Securities Law & Instruments

Headnote

Mutual Reliance Review System for ExemptiveRelief Applications - Relief from registration, prospectus andcontinuous disclosure requirements in connection with an arrangementinvolving an exchangeable share structure.

Applicable Ontario Statutory Provisions

Securities Act, R.S.O. 1990, c. S.5, as am,ss. 25(1), 53(1), 74(1) and 80(b)(iii).

IN THE MATTER OF

THE SECURITIES LEGISLATIONOF

ALBERTA, BRITISH COLUMBIA,SASKATCHEWAN

MANITOBA, ONTARIO, QUEBEC,NEW BRUNSWICK,

PRINCE EDWARD ISLAND, NOVASCOTIA,

NEWFOUNDLAND AND LABRADOR,

THE NORTHWEST TERRITORIESAND

THE YUKON TERRITORY

AND

IN THE MATTER OF

THE MUTUAL RELIANCE REVIEWSYSTEM

FOR EXEMPTIVE RELIEF APPLICATIONS

AND

IN THE MATTER OF

STORM ENERGY INC., STORM ENERGYLTD.,

FOCUS ENERGY TRUST, FET RESOURCESLTD., AND

FET EXCHANGECO LTD.

 

MRRS DECISION DOCUMENT

1. WHEREAS the local securities regulatoryauthority or regulator (collectively, the "Decision Makers")in each of Alberta, British Columbia, Saskatchewan, Manitoba,Ontario, Quebec, New Brunswick, Prince Edward Island, Newfoundlandand Labrador, Nova Scotia, the Yukon Territory and the NorthwestTerritories (the "Jurisdictions") has received anapplication from Focus Energy Trust (the "Trust"),Storm Energy Inc. ("Storm"), FET Resources Ltd.("AcquisitionCo"), Storm Energy Ltd. ("ExploreCo"),and FET ExchangeCo Ltd. ("ExchangeCo") for a decisionunder the securities legislation of the Jurisdictions (the"Legislation") that the requirements contained inthe Legislation:

1.1 to be registered to trade in a security(the "Registration Requirement") and to file apreliminary prospectus and a prospectus and receive receiptstherefore (the "Prospectus Requirement") in theJurisdictions, except British Columbia (the "Registrationand Prospectus Jurisdictions") shall not apply to certaintrades of securities to be made in connection with a proposedplan of arrangement under section 193 of the BusinessCorporations Act (Alberta) (the "ABCA") involvingthe Trust, AcquisitionCo, Storm, ExploreCo, Exchangeco andthe security holders of Storm; and

1.2 with respect to AcquisitionCo (or itssuccessor on amalgamation with Storm ("AmalgamationCo"))in those Jurisdictions in which it becomes a reporting issueror the equivalent under the Legislation, to issue a pressrelease and file a report with the Participating Jurisdictionsupon the occurrence of a material change, file an annualreport, where applicable, file interim financial statementsand audited annual financial statements with the ParticipatingJurisdictions and deliver such statements to the securityholders of AmalgamationCo, file and deliver an informationcircular or make an annual filing with the ParticipatingJurisdictions in lieu of filing an information circular,file an annual information form and provide management'sdiscussion and analysis of financial condition and resultsof operations (the "Continuous Disclosure Requirements")shall not apply to AcquisitionCo or AmalgamationCo;

2. AND WHEREAS pursuant to the MutualReliance Review System for Exemptive Relief Applications (the"System") the Alberta Securities Commission is theprincipal regulator for this application;

3. AND WHEREAS the Trust, Storm, AcquisitionCo,ExploreCo and ExchangeCo have represented to the DecisionMakers that:

3.1 Storm is a corporation organized andsubsisting under the ABCA;

3.2 Storm is engaged in the explorationfor, and the acquisition, development and production of,oil and natural gas in the Provinces of Alberta and BritishColumbia;

3.3 the head and principal offices of Stormare located at 3300, 205 -- 5th Avenue S.W., Calgary, Alberta,T2P 2V7 and its registered office is located at 1000, 440- 2nd Avenue S.W., Calgary, Alberta, T2P 5E5;

3.4 the authorized capital of Storm presentlyconsists of an unlimited number of common shares ("CommonShares") and an unlimited number of first preferredshares, second preferred shares and third preferred shares,each issuable in series;

3.5 as at July 8, 2002, 27,917,758 CommonShares and no preferred shares were issued and outstanding,and options ("Options") to purchase 2,045,000Common Shares were outstanding;

