20 of Form 44-101F1 Short Form Prospectus Distributions (the Statement of Purchaser's Rights);

(collectively, the Prospectus Form Requirements) do not apply to a prospectus supplement of the Issuer to be filed in connection with an ATM Distribution under the Equity Distribution Agreement, as defined below (the Prospectus Supplement) provided that the alternative form of certificate and disclosure regarding a purchaser's statutory rights described below are included in the Prospectus Supplement.

The Decision Makers have also received a request from the Filers for a decision that the application and this decision be kept confidential and not made public until the earliest of (i) the date on which the Filers enter into the Equity Distribution Agreement, (ii) the date on which the Filers advise that there is no longer any need for the Application and this decision to remain confidential, and (iii) the date that is 90 days after the date of this decision (the Confidentiality Relief).

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 Filers have provided notice that section 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, Nova Scotia, New Brunswick, Prince Edward Island and Newfoundland and Labrador; and

(c) this 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 or MI 11-102 have the same meaning in this decision, unless they are otherwise defined herein.

Representations

The decision is based on the following facts represented by the Filers:

The Issuer

1. The Issuer is an oil and gas corporation incorporated under the laws of the Province of Alberta. The head office of the Issuer (and that of its administrator, NAL Resources Management Limited) is located in Calgary, Alberta.

2. The Issuer is a reporting issuer or the equivalent under the Legislation and is in compliance in all material respects with the applicable requirements of the Legislation.

3. The common shares (the Common Shares), 6.25% convertible debentures and 6.75% convertible debentures of the Issuer are listed on the TSX.

4. The Issuer intends to file a short form base shelf prospectus in April 2011 providing for the distribution from time to time of Common Shares, preferred shares, debt securities, warrants, subscription receipts and units (the Shelf Prospectus). The Shelf Prospectus will constitute an "unallocated shelf" within the meaning of Part 3 of NI 44-102.

5. The Shelf Prospectus will include: (i) a non-forward looking issuer certificate of the Issuer in the form prescribed by method 2 as set forth in section 1.1 of Appendix B to NI 44-102; and (ii) a Statement of Purchaser's Rights in substantially the form prescribed in Item 20 of Form 44-101F1 except as set forth in this decision.

The Agent

6. The head office of Canaccord is located in Vancouver, British Columbia. Canaccord is registered as an investment dealer under the Legislation.

Proposed ATM Distribution

7. Subject to mutual agreement on terms and conditions, the Filers propose to enter into an equity distribution agreement (the Equity Distribution Agreement) providing for the periodic sale of Common Shares by the Issuer through Canaccord, as agent, through ATM Distributions pursuant to the base shelf prospectus procedures prescribed by Part 9 of NI 44-102.

8. Prior to making any ATM Distributions, the Issuer will have filed the Prospectus Supplement in the Jurisdictions, which will describe the ATM Distributions, including the terms of the Equity Distribution Agreement.

9. The Issuer will issue a news release upon entering into the Equity Distribution Agreement and will file a copy of the Equity Distribution Agreement on SEDAR. The news release will indicate that the Shelf Prospectus and Prospectus Supplement have been filed on SEDAR and specify where and how purchasers may obtain copies.

10. Under the proposed Equity Distribution Agreement, the Issuer may issue and sell Common Shares pursuant to any ATM Distribution thereunder in an amount not to exceed 10% of the aggregate market value of the outstanding Common Shares calculated in accordance with section 9.2 of NI 44-102.

11. The Issuer will sell Common Shares in Canada through methods constituting ATM Distributions, including sales made on the TSX or any other recognized Canadian "marketplace" within the meaning of National Instrument 21-101 Marketplace Operation, upon which the Common Shares are listed, quoted or otherwise traded (a Marketplace) through Canaccord, directly or through a Selling Agent.

12. Canaccord will act as the sole agent on behalf of the Issuer in connection with the sale of the Common Shares on the TSX or another Marketplace and will be the only person or company paid an agency fee or commission by the Issuer in connection with such sales. Canaccord will sign an underwriters' certificate in the Prospectus Supplement.

13. Canaccord will effect ATM Distributions on the TSX or another Marketplace, either itself or through a Selling Agent. If the sales are effected through a Selling Agent, the Selling Agent will be paid a seller's commission for effecting the trades on Canaccord's behalf. A purchaser's rights and remedies under the Legislation against Canaccord as underwriter of an ATM Distribution through the TSX or another Marketplace will not be affected by a decision to effect the sale directly or through a Selling Agent.

