Securities Law & Instruments

Headnote

Mutual Reliance Review System for ExemptiveRelief Applications - Relief from registration, prospectus andcontinuous disclosure requirements in connection with an arrangementconducted using an exchangeable share structure, and relieffrom registration and prospectus requirements in connectionwith units distributed under a distribution reinvestment andoptional trust unit purchase plan by a trust.

Ontario Statutes

Securities Act, R.S.O. 1990, c. S.5, as am.,ss. 74, 80(b)(iii) and 88(2)(b).

Ontario Rules

Ontario Securities Commission Rule 51-501 AnnualInformation Form and Management Discussion & Analysis.

IN THE MATTER OF

THE SECURITIES LEGISLATIONOF

ALBERTA, BRITISH COLUMBIA,SASKATCHEWAN

MANITOBA, ONTARIO, QUÉBEC,NEW BRUNSWICK, PRINCE EDWARD ISLAND,

NOVA SCOTIA, NEWFOUNDLANDAND LABRADOR, THE NORTHWEST

TERRITORIES, NUNAVUT AND THEYUKON TERRITORY

AND

IN THE MATTER OF

THE MUTUAL RELIANCE REVIEWSYSTEM

FOR EXEMPTIVE RELIEF APPLICATIONS

AND

IN THE MATTER OF

VERMILION RESOURCES LTD.,VERMILION ENERGY TRUST, VERMILION ACQUISITION LTD. AND CLEARENERGY INC.

 

MRRS DECISION DOCUMENT

1. WHEREAS the local securities regulatoryauthority or regulator (collectively, the "Decision Makers")in each of Alberta, British Columbia, Saskatchewan, Manitoba,Ontario, Québec, New Brunswick, Prince Edward Island,Newfoundland and Labrador, Nova Scotia, the Yukon Territory,Nunavut and the Northwest Territories (the "Jurisdictions")has received an application from Vermilion Energy Trust (the"Trust"), Vermilion Resources Ltd. ("Vermilion"),Vermilion Acquisition Ltd. ("Acquisitionco"), andClear Energy Inc. ("Exploreco") for a decision underthe securities legislation of the Jurisdictions (the "Legislation"):

1.1 that the requirements contained in theLegislation to be registered to trade in a security (the"Registration Requirement") and to file a preliminaryprospectus and a prospectus and receive receipts therefore(the "Prospectus Requirement") in the Jurisdictions,except British Columbia and Nova Scotia (the "ArrangementRegistration and Prospectus Jurisdictions") shall notapply to certain trades of securities to be made in connectionwith a proposed plan of arrangement under section 193 ofthe Business Corporations Act (Alberta) (the "ABCA")involving the Trust, Acquisitionco, Vermilion, Explorecoand the security holders of Vermilion;

1.2 with respect to Acquisitionco (or itssuccessor on amalgamation with Vermilion ("Amalgamationco"))in those Jurisdictions in which it becomes a reporting issueror the equivalent under the Legislation, that the requirementscontained in the Legislation to issue a press release andfile a report with the Jurisdictions upon the occurrenceof a material change, file an annual report, where applicable,file interim financial statements and audited annual financialstatements with the Jurisdictions and deliver such statementsto the security holders of Amalgamationco, file and deliveran information circular or make an annual filing with theJurisdictions 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; and

1.3 that the Registration Requirement andthe Prospectus Requirement in the Jurisdictions, exceptAlberta, (the "DRIP Registration and Prospectus Jurisdictions")shall not apply to a distribution of trust units of theTrust under a distribution reinvestment and optional trustunit purchase plan (the "DRIP");

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, unless otherwise defined,the terms herein have the meaning set out in National Instrument14-101 Definitions;

4. AND WHEREAS the Trust, Vermilion,Acquisitionco and Exploreco have represented to the DecisionMakers that:

4.1 Vermilion is a corporation organizedand subsisting under the ABCA;

4.2 Vermilion is engaged in the explorationfor, and the acquisition, development and production of,oil and natural gas in Western Canada, France and Trinidadand holds a significant interest in Aventura Energy Inc.,a publicly traded company engaged in oil and natural gasexploration, development and acquisition opportunities inTrinidad and Argentina;

