Securities Law & Instruments

Headnote

MutualReliance Review System for Exemptive Relief Applications. Relieffrom registration and prospectus requirements relating to tradesmade in connection with a proposed plan of arrangement. In certainjurisdictions, spun-off company deemed to be a reporting issueras of the effective date of the arrangement. Relief from the requirementin certain jurisdictions for the spun-off company to file a technicalreport upon first becoming a reporting issuer.

StatuteCited

SecuritiesAct, R.S.O. 1990, c. S.5, as am., ss. 25, 53, 74(1) and 83.1(1).

 

InstrumentsCited

MultilateralInstrument 45-102 Resale of Securities, ss. 2.6 and 2.8.

NationalInstrument 43-101 Standards of Disclosure for Mineral Projects,ss. 4.1(1) and 9.1.

INTHE MATTER OF

THESECURITIES LEGISLATION OF

BRITISHCOLUMBIA, ALBERTA, SASKATCHEWAN, MANITOBA,

ONTARIO,QUÉBEC AND NOVA SCOTIA

AND

INTHE MATTER OF

THEMUTUAL RELIANCE

REVIEW SYSTEM FOR EXEMPTIVE RELIEF APPLICATIONS

AND

INTHE MATTER OF

IMPERIALMETALS CORPORATION

ANDIMI IMPERIAL METALS INC.

MRRSDECISION DOCUMENT

WHEREASthe local securities regulatory authority or regulator (the "DecisionMaker") in each of British Columbia, Alberta, Saskatchewan, Manitoba,Ontario, Québec and Nova Scotia (the "Jurisdictions") hasreceived an application from Imperial Metals Corporation ("Imperial")and IMI Imperial Metals Inc. ("New Imperial") for a decision underthe securities legislation of the Jurisdictions (the "Legislation")that:

(a)the requirements contained in the Legislation to be registeredto trade in a security (the "Registration Requirement") and tofile and obtain a receipt for a preliminary prospectus and a prospectus(the "Prospectus Requirement" and, together, the "Registrationand Prospectus Requirements") shall not apply to certain tradesmade in connection with a proposed plan of arrangement (the "Arrangement")under the Company Act (British Columbia) (the "BCCA") and theCompanies' Creditors Arrangement Act (the "CCAA") involving Imperialand New Imperial;

(b)in British Columbia and Ontario, New Imperial be deemed to bea reporting issuer as of the effective date of the Arrangement;and

(c)in British Columbia, Ontario and Saskatchewan, the requirementsof the Legislation to file a current technical report for eachmaterial property upon first becoming a reporting issuer (the"Technical Report Requirement") will not apply to New Imperial;

ANDWHEREAS under the Mutual Reliance Review System for ExemptiveRelief Applications (the "System") the British Columbia SecuritiesCommission is the principal regulator for this application;

ANDWHEREAS Imperial and New Imperial have represented tothe Decision Makers that:

1.Imperial is a company incorporated under the BCCA with its registeredoffice, head office and principal place of business in Vancouver,British Columbia.

2.Imperial is a mining company which explores for, develops andproduces base and precious metals, and has some oil and naturalgas properties and operations.

3.Imperial is currently authorized to issue 500,000,000 common shareswithout par value ("Imperial Shares") and 1,000,000 Class A non-voting6% cumulative preferred shares with a par value of $5.00 eachand 1,000,000 Class B non-voting cumulative preferred shares witha par value of $10.00 each, convertible and redeemable at par(together, the "Preferred Shares"); there are currently 80,793,609Imperial Shares outstanding and 6,516,352 Imperial Shares reservedfor issuance on exercise of outstanding stock options.

4.HML Mining Inc., Sterling Gold Mining Corporation, Mount PolleyMining Corporation ("Mount Polley Mining"), Mount Polley HoldingCompany Limited ("Mount Polley Holding"), Silvertip Mining Corporationand Bethlehem Resources (1996) Corporation (the "Subsidiaries")are all wholly-owned subsidiaries of Imperial.

