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KeyWest Energy Corporation et al. - MRRS Decision
Headnote
Mutual Reliance Review System for ExemptiveRelief Applications - Relief from the requirement that an issuerthat qualifies to use the short form prospectus distributionsystem may incorporate by reference the information requiredto be included in an information circular only if the issuer'ssecurities are distributed under the plan of arrangement.
Applicable National Instrument
National Instrument 44-101 Short Form ProspectusDistributions.
IN THE MATTER OF
THE SECURITIES LEGISLATIONOF
ALBERTA, ONTARIO AND QUÉBEC
AND
IN THE MATTER OF
THE MUTUAL RELIANCE REVIEWSYSTEM
FOR EXEMPTIVE RELIEF APPLICATIONS
AND
IN THE MATTER OF
KEYWEST ENERGY CORPORATION,
VIKING ENERGY ROYALTY TRUSTAND
LUKE ENERGY LTD.
MRRS DECISION DOCUMENT
1. WHEREAS the local securities regulatoryauthority or regulator (the "Decision Maker")in each of Alberta, Ontario and Québec (the "Jurisdictions")have received an application from KeyWest Energy Corporation("KeyWest"), Viking Energy Royalty Trust("Viking") and Luke Energy Ltd. ("Luke")(collectively, the "Filers") for a decisionpursuant to the securities legislation of the Jurisdictions(the "Legislation") that with respect tothe requirement contained in the Legislation to describe thesubstance of the matters to be submitted to KeyWest's securityholders(the "KeyWest Securityholders") at the specialmeeting (the "Meeting") to be held on February25, 2003 in the information circular dated January 24, 2003(the "Circular") provided by KeyWest to theKeyWest Securityholders, which matters must be described insufficient detail to permit the KeyWest Securityholders toform a reasoned judgment concerning said matters having referenceto a prospectus form for guidance as to what is material (the"Prospectus Form Disclosure"), KeyWest beexempt from the requirement that it must include the ProspectusForm Disclosure in the Circular (the "Prospectus FormDisclosure Inclusion Requirements"), provided thatthe Circular incorporate by reference the following informationin respect of KeyWest and Viking required under National Instrument44-101 - Short Form Prospectus Distributions ("NI44-101") to be included in a short form prospectusof KeyWest and Viking, respectively:
1.1 KeyWest's 2001 Annual Information Formincluding management's discussion and analysis of the financialcondition and results of operations of KeyWest for the yearended December 31, 2001 incorporated therein;
1.2 the audited consolidated financial statementsas at December 31, 2001 and December 31, 2000 together withthe notes thereto and the auditors' report therein, whichare contained in the 2001 Annual Report of KeyWest;
1.3 the audited consolidated financial statementsas at December 31, 2000 and December 31, 1999 together withthe notes thereto and the auditors' report thereon, whichare contained in the 2000 Annual Report of KeyWest;
1.4 the unaudited interim consolidated financialstatements as at and for the nine months ended September30, 2002 including management's discussion and analysisof the financial condition and operations for KeyWest includedtherein;
1.5 the Information Circular - Proxy Statementdated April 16, 2002 in connection with the annual meetingof shareholders held on May 28, 2002 (excluding those portionsthat are not required pursuant to NI 44-101 to be incorporatedby reference therein, being the disclosure given under theheadings, "Statement of Corporate Governance Practices","Report on Executive Compensation" and "PerformanceGraph");
1.6 the Material Change Report of KeyWestdated October 3, 2002 in respect of the $30 million equityfinancing through the issuance, by way of private placement,of up to 10,909,090 Special Warrants at a price of $2.75per Special Warrant;
1.7 the Material Change Report of KeyWestdated October 7, 2002 in relation to the closing of a productionpurchase of approximately 2,000 BOE/d, which is 95% lightoil, for an acquisition cost, before adjustments, of approximately$60,000,000;
1.8 the material change report of KeyWestdated December 19, 2002 with respect to the Arrangement(as defined below);
1.9 the prospectus of Viking dated January7, 2003, relating to the offering of Debentures;
1.10 Viking's 2001 Renewal Annual InformationForm for the year ended December 31, 2001 dated May 17,2002 including the comparative unaudited consolidated financialstatements of BXL Energy Ltd. for the three months endedMarch 31, 2001 and the comparative audited consolidatedfinancial statements of BXL Energy Ltd. for the year endedDecember 31, 2000, together with the auditor's report thereon,each attached as Schedule A thereto;