4.3 the head and principal offices of Vermilionare located at 2800, 400 - 4th Avenue S.W., Calgary, Alberta,T2P 0J4 and its registered office is located at 1000, 400- 3rd Avenue S.W., Calgary, Alberta, T2P 4H2;

4.4 the authorized capital of Vermilionconsists of an unlimited number of common shares ("CommonShares") and an unlimited number of preferred shares;

4.5 as at December 16, 2002, 55,863,418Common Shares and no preferred shares were issued and outstanding,and options ("Options") to purchase 4,115,869Common Shares were outstanding;

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

4.7 Vermilion is a reporting issuer or theequivalent in the Provinces of British Columbia, Alberta,Ontario and Québec and has been for more than 12months;

4.8 Vermilion has filed all the informationthat it has been required to file as a reporting issuerin each of the Provinces of British Columbia, Alberta, Ontarioand Québec and is not in default of the securitieslegislation in any of these jurisdictions;

4.9 the Trust is an open-end unincorporatedinvestment trust governed by the laws of the Province ofAlberta and created pursuant to a trust indenture datedDecember 16, 2002 between Vermilion and Computershare TrustCompany of Canada, as trustee (the "Trust Indenture");

4.10 the Trust was established to: (a) investin securities of Acquisitionco and Amalgamationco; (b) acquireor invest in other securities of Amalgamationco, any othersubsidiary of the Trust, or any other entity; (c) acquireroyalties in respect of Canadian resources properties; (d)dispose of any part of the monies, properties and assetsof the Trust; (e) temporarily hold cash and investmentsfor the purposes of paying the expenses and the liabilitiesof the Trust, making other permitted investments, payingamounts payable by the Trust in connection with the redemptionof any Trust Units, and making distributions to holdersof Trust Units ("Unitholders"); and (f) pay thecosts, fees and expenses associated with the foregoing purposesor incidental thereto.;

4.11 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 Amalgamationco;

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

4.13 as at December 16, 2002, there wasone Trust Unit issued and outstanding and owned by Vermilionand there were no Special Voting Rights outstanding;

4.14 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;

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

4.16 the Trust expects to make monthly distributionsof distributable income, if any, to Unitholders ("CashDistributions");

4.17 the Trust is not a "mutual fund"under the Legislation as Unitholders are not entitled toreceive on demand an amount computed by reference to thevalue of a proportionate interest in the whole or in partof the net assets of the Trust, as contemplated by the definitionof "mutual fund" in the Legislation;

4.18 Acquisitionco was incorporated pursuantto the ABCA on December 9, 2002;

4.19 the head and principal offices of Acquisitioncoare located at 2800, 400 - 4th Avenue S.W., Calgary, Alberta,T2P 4H2 and its registered office is located at 3700, 400- 3rd Avenue S.W., Calgary, Alberta, T2P 4H2;

4.20 Acquisitionco was incorporated to participatein the Arrangement by acquiring, directly or indirectly,Common Shares and Options of Vermilion;

4.21 the authorized capital of Acquisitioncopresently consists of an unlimited number of common sharesand prior to the Arrangement, Acquisitionco will amend itsArticles such that it will also be authorized to issue anunlimited number of exchangeable shares issuable in series,of which an unlimited number of Series A exchange shares("Exchangeable Shares") will be authorized andup to 6,000,000 Exchangeable Shares will be issued pursuantto the Arrangement;

4.22 as at December 16, 2002, one commonshare of Acquisitionco was issued and outstanding and ownedby the Trust;

4.23 Acquisitionco is not a reporting issuerin any of the Jurisdictions;

4.24 Exploreco was incorporated pursuantto the ABCA on December 9, 2002 and has not carried on anyactive business since incorporation;

