Securities Law & Instruments

Headnote

MutualReliance Review System for Exemptive Relief Applications - relieffrom registration and prospectus requirements in connection withthe distribution of trust units involving a merger of income trusts;

ApplicableOntario Statutory Provisions

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

 

INTHE MATTER OF

THESECURITIES LEGISLATION OF

ALBERTA,MANITOBA AND ONTARIO


AND


INTHE MATTER OF

THEMUTUAL RELIANCE REVIEW SYSTEM

FOREXEMPTIVE RELIEF APPLICATIONS


AND


INTHE MATTER OF

COMSTATERESOURCES INCOME TRUST AND

BONTERRA ENERGY INCOME TRUST


MRRSDECISION DOCUMENT

WHEREASthe Canadian securities regulatory authority or regulator (the"Decision Maker") in each of Alberta, Manitoba and Ontario (the"Jurisdictions") has received a joint application from ComstateResources Income Trust ("Comstate") and Bonterra Energy IncomeTrust ("Bonterra") for a decision pursuant to the securitieslegislation of the Jurisdictions (the "Legislation") that therequirements contained in the Legislation to be registered totrade in a security, to file a preliminary prospectus and aprospectus and receive receipts therefor (the "Registrationand Prospectus Requirements") shall not apply to the proposedissuance of trust units of Comstate ("Comstate Units") to Bonterraand the issuance and resale of Comstate Units to the holdersof trust units of Bonterra ("Bonterra Unitholders") in connectionwith a proposed merger (the "Merger") among Comstate and Bonterra(collectively, the "Trusts"), the principal terms of which areset forth below;

ANDWHEREAS pursuant to the Mutual Reliance Review Systemfor Exemptive Relief Applications (the "System") the Alberta SecuritiesCommission is the principal regulator for this application;

ANDWHEREAS the Trusts has represented to the Decision Makersthat:

1.Comstate is an open-end unincorporated trust established underthe laws of the province of Alberta pursuant to the Comstate trustindenture dated May 15, 2001 between Comstate Resources Ltd. ("CRL")and Olympia Trust Company, as trustee (the "Trustee") (the "ComstateTrust Indenture"). Comstate is a reporting issuer in each of theprovinces of British Columbia, Alberta, Saskatchewan, Manitobaand Ontario. The head and principal office of Comstate is locatedat 901, 1015 - 4th Street S.W., Calgary, Alberta, T2R 1J4;

2.Comstate is authorized to issue an unlimited number of ComstateUnits. As at December 17, 2001, there were 5,675,757 ComstateUnits issued and outstanding. As at the date hereof, there areno options to acquire Comstate Units outstanding;

3.the outstanding Comstate Units are listed and posted for tradingon The Toronto Stock Exchange (the "TSE") under the symbol "CSR.UN".An application has been made to the TSE for approval to list andpost the additional Comstate Units to be issued pursuant to theMerger;

4.Comstate was established to acquire and hold all of the issuedand outstanding shares of CRL, the CRL notes and the royalty grantedby CRL to Comstate (the "CRL Royalty"). Comstate's business, throughCRL, is the acquisition of interests in petroleum and naturalgas rights and the exploration, development and production ofpetroleum and natural gas. The properties owned by CRL are locatedin Canada in the provinces of Alberta and Saskatchewan;

5.CRL was incorporated under the laws of British Columbia on January 22,1981, under the name of Comstate Resources Ltd. Effective July 1,2001, CRL filed articles of arrangement in connection with thereorganization into an income trust. In connection with the arrangement,CRL amalgamated with Comstate Acquisition Corp. to form the resultingcorporation "Comstate Resources Ltd.". Pursuant to the terms ofthe arrangement, each shareholder of CRL received one (1) ComstateUnit, $0.80 cash and four (4) rights to acquire shares in ComaplexMinerals Corp. for every four (4) CRL common shares held. On August 10,2001, CRL was continued under the laws of the province of Alberta;

6.Comstate is the sole shareholder of CRL;