1.11 the Proxy Statement and InformationCircular dated November 1, 2002 in connection with the specialmeeting of unitholders of Viking held on December 3, 2002;
1.12 the comparative audited consolidatedfinancial statements of Viking for the year ended December31, 2001, together with the notes thereto and the auditors'report thereon;
1.13 "Management's Discussion and Analysis"of financial results and financial condition fore the yearended December 31, 2001 contained on pages 15 to 19 of Viking's2001 Annual Report;
1.14 the comparative unaudited consolidatedfinancial statements of Viking for the nine months endedSeptember 30, 2002;
1.15 "Management Discussion and Analysis"of financial results and financial condition for the ninemonths ended September 30, 2002 contained on pages 1 to3 of Viking's Third Quarter Interim Report; and
1.16 the material change report of Vikingdated December 30, 2002 relating to the proposed acquisitionof KeyWest; and
1.17 any material change reports (excludingconfidential reports), comparative interim financial statements,comparative annual financial statements and the auditors'report thereon and information circulars (excluding thoseportions that are not required pursuant to NI 44-101 tobe incorporated by reference in a short form prospectus)filed by KeyWest or Viking with the securities commissionsor similar authorities in the provinces of Canada subsequentto the date of the Circular and prior to the effective dateof the Arrangement.
2. AND WHEREAS pursuant to the MutualReliance Review System for Exemptive Relief Applications (the"System"), the Alberta Securities Commissionis the principal regulator for this application;
3. AND WHEREAS the Filers have representedto the Decision Makers that:
3.1 KeyWest is a corporation continued underthe Business Corporations Act (Canada) (the "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 atDecember 31, 2002, 65,813,608 KeyWest Shares and 5,105,834KeyWest Options 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 each ofthe Jurisdictions. To the best of its knowledge, informationand belief, KeyWest is not in default of the requirementsunder the Securities Laws or 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 KeyWest will provide holders of KeyWestShares or KeyWest Options copies of the documents incorporatedby reference in the Information Circular on request, withoutcharge, and on a timely basis,
3.7 Viking is a trust settled under thelaws of Alberta and is headquartered in Calgary, Alberta.
3.8 Viking's business is the acquisitionof interests in crude oil and natural gas rights and theexploration, development, production, marketing and saleof crude oil and natural gas.
3.9 The authorized capital of Viking consistsof an unlimited number of trust units ("Trust Units"),of which, as at September 30, 2002, 54,520,893 Trust Unitswere issued and outstanding.
3.10 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.
3.11 The Trust Units are listed and postedfor trading on the TSX under the trading symbol "VKR.UN".
3.12 Viking will provide holders of KeyWestShares or KeyWest Options copies of the documents incorporatedby reference in the Information Circular on request, withoutcharge, and on a timely basis,
3.13 Luke is a wholly-owned subsidiary ofKeyWest and is incorporated under the CBCA and headquarteredin Calgary, Alberta.
3.14 Luke has not carried on any activebusiness to date.
3.15 As part of the Arrangement, Luke willacquire certain assets (the "Luke Assets") fromKeyWest in exchange for Luke Shares, which Luke Shares willbe distributed to shareholders of KeyWest. The Luke Assetsare certain producing properties and undeveloped acreagesof KeyWest located in Alberta which represent, as at December15, 2002, production of approximately 120 BOE/d, 253 mboeof crude producing reserves, 233 mboe of proved producingreserves, 233 mboe of proved non-producing reserves and11,760 net acres of undeveloped land and associated seismicdata.
3.16 The authorized capital of Luke includesan unlimited number of Luke Shares.
3.17 Luke will apply to list the Luke Shareson the TSX.
3.18 On December 19, 2002, KeyWest and Vikingjointly announced that they had entered into the ArrangementAgreement whereby KeyWest and Viking would combine theirmature assets in Viking and transfer certain of KeyWest'sgrowth assets to Luke.