5.Imperial is, and has been for longer than 12 months, a reportingissuer or the equivalent under the Legislation of British Columbia,Saskatchewan, Ontario, Québec and Nova Scotia and, to thebest of its knowledge, is not in default of the requirements underthe Legislation.

6.The Imperial Shares are listed and posted for trading on The TorontoStock Exchange (the "TSE") under the symbol "IPM".

7.On April 11, 2001, Imperial issued subordinated secured convertibledebentures (the "Convertible Notes") in the principal amount of$4,670,000 maturing on January 31, 2006; the proceeds from theConvertible Notes were used to repay part of the short-term debtincurred on the acquisition of Imperial's Mount Polley Mine; theConvertible Notes were issued under a note indenture dated March30, 2001 between Imperial and Montreal Trust Company of Canada,as trustee, and bear interest at 8% per annum payable quarterlyand are secured by a floating charge on all the property of Imperial,subordinate to all senior securityholders; the Convertible Notesare convertible into Imperial Shares at the option of the holderat a conversion price of $0.25 per Imperial Share.

8.in 1998 and 1999, a private company controlled by the Chairmanof Imperial made short-term advances to Imperial for various purposes,of which $4,400,000 remain outstanding; the loans were evidencedby demand promissory notes (the "Secured Notes") that were repayableon January 2, 2002 and bear interest at 10%; the Secured Notesare secured against various assets of Imperial and its subsidiaries.

9.Imperial owes Sumitomo Corporation a secured non-interest bearingdebt of $6,300,000 (the "Sumitomo Debt"), the repayment of whichis contingent on the Mount Polley Mine being in operation andthe sole recourse for which is limited to the assets comprisingthe Mount Polley Mine.

10.New Imperial was incorporated on December 6, 2001 under the BCCAand has its registered office, head office and principal placeof business in Vancouver, British Columbia.

11.New Imperial has not conducted any business to date; after givingeffect to the Arrangement, the mining properties currently ownedby Imperial and the Subsidiaries will be transferred to New Imperial.

12.New Imperial is authorized to issue 100,000,000 common shareswithout par value ("New Imperial Shares"), 50,000,000 first preferredshares without par value, issuable in series, and 50,000,000 secondpreferred shares without par value, issuable in series; thereis currently only one New Imperial Share outstanding, held byImperial.

13.New Imperial is not a reporting issuer in any jurisdiction butwill become a reporting issuer in Saskatchewan as a result ofthe Arrangement.

14.New Imperial will apply to list the New Imperial Shares on theCanadian Venture Exchange Inc.

15.On November 23, 2001, Imperial announced the intention, by wayof the Arrangement, to divide its operations into two distinctbusinesses, one focusing on oil and natural gas and the otherfocused on mining.

16.On January 18, 2002, an interim order was granted by the SupremeCourt of British Columbia (the "Court"), whereby Imperial's creditorscould be divided into two classes, the secured creditors ("SecuredCreditors") and the unsecured creditors ("Unsecured Creditors");as well, the Court ordered that Imperial was permitted to convenespecial meetings of the Secured Creditors, the Unsecured Creditorsand its shareholders ("Imperial Shareholders"), for the purposesof, among other things, approving the Arrangement under the CCAAand the BCCA.

17.The separate special meetings of the Secured Creditors, the UnsecuredCreditors and the Imperial Shareholders is scheduled for Thursday,March 7, 2002;

18.In connection with the special meetings, Imperial has providedan information circular (the "Information Circular") to all ImperialShareholders, Secured Creditors and Unsecured Creditors whichcontains prospectus level disclosure of Imperial and New Imperial.

19.The Arrangement consists of a number of steps and trades as setout in the Plan of Arrangement, which was appended to the InformationCircular, none of which will be effective unless all are effective.

20.Structurally, the Arrangement will occur in two main steps: (i)a creditor's arrangement (the "Creditor's Arrangement"); and (ii)an equity arrangement (the "Equity Arrangement").