4.25 the head and principal offices of Explorecoare located at 2800, 400 - 4th Ave. S.W., Calgary, Alberta,T2P 0J4 and its registered office is located at 3700, 400- 3rd Avenue S.W., Calgary, Alberta, T2P 4H2;

4.26 pursuant to the Arrangement, Explorecowill acquire, directly and indirectly, certain natural gasassets from Vermilion (the "Exploration Assets")and upon completion of the Arrangement, Exploreco will beengaged in the exploration for, and acquisition, developmentand production of, oil and natural gas reserves, primarilyin Alberta;

4.27 the authorized capital of Explorecoconsists of an unlimited number of common shares ("ExplorecoShares") and an unlimited number of preferred shares,issuable in series;

4.28 as at December 16, 2002, one ExplorecoShare and no preferred shares were issued and outstanding;Exploreco has also reserved a total of 2,500,000 ExplorecoShares for issuance pursuant to outstanding stock options;

4.29 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;

4.30 Exploreco is not a reporting issuerin any of the Jurisdictions;

4.31 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 January 15, 2003 (the "Meeting") and thereafter,(ii) the approval of the Court of Queen's Bench of Alberta(the "Court");

4.32 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, Vermilion, Amalgamationco and Exploreco,and a detailed description of the Arrangement;

4.33 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:

4.33.1 the Exploration Assets will betransferred from Vermilion to Exploreco in exchange forsuch number of Exploreco Shares which when added to Exploreco'sthen issued and outstanding shares shall be equal to thetotal number of Exploreco Shares to be issued on the redemptionof Interim Notes as described in paragraph 4.33.7;

4.33.2 each issued and outstanding CommonShare (other than Common Shares held by dissenting securityholders)will be exchanged with Acquisitionco for:

(a) one (1) unsecured, non-interestbearing, demand promissory note of Acquisitionco (an"Interim Note"); and

(b) in accordance with the electionor deemed election of the holder of such Common Share(other than a non-resident or tax-exempt Shareholder),one (1) unsecured promissory note of Acquisitionco (a"Note") or one (1) Exchangeable Share or acombination thereof;

4.33.3 each Option (other than Optionsheld by dissenting securityholders) will be exchangedfor consideration equal to the greater in value of:

(a) $0.05 for each Common Share subjectto issuance pursuant to such Option; or

(b)

(i) a number of Notes equal to thequotient obtained (the "Quotient") by dividingthe Exercise Price Differential of the Option dividedby the weighted average trading price of the CommonShares at the Effective Time ("Exercise PriceDifferential" means the amount by which the weightedaverage trading price exceeds the exercise price ofsuch Option, multiplied by the number of Common Sharesto which such Option relates); and

(ii) the same number of Interim Notesas the Quotient;

4.33.4 each Option acquired by Acquisitioncofor consideration of $0.05 per Option will be cancelledand each Option acquired by Acquistionco for Notes andInterim Notes will be exchanged with Vermilion for a numberof Common Shares equal to the Quotient, rounded down tothe next lowest whole number of Common Shares, and theOption will thereupon be cancelled;

4.33.5 each Note will be exchanged bythe holder thereof with the Trust for one (1) Trust Unitfor each Note held;

4.33.6 Vermilion and Acquisitionco willamalgamate to form Amalgamationco; and

4.33.7 each Interim Note will be redeemedby Amalgamationco in exchange for Exploreco Shares onthe basis of three (3) Interim Notes for one (1) ExplorecoShare;

4.34 Exchangeable Shares will not be issuedto: (i) a person who is not a resident of Canada for thepurposes of the Income Tax Act (Canada) (the "TaxAct"); (ii) a partnership that is not a Canadian partnershipfor the purposes of the Tax Act; or (iii) a person who isexempt from tax under Part I of the Tax Act. Any such personwho elects to receive Exchangeable Shares will be deemedto have elected to receive Trust Units on completion ofthe Arrangement;

4.35 holders of Common Shares and Optionswho validly exercise their rights of dissent under Section191 of the ABCA will have such securities dealt with inaccordance with the provisions of section 191 of the ABCAas modified by the interim order of the Court;

