Securities Law & Instruments

Headnote

Mutual Reliance Review System for ExemptiveRelief Applications. Relief from registration and prospectusrequirements for trades made in connection with an arrangement.Issuer deemed to be a reporting issuer. Requirements that oneof the parties file a "current AIF" upon SEDAR tobe a qualified issuer as contemplated under MI 45-102, shallnot apply. Relief from "current AIF" requirement,subject to certain conditions.

Applicable Statutory Provisions

Securities Act, R.S.O. 1990, c. S.5, as am.,sections 25, 53, 74 and 83.1(1).

Applicable Instruments

Multilateral Instrument 45-102 Resale of Securities.

IN THE MATTER OF

THE SECURITIES LEGISLATIONOF

ALBERTA, BRITISH COLUMBIA,ONTARIO,

SASKATCHEWAN, MANITOBA, QUÉBEC,NEW BRUNSWICK,

NOVA SCOTIA, PRINCE EDWARDISLAND AND

NEWFOUNDLAND AND LABRADOR

AND

IN THE MATTER OF

THE MUTUAL RELIANCE REVIEWSYSTEM

FOR EXEMPTIVE RELIEF APPLICATIONS

AND

IN THE MATTER OF

KEYWEST ENERGY CORPORATION,

LUKE ENERGY LTD., VIKING ENERGYROYALTY TRUST,

VIKING HOLDINGS INC. AND VIKINGKEYWEST INC.

 

MRRS DECISION DOCUMENT

1. WHEREAS the local securities regulatoryauthority or regulator (the "Decision Maker") ineach of Alberta, British Columbia, Ontario, Saskatchewan,Manitoba, Québec, Nova Scotia, New Brunswick, PrinceEdward Island and Newfoundland (the "Jurisdictions")has received an application from KeyWest Energy Corporation("KeyWest"), Viking Energy Royalty Trust ("Viking"),Luke Energy Ltd. ("Luke"), Viking Holdings Inc.("VHI") and Viking KeyWest Inc. ("AcquisitionCo")(Viking, VHI and Acquisitionco collectively referred to asthe "Viking Entities") (collectively, the "Filers")for a decision pursuant to the securities legislation of theJurisdictions (the "Legislation") that:

1.1 the registration and prospectus requirementsof the Legislation (the "Applicable Legislation")in the Provinces of Alberta, Manitoba, Québec, NewBrunswick and Newfoundland (the "Applicable Jurisdictions")shall not apply to certain trades made by the Viking Entitiesin connection with a proposed plan of arrangement (the "Arrangement")involving KeyWest, Viking, Luke and the Viking Entities;and

1.2 (i) the registration and prospectusrequirements of the Legislation of Alberta, Saskatchewan,Manitoba, Québec, New Brunswick, Prince Edward Islandand Newfoundland shall not apply to certain trades madein securities of Luke; (ii) the immediate resale of thecommon shares of Luke ("Luke Shares") be allowed;(iii) Luke be declared to be a reporting issuer in eachof Alberta, Ontario and Québec from the time theArrangement becomes effective; and (iv) the requirementof Luke to have a current annual information form filedupon SEDAR under Multi-lateral Instrument 45-102 ("MI45-102") would not apply;

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

3. AND WHEREAS the Filers have representedto the Decision Makers that:

3.1 KeyWest is a corporation continued underthe CBCA and is headquartered in Calgary, Alberta;

3.2 KeyWest's business is the acquisition,development, production and marketing of petroleum and naturalgas in Western Canada;

3.3 the authorized capital of KeyWest consistsof an unlimited number of Shares and an unlimited numberof preferred shares, issuable in series, of which, as atJanuary 15, 2003, 65,813,608 KeyWest Shares and 5,105,834Options were issued and outstanding;

3.4 KeyWest is, and has been for a periodof time in excess of 12 months, a reporting issuer (wheresuch concept exists) under the Securities Laws of BritishColumbia, Alberta, Ontario and Québec. To the bestof its knowledge, information and belief, KeyWest is notin default of the requirements under the Securities Lawsor the regulations made thereunder;

3.5 the KeyWest Shares are listed and postedfor trading on the Toronto Stock Exchange (the "TSX")under the trading symbol "KWE";

3.6 Viking is a trust formed under the lawsof Alberta and is headquartered in Calgary, Alberta;

3.7 Viking's business is the acquisitionof interests in crude oil and natural gas rights and thedevelopment, production, marketing and sale of crude oiland natural gas;

