Securities Law & Instruments

Headnote

Mutual Reliance Review System for Exemptive Relief Applications - Registration andprospectus relief to permit the distribution of liquidation rights and trusts units pursuant toa merger where one energy royalty fund is merging with two other energy royalty funds.The merger is structured such that two of the funds (the "Non-Surviving Funds") willtransfer all assets and liabilities to one fund (the "Surviving Fund") in exchange forliquidation rights. The Non-Surviving Funds will then be dissolved. The unit holders of theNon-Surviving Funds, pursuant to the liquidation rights, will then redeem their fund unitsfor units of the Surviving Fund. Structuring the merger in this way serves to avoid thepossibility that the Surviving Fund might hold, for a moment in time, sufficient units in theNon-Surviving Funds to trigger the unit holders' rights plans of the Non-Surviving Funds.The Decision also grants relief from prospectus requirements to permit unit holders whoreceive Surviving Fund units pursuant to the merger to execute first trades.

Applicable Ontario Statutes Cited

Securities Act R.S.O. 1990, c.S.5, as am., ss. 25, 53 and 74(1).


IN THE MATTER OF THE SECURITIES LEGISLATION OF ALBERTA, MANITOBA, ONTARIO,NEW BRUNSWICK, PRINCE EDWARD ISLAND, NOVA SCOTIA AND NEWFOUNDLAND,

AND

IN THE MATTER OF
THE MUTUAL RELIANCE REVIEW SYSTEM FOR EXEMPTIVE RELIEF APPLICATIONS

AND

IN THE MATTER OF
ENERPLUS RESOURCES FUND, WESTROCK ENERGY INCOME FUND I AND WESTROCK ENERGY INCOME FUND II

MRRS DECISION DOCUMENT


1. WHEREAS the local securities regulatory authority or regulator (the "DecisionMaker") in each of Alberta, Manitoba, Ontario, New Brunswick, Prince EdwardIsland, Nova Scotia and Newfoundland (the "Jurisdictions") has received anapplication from Enerplus Resources Fund (the "Enerplus Fund"), Westrock EnergyIncome Fund I (the "Westrock I Fund") and Westrock Energy Income Fund II (the"Westrock II Fund") for a decision under the securities legislation of theJurisdictions (the "Legislation") that the requirement contained in the Legislation tobe registered to trade in a security, to file a preliminary prospectus and aprospectus and receive receipts therefor (the "Registration and ProspectusRequirements") shall not apply to the proposed issuance of a liquidation right to theWestrock I Fund and the Westrock II fund and the issuance of trust units of theEnerplus Fund to the holders of trust units of such funds in connection with aproposed merger (the "Merger") among the Enerplus Fund, the Westrock I Fundand the Westrock II Fund (collectively, the "Funds"), the principal terms of whichare set forth below;

2. AND WHEREAS pursuant to the Mutual Reliance Review System for ExemptiveRelief Applications (the "System"), the Alberta Securities Commission is theprincipal regulator for this application;

3. AND WHEREAS the Funds have represented to the Decision Makers that:

3.1 the Enerplus Fund was formed under the laws of Alberta pursuant to a trustindenture dated as of July 7, 1986, as amended, and has been a reportingissuer in each of the provinces of Canada in excess of 18 months;

3.2 the Enerplus Fund is authorized to issue an unlimited number of Enerplustrust units of which as at April 14, 2000, approximately 39,112,874 Enerplustrust units were issued and outstanding, each of which has associated withit rights issued pursuant to the Enerplus Fund's existing unitholders' rightsplan. In addition, options to acquire approximately 2,600,661 Enerplus trustunits have been granted but were unexercised as of April 14, 2000;

3.3 the outstanding Enerplus trust units are listed and posted for trading on TheToronto Stock Exchange (the "TSE");

3.4 the Enerplus Fund was created for the purpose of issuing Enerplus trustunits to the public and investing the funds so raised to purchase a royalty incertain oil and gas properties from Enerplus Resources Corporation ("ERC")(as described in paragraph 3.9 below);