7.the board of directors of CRL oversees the business and affairsof Comstate. The duties and responsibilities of the CRL boardare outlined in the Comstate Trust Indenture and in the administrationagreement dated as of June 27, 2001 between CRL and Comstate;

8.CRL has granted a royalty to Comstate pursuant to a royalty agreementdated July 1, 2001 (the "Comstate Royalty Agreement") consistingof a 95% royalty payable by CRL to Comstate on all income generatedby properties owned or to be acquired by CRL. The residual 5%of income is used by CRL to defray general and administrativecosts;

9.Bonterra is an open-end unincorporated trust established underthe laws of the province of Alberta pursuant to the Bonterra trustindenture dated as of May 15, 2001 between Bonterra Energy Corp.("BEC") and Olympia Trust Company (the "Bonterra Trust Indenture").Bonterra is a reporting issuer in each of the provinces of BritishColumbia, Alberta, Saskatchewan, Manitoba and Ontario. The headand principal office of Bonterra is located at 901, 1015 - 4thStreet S.W., Calgary, Alberta, T2R 1J4;

10.Bonterra is authorized to issue an unlimited number of trust units("Bonterra Units"). As at December17, 2001, there were 8,692,226Bonterra Units issued and outstanding. As at the date hereof,there are no options to acquire Bonterra Units outstanding;

11.the outstanding Bonterra Units are listed and posted for tradingon the Canadian Venture Exchange Inc. ("CDNX") under the symbol"BTA.UN". Upon completion of the Merger the Bonterra Units willbe delisted from the CDNX;

12.Bonterra was established to acquire and hold the common sharesof BEC, the BEC notes and the royalty granted by BEC to Bonterra(the "BEC Royalty"). Bonterra Royalty. Bonterra's business, throughBEC, and is the acquisition of interests in petroleum and naturalgas rights and the exploration, development and production ofpetroleum and natural gas. The properties owned by BEC are locatedin Canada in the provinces of Alberta and Saskatchewan;

13.BEC was incorporated under the Business Corporations Act (Alberta)on February 17, 1998. On July 28, 1998, BEC finalized its initialpublic offering and was subsequently listed on the Alberta StockExchange (now CDNX). On July 26, 1999, BEC split its common sharesand each shareholder received an additional share for each shareheld. Effective July 1, 2001, BEC filed articles of arrangementin connection with the reorganization into an income trust. Inconnection with the arrangement, BEC amalgamated with BonterraAcquisition Corp. to form the resulting corporation "BonterraEnergy Corp.". Pursuant to the terms of the arrangement, eachshareholder of BEC received one (1) Bonterra Unit for every four(4) BEC common shares held;

14.Bonterra is the sole shareholder of BEC common shares.

15.the board of directors of BEC oversees the business and affairsof Bonterra as set out in the administration agreement dated June27, 2001 between BEC and Bonterra and in the Bonterra Trust Indenture.As well, pursuant to a unanimous shareholder agreement dated July1, 2001 among BEC, Bonterra and CRL, CRL is entitled to appointone (1) nominee to the BEC board of directors, with the balance(being the majority of the directors of BEC) to be elected pursuantto a vote by Bonterra Unitholders;

16.CRL provides BEC and Bonterra with management, administrativeand support services pursuant to the management agreement datedJuly 1, 2001 between BEC, Bonterra and CRL;

17.BEC has granted a royalty to Bonterra pursuant to a royalty agreementdated July 1, 2001 between BEC and Bonterra (the "Bonterra RoyaltyAgreement") consisting of 95% of the income generated by propertiesowned or to be acquired by BEC. The residual 5% of income is usedby BEC to defray general and administrative costs;