3.8 the authorized capital of Viking consistsof an unlimited number of Trust Units, of which, as at January23, 2003, 55,364,931 Trust Units were issued and outstanding;

3.9 Viking is, and has been for a periodof time in excess of 12 months, a reporting issuer (wheresuch concept exists) under the Securities Laws of each ofthe Jurisdictions. To the best of KeyWest's knowledge, informationand belief, Viking is not in default of the requirementsunder the Securities Laws or the regulations made thereunder;

3.10 the Trust Units are listed and postedfor trading on the TSX under the trading symbol "VKR.UN";

3.11 Luke is a wholly-owned subsidiary ofKeyWest and is incorporated under the CBCA and headquarteredin Calgary, Alberta;

3.12 Luke has not carried on any activebusiness to date;

3.13 as part of the Arrangement, Luke willacquire certain assets (the "Retained Assets")from KeyWest in exchange for Luke Shares, which Luke Shareswill be distributed to shareholders of KeyWest. The RetainedAssets are comprised principally of certain producing propertiesand undeveloped acreage of KeyWest located in Alberta whichrepresent production of approximately 160 BOE/d (485 mmcf/dof gas and 80 bbls/d of oil), 415 mboe of proved producingreserves, and approximately 11,720 net acres of undevelopedland;

3.14 the authorized capital of Luke includesan unlimited number of Luke Shares;

3.15 Luke has applied to list the Luke Shareson the TSX;

3.16 on December 19, 2002, KeyWest and Vikingjointly announced that they had entered into an agreementto effect a business combination by way of plan of arrangementpursuant to the CBCA whereby KeyWest and Viking would combinetheir mature assets and certain of KeyWest's growth assetswould be transferred to Luke. On January 17, 2003, KeyWest,Luke, Viking, VHI and Acquisitionco entered into the ArrangementAgreement formalizing the terms and conditions upon whichthe Arrangement would occur;

3.17 under the terms of the Arrangement,KeyWest has agreed to transfer certain KeyWest propertiesto Luke and then combine the remaining business of KeyWestand Viking. The Arrangement provides that Viking (or a subsidiaryof Viking) will acquire all of the KeyWest Shares. EachKeyWest Share will be exchanged, for 0.5214 Trust Unitsof Viking (to a maximum of 28 million Trust Units) or $3.65in cash (to a maximum of $66 million). In addition, eachKeyWest Shareholder will receive 0.10 of one Luke Sharefor each KeyWest Share held. All holders of outstandingOptions have agreed to surrender and terminate their Optionsprior to the Meeting in consideration of the payment ofan amount per Option not exceeding the difference betweenthe exercise price and $3.65 for each Common Share issuableunder the Option. In connection with such agreement, eachoptionholder has acknowledged they will not be entitledto vote such Options at the Meeting and will not be entitledto exercise any rights of dissent;

3.18 under the terms of the Arrangement,KeyWest has agreed to transfer the Retained Assets to Lukeand then combine the remaining business of KeyWest withViking.

3.19 the Arrangement provides for the followingtransactions to occur on the Effective Date:

3.19.1 the Retained Assets shall be transferredby KeyWest to Luke, and Luke shall issue Luke Shares toKeyWest in consideration therefor in accordance with theterms and conditions of the Purchase and Sale Agreement.The number of Luke Shares to be issued to KeyWest shallbe: (i) the difference between the number of KeyWest Sharesoutstanding immediately prior to the effective time ofthe Arrangement (the "Effective Time") and thenumber of Luke Shares held by KeyWest immediately priorto the Effective Time, divided by ten (10); less (ii)the number of Luke Shares held by KeyWest immediatelyprior to the Effective Time divided by ten (10);

3.19.2 each issued and outstanding KeyWestShare (other than KeyWest Shares held by Dissenting Shareholders)shall be transferred to Viking KeyWest Inc. ("Acquisitionco")(free and clear of all claims) in exchange for:

3.19.2.1 Luke Share Consideration onthe basis of one Luke Note for each ten (10) KeyWestShares held; and

3.19.2.2 in accordance with the electionor deemed election of the holder of such KeyWest Shareand subject to sections 3.02 and 3.03 of the Plan ofArrangement:

3.19.2.2.1 Trust Unit considerationon the basis of one Acquisition Note for each KeyWestShare held ("Trust Unit Consideration");

3.19.2.2.2 Cash consideration on thebasis of $3.65 in cash for each KeyWest Share held("Cash Consideration"); or

3.19.2.2.3 a combination of TrustUnit Consideration and Cash Consideration;

