Proceedings

IN THE MATTER OF THE SECURITIES ACT
S.A. 1981, c. S-6.1, AS AMENDED
AND
IN THE MATTER OF
CANADIAN 88 ENERGY CORP., WEST CENTRAL CAPITAL CORPORATION,
GREGORY S. NOVAL AND DAVID R. DIPAOLO

SETTLEMENT AGREEMENT
Introduction

1. By Notice of Hearing dated September 26, 1997, the Ontario Securities Commission (the "Ontario Commission") announced that it proposed to hold ahearing pursuant to section 127 of the Securities Act, R.S.O. 1990, c.S.5, as amended (the "Ontario Act") to consider:

(a) whether, pursuant to paragraph 2 of subsection 127(1) of the Ontario Act, it is in the public interest to make an order that trading in any securities byCanadian 88 Energy Corp. ("Canadian 88"), West Central Capital Corporation ("West Central"), Gregory S. Noval ("Noval") and David R. DiPaolo ("DiPaolo")(Canadian 88, West Central, Noval and DiPaolo, collectively, the "Respondents") cease permanently or for such period as is specified by the OntarioCommission;

(b) whether, pursuant to paragraph 3 of subsection 127(1) of the Ontario Act, it is in the public interest to make an order that any exemptions contained inOntario securities law do not apply to the Respondents permanently or for such period as is specified by the Ontario Commission;

(c) whether, pursuant to paragraph 6 of subsection 127(1) of the Ontario Act, it is in the public interest to make an order that any of the Respondents bereprimanded by the Ontario Commission; and

(d) to make such further and other order as the Ontario Commission considers appropriate.

2. By Notice of Hearing dated September 26, 1997, the Alberta Securities Commission (the "Alberta Commission") (the Alberta Commission and the OntarioCommission, collectively, the "Commissions") announced that it proposed to hold a hearing pursuant to section 165 of the Securities Act, S.A. 1981, c.S-6.1, asamended (the "Alberta Act") to consider:

(a) whether, pursuant to subsection 165(1)(b) of the Alberta Act, the Alberta Commission should order that the Respondents cease trading in all securities asdefined in the Alberta Act;

(b) whether, pursuant to subsection 165(1)(c) of the Alberta Act, the Alberta Commission should order that any or all of the exemptions contained in sections65, 66, 66.1, 107, 115, 116, 132 and 133 of the Alberta Act or in the Alberta Securities Commission Rules (the "Rules") shall not apply to the Respondents;

(c) whether, pursuant to subsections 165(1)(d) and (e) of the Alberta Act, the Alberta Commission should order that the individual Respondents resign one ormore positions that they may hold as directors or officers of any issuer, and be prohibited from becoming or acting as directors or officers or both of any issuer;

(d) such further or other order, ruling or decision as the Alberta Commission considers appropriate;

(e) and further, pursuant to section 167.1 of the Alberta Act, whether the Respondents shall pay the costs of or related to the hearing.

3. The Notices of Hearing propose that the hearings of the Ontario Commission and the Alberta Commission will be held together.

4. Staff of the Commissions ("Staff") and the Respondents have agreed to a full and final settlement to resolve the allegations in this matter and the proceedingsinitiated against the Respondents on the basis of the terms and conditions set out herein (the "Settlement Agreement").

5. Pursuant to this Settlement Agreement, Staff agrees to recommend to the Commissions that all proceedings against the Respondents based on the mattersgiving rise to the allegations herein be resolved and disposed of on the basis of the terms and conditions set out herein. The Respondents consent to the makingof orders against them as hereinafter provided.

6. Staff and the Respondents agree that if, and as and when settlement is approved by the Commissions, this Settlement Agreement and the orders of theCommissions relating thereto will be released to the public.



II FACTUAL BACKGROUND

7. Canadian 88 was at all material times incorporated under the laws of Canada and a reporting issuer under the Ontario Act and the Alberta Act whose commonshares are listed and posted for trading on The Toronto Stock Exchange and The Alberta Stock Exchange. Canadian 88 is engaged in the exploration,development, production and processing of natural gas and oil.