3.6 on December 15, 2000, Storm implementeda normal course issuer bid to purchase in the period toDecember 19, 2001 up to 5% of its issued and outstandingCommon Shares. A total of 292,000 Common Shares for a totalcash consideration of $1,661,365 were purchased under thisarrangement. The normal course issuer bid was renewed forthe period ending December 19, 2002;

3.7 the Common Shares are presently listedon the Toronto Stock Exchange (the "TSX");

3.8 Storm is a reporting issuer or the equivalentin the Provinces of British Columbia, Alberta, Manitoba,Ontario and Quebec and has been for more than 12 months;

3.9 Storm has filed all the informationthat it has been required to file as a reporting issuerin each of the Provinces of British Columbia, Alberta, Manitoba,Ontario and Quebec and is not in default of the securitieslegislation in any of these jurisdictions;

3.10 the Trust is an open-end unincorporatedinvestment trust governed by the laws of the Province ofAlberta and created pursuant to a trust indenture datedJuly 15, 2002 between Storm and Valiant Trust Company, astrustee (the "Trust Indenture");

3.11 the Trust was established for the purposeof: (a) investing in shares of AcquisitionCo and acquiringthe Notes pursuant to the Arrangement; (b) acquiring thenet profits interest from AcquisitionCo; (c) acquiring orinvesting in other securities of AmalgamationCo and in thesecurities of any other entity including without limitationbodies corporate, partnerships or trusts, and borrowingfunds or otherwise obtaining credit for that purpose; (d)disposing of any part of the property of the Trust, including,without limitation, any securities of AmalgamationCo; (e)temporarily holding cash and investments for the purposesof paying the expenses and the liabilities of the Trust,making other permitted investments as contemplated by theTrust Indenture, paying amounts payable by the Trust inconnection with the redemption of any trust units ("TrustUnits"), and making distributions to Unitholders; and(f) paying costs, fees and expenses associated with theforegoing purposes or incidental thereto;

3.12 the Trust was established with nominalcapitalization and currently has only nominal assets andno liabilities and the only activity which will initiallybe carried on by the Trust will be the holding of securitiesof the AmalgamationCo;

3.13 the Trust is authorized to issue anunlimited number of Trust Units and an unlimited numberof special voting rights ("Special Voting Rights");

3.14 as at July 15, 2002, there was oneTrust Unit issued and outstanding and owned by Storm andthere were no Special Voting Rights outstanding;

3.15 the Trust has received conditionalapproval from the TSX for the listing on the TSX of theTrust Units to be issued in connection with the Arrangementsubject to, among other things, completion of the Arrangement;

3.16 the Trust is not a reporting issuerin any of the Jurisdictions;

3.17 AcquisitionCo was incorporated pursuantto the ABCA on July 12, 2002;

3.18 the head and principal offices of AcquisitionCoare located at Suite 3250, 205 - 5th Avenue S.W., Calgary,Alberta, T2P 2V7 and its registered office is located at1400, 350 - 7th Avenue S.W., Calgary, Alberta, T2P 3N9;

3.19 AcquisitionCo was incorporated to participatein the Arrangement by acquiring, directly or indirectly,Common Shares of Storm;

3.20 the authorized capital of AcquisitionCopresently consists of an unlimited number of common sharesand an unlimited number of exchangeable shares, issuablein series. Prior to the Arrangement, AcquisitionCo willamend its Articles to create Series A exchangeable shares(the "Exchangeable Shares") of which an unlimitednumber will be authorized;

3.21 as at July 15, 2002, one (1) commonshare of AcquisitionCo was issued and outstanding and ownedby the Trust;

3.22 AcquisitionCo is not a reporting issuerin any of the Jurisdictions;

3.23 ExploreCo was incorporated pursuantto the ABCA on July 10, 2002 and has not carried on anyactive business since incorporation;

3.24 the head and principal offices of ExploreCoare located at Suite 3300, 205 - 5th Ave. S.W., Calgary,Alberta, T2P 2V7 and its registered office is located atSuite 3300, 421- 7th Ave. S.W., Calgary, Alberta, T2P 4K9;

3.25 pursuant to the Arrangement, ExploreCowill acquire, directly and indirectly, certain oil and gasassets from Storm. Upon completion of the Arrangement, ExploreCowill be engaged in the exploration for, and acquisition,development and production of, oil and natural gas reserves,primarily in the Western Canada;

3.26 the authorized capital of ExploreCoconsists of an unlimited number of common shares ("ExploreCoShares") and an unlimited number of first preferredshares, second preferred shares and third preferred shares,issuable in series;