3.19.3 each Acquisition Note shall beexchanged with Viking for 0.5214 of a Trust Unit;

3.19.4 KeyWest and Acquisitionco shallbe amalgamated (the "Amalgamation") and continueas one corporation (the "Amalgamated Corporation")in accordance with the following:

3.19.4.1 the KeyWest Shares shall becancelled without any repayment of capital;

3.19.4.2 the articles of the AmalgamatedCorporation shall be the same as the articles of Acquisitionco,and the name of the amalgamated corporation shall bethe name of Acquisitionco;

3.19.4.3 no securities shall be issuedby the Amalgamated Corporation in connection with theAmalgamation and for greater certainty, the Acquisitioncoshares, Acquisition Notes and Luke Notes shall surviveand continue to be Acquisitionco shares, AcquisitionNotes and Luke Notes of the Amalgamated Corporationwithout amendment;

3.19.4.4 the property of each of theamalgamating corporations shall continue to be the propertyof the Amalgamated Corporation;

3.19.4.5 the Amalgamated Corporationshall continue to be liable for the obligations of eachof the amalgamating corporations;

3.19.4.6 any existing cause of action,claim or liability to prosecution of any of the amalgamatingcorporations shall be unaffected;

3.19.4.7 any civil, criminal or administrativeaction or proceeding pending by or against any of theamalgamating corporations may be continued to be prosecutedby or against the Amalgamated Corporation;

3.19.4.8 a conviction against, or ruling,order or judgment in favour of or against, any of theamalgamating corporations may be enforced by or againstthe Amalgamated Corporation;

3.19.4.9 the Articles of Amalgamationof the Amalgamated Corporation shall be deemed to bethe Articles of Incorporation of the Amalgamated Corporationand the Certificate of Amalgamation of the AmalgamatedCorporation shall be deemed to be the Certificate ofIncorporation of the Amalgamated Corporation;

3.19.4.10 the by-laws of Acquisitioncoshall be the by-laws of the Amalgamated Corporation;

3.19.4.11 the first directors of theAmalgamated Corporation shall be the directors of Acquisitionco;

3.19.4.12 the first officers of theAmalgamated Corporation shall be the officers of Acquisitionco;and

3.19.4.13 the registered office of theAmalgamated Corporation shall be the registered officeof Acquisitionco; and

3.19.5 subject to adjustment as providedin the Plan of Arrangement, the Luke Notes shall be redeemedby the Amalgamated Corporation in exchange for Luke Shareson the basis of one Luke Note for one Luke Share;

3.19.6 with respect to the elections tobe made by KeyWest Shareholders other than DissentingShareholders:

3.19.6.1 each KeyWest Shareholder shallelect to receive either the Trust Unit Consideration,the Cash Consideration or a combination thereof by depositingwith the Depositary, prior to the Election Deadline,a duly completed Letter of Transmittal and ElectionForm indicating such holder's election, together withcertificates representing such holder's KeyWest Shares;and

3.19.6.2 any KeyWest Shareholder whodoes not deposit with the Depositary a duly completedLetter of Transmittal and Election Form prior to theElection Deadline, or otherwise fails to comply withthe requirements of subsection 3.02(a) of the Plan ofArrangement and the Letter of Transmittal and ElectionForm, shall be deemed to have elected to receive theTrust Unit Consideration for such holder's KeyWest Shares;

3.19.7 with respect to elections by KeyWestShareholders to receive the Cash Consideration and electionsby KeyWest Shareholders to receive a combination of theCash Consideration and the Trust Unit Consideration, theaggregate amount of cash available is limited to $66,000,000(the "Cash Limit"). With respect to electionsby KeyWest Shareholders to receive the Trust Unit Considerationand elections by KeyWest Shareholders to receive a combinationof the Cash Consideration and the Trust Unit Consideration,the aggregate number of Trust Units that may be issuedis limited to 28,000,000 (the "Trust Unit Limit").If the aggregate cash elected exceeds the Cash Limit,the amount of Cash Consideration paid to the holders ofKeyWest Shares so electing shall be prorated (based onthe fraction equal to the Cash Limit divided by the aggregatecash elected) among all such holders who made an electionto receive the Cash Consideration or an election to receivea combination of the Cash Consideration and the TrustUnit Consideration so that the aggregate amount of cashpayable to all such holders shall be equal to the CashLimit, and such holders shall receive the Trust Unit Considerationin respect of the balance of such holders' KeyWest Shares.If the aggregate Trust Units elected exceeds the TrustUnit Limit, the amount of Trust Unit Consideration issuedto the holders so electing shall be prorated (based onthe fraction equal to the Trust Unit Limit divided bythe aggregate Trust Units elected) among all holders whomade (or are deemed to have made) an election to receivethe Trust Unit Consideration or an election to receivea combination of the Cash Consideration and the TrustUnit Consideration so that the number of Trust Units issuableto all such holders shall be equal to the Trust Unit Limit,and such holders shall receive the Cash Considerationin respect of the balance of such holders' KeyWest Shares;