8. Noval was at all material times the President and Chief Executive Officer and a director of Canadian 88.

9. West Central was at all material times incorporated under the laws of Alberta and was not a reporting issuer under the Ontario Act or the Alberta Act.

10. DiPaolo was at all material times the sole shareholder, director and officer of West Central.

11. Morrison Petroleums Ltd. ("Morrison") was at all material times continued under the Business Corporations Act (Alberta) and a reporting issuer under theOntario Act and the Alberta Act whose common shares were listed and posted for trading on The Toronto Stock Exchange and the Montreal Exchange.Morrison was engaged in the exploration, development, production and acquisition of oil and natural gas reserves and gas processing in Canada.

12. On or about December 18, 1996, West Central began to acquire common shares of Morrison using funds loaned to West Central by Canadian 88. The termsupon which the funds were loaned were incorporated into a loan agreement made as of January 10, 1997 between Canadian 88 and West Central. Under the loanagreement, West Central pledged the common shares of Morrison acquired by it to Canadian 88 as security for the loan.

13. From December 18, 1996 through January 10, 1997, the business day immediately preceding the announcement of the take-over bid hereinafter described,West Central purchased and sold Morrison shares. These purchases and sales were all made at the direction of Canadian 88 through Noval. As at January 10,1997, West Central held 5,711,600 common shares of Morrison (the "Shares").

14. On December 19, 1996, Canadian 88 retained a law firm to act for it as special counsel in respect of a possible take-over bid for Morrison common shares.On or about December 20, 1996, counsel for Canadian 88 retained an investment banking firm to act as Canadian 88's financial advisor in connection with thepossible take-over bid.

15. From December 18, 1996 through January 10, 1997 senior management of Canadian 88, including Noval, participated in numerous meetings with the legaland financial advisors in connection with the possible take-over bid.

16. On or about December 20, 1996 DiPaolo, in his capacity as President of West Central, executed a statutory declaration requesting a list of shareholders ofMorrison. By letter of the same date, West Central forwarded the statutory declaration to Morrison at the request of Canadian 88.

17. On or about January 8, 1997 Canadian 88 retained a printing firm in connection with the preparation of the take-over bid circular hereinafter described. At orabout the same date, Canadian 88 engaged a translator and US legal counsel in connection with the possible take-over bid.

18. On January 10, 1997, Morrison issued a press release announcing that its Board of Directors had implemented a shareholder rights plan, commonly referredto as a "poison pill". After the close of markets on January 10, 1997, senior management of Canadian 88 decided to proceed with a take-over bid for Morrison,subject to the approval of the Board of Directors of Canadian 88 and final confirmation of prearranged bank financing.

19. On January 12, 1997, the Board of Directors of Canadian 88 approved the making of a take-over bid for Morrison shares.

20. On January 13, 1997 Canadian 88 announced its intention to make, and on January 16, 1997 made, a formal take-over bid (the "Take-over Bid") for all ofthe common shares of Morrison on the basis of, at the election of the holder, $10.00 in cash, up to an aggregate maximum of $140,000,000, or 1.5 commonshares of Canadian 88 for each common share of Morrison.

21. The take-over bid circular dated January 16, 1997 prepared in connection with the Take-over Bid (the "Circular") contained the following disclosure inrespect of the relationship between Canadian 88 and West Central:

Neither Canadian 88 nor any director or senior officer of Canadian 88 beneficially owns, directly or indirectly, or controls or exercises direction over, or has theright to acquire, any securities of Morrison other than as set forth below. To the knowledge of the directors and senior officers of Canadian 88, no securities ofMorrison are owned, directly or indirectly, by, nor is control or direction over any securities of Morrison exercised by, any associate or affiliate of Canadian 88,by any associate of any director or senior officer of Canadian 88, by any person or company holding more than 10% of any class of equity securities of Canadian88 or by any person or company acting jointly or in concert with Canadian 88 other than as set forth below.