21.Under the Creditor's Arrangement, the obligations owed by Imperial,Mount Polley Holding and Mount Polley Mining to certain creditors,including the Secured Creditors whose claims are not secured bythe Mining Assets, and all of the Unsecured Creditors, will bereleased and discharged and such creditors will receive cash ora combination of cash and Imperial Shares; the obligations ofcertain other creditors will be assumed by New Imperial whilea portion of Imperial's current debt will remain as an obligationof Imperial.

22.Under the Equity Arrangement, Imperial's share capital will bearranged in a number of steps which will result in former ImperialShareholders (including creditors who receive share considerationunder the Creditor's Arrangement) holding Imperial Shares in arenamed Imperial, which will hold Imperial's current oil and gasinterests, and New Imperial Shares and various marketable securitiesof New Imperial, which will hold the current mining assets ofImperial.

23.The Arrangement provides for the following transactions to occurin the following order (the "Trades"):

(a)the Secured Creditors' claims which are secured by the MiningAssets (as defined below) will be assumed by New Imperial (the"Assumed Secured Creditors"); all agreements of any of Imperial,Mount Polley Holding or Mount Polly Mining related to the AssumedSecured Creditor claims will be assigned to New Imperial and Imperialwill be deemed to be discharged and released from the AssumedSecured Creditor claims in partial consideration of the transferof the Mining Assets to New Imperial;

(b)the Statutory Lien Creditors' claims (as defined in the InformationCircular) will be assumed by New Imperial, and Imperial will bedeemed to be discharged and released from the liabilities of theStatutory Lien Creditors in partial consideration of the transferof the Mining Assets;

(c)the Sumitomo Debt will be assumed by New Imperial, and Imperialwill be deemed to be discharged and released from the SumitomoDebt in partial consideration of the transfer of the Mining Assets;

(d)the Unsecured Creditors' claims will be released and dischargedin consideration for:

(i)100% of the claim paid in cash, if the claim of an Unsecured Creditoris equal to or less than $5,000;

(ii)$5,000 cash and, subject to adjustment, Imperial Shares equalto the amount of such claim which exceeds the cash amount to bepaid, divided by $0.225, if the claim of an Unsecured Creditoris greater than $5,000 but less than or equal to $20,000; and

(iii)a payment in cash equal to the Unsecured Creditor's pro rata share(based on the value of its claim in relation to the aggregateof the claim values greater than $20,000) of a cash fund thatis comprised of $1,000,000 less any other amounts paid to UnsecuredCreditors under subparagraphs (d)(i) and (ii), and, subject toadjustment, Imperial Shares equal to the amount of such claimwhich exceeds the cash amount to be paid divided by $0.225, ifthe claim of an Unsecured Creditor is greater than $20,000;

(e)the Convertible Notes will be released and discharged in considerationfor Imperial Shares equal to the amount of their claim as of November23, 2001 divided by $0.10, resulting in the issuance of an aggregatenumber of 47,242,488 Imperial Shares;

(f)$1,400,000 of the Secured Notes will be released and dischargedin consideration for 14,000,000 Imperial Shares; the remainderof the Secured Notes will remain outstanding on the same termsand conditions as prior to the effective date of the Arrangement;

(g)the authorized capital of Imperial will be amended to include:(i) 500,000,000 common shares with a par value of $0.0001 ( "ImperialEnergy Common Shares"); (ii) 500,000,000 without par value classB shares ( "Imperial Class B Shares"); (iii) 50,000,000 firstpreferred shares without par value, issuable in one or more series;and (iv) 50,000,000 second preferred shares without par value,issuable in one or more series; and

(h)the Imperial Shares will be consolidated on the basis of one ImperialShare for each 10 Imperial Shares outstanding, including the ImperialShares issued to holders of Convertible Notes, holders of SecuredNotes, and the Unsecured Creditors;