4.36 Amalgamationco will become a reportingissuer under the Legislation in British Columbia, Alberta,Ontario and Québec, and will be subject to the ContinuousDisclosure Requirements in such Jurisdictions;

4.37 the Trust will become a reporting issuerunder the Legislation in British Columbia, Alberta, Ontario,and Québec and will be subject to the ContinuousDisclosure Requirements in such Jurisdictions;

4.38 Exploreco will become a reporting issuerunder the Legislation in British Columbia, Alberta, Ontario,and Québec and will be subject to the ContinuousDisclosure Requirements in such Jurisdictions;

4.39 the Exchangeable Shares will providea holder with a security having participation, ownershipand voting rights which are, as nearly as practicable, equivalentto those of the Trust Units;

4.40 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;

4.41 under the terms of the ExchangeableShares and certain rights to be granted in connection withthe Arrangement, the Trust or a subsidiary of the Trustother than Amalgamationco (a "Trust Subsidiary")or Amalgamationco will redeem, retract or otherwise acquireExchangeable Shares in exchange for Trust Units in certaincircumstances;

4.42 in order to ensure that the ExchangeableShares remain the participation and voting equivalent ofthe Trust Units prior to their exchange, the Arrangementprovides for:

4.42.1 a voting and exchange trust agreementto be entered into among the Trust, Acquisitionco andComputershare Trust Company of Canada (the "Votingand Exchange Agreement Trustee") which will, amongother things, grant to the Voting and Exchange AgreementTrustee, for the benefit of holders of Exchangeable Shares,the right to require the Trust or a Trust Subsidiary toexchange the Exchangeable Shares for Trust Units, or totrigger automatically the exchange of the ExchangeableShares for Trust Units upon the occurrence of certainspecified events;

4.42.2 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

4.42.3 a support agreement to be enteredinto between the Trust and Amalgamationco which will,among other things, restrict the Trust from distributingadditional Trust Units or securities convertible intoTrust Units or rights, options or warrants for the purchaseof Trust Units or any other units or securities of theTrust, evidences of indebtedness of the Trust or otherassets of the Trust to all or substantially all of theholders of Trust Units, unless the same or equivalentdistribution is made to holders of Exchangeable Sharesor an equivalent change is made simultaneously to theExchangeable Shares (or in the rights of the holders thereof);

4.43 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 or potentialtrades of Common Shares, Exploreco Shares, Trust Units,Exchangeable Shares, Notes, Interim 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");

4.44 there are no exemptions from the RegistrationRequirement or the Prospectus Requirement available underthe Legislation of the Arrangement Registration and ProspectusJurisdictions for certain of the Trades;

4.45 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;

4.46 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;

4.47 the Trust proposes to implement, concurrentwith the Arrangement becoming effective, the DRIP pursuantto which Unitholders, other than non-residents of Canada,may, at their option, purchase additional Trust Units ("AdditionalUnits") of the Trust by directing that Cash Distributionsbe applied to the purchase of Additional Units (the "DistributionReinvestment Option") or by making optional cash payments(the "Cash Payment Option");

4.48 under the Distribution ReinvestmentOption, Cash Distributions due to participants in the DRIP("Participants") will be paid to ComputershareTrust Company of Canada in its capacity as the Trust's agentunder the DRIP (the "Plan Agent") and appliedby the Plan Agent to the purchase of Additional Units, whichwill be held under the DRIP for the account of appropriateParticipants;

4.49 under the Cash Payment Option, a Participantmay, through the Plan Agent, purchase Additional Units upto a maximum $5,000 per month. The aggregate number of AdditionalUnits and Bonus Units (as defined below) that may be issuedunder the Cash Payment Option to all Participants in anyfinancial year of the Trust will be limited to a maximumof 2% of the number of Trust Units issued and outstandingat the start of the financial year;

4.50 Additional Units will be purchaseddirectly from the Trust or, at the discretion of Amalgamationco,through the facilities of the TSX;