West Central is the beneficial owner of an aggregate of 5,711,600 Common Shares [of Morrison] purchased by West Central on the understanding that all suchsecurities would be tendered in acceptance of any offer made by Canadian 88 for the Common Shares. Accordingly, Canadian 88 expects West Central to acceptthe Offer in respect of all Common Shares owned by it.

The Circular also contained disclosure of trades in common shares of Morrison by West Central during the period from December 18, 1996 through January 10,1997.

22. On or about January 29, 1997, Staff made inquiries of Canadian 88 about, among other things, the relationship between Canadian 88 and West Central andthe related disclosure in the Circular.

23. In a letter dated February 3, 1997 (the "February 3 Letter") counsel to Canadian 88 advised Staff that Canadian 88 and West Central made an oral agreementin December 1996 the principal elements of which were as follows:

(i) West Central would purchase and sell common shares of Morrison;

(ii) Noval would act as West Central's agent in deciding how many Morrison common shares would be purchased or sold and when such Morrison commonshares would be purchased or sold;

(iii) Canadian 88 would lend to West Central the required funds for any such purchases of Morrison common shares. These funds would be lent on the securityof the Morrison common shares with the rate of interest on the outstanding amount of the loan from time to time being bank prime plus 0.5%;

(iv) any profit realized in the market on the Morrison common shares purchased under these arrangements would be split between Canadian 88 and West Centralon the following basis - Canadian 88 would receive 66 2/3% of the profit and West Central would receive 33 1/3% of the profit, net of expenses;

(v) in the event of a loss on the Morrison common shares purchased under these arrangements, West Central would bear the whole amount of the loss; and

(vi) in the event Canadian 88 were to make a take-over bid for Morrison common shares, there was an understanding that West Central would deposit under anysuch bid any Morrison common shares purchased (and not sold) under this arrangement with Canadian 88.

24. Following delivery of the February 3 Letter, Noval was quoted in the press with respect to the terms of the agreement between Canadian 88 and WestCentral in language similar to that set out in the February 3 Letter.

25. On February 6, 1997, Staff issued notices of hearing against Canadian 88 and West Central (the "Notices"). The Notices alleged, among other things, that theCircular contained certain disclosure deficiencies in respect of the relationship between Canadian 88 and West Central. In addition, on that date each of theCommissions issued a temporary cease trading order that trading in common shares of Canadian 88 in connection with the Take-over Bid, and trading incommon shares of Morrison by Canadian 88 and West Central, cease until the earlier of midnight February 14, 1997 or 48 hours immediately following thedecision of the Commissions on the application of Staff relating to the Take-over Bid.

26. By letter dated February 6, 1997 (the "February 6 Letter"), counsel to Canadian 88 proposed to Staff that Canadian 88 would extend the Take-over Bid,which was to expire at 4:30 p.m. (Calgary time) on February 7, 1997, on certain terms and conditions, and provided Staff with the following additionaldisclosure (the "Proposed Disclosure") which it proposed to include in the circular extending the Take-over Bid, to address Staff's concern in respect of thedisclosure of the relationship between Canadian 88 and West Central:

The purchases and sales by West Central of Common Shares [of Morrison] detailed under the heading "Trading in Securities of Morrison" on page 38 of theCircular resulted from an oral agreement made in December 1996 between Canadian 88 and West Central.

The principal elements of this agreement are as follows: West Central would purchase and sell Common Shares; Canadian 88 would act as West Central's agentin deciding how many Common Shares would be purchased or sold and when such Common Shares would be purchased or sold; Canadian 88 would lend toWest Central the required funds for any such purchases of Common Shares (lent on the security of the Common Shares) with the rate of interest on theoutstanding amount of the loan from time to time being bank prime plus 0.5%; any profit realized in the market on the Common Shares purchased under thesearrangements would be split between Canadian 88 and West Central on the following basis - Canadian 88 would receive 66 2/3% of the profit and West Centralwould receive 33 1/3 % of the profit; in the event of a loss on the Common Shares purchased under these arrangements, West Central would bear the wholeamount of the loss; and in the event Canadian 88 were to make a take-over bid for Common Shares, there was an understanding that West Central would depositunder any such bid any Common Shares purchased (and not sold) under this arrangement with Canadian 88.