14. The number of Common Shares sold on the TSX or another Marketplace pursuant to an ATM Distribution on any trading day will not exceed 25% of the trading volume of the Common Shares on the TSX and any other Marketplace on that day.

15. The Equity Distribution Agreement will provide that, at the time of each sale of Common Shares pursuant to an ATM Distribution, the Issuer will represent to Canaccord that the Shelf Prospectus, as supplemented by the Prospectus Supplement and any subsequent amendment or supplement to the Shelf Prospectus or Prospectus Supplement (together, the Prospectus) contains full, true and plain disclosure of all material facts relating to the Issuer and the Common Shares being distributed. The Issuer would therefore be unable to proceed with sales pursuant to an ATM Distribution when it is in possession of undisclosed information that would constitute a material fact or a material change in respect of the Common Shares.

16. If, after the Issuer delivers a sell notice to Canaccord, the sale of Common Shares specified in the notice, taking into consideration prior sales, would constitute a material fact or material change, the Issuer would be required to suspend sales under the Equity Distribution Agreement until either: (i) it had filed a material change report or amended the Prospectus; or (ii) circumstances had changed such that the sales would no longer constitute a material fact or material change.

17. In determining whether the sale of the number of Common Shares specified in the sell notice would constitute a material fact or material change, the Issuer will take into account a number of factors, including, without limitation: (i) the parameters of the sell notice, including the number of Common Shares proposed to be sold and any price or timing restrictions the Issuer may impose with respect to the particular ATM Distribution; (ii) the percentage of the outstanding Common Shares that number represents; (iii) trading volume and volatility of Common Shares; (iv) recent developments in the business, affairs and capital structure of the Issuer; and (v) prevailing market conditions generally.

18. Canaccord will monitor closely the market's reaction to trades made on the TSX or another Marketplace pursuant to the ATM Distribution in order to evaluate the likely market impact of future trades. Canaccord has experience and expertise in managing sell orders to limit downward pressure on the Common Share price. If Canaccord has concerns as to whether a particular sell order placed by the Issuer may have a significant effect on the market price of the Common Shares, Canaccord will recommend against effecting the trade at that time. It is in the interest of both the Issuer and Canaccord to minimize the market impact of sales under an ATM Distribution.

19. The underwriter's certificate signed by Canaccord included in the Prospectus Supplement will be in the form prescribed by section 2.2 of Appendix B to NI 44-102.

Prospectus Delivery Requirement

20. Pursuant to the Prospectus Delivery Requirement, a dealer effecting a trade of securities on the TSX on behalf of the Issuer as part of the ATM Distribution is required to deliver a copy of the prospectus (including the applicable prospectus supplement(s) in the case of a base shelf prospectus) within prescribed time limits to all investors who purchase securities on the TSX or another Marketplace.

21. The delivery of a prospectus is not practicable in the circumstances of an ATM Distribution as neither Canaccord nor the Selling Agent effecting the trade will know the identity of the purchasers.

22. Although purchasers under an ATM Distribution would not physically receive a printed prospectus, the Shelf Prospectus and the Prospectus Supplement (together with all documents incorporated by reference) will be filed and readily available to all purchasers electronically via SEDAR. Moreover, the Issuer will issue a news release that specifies where and how copies of the Shelf Prospectus and the Prospectus Supplement can be obtained.

23. The liability of an issuer or underwriter (and others) for misrepresentation in a prospectus pursuant to the civil liability provisions of the Legislation will not be affected by the grant of an exemption from the Prospectus Delivery Requirement, as purchasers of securities offered by a prospectus during the period of distribution have a right of action for damages or rescission without regard as to whether the purchaser relied on the misrepresentation and whether or not the purchaser in fact received a copy of the prospectus.

Withdrawal Right

24. Pursuant to the Legislation, an agreement to purchase securities is not binding on the purchaser if a dealer receives, not later than midnight on the second day exclusive of Saturdays, Sundays and holidays, after receipt by the purchaser of the latest prospectus or any amendment to the prospectus, a notice in writing that the purchaser does not intend to be bound by the agreement of purchase (the Withdrawal Right).

25. The Withdrawal Right is not workable in the context of an ATM Distribution because a prospectus will not be delivered to purchasers.

Right of Rescission or Damages for Non-Delivery

26. Pursuant to the Legislation, a purchaser of securities has a right of action for rescission or damages against a dealer for non-delivery of the prospectus (the Right of Action for Non-Delivery).