3.19.8 with respect to the transfer ofthe Retained Assets to Luke in exchange for the issuanceto KeyWest of the Luke Shares immediately before the EffectiveTime pursuant to subsection 3.01(a) of the Plan of Arrangement,KeyWest shall become the holder of the Luke Shares soexchanged and shall be added to the register of holdersof Luke Shares;

3.19.9 with respect to each KeyWest Shareholder(other than Dissenting Shareholders) immediately beforethe Effective Time:

3.19.9.1 upon the exchange of KeyWestShares thereof pursuant to subsection 3.01(b) of thePlan of Arrangement:

3.19.9.1.1 such holder shall ceaseto be a holder of KeyWest Shares and the name of suchholder shall be removed from the register of holdersof KeyWest Shares;

3.19.9.1.2 Acquisitionco shall becomethe holder of the KeyWest Shares so exchanged andshall be added to the register of holders of KeyWestShares;

3.19.9.2 Acquisitionco shall allot andissue to such holder the number of Luke Notes issuableto such holder on the basis set forth in subsection3.01(b)(i) of the Plan of Arrangement, and the nameof such holder shall be added the register of holdersof Luke Notes; and

3.19.9.3 Acquisitionco shall allot andissue to such holder the number of Acquisition Notesissuable and/or Cash Consideration payable to such holderon the basis set forth in subsection 3.01(b)(ii) ofthe Plan of Arrangement, and the name of such holdershall be added to the register of holders of AcquisitionNotes, as applicable;

3.19.10 upon the exchange of AcquisitionNotes for Trust Units pursuant to subsection 3.01(c) ofthe Plan of Arrangement:

3.19.10.1 such holder shall cease tobe a holder of Acquisition Notes and the name of suchholder shall be removed from the register of holdersof Acquisition Notes;

3.19.10.2 Viking shall become the holderof the Acquisition Notes so exchanged and shall be enteredon the register of holders of Acquisition Notes; and

3.19.10.3 Viking shall allot and issueto such holder the number of Trust Units issuable tosuch holder on the basis set forth in subsection 3.01(c)of the Plan of Arrangement and the name of such holdershall be added to the register of holders of Trust Units;and

3.19.11 upon the exchange of Luke Notesfor Luke Shares pursuant to subsection 3.01(e) of thePlan of Arrangement:

3.19.11.1 such holder shall cease tobe a holder of Luke Notes and the name of such holdershall be removed from the register of holders of LukeNotes;

3.19.11.2 the Amalgamated Corporationshall cease to be a holder of Luke Shares and the AmalgamatedCorporation shall be removed from the register of holdersof Luke Shares;

3.19.11.3 the Amalgamated Corporationshall transfer to such holder the number of Luke Sharesissuable to such holder on the basis set forth in subsection3.01(e) of the Plan of Arrangement, and the name ofsuch holder shall be added to the register of holdersof Luke Shares; and

3.19.11.4 all of the Luke Notes shallbe cancelled.

3.20 no certificates representing fractionalLuke Shares or Trust Units shall be issued upon the exchangeof Luke Notes for Luke Shares or Acquisition Notes for TrustUnits, as the case may be. In lieu of any fractional LukeShares or Trust Units, each registered KeyWest Shareholderotherwise entitled to a fractional interest in a Luke Shareor Trust Unit will receive the next highest whole numberof Luke Shares or Trust Units, as the case may be.