3.27 as at July 15, 2002, one ExploreCoShare and no preferred shares were issued and outstanding.Storm has also reserved a total of 3,000,000 ExploreCo Sharesfor issuance pursuant to outstanding stock options;

3.28 ExploreCo has received conditionalapproval from the TSX for the listing on the TSX of theExploreCo Shares to be issued in connection with the Arrangementsubject to, among other things, completion of the Arrangement.The ExploreCo Shares issuable from time to time will alsobe listed on the TSX, subject to receipt of final approvalfrom the TSX;

3.29 ExploreCo is not a reporting issuerin any of the Jurisdictions. Upon completion of the Arrangement,ExploreCo will become a reporting issuer in certain of theJurisdictions;

3.30 the Arrangement will be effected byway of a plan of arrangement under section 193 of the ABCAwhich will require approval by (i) not less than 2/3 ofthe votes cast by the holders of Common Shares and the holdersof Options (present in person or represented by proxy),each voting separately as a class, at a meeting to be heldon August 20, 2002 (the "Meeting") and thereafter,(ii) the approval of the Court of Queen's Bench of Alberta(the "Court");

3.31 the management information circular(the "Information Circular") mailed to the holdersof Common Shares and the holders of Options in connectionwith the Meeting conforms with the ABCA, applicable securitieslaws and an interim order of the Court and contains prospectus-leveldisclosure concerning the respective business, affairs andsecurities of the Trust, Storm, AmalgamationCo and ExploreCo,and a detailed description of the Arrangement;

3.32 the Arrangement provides for a transactionwhere, commencing at the effective time of the Arrangement(the "Effective Time"), the events set out belowshall be deemed to occur in the following order:

3.32.1 the Common Shares and Options heldby Securityholders who validly exercise their rights ofdissent pursuant to the ABCA, as modified by the InterimOrder, shall, as of the Effective Time, be deemed to havebeen transferred to Storm and be cancelled and cease tobe outstanding and, as of the Effective Time, such dissentingSecurityholders shall cease to have any rights as securityholdersof Storm other than the right to be paid the fair valueof their Common Shares or Options;

3.32.2 subject to paragraph 3.32.4, eachissued and outstanding Common Share (other than OptionCommon Shares, as defined below) will be transferred toAcquisitionCo in exchange for:

a) one (1) Series B exchangeable noteof AcquisitionCo (a "Series B Note"); and

b) in accordance with the election ordeemed election of the holder of such Common Share (otherthan a non-resident or tax-exempt Shareholder), one(1) unsecured promissory note of AcquisitionCo (a "Note")or one (1) Exchangeable Share and, in the case of anon-resident or tax-exempt Shareholder, one (1) Note;

3.32.3 each Note shall be transferredby the holder thereof to the Trust in exchange for TrustUnits on the basis of one (1) Trust Unit for each Noteheld;

3.32.4 notwithstanding paragraph 3.32.2,the Common Shares held by holders ("Option Shareholders")who acquired such shares on the exercise of an optionin circumstances such that subsection 7(1.1) or (8) ofthe Income Tax Act (Canada) applied ("OptionCommon Shares") may, at the election of the holder,be dealt with in the following manner:

a) each Option Shareholder shall transfersuch number of Option Common Shares to AcquisitionCoas is equal to the product of:

i) the quotient obtained by dividingthe fair market value of ExploreCo following the arrangement(as determined by ExploreCo) by the weighted averagetrading price of the Common Shares immediately priorto the Effective Date (the "Ratio"); and

ii) the total number of Option CommonShares held by the Option Shareholder;

in exchange for such number of SeriesB Notes (rounded down to the nearest whole Series BNote) as is equal to the product of:

iii) the total number of Option CommonShares so transferred; and

iv) the reciprocal of the Ratio;

b) the remaining Option Common Sharesheld by an Option Shareholder after the operation ofparagraph 3.32.4(a) shall be transferred to AcquisitionCoin exchange for, in accordance with the election ordeemed election of such Option Shareholder:

i) Trust Units issued and deliveredby the Trust; or

ii) Exchangeable Shares issued anddelivered by AcquisitionCo;

in each case for such number of TrustUnits or Exchangeable Shares, as the case may be, (roundeddown to the nearest whole Trust Unit or ExchangeableShare) as is equal to the product of:

iii) the total number of Option CommonShares so exchanged for Trust Units or ExchangeableShares, as the case may be; and

iv) a fraction (the "Option Ratio"),the numerator of which is one (1) and the denominatorof which is one (1) minus the Ratio;