3.19 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 will acquireall of the common shares of KeyWest (the "KeyWestShares"). Each KeyWest Share will be exchanged,for 0.5214 trust units ("Trust Units")of 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 common shareof Luke ("Luke Share") for each KeyWest Shareheld. Pursuant to the Arrangement, KeyWest has agreed touse its reasonable best efforts to encourage and facilitateall persons holding options to acquire KeyWest Shares toeither exercise those options or terminate their rightsto exercise any of those options prior to the Meeting andin order to induce such holders to surrender and terminatetheir options in consideration of the payment of an amountper option not exceeding the difference between the exerciseprice and $3.65 for each KeyWest Share issuable under theoption. In connection with the Arrangement, all outstandingoptions to purchase KeyWest Shares which have not been exercisedor otherwise previously terminated on a cash buy-out, shallbe terminated.
3.20 The Circular to be forwarded to theKeyWest Shareholders in connection with the Meeting beingcalled to consider the Arrangement will contain prospectuslevel disclosure regarding the business of KeyWest, Vikingand Luke in order to satisfy the requirements of the SecuritiesLaws, where applicable.
3.21 The Circular will incorporate by referenceinformation in respect of each of the Filers required underNI 44-101 to be included in a short form prospectus (whichinformation has been filed pursuant to National Instrument13-101 - System for Electronic Document Analysis and Retrieval)of each of the Filers;
3.22 The Trust Units to be distributed inconnection with the Arrangement are of a type for whichViking is qualified under NI 44-101 to file a prospectusin the form of a short form prospectus; and
3.23 The KeyWest Shares are of a type forwhich KeyWest is qualified under NI 44-101 to file a prospectusin the form of a short form prospectus;
4. AND WHEREAS pursuant to the Systemthis 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 Makerspursuant to the Legislation is that the Prospectus Form DisclosureInclusion Requirements shall not apply in connection withthe disclosure pertaining to the Filers in the Circular, providedthat the Circular specifies how copies of the documents incorporatedby reference may be obtained on request, on a timely basis,without charge and the Circular incorporates by referencethe following information in respect of the Filers requiredunder NI 44-101 to be included in a short form prospectusof the Filers:
6.1 KeyWest's 2001 Annual Information Formincluding management's discussion and analysis of the financialcondition and results of operations of KeyWest for the yearended December 31, 2001 incorporated therein;
6.2 the audited consolidated financial statementsas at December 31, 2001 and December 31, 2000 together withthe notes thereto and the auditors' report therein, whichare contained in the 2001 Annual Report of KeyWest;
6.3 the audited consolidated financial statementsas at December 31, 2000 and December 31, 1999 together withthe notes thereto and the auditors' report thereon, whichare contained in the 2000 Annual Report of KeyWest;
6.4 the unaudited interim consolidated financialstatements as at and for the nine months ended September30, 2002 including management's discussion and analysisof the financial condition and operations for KeyWest includedtherein;
6.5 the Information Circular - Proxy Statementdated April 16, 2002, 2002 in connection with the annualmeeting of shareholders held on May 28, 2002 (excludingthose portions that are not required pursuant to NI 44-101to be incorporated by reference therein, being the disclosuregiven under the headings, "Statement of Corporate GovernancePractices", "Report on Executive Compensation"and "Performance Graph");
6.6 the Material Change Report of KeyWestdated October 3, 2002 in respect of the $30 million equityfinancing through the issuance, by way of private placement,of up to 10,909,090 Special Warrants at a price of $2.75per Special Warrant;
6.7 the Material Change Report of KeyWestdated October 7, 2002 in relation to the closing of a productionpurchase of approximately 2,000 BOE/d, which is 95% lightoil, for an acquisition cost, before adjustments, of approximately$60,000,000;
6.8 the material change report of KeyWestdated December 19, 2002 with respect to the Arrangement(as defined below);
6.9 the prospectus of Viking dated January7, 2003, relating to the offering of Debentures;
6.10 Viking's 2001 Renewal Annual InformationForm for the year ended December 31, 2001 dated May 17,2002 including the comparative unaudited consolidated financialstatements of BXL Energy Ltd. for the three months endedMarch 31, 2001 and the comparative audited consolidatedfinancial statements of BXL Energy Ltd. for the year endedDecember 31, 2000, together with the auditor's report thereon,each attached as Schedule A thereto;
6.11 the Proxy Statement and InformationCircular dated November 1, 2002 in connection with the specialmeeting of unitholders of Viking held on December 3, 2002;
6.12 the comparative audited consolidatedfinancial statements of Viking for the year ended December31, 2001, together