Spitfire Energy Ltd. - MRRS Decision

Headnote

Mutual Reliance Review System for Exemptive Relief Applications -- Issuer bid requirements - relief granted from the issuer bid requirements for an issuer purchasing the shares of a private company that owns common shares of the issuer -- transaction approved by independent committee of issuer -- independent valuation of private company's oil and gas assets obtained - transaction in substance an asset sale and not a repurchase of securities.

Applicable Ontario Statutory Provisions

Securities Act, R.S.O. 1990, c. S.5, as am., ss. 95-98, 100 and 104(2)(c).

Citation: Spitfire Energy Ltd., 2005 ABASC 264

March 29, 2005

IN THE MATTER OF

THE SECURITIES LEGISLATION

OF ALBERTA AND ONTARIO (THE JURISDICTIONS)

AND

IN THE MATTER OF

THE MUTUAL RELIANCE REVIEW SYSTEM

FOR EXEMPTIVE RELIEF APPLICATIONS

AND

IN THE MATTER OF

SPITFIRE ENERGY LTD. (THE FILER)

MRRS DECISION DOCUMENT

Background

1. The local securities regulatory authority or regulator (the Decision Maker) in each of the Jurisdictions has received an application from the Filer for a decision under the securities legislation of each of the Jurisdictions (the Legislation) that the requirements contained in the Legislation relating to issuer bids (the Issuer Bid Requirements) shall not apply to the acquisition by the Filer of 4,250,000 of its issued and outstanding common shares from Spitfire Exploration Ltd. (Spitfirex) pursuant to the acquisition of all of the issued and outstanding common shares of Spitfirex by the Filer (the Requested Relief).

2. Under the Mutual Reliance Review System for Exemptive Relief Applications (the MRRS)

2.1 the Alberta Securities Commission is the principal regulator for this application; and

2.2 this MRRS decision document evidences the decision of each Decision Maker.

Interpretation

3. Defined terms contained in National Instrument 14-101 Definitions have the same meaning in this decision unless they are defined in this decision.

Representations

4. This decision is based on the following facts represented by the Filer:

4.1 The Filer was incorporated under the Business Corporations Act (Alberta)(the ABCA) on August 3, 2001.

4.2 The head office and registered office of the Filer are each located in Calgary, Alberta.

4.3 The Filer is a reporting issuer in Alberta, but not in Ontario.

4.4 The Filer is not in default of any of the requirements under the Legislation.

4.5 The authorized share capital of the Filer consists of an unlimited number of common shares (Common Shares) and an unlimited number of preferred shares.

4.6 As of February 28, 2005, the Filer had the following securities issued and outstanding:

4.6.1 20,341,413 Common Shares, and

4.6.2 options to purchase an aggregate of 1,875,500 Common Shares.

4.7 The Common Shares are listed on the TSX Venture Exchange (the Exchange).

4.8 Keith N. Chase (Chase) is a resident of Calgary, Alberta and controls an aggregate of 3,855,848 Common Shares, representing 19% of the issued and outstanding Common Shares.

4.9 Massimilliano (Max) Fantuz (Fantuz) is a resident of Chatham, Ontario and controls an aggregate of 4,455,850 Common Shares representing 22% of the issued and outstanding Common Shares.

4.10 Spitfirex was incorporated under the ABCA on November 9, 1999.

4.11 The head office and registered office of Spitfirex are each located in Calgary, Alberta.

4.12 Spitfirex is not a reporting issuer in the Jurisdictions.

4.13 The authorized share capital of Spitfirex consists of an unlimited number of Class "A" common shares (Class "A" Shares), Class "B" common shares, Class "C" shares and Class "D" preferred shares (Class "D" Shares).

4.14 As of February 28, 2005, Spitfirex had 554 Class "A" Shares and 6,058 Class "D" Shares issued and outstanding all of which are owned by Chase and Fantuz Enterprises Inc., a company controlled by Fantuz.

4.15 Spitfirex owns 4,250,000 Common Shares (the Spitfirex Shares).

4.16 The Filer entered into a share purchase agreement with Spitfirex, Chase and Fantuz Enterprises Inc. dated December 10, 2004 (the Share Purchase Agreement) which provides that the Filer will purchase all of the issued and outstanding common shares of Spitfirex from Chase and Fantuz Enterprises Inc. (collectively, the Vendors) for cash consideration of $538,700 and the issuance of 4,250,000 Common Shares (the Acquisition).

4.17 Concurrent with the closing of the Acquisition, the Filer will cancel the Spitfirex Shares.

4.18 Spitfirex's oil and gas properties were independently valued, effective September 30, 2004, at $501,000 by Gilbert Lausten & Jung based on constant pricing at a 15% discount rate and Spirfirex's fixed assets were valued at $37,700, comprising the purchase price of $538,700 plus or minus working capital as at September 30, 2004.

4.19 The Acquisition is considered to be a non-arm's length transaction because, combined, the Vendors are a "control person" of the Filer as defined in the Legislation.

4.20 The independent members of the board of directors of the Filer have determined that the Acquisition, pursuant to the terms of the Share Purchase Agreement, is fair, from a financial point of view, to the Filer's shareholders (the Shareholders) and is in the best interests of the Filer and Shareholders.

4.21 The Acquisition has been disclosed in a press release dated January 6, 2005 and will be disclosed to the Shareholders in detail in the Filer's 2004 annual report.

4.22 The Exchange has conditionally approved the Acquisition.

4.23 The acquisition of the Spitfirex Shares as a result of the Acquisition will constitute an "issuer bid" pursuant to the Legislation and cannot be made in reliance on any exemptions from the Issuer Bid Requirements.

Decision

5. Each of the Decision Makers is satisfied that the test contained in the Legislation that provides the Decision Maker with the jurisdiction to make the decision has been met.

6. The decision of the Decision Makers under the Legislation is that the Requested Relief is granted.