c) AcquisitionCo shall, contemporaneouslywith the exchange of Option Common Shares pursuant toparagraph 3.32.4(b), issue and deliver to the Trustsuch number of Notes as is equal to the number of TrustUnits required to be delivered by AcquisitionCo pursuantto paragraph 3.32.4(b) in consideration for the deliveryof that number of Option Common Shares exchanged forTrust Units pursuant to paragraph 3.32.4(b);

d) the Trust shall, contemporaneouslywith the exchange of Option Common Shares pursuant toparagraph 3.32.4(b), deliver to the Option Shareholderssuch number of Trust Units as is determined pursuantto paragraph 3.32.4(b) in consideration for issuanceof the Notes by AcquisitionCo to the Trust pursuantto paragraph 3.32.4(c); and

3.32.5 each of the steps set out in paragraphs3.32.4(b), 3.32.4(c) and 3.32.4(d) shall, notwithstandinganything else contained herein, be deemed to happen contemporaneouslywith each other;

3.32.6 all unexercised Options (otherthan Options held by dissenting Optionholders) will becancelled and the holders thereof will be entitled toreceive an amount per Option from Storm equal to the differencebetween the exercise price of such Option and the weightedaverage trading price of the Common Shares as at the datepreceding the date of the Meeting;

3.32.7 Storm and AcquisitionCo will amalgamateto form AmalgamationCo; and

3.32.8 each Series B Note will be transferredby the holder to AmalgamationCo in exchange for one ExploreCoShare.

3.33 AmalgamationCo will become a reportingissuer under the Legislation in British Columbia, Alberta,Manitoba, Ontario and Quebec, and will be subject to theContinuous Disclosure Requirements in such Jurisdictions;

3.34 the Trust will become a reporting issuerunder the Legislation in British Columbia, Alberta, Ontario,and Quebec and will be subject to the Continuous DisclosureRequirements in such Jurisdictions;

3.35 ExploreCo will become a reporting issuerunder the Legislation in British Columbia, Alberta, Ontario,and Quebec and will be subject to the Continuous DisclosureRequirements in such Jurisdictions;

3.36 the Exchangeable Shares will providea holder with a security having economic, ownership andvoting rights which are, as nearly as practicable, equivalentto those of the Trust Units;

3.37 under the terms of the ExchangeableShares and certain rights to be granted in connection withthe Arrangement, holders of Exchangeable Shares will beable to exchange them at their option for Trust Units;

3.38 under the terms of the ExchangeableShares and certain rights to be granted in connection withthe Arrangement, the Trust, ExchangeCo or AmalgamationCowill redeem, retract or otherwise acquire Exchangeable Sharesin exchange for Trust Units in certain circumstances;

3.39 in order to ensure that the ExchangeableShares remain the voting and economical equivalent of theTrust Units prior to their exchange, the Arrangement providesfor:

3.39.1 a voting and exchange trust agreementto be entered into among the Trust, AmalgamationCo, ExchangeCoand Valiant Trust Company (the "Voting and ExchangeAgreement Trustee") which will, among other things,(i) grant to the Voting and Exchange Agreement Trustee,for the benefit of holders of Exchangeable Shares, theright to require the Trust or ExchangeCo to exchange theExchangeable Shares for Trust Units, and (ii) triggerautomatically the exchange of the Exchangeable Sharesfor Trust Units upon the occurrence of certain specifiedevents;

3.39.2 the deposit by the Trust of a SpecialVoting Right with the Voting and Exchange Agreement Trusteewhich will effectively provide the holders of ExchangeableShares with voting rights equivalent to those attachedto the Trust Units; and

3.39.3 a support agreement to be enteredinto between the Trust and AmalgamationCo which will,among other things, restrict the Trust from distributingadditional Trust Units or rights to subscribe thereforeor other property or assets to all or substantially allof the holders of Trust Units, or changing the rights,privileges or other terms of the Trust Units, unless thesame or an economically equivalent change to the ExchangeableShares (or in the rights of the holders thereof) is madesimultaneously or approval of holders of ExchangeableShares is obtained;

3.40 the steps under the Arrangement, theterms of the Exchangeable Shares and the exercise of certainrights provided for in connection with the Arrangement andthe Exchangeable Shares involve a number of trades of potentialtrades of Common Shares, ExploreCo Shares, Trust Units,Exchangeable Shares, Notes, Series B Notes, Options, theSpecial Voting Right, certain rights to acquire Trust Unitsand Exchangeable Shares under the Arrangement and rightsto otherwise make a trade of a security that was derivedfrom the Arrangement (collectively, the "Trades");