3.5 the beneficiaries of the Enerplus Fund are the holders of Enerplus trustunits;

3.6 ERC was incorporated under the Business Corporations Act (Alberta) (the"ABCA") on August 15, 1985 and its business is to acquire, develop, exploitand dispose of oil and natural gas properties and to grant the royalty to theEnerplus Fund;

3.7 Enerplus Energy Services Ltd. ("EES") was incorporated under the ABCA onApril 16, 1985. Pursuant to a management agreement dated December 31,1989, as amended, the Enerplus Fund has retained EES to administer theEnerplus Fund on behalf of CIBC Mellon Trust Company as trustee of theEnerplus Fund;

3.8 ERC has retained EES for the purpose of identifying and evaluatingproperties, to assist in the acquisition, management and disposition ofproperties and to assist in the administration of the royalty;

3.9 ERC has granted a royalty to the Enerplus Fund pursuant to the royaltyagreement dated December 31, 1989, as amended, consisting of 99% of theroyalty income generated by properties owned or to be acquired by ERC.The residual 1% of royalty income is used by ERC to defray general andadministrative costs and management fees;

3.10 the Westrock I Fund was formed under the laws of Alberta pursuant to atrust indenture dated March 2, 1987, as amended (the "Westrock I TrustIndenture") and is a reporting issuer in each of the provinces of Canada;

3.11 the authorized capital of the Westrock I Fund consists of an unlimitednumber of Westrock I trust units, of which as at April 14, 2000, approximately7,478,931 Westrock I trust units were issued and outstanding, each of whichhas associated with it rights issued pursuant to the Westrock I Fund'sexisting unitholders' rights plan. In addition, options to acquireapproximately 406,088 Westrock I trust units have been granted but wereunexercised as of April 14, 2000;

3.12 the outstanding Westrock I trust units are listed and posted for trading on theTSE;

3.13 the Westrock II Fund was formed under the laws of Alberta pursuant to atrust indenture dated January 15, 1988, as amended (the "Westrock II TrustIndenture") and is a reporting issuer in each of the provinces of Canada;

3.14 the authorized capital of the Westrock II Fund consists of an unlimitednumber of Westrock II trust units, of which as at April 14, 2000 approximately11,947,656 Westrock II trust units were issued and outstanding, each ofwhich has associated with it rights issued pursuant to the Westrock II Fund'sexisting unitholders' rights plan. In addition, options to acquireapproximately 605,970 Westrock trust units were granted but unexercisedas of April 14, 2000;

3.15 the outstanding Westrock II trust units are listed and posted for trading onthe TSE;

3.16 the Enerplus Fund and ERC have entered into a merger agreement datedApril 17, 2000 (the "Merger Agreement") with the Westrock I Fund, WestrockEnergy Resources Corporation ("WERC I") and WEC (in its capacity asshareholder of WERC I) (collectively, the "Westrock I Parties") and with theWestrock II Fund, Westrock Energy Resources II Corporation ("WERC II")and WEC (in its capacity as shareholder of WERC II) (collectively, the"Westrock II Parties"), the material provisions of which are described below;

3.17 based on, among other things, the advice of financial advisors and specialcommittees, the board of directors of ERC (which is the publicly-electedboard responsible for the Enerplus Fund) and the board of directors of WEC(which is the publicly-elected board responsible for both the Westrock I Fundand the Westrock II Fund) have unanimously agreed to recommend thatholders of trust units of the Enerplus Fund (the "Enerplus Unitholders"),holders of trust units of the Westrock I Fund (the "Westrock I Unitholders")and holders of trust units of the Westrock II Fund (the "Westrock IIUnitholders"), as the case may be, approve matters relating to the Mergerat meetings of the Enerplus Unitholders (the "Enerplus Meeting"), theWestrock I Unitholders (the "Westrock I Meeting") and the Westrock IIUnitholders (the "Westrock II Meeting" and collectively with the EnerplusMeeting and the Westrock I Meeting, the "Meetings") to be held on June 8,2000;