4.51 the acquisition price of AdditionalUnits purchased through the facilities of the TSX will,in respect of any date on which a Cash Distribution is paidby the Trust to Unitholders (a "Cash Distribution Date"),be based on the average price for which the Additional Unitsare acquired through the facilities of the TSX for the purposeof the DRIP, commencing on such Cash Distribution Date (the"Market Purchase Price");

4.52 the acquisition price of AdditionalUnits purchased directly from the Trust will be based onthe weighted average price of all Trust Units traded onthe TSX on the ten trading days preceding the Cash DistributionDate (the "Treasury Purchase Price");

4.53 under the Distribution ReinvestmentOption and the Cash Payment Option, the acquisition priceof Additional Units will be 100% of the Treasury PurchasePrice or the Market Purchase Price;

4.54 in addition, a number of bonus TrustUnits (the "Bonus Units") equal to 5% of the AdditionalUnits acquired under the Distribution Reinvestment Optionand the Cash Payment Option, as applicable, will be issueddirectly from the Trust to each Participant and held underthe DRIP for the account of appropriate Participants;

4.55 no commissions, service charges orbrokerage fees will be payable by Participants in connectionwith the purchase of Additional Units under the DRIP;

4.56 Additional Units and Bonus Units issuedand held under the DRIP will be registered in the name ofthe Plan Agent or its nominee as agent for the Participants,and all Cash Distributions on Trust Units so held for theaccount of a Participant will be automatically reinvestedin Additional Units in accordance with the terms of theDRIP and the election of the Participant;

4.57 if, in respect of any Cash DistributionDate, fulfilling all of the elections under the DRIP, includingthe issuance of the relevant Bonus Units, would result inthe Trust exceeding the aggregate annual limit on AdditionalUnits and Bonus Units issuable pursuant to the Cash PaymentOption, then elections for the purchase of Additional Unitson such Cash Distribution Date under the Cash Payment Optionwill be pro rated among all Participants in that categoryaccording to the Additional Units sought to be purchasedand no further optional cash payments will be accepted untilthe next financial year. Any uninvested optional cash paymentswill be returned to Unitholders;

4.58 a Participant may terminate its participationin the DRIP at any time by written notice to the Plan Agent.A notice received at least three business days prior toa distribution record date will be effective for the followingCash Distribution Date;

4.59 the Trust reserves the right to amend,suspend or terminate the DRIP at any time, provided thatsuch action shall not have a retroactive effect which wouldprejudice the interests of the Participants. All Participantswill be sent written notice of any such amendment, suspensionor termination; and

4.60 upon termination of the DRIP or a Participant'sparticipation in the DRIP, the Participant(s) will receivea certificate for all the whole Additional Units and BonusUnits held in their account, a cash payment for any fractionof a Trust Unit and return of any uninvested optional cashpayments;

4.61 there are no exemptions from the RegistrationRequirement or the Prospectus Requirement available underthe Legislation of the DRIP Registration and ProspectusJurisdictions for trades of Additional Units or Bonus Unitsby the Trust pursuant to the DRIP;

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

6. 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;

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

7.1 the Registration Requirement and ProspectusRequirement contained in the Legislation of the ArrangementRegistration and Prospectus Jurisdictions shall not applyto the Trades provided that the first trade in securitiesacquired under this Decision (other than first trades whichare themselves Trades) shall be deemed to be a distributionor primary distribution to the public;

7.2 the Prospectus Requirement containedin the Legislation of the Arrangement Registration and ProspectusJurisdictions shall not apply to the first trade in TrustUnits, Exchangeable Shares or Exploreco Shares acquiredby security holders of Vermilion under the Arrangement andthe first trade of the Trust Units acquired on the exerciseof all rights, automatic or otherwise, under such ExchangeableShares, provided that:

7.2.1 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 45102, the periodof time that Vermilion 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

7.2.2 in Québec:

(a) the Trust or Exploreco, as applicable,is and has been a reporting issuer in Québecfor the 12 months immediately preceding the trade, includingthe period of time that Vermilion was a reporting issuerin Québec immediately before 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 or Exploreco, asapplicable, the selling security holder has no reasonablegrounds to believe that the Trust or Exploreco, as applicable,is in default of securities legislation;

7.3 the Continuous Disclosure Requirementsshall not apply to Amalgamationco for so long as:

7.3.1 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;

7.3.2 the Trust concurrently sends toall holders of Exchangeable Shares resident in the Jurisdictionsall disclosure material furnished to holders of TrustUnits under the Continuous Disclosure Requirements;

7.3.3 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;

7.3.4 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;

7.3.5 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;

7.3.6 the Trust remains the direct orindirect beneficial owner of all of the issued and outstandingvoting securities of Amalgamationco; and

7.3.7 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;

7.4 the Registration Requirement and theProspectus Requirement contained in the Legislation of theDRIP Registration and Prospectus Jurisdictions shall notapply to trades of Additional Units or Bonus Units by theTrust to the Plan Agent for the account of Participantspursuant to the DRIP provided that:

7.4.1 at the time of the trade the Trustis a reporting issuer or the equivalent under the Legislationand is not in default of any requirements of the Legislation;

7.4.2 no sales charge is payable in respectthe trade;

7.4.3 the Trust has caused to be sentto the person or company to whom the Additional Unitsand Bonus Units are traded, not more than 12 months beforethe trade a statement describing:

(a) their right to withdraw from theDRIP and to make an election to receive cash insteadof Additional Units and Bonus Units on the making ofa distribution of income by the Trust (the "WithdrawalRight"); and

(b) instructions on how to exercisethe Withdrawal Right;

7.4.4 the aggregate number of AdditionalUnits and Bonus Units issued under the Cash Payment Optionof the DRIP in any financial year of the Trust shall notexceed 2% of the aggregate number of Trust Units outstandingat the start of that financial year;

7.4.5 disclosure of the distribution ofAdditional Units and Bonus Units is made to the relevantJurisdictions by providing particulars of the date ofthe distribution of such Additional Units and Bonus Units,the number of such Additional Units and Bonus Units andthe purchase price paid or to be paid for such AdditionalUnits and Bonus Units in:

(a) an information circular or take-overbid circular filed in accordance with the Legislation;or

(b) a letter filed with the DecisionMaker in the appropriate Jurisdiction by a person orcompany certifying that the person or company has knowledgeof the facts contained in the letter;

when the Trust distributes such AdditionalUnits and Bonus Units for the first time and thereafter,not less frequently than annually, unless the aggregatenumber of Additional Units and Bonus Units so distributedin any month exceeds 1% of the aggregate number of TrustUnits outstanding at the beginning of the month in whichthe Additional Units and Bonus Units were distributed,in which case the disclosure required under this paragraphshall be made in each relevant Jurisdiction (other thanQuébec) in respect of that month within ten daysof the end of such month;

7.4.6 the first trade of Additional Unitsor Bonus Units acquired under this Decision shall be deemedto be a distribution or a primary distribution to thepublic; and

7.5 the Prospectus Requirement containedin the Legislation of the DRIP Registration and ProspectusJurisdictions shall not apply to the first trade in AdditionalUnits or Bonus Units acquired pursuant the DRIP, providedthat:

7.5.1 except in Québec, the conditionsin subsections (3) or (4) of section 2.6 of MI 45-102are satisfied;

7.5.2 in Québec,

(a) the Trust is and has been a reportingissuer in Québec for the 12 months precedingthe trade, including the period of time that Vermilionwas a reporting issuer in Québec immediatelybefore the Arrangement;

(b) no unusual effort is made to preparethe market or to create a demand for the securitiesthat are the subject of the alienation;

(c) no extraordinary commission or otherconsideration is paid to a person or company in respectof the trade;

(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.

January 22, 2003.

"Glenda A. Campbell"                    "DavidW. Betts"