27. On February 7, 1997, Canadian 88 announced, by way of press release, that the Take-over Bid was extended. The press release also stated that Staff hadreceived and reviewed the Proposed Disclosure, which would be included in the notice of extension, and that Canadian 88 believed that the Proposed Disclosurewas totally responsive to the alleged deficiencies in Canadian 88's Circular.

28. On February 8, 1997, Canadian 88 issued a press release withdrawing the Take-over Bid. The press release identified Canadian 88's concerns over the valueof Morrison's assets and the uncertainty surrounding the temporary cease trading orders as the reasons for withdrawing the Take-over Bid.

29. On February 13, 1997, Canadian 88 issued a press release regarding its agreement with West Central which provided, in part, that:

Canadian 88 wishes to clarify the purchases and sales by West Central Capital Corporation of Morrison common shares. The principal elements being as follows:

1) Canadian 88 has lent to West Central the required funds for any such purchases of Morrison common shares, with West Central having no control over thefunds - all such funds being controlled by Canadian 88. The funds were lent on the security of the Morrison common shares with the rate of interest on theoutstanding amount of the loan from time to time being bank prime plus 0.5%.

2) Any profit realized in the market on the Morrison common shares purchased under these arrangements will be split between Canadian 88 and West Central onthe following basis - Canadian 88 would receive 66 2/3% of the profit and West Central will receive 33 1/3 % of the profit, net of expenses. It has always beenfully understood between both parties that Canadian 88 will allocate expenses in such a manner against West Central's profit to in essence leave all the profitsrealized solely for the benefit of Canadian 88.

On February 14, 1997, counsel to Canadian 88 sent a letter to Staff stating facts similar to that disclosed in the press release of February 13, 1997 of Canadian88.

30. On February 17, 1997, the Shares were sold for $58,886,596, net of brokerage commissions.

31. The profit realized upon the sale of the Shares was $14,360,637. This profit, less expenses of $4,134,836 incurred in connection with the Take-over Bid,accrued solely to Canadian 88.



III JOINT SUBMISSION OF STAFF AND RESPONDENTS

32. The actions of the Respondents in connection with the purchases and sales of common shares of Morrison by West Central pursuant to the agreement withCanadian 88 as disclosed in the Circular, the February 3 Letter, the February 6 Letter and the public statements of Noval on behalf of Canadian 88 were contraryto the public interest.



IV TERMS OF SETTLEMENT

33. The Respondents accept and Staff agrees that the measures set out in this Settlement Agreement will address the concerns of Staff in relation to theallegations set out in the Notices of Hearing.

34. Canadian 88 consents to a reprimand by the Ontario Commission under clause 6 of subsection 127(1) of the Ontario Act.

35. Noval, West Central and DiPaolo consent to orders:

(a) pursuant to paragraph 127(1)2 of the Ontario Act and subsection 165(1)(b) of the Alberta Act that trading in all securities by them cease for a period of:

(i) 12 months in the case of Noval, and

(ii) 6 months in the case of West Central and DiPaolo,

from the date of the issuance of orders with respect to this matter by the Commissions; and

(b) pursuant to paragraph 127(1)3 of the Ontario Act and subsection 165(1)(c) of the Alberta Act, that the exemptions contained in Ontario securities law andsections 65, 66, 66.1, 107, 115, 116, 132 and 133 of the Alberta Act and in the Rules do not apply to them for:

(i) 12 months in the case of Noval, and

(ii) 6 months in the case of West Central and DiPaolo,

from the date of the issuance of orders with respect to this matter by the Commissions,

except:

(w) trading in government securities as described in paragraph 35(2)1 of the Ontario Act and subsection 66(a) of the Alberta Act and the exemptions containedin the said statutory provisions;

(x) trading in a registered retirement savings plan as defined in the Income Tax Act (Canada);

(y) trading in mutual funds as defined in subsection 1(1) of the Ontario Act and subsection 1(m.1) of the Alberta Act, provided such trades are in compliancewith paragraph 35(1)10 of the Ontario Act and clause 65(1)(j)(i) of the Alberta Act; and

(z) any trade made in respect of a formal take-over bid or issuer bid and the exemptions in respect thereof as contained in paragraph 35(1)17 of the Ontario Actand clauses 65(1)(q) and 65(1)(r) of the Alberta Act.