3.18 the Enerplus trust units will be distributed to Westrock I Unitholders andWestrock II Unitholders through the issuance of rights (the "LiquidationRights") initially issued by the Enerplus Fund to the Westrock I Fund and theWestrock II Fund. The Liquidation Rights create an obligation of Enerplusto issue to Westrock I Unitholders and Westrock II Unitholders an aggregatenumber of Enerplus trust units to be determined in accordance with theExchange Ratios upon the redemption of the Westrock I trust units and theWestrock II trust units, respectively, pursuant to the winding-up andtermination of the Westrock I Fund and the Westrock II Fund;

3.19 neither the Westrock I Fund nor the Westrock II Fund shall have any rights,directly or indirectly, to acquire Enerplus trust units pursuant to theLiquidation Rights and concurrently with the redemption of the Westrock ITrust Units and the Westrock II Trust Units which occurs on the winding-upand termination of the Westrock I Fund and the Westrock II Fund, theLiquidation Rights shall be deemed to be automatically converted intoEnerplus trust units in accordance with the Exchange Ratios and distributedto the Westrock I Unitholders and the Westrock II Unitholders, respectively;

3.20 on April 17, 2000, a press release was jointly issued, filed and disseminatedby the Funds disclosing that they had entered into the Merger Agreement;

3.21 the structure of the Merger will be effected such that, in effect, the EnerplusFund will merge with both the Westrock I Fund and the Westrock II Fund, thelegal structure of which is described in paragraph 3.23 below. Completionof the Merger is conditional upon, among other things, the approval of theMerger, in addition to certain majority of the minority approvals, by 66 2/3 ofthe votes cast by each of the Enerplus Unitholders, the Westrock IUnitholders and the Westrock II Unitholders. Concurrent with the above-described exchange of the Westrock I trust units and Westrock II trust unitsfor Enerplus trust units, the Enerplus trust units will be consolidated on thebasis of one new Enerplus trust unit for every six Enerplus trust units thenoutstanding and current Enerplus Unitholders would correspondingly havetheir Enerplus trust units consolidated on a six-for-one basis such thatfollowing completion of the Merger:

3.21.1 each holder of a Westrock I trust unit will have received, foreach Westrock I trust unit, 2.683 pre-consolidated Enerplustrust units (equivalent to approximately 0.447 consolidatedEnerplus trust units); and

 

3.21.2 each holder of a Westrock II trust unit will have received, foreach Westrock II trust unit, 2.667 pre-consolidated Enerplustrust units (equivalent to approximately 0.4445 consolidatedEnerplus trust units) (together, the "Exchange Ratios");

3.22 in connection with the Merger:

3.22.1 Westrock I Unitholders will be provided with the opportunity tovote at the Westrock I Meeting, Westrock II Unitholders will beprovided with the opportunity to vote at the Westrock IIMeeting and Enerplus Unitholders will be provided with theopportunity to vote at the Enerplus Meeting;

3.22.2 the information circulars (the "Circulars") to be prepared inconnection with the Meetings will be prepared in accordancewith the disclosure requirements applicable to issuers eligibleto use the Prompt Offering Qualification System as a guideand will contain sufficient information regarding the businessand affairs of the Funds and the Enerplus trust units to permitthe respective unitholders to make an informed decision on thematters before them, and will include pro forma information ofthe Enerplus Fund after giving effect to the Merger; and

3.22.3 the Circulars will contain fairness opinions of CIBC WorldMarkets Inc. (financial advisor to the ERC board) and NationalBank Financial Inc. (financial advisor to the WEC board forboth the Westrock I Fund and the Westrock II Fund), asapplicable, and the valuation report of Sayer SecuritiesLimited;

3.23 at each of the Meetings, Unitholders will be asked to consider, and if thoughtfit, pass special resolutions (defined in each of the individual trust indenturesas a resolution passed by 66 2/3 of the applicable trust units voted on thematter) of each Fund, in addition to certain majority of the minority approvals,approving of the Merger and certain other matters in connection with theMerger;