27. The Right of Action for Non-Delivery is not workable in the context of the ATM Distribution because a prospectus will not be delivered to purchasers.

Disclosure of Common Shares Sold in ATM Distributions

28. The Issuer will file on SEDAR a report disclosing the number and average price of Common Shares distributed over the TSX or another Marketplace by the Issuer pursuant to an ATM Distribution under the Prospectus as well as gross proceeds, commission and net proceeds, within seven calendar days after the end of the month with respect to sales during the prior month.

29. The Issuer will also disclose the number and average price of Common Shares sold pursuant to an ATM Distribution under the Prospectus as well as gross proceeds, commission and net proceeds, in the ordinary course in its annual and interim financial statements and management's discussion and analysis filed on SEDAR.

Prospectus Form Requirements

30. Exemptive relief from the Prospectus Form Requirements for the Issuer's forward-looking certificate in the Prospectus Supplement is required to reflect that no pricing supplement will be filed subsequent to the Prospectus Supplement. Accordingly, the Issuer will file the Prospectus Supplement with the following forward-looking issuer certificate which will supersede and replace, solely in respect of ATM Distributions, the certificate prescribed by the Prospectus Form Requirements:

This short form prospectus, as supplemented by the foregoing, together with the documents incorporated in this prospectus by reference as of the date of a particular distribution of securities under this prospectus, will, as of that date, constitute full, true and plain disclosure of all material facts relating to the securities offered by this prospectus, as required by the securities legislation of each of the provinces of Canada.

31. Exemptive relief from the Prospectus Form Requirements is required to reflect the relief from the Prospectus Delivery Requirement. Accordingly, the Issuer will include the following statements in the Prospectus Supplement in place of the corresponding statements prescribed by the Prospectus Form Requirements:

Securities legislation in certain of the provinces of Canada provides purchasers with the right to withdraw from an agreement to purchase securities and with remedies for rescission or, in some jurisdictions, revision of the price, or damages if the prospectus, prospectus supplements relating to securities purchased by a purchaser and any amendment are not delivered to the purchaser, provided that the remedies are exercised by the purchaser within the time limit prescribed by the securities legislation. However, purchasers of Common Shares under an at-the-market distribution by the Corporation will not have any right to withdraw from an agreement to purchase the Common Shares, and will not have remedies for rescission or, in some jurisdictions, revision of the price, or damages for non-delivery, because the prospectus, prospectus supplements relating to Common Shares purchased by the purchaser and any amendment will not be delivered as permitted under a decision dated (•, 2011 and granted pursuant to National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions.

Securities legislation in certain of the provinces of Canada also provides purchasers with remedies for rescission or, in some jurisdictions, revision of the price, or damages if the prospectus, prospectus supplements relating to securities purchased by a purchaser and any amendment contain a misrepresentation, provided that the remedies are exercised by the purchaser within the time limit prescribed by the securities legislation of the purchaser's jurisdiction. Any remedies under securities legislation that a purchaser of Common Shares under an at-the-market distribution by the Corporation may have against the Corporation or the underwriter for rescission or, in some jurisdictions, revision of the price, or damages if the prospectus, prospectus supplements relating to the Common Shares purchased by the purchaser and any amendment contain a misrepresentation remain unaffected by the non-delivery of the prospectus and the decision referred to above.

Purchasers should refer to the applicable provisions of the securities legislation and the decision referred to above for the particulars of their rights or consult with a legal advisor.

32. The modified disclosure of purchaser's rights specified in section 31 above, to be included in the Prospectus Supplement, will, solely in respect of ATM Distributions contemplated by the Prospectus Supplement, supersede and replace the statement of purchaser's rights contained in the Shelf Prospectus.

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 Exemptive Relief is granted, provided that:

(a) as it relates to the Prospectus Form Requirements, the disclosure described in paragraphs 28, 30, 31 and 32 is made;

(b) as it relates to the Prospectus Delivery Requirements, the representations made in paragraphs 9, 11, 12, 13, 14, 15, 16 and 18 are complied with; and

(c) this decision will terminate 25 months after the issuance of the receipt for the Shelf Prospectus.

The further decision of the principal regulator and the securities regulatory authority or regulator in Ontario is that the Confidentiality Relief is granted.

For the Commission:

"Glenda Campbell," QC
Vice-Chair
 
"Stephen Murison"
Vice-Chair