36. The Respondents have agreed to pay in the aggregate the amount of $200,000.00 to the Commissions in reimbursement of their costs of the investigation andrelated proceedings in this matter.



IV STAFF COMMITMENT

37. If the Commissions accept the Settlement Agreement, Staff will not initiate any complaints to the Commissions or request that the Commissions hold ahearing or issue any order in respect of any conduct or alleged conduct of the Respondents in relation to any facts that have, to date, come to the attention ofStaff pursuant to its investigation in respect of this matter.

38. If the Commissions accept the Settlement Agreement, Staff will not initiate any prosecutions or other proceeding against the Respondents in respect of anypossible breaches of the Act in relation to any facts that have, to date, come to the attention of Staff pursuant to its investigation in respect of this matter.

.

V PROCEDURE FOR APPROVAL OF SETTLEMENT

39. The approval of the settlement as set out in the Settlement Agreement shall be sought at a public hearing before the Commissions on a date to be agreed toby Staff and the Respondents in accordance with the procedures described herein and such further procedures which may be agreed upon by Staff and theRespondents.

40. If the Settlement Agreement is approved by the Commissions, it will constitute the entirety of the evidence to be submitted respecting the Respondents in thismatter, and the Respondents agree to waive their rights to a full hearing and appeal of this hearing.

41. Staff and the Respondents agree that, if the Settlement Agreement is approved, they will not make public statements that are inconsistent with the SettlementAgreement.

42. If the Settlement Agreement is not approved by the Commissions:

(a) Staff and the Respondents will each be entitled to all available remedies and challenges, including proceeding to a hearing of the allegations in the Notices ofHearing and Statement of Allegations, unaffected by this Settlement Agreement or the settlement negotiations;

(b) the terms of the Settlement Agreement will not be raised in any other proceedings or disclosed to any person except with the written consent of Staff and theRespondents or as may be otherwise required by law; and

(c) Staff and the Respondents further agree that they will not raise in any proceeding the Settlement Agreement or the negotiation or process of approval thereofas the basis for any remedies in or challenges to this proceeding that may otherwise be available.

43. If, prior to the approval of this settlement, there are new facts or issues of substantial concern, in the view of Staff, regarding the Respondents or the facts setout in Part II of the Settlement Agreement, Staff will be at liberty to withdraw from the Settlement Agreement. Notice of such intention to withdraw will beprovided to the Respondents in writing. In the event of such notice being given, the provisions of paragraph 42 will apply as if the Settlement Agreement had notbeen approved in accordance with the procedures set out herein.

VI DISCLOSURE OF SETTLEMENT AGREEMENT

44. The terms of the Settlement Agreement will be treated as confidential by all parties hereto until approved and forever if, for any reason whatsoever, theSettlement Agreement is not approved by the Commissions.

45. Any obligations as to confidentiality set forth in paragraph 44 above shall terminate upon the approval of this Settlement Agreement by the Commissions.

VII EXECUTION OF SETTLEMENT AGREEMENT

46. The Settlement Agreement may be signed in one or more counterparts which together shall constitute a binding agreement and a facsimile copy of anysignature shall be as effective as an original signature.

October 9th, 1997.

CANADIAN 88 ENERGY CORP.

WEST CENTRAL CAPITAL CORPORATION

"Gregory S. Noval"

"David R. Dipaolo"

STAFF OF THE ONTARIO SECURITIES COMMISSION

"Brenda Eprile"

STAFF OF THE ALBERTA SECURITIES COMMISSION

"R. D. Sczinski"