3.24 under the Merger, subject to, among other things, the approval of each of theEnerplus Unitholders, the Westrock I Unitholders and the Westrock IIUnitholders by way of the special resolutions:

3.24.1 the trust indentures and other constating documents of theFunds would be amended to the extent necessary to effect theMerger;

3.24.2 the Enerplus Fund will purchase from each of the Westrock IFund and the Westrock II Fund all of the assets and all of theliabilities of each such Fund (including its royalty) in exchangefor the issuance by the Enerplus Fund of the LiquidationRights in accordance with the applicable Exchange Ratio;

3.24.3 each of the Westrock I Fund and the Westrock II Fund will bewound up and dissolved in accordance with their respectivetrust indentures, options of Westrock I and Westrock II will becanceled, the Westrock I Trust Units and the Westrock II TrustUnits will be redeemed and exchanged for the Enerplus trustunits which are issuable pursuant to the Liquidation Rightspreviously issued to Westrock I and Westrock II, whichEnerplus trust units will be distributed to the Westrock IUnitholders and Westrock II Unitholders on a pro rata basis;

3.24.4 ERC, WEC, WERC I and WERC II will amalgamate to form asingle operating company to issue a royalty to the EnerplusFund pursuant to the Enerplus Royalty Agreement describedbelow;

 

3.24.5 each of the Westrock I Management Agreement, Westrock IIManagement Agreement, Westrock I Royalty Agreement andWestrock II Royalty Agreement will be terminated and theEnerplus Royalty Agreement and the Enerplus ManagementAgreement will be revised as necessary, to provide that EESwill be the sole manager of the Enerplus Fund and itsoperating company; and

3.24.6 certain other ancillary matters in connection with the Mergerwill be implemented, including the consolidation of theEnerplus trust units as described in paragraph 3.22 above;

3.25 exemptions are not available to allow the sequence of trades whichultimately result in trades of the Enerplus trust units to Westrock IUnitholders and Westrock II Unitholders, as the case may be;

4. AND WHEREAS under the System, this MRRS Decision Document evidences thedecision of each Decision Maker ( collectively, the "Decision");

5. AND WHEREAS each of the Decision Makers is satisfied that the test contained inthe Legislation that provides the Decision Maker with the jurisdiction to make theDecision has been met;

6. THE DECISION of the Decision Makers under the Legislation is that theRegistration and Prospectus Requirements shall not apply to the issuance of theLiquidation Rights or the distribution of the Enerplus trust units to be issuedpursuant to the Merger;

7. THE DECISION of the Decision Makers pursuant to the Legislation is that the firsttrade in Enerplus trust units acquired pursuant to this Decision in a Jurisdictionshall be a distribution under the Legislation of such Jurisdiction (the "ApplicableLegislation") unless:

7.1 at the time of the first trade, the Enerplus Fund is a reporting issuer or theequivalent under the Applicable Legislation;

7.2 disclosure to the Decision Maker has been made of the Merger, whichdisclosure may be made by filing of the Circular;

7.3 no unusual effort is made to prepare the market or create a demand for theEnerplus trust units;

7.4 no extraordinary commission or consideration is paid to any person orcompany other than the vendor of the Enerplus trust units in respect of thetrade;

7.5 the vendor of the Enerplus trust units, if in a special relationship with theEnerplus Fund, has no reasonable grounds to believe that the EnerplusFund is in default of any requirement of the Applicable Legislation; and

7.6 the first trade is not from the holdings of a person or company or acombination of persons or companies holding a sufficient number of anysecurities of the Enerplus Fund so as to affect materially the control of theEnerplus Fund or more than 20% of the outstanding voting securities of theEnerplus Fund, except where there is evidence showing that the holding ofthose securities does not affect materially the control of the Enerplus Fund.

DATED at Calgary, Alberta this 26th day of May, 2000.

Wendy E. Best, Q.C., Member      James E. Allard, Member