3.21 the Information Circular in connectionwith the Arrangement provided to all holders of common Shares,and filed in all of the Jurisdictions contains (or, to theextent permitted, has incorporated by reference) prospectus-leveldisclosure in respect of KeyWest, Viking and Luke;

3.22 the Retained Assets have been the subjectof continuous disclosure on an ongoing basis for more than12 months, in accordance with KeyWest's responsibilitiesas a reporting issuer;

3.23 holders of Common Shares will havethe right to dissent from the Arrangement under Section192 of the CBCA, and the Information Circular disclosesfull particulars of this right in accordance with applicablelaw;

3.24 exemptions from registration and prospectusrequirements of the Atlantic Legislation in respect of tradesmade in securities of Viking are not available. Exemptionsfrom registration and prospectus requirements of the Legislationin respect of trades made in securities of Luke in connectionwith the Arrangement and exemptions from prospectus requirementsof the Legislation in respect of first trades in Trust Unitsand Luke Shares following the Arrangement are not otherwiseavailable in all Jurisdictions;

3.25 Luke will not be a reporting issuerwithin the definitions of all of the applicable Jurisdictionsat the time of the Arrangement becoming effective;

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 and the Applicable Legislation is that:

6.1 all trades made in securities of theViking Entities in connection with the Arrangement shallnot be subject to the registration and prospectus requirementsof the Applicable Legislation;

6.2 all trades made in securities of Lukein connection with the Arrangement shall not be subjectto the registration and prospectus requirements of the Legislationin Alberta, Saskatchewan, Manitoba, Québec, New Brunswick,Prince Edward Island and Newfoundland;

6.3 except in British Columbia, Québecand Nova Scotia, the first trade in a Jurisdiction of LukeShares acquired by former holders of Common Shares in connectionwith the Arrangement shall be a distribution or primarydistribution to the public under the Legislation of suchJurisdiction, except that where:

6.3.1 Luke is a reporting issuer in ajurisdiction listed in Appendix B to Multi-lateral Instrument45-102 Resale of Securities preceding the trade;

6.3.2 the seller is in a special relationshipwith Luke, as defined in the Legislation, the seller hasreasonable grounds to believe that Luke is not in defaultof any requirement of the Legislation; and

6.3.3 no unusual effort is made to preparethe market or to create a demand for the securities andno extraordinary commission or consideration is paid inrespect of the first trades;

then such a first trade shall be a distributionor a primary distribution to the public only if it isfrom the holdings of any person, company or combinationof persons or companies holding a sufficient number ofsecurities of Luke, as the case may be, to affect materiallythe control of Luke, but any holding of any person, companyor combination of persons or companies holding more than20% of the outstanding voting securities of Luke shall,in the absence of evidence to the contrary, be deemedto affect materially the control of Luke;

6.4 in Québec, the first trade (alienation)of Luke Shares acquired by former holders of Common Sharesin connection with the Arrangement shall be distributionsunder the legislation of Québec except that where:

6.4.1 Luke is a reporting issuer in Québecimmediately preceding the trade;

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

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

6.4.4 if the selling shareholder is aninsider or officer of Luke, the selling securityholderhas no reasonable grounds to believe that Luke is in defaultof any requirement of securities legislation;

6.5 in Quebec, the alienation of Trust Unitsacquired by former holders of Common Shares in connectionwith the Arrangement shall be distributions under the legislationof Québec except where:

6.5.1 Viking is a reporting issuer inQuébec immediately preceding the trade;

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

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

6.5.3.1 if the selling shareholder isan insider or officer of Viking, the selling shareholderhas no reasonable grounds to believe that Viking isin default of any requirement of securities legislation;

6.6 upon the effectiveness of the Arrangement:

6.6.1 in British Columbia, Alberta, Saskatchewan,Ontario and Nova Scotia, the requirement contained inthe Legislation to have a Current AIF filed on SEDAR inorder to be a Qualifying Issuer under MI 45-102 shallnot apply to Luke provided that:

6.6.1.1 Luke files a notice on SEDARadvising that the Information Circular has been filedas an alternate form of annual information form andidentifying the SEDAR Project Number under which theInformation Circular was filed;

6.6.1.2 Luke files a Form 45-102F2 onor before the tenth day after the distribution day ofany securities certifying that it is a Qualifying Issuerexcept for the requirement to have a current AIF;

6.6.1.3 such order to expire 140 daysafter Luke's financial year ended December 31, 2003;and

6.7 in Québec, Luke will be exemptedfrom the requirements of sub-paragraph 1(e) of decisionno. 2003-C-0016 of the Commission des valeurs mobilieresdu Québec given that the Information Circular inconnection with the Arrangement contains prospectus leveldisclosure including audited financial statements for theyear ended December 31, 2001, for the purpose of Luke qualifyingfor the shortened hold period. This exemption will expire140 days after Luke's financial year ended December 31,2003; and

6.8 Luke shall be deemed or declared a reportingissuer at the time of the Arrangement becoming effectivefor the purposes of the Legislation of Alberta, Ontarioand Québec.

February 25, 2003.

"Stephen P. Sibold"                    "GlendaA. Campbell"