18.Comstate and Bonterra, together with their respective operatingentities, CRL and BEC, have entered into an agreement dated December17, 2001 (the "Merger Agreement") whereby Comstate has agreedto acquire and Bonterra has agreed to sell (subject to unitholderapproval), all of the assets of Bonterra, which assets consistsof shares of BEC, certain notes issued by BEC to Bonterra andthe BEC Royalty (collectively, the "Bonterra Assets") in exchangefor Comstate Units. The Comstate Units are to be distributed tothe former Bonterra Unitholders in exchange for their BonterraUnits, and the merged entity will continue "Bonterra Energy IncomeTrust" (the "Merged Trust");

19.on December 17, 2001, a press release was jointly issued, filedand disseminated by Comstate and Bonterra disclosing that theyhad entered into the Merger Agreement;

20.based on, among other things, the advice of financial advisorsand special committees, the board of directors of CRL (which isthe publicly elected board responsible for Comstate) and the boardof directors of BEC (which is the publicly elected board responsiblefor Bonterra) have unanimously agreed to recommend that holdersof Comstate Units and Bonterra Units, as the case may be, approvethe Merger and certain other matter incidental thereto at unitholdermeetings to be held on January 24, 2002;

21.the Comstate Units will initially be distributed to Bonterra inexchange for the Bonterra Assets. The Comstate Units will thenbe issued to the Bonterra Unitholders by Bonterra upon the redemptionof the formally issued Bonterra Units in connection with the winding-upof Bonterra. The Comstate Units will be issued to the BonterraUnitholders on a proportionate basis in accordance with the ExchangeRatio (defined below);

22.completion of the Merger is conditional upon, among other things,the approval of the Merger, in addition to certain majority ofthe minority approvals, by 66 2/3% of the votes cast by each ofthe Comstate Unitholders and Bonterra Unitholders. Following completionof the Merger, each holder of Bonterra Units will have received0.885 of a Comstate Unit for each Bonterra Unit (the "ExchangeRatio"). No fractional Comstate Units will be issued and fractionalComstate Units will be rounded up to the next highest number;

23.under the Merger:

a)at the Comstate Meeting and the Bonterra Meeting, unitholderswill consider, and if thought fit, pass special resolutions (definedin each of the individual trust indentures as a resolution passedby 66 2/3% of the applicable trust units voted on the matter)of each trust, in addition to certain majority of the minorityapprovals required pursuant to the OSC Rule 61-501, approvingthe Merger and certain other matters in connection with the Merger;and

b)subject to, among other things, the approval of each of the ComstateUnitholders and Bonterra Unitholders by way of special resolutions,the trust indentures and other constating documents of the Trustswould be amended to the extent necessary to effect the Merger,and

c)Comstate will purchase from Bonterra all of the Bonterra Assetsand all of the liabilities of Bonterra in exchange for the issuanceby Comstate of the Comstate Units in accordance with the applicableExchange Ratio;

d)the Bonterra Units will be redeemed and exchanged for ComstateUnits previously issued to Bonterra by Comstate, and those ComstateUnits will be distributed to former Bonterra Unitholders on aproportionate basis in accordance with the Exchange Ratio;

e)Bonterra will be wound-up and dissolved;

f)the name of Comstate will be changed to "Bonterra Energy IncomeTrust"; and

g)certain other ancillary matters in connection with the Mergerwill be implemented;

ANDWHEREAS under the System, this MRRS Decision Documentevidences the decision of each Decision Maker (collectively, the"Decision");

ANDWHEREAS each of the Decision Makers is satisfied thatthe test contained in the Legislation that provides the DecisionMaker with the jurisdiction to make the Decision has been met;

THEDECISION of the Decision Makers pursuant to the Legislationis that the Registration and Prospectus Requirements shall notapply to the distribution of the Comstate Units pursuant to theMerger provided that the first trade in Comstate Units acquiredpursuant to this Decision in a Jurisdiction shall be deemed tobe a distribution or primary distribution to the public underthe Legislation of such Jurisdiction unless the conditions insubsections (3), (4) or (5) of Section 2.6 or subsections (2)or (3) of Section 2.8, if applicable, of Multilateral Instrument45-102 are satisfied.

January24, 2002.

"StephenP. Sibold"       "Glenda A. Campbell"