3.41 there are no exemptions from the RegistrationRequirement or the Prospectus Requirement available underthe Legislation of the Registration and Prospectus Jurisdictionsfor certain of the Trades;

3.42 the Information Circular disclosesthat the Trust, AcquisitionCo, AmalgamationCo and ExploreCowill rely on exemptions, including discretionary exemptions,from the Registration Requirement and Prospectus Requirementwith respect to the issuance of Trust Units, ExchangeableShares and ExploreCo Shares pursuant to the Arrangementand discloses that application will be made to relieve AmalgamationCofrom the Continuous Disclosure Requirements; and

3.43 the Trust will concurrently send toholders of Exchangeable Shares resident in the Jurisdictionsall disclosure material it sends to holders of Trust Unitspursuant to the Legislation;

4. AND WHEREAS under the System, thisMRRS Decision Document evidences the decision of each DecisionMaker (collectively, the "Decision");

5. AND WHEREAS each of the DecisionMakers is satisfied that the test contained in the Legislationthat provides the Decision Maker with the jurisdiction tomake the Decision has been met;

6. THE DECISION of the Decision Makersunder the Legislation is that:

6.1 the Registration Requirement and ProspectusRequirement contained in the Legislation of the Registrationand Prospectus Jurisdictions and shall not apply to theTrades provided that the first trade in securities acquiredunder this Decision shall be deemed to be a distributionor primary distribution to the public;

6.2 the Prospectus Requirement containedin the Legislation of the Registration and Prospectus Jurisdictionsshall not apply to the first trade in Trust Units, ExchangeableShares and ExploreCo Shares acquired by shareholders ofStorm under the Arrangement and the first trade of the TrustUnits acquired on the exercise of all rights, automaticor otherwise, under such Exchangeable Shares, provided that:

6.2.1 except in Québec, the conditionsin subsections (3) or (4) of section 2.6 of MultilateralInstrument 45-102 Resale of Securities ("MI 45-102")are satisfied and, for the purposes of determining theperiod of time that the Trust or ExploreCo has been areporting issuer under section 2.6 of MI 45-102, the periodof time that Storm was a reporting issuer in at leastone of the jurisdictions listed in Appendix B of MI 45-102immediately before the Arrangement may be included; and

6.2.2 in Québec:

a) the Trust is and has been a reportingissuer in Québec for the 12 months immediatelypreceding the trade, including the period of time thatStorm was a reporting issuer in Québec immediatelybefore the Arrangement;

b) no unusual effort is made to preparethe market or create a demand for the securities thatare the subject of the trade;

c) no extraordinary commission or considerationis paid to a person or company in respect of the trade;and

d) if the selling security holder isan insider or officer of the Trust, the selling securityholder has no reasonable grounds to believe that theTrust is in default of securities legislation;

6.3 the Continuous Disclosure Requirementsshall not apply to AmalgamationCo for so long as:

6.3.1 the Trust is a reporting issuerin Québec and at least one of the jurisdictionslisted in Appendix B of MI 45-102 and is an electronicfiler under National Instrument 13-101;

6.3.2 the Trust sends to all holders ofExchangeable Shares resident in the Jurisdictions alldisclosure material furnished to holders of Trust Unitsunder the Continuous Disclosure Requirements;

6.3.3 the Trust complies with the requirementsof the TSX, or such other market or exchange on whichthe Trust Units may be quoted or listed, in respect ofmaking public disclosure of material information on atimely basis;

6.3.4 AmalgamationCo is in compliancewith the requirements of the Legislation to issue a pressrelease and file a report with the Decision Makers uponthe occurrence of a material change in respect of theaffairs of AmalgamationCo that is not also a materialchange in the affairs of the Trust;

6.3.5 the Trust includes in all futuremailings of proxy solicitation materials to holders ofExchangeable Shares a clear and concise insert explainingthe reason for the mailed material being solely in relationto the Trust and not to AmalgamationCo, such insert toinclude a reference to the economic equivalency betweenthe Exchangeable Shares and Trust Units and the rightto direct voting at meetings of holders of Trust Units;

6.3.6 the Trust remains the direct orindirect beneficial owner of all of the issued and outstandingvoting securities of AmalgamationCo; and

6.3.7 AmalgamationCo does not issue anypreferred shares or debt obligations other than debt obligationsissued to its affiliates or to banks, loan corporations,trust corporations, treasury branches, credit unions,insurance companies or other financial institutions.

September 13, 2002.

"Glenda A. Campbell"                    "JamesE. Allard"