(i)Imperial will transfer the mining assets of Imperial, Mount PolleyHolding and Mount Polley Mining, and the shares of each Subsidiary,(the "Mining Assets") to New Imperial in consideration of theissuance by New Imperial to Imperial of New Imperial Shares equalto the number of outstanding Imperial Shares (after giving effectto paragraph (h) above) and the transfers of claims contemplatedby paragraphs (a), (b) and (c) above;

(j)concurrently:

(i)each of the issued Imperial Shares (except Imperial Shares heldby holders not resident in Canada) will be exchanged for one ImperialEnergy Common Share and one Imperial Class B Share, and each ImperialClass B Share so issued will be redeemed by Imperial in exchangefor one New Imperial Share for each Imperial Class B Share; and

(ii)each Imperial Share held by a holder not resident in Canada willbe exchanged for one Imperial Energy Common Share and one NewImperial Share;

(k)the authorized capital of Imperial will be altered to delete theImperial Shares, the Imperial Class B Shares, and the PreferredShares, and the Imperial Energy Common Shares will be designatedas common shares without par value;

(l)the name of Imperial will be changed to Imperial Energy Inc.;and

(m)Imperial will apply to continue Imperial under the name "ImperialEnergy Inc." under the Business Corporations Act (Alberta);

24.The Board of Directors of Imperial has determined that the Arrangementis fair to the Imperial Shareholders, that the Arrangement isin the best interests of Imperial and the Imperial Shareholders,and has resolved to unanimously recommend that the Imperial Shareholdersvote in favour of the Arrangement.

25.The Imperial Shareholders will have the right to dissent fromthe Arrangement under BCCA and the Information Circular fullydiscloses this right in accordance with applicable law.

26.The Arrangement is subject to both shareholder approval and theapproval of the Court.

27.Exemptions from the Registration and Prospectus Requirements inrespect of the Trades, and exemptions from the Prospectus Requirementsin respect of the first trades in Imperial Shares and New ImperialShares following the Arrangement, are not available in all Jurisdictions.

28.New Imperial will not be a reporting issuer in the Jurisdictionsat the time of the Arrangement becoming effective.

29.The Mining Assets have been the subject of continuous disclosureon an ongoing basis for more than 12 months pursuant to Imperial'sresponsibilities as a reporting issuer.

30.In addition, Imperial has an existing record of public disclosurein the following forms:

(a)Imperial's continuous disclosure of material facts relating toits operations since at least 1997; and

(b)the presentation in Imperial's most recent annual informationform of the estimates of its reserves and resources in accordancewith the Legislation; and

31.New Imperial will file and distribute its initial annual informationform featuring disclosure of its reserves and resources in accordancewith the Legislation.

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 under the Legislationis that the Registration and Prospectus Requirements shall notapply to the Trades in connection with the Arrangement providedthat the first trade in Imperial Energy Common Shares and NewImperial Shares acquired under this Decision in a Jurisdictionshall be deemed to be a distribution or primary distribution tothe public under the Legislation of such Jurisdiction (the "ApplicableLegislation") unless:

(a)except in Québec, the conditions in subsections (3) or(4) of section 2.6 or subsections (2) or (3) of section 2.8 ofMultilateral Instrument 45-102 Resale of Securities are satisfied,and, for the purposes of determining the period of time that NewImperial has been a reporting issuer under sections 2.6 and 2.8,the period of time that Imperial was a reporting issuer may beincluded; and

(b)In Québec,

(i)no unusual effort is made to prepare the market or to create ademand for the securities that are the subject of the trade,

(ii)no extraordinary commission or consideration is paid to a personor company in respect of the trade, and

(iii)if the selling shareholder is an insider or officer of the issuer,the selling shareholder has no reasonable grounds to believe thatthe issuer is in default of securities legislation.

THEFURTHER DECISION of the Decision Makers in British Columbiaand Ontario under the Legislation is that New Imperial shall bedeemed to be a reporting issuer as of the effective date of theArrangement.

THEFURTHER DECISION of the Decision Makers in British Columbia,Ontario and Saskatchewan under the Legislation is that New Imperialis exempt from the Technical Report Requirement.

March13, 2002.

"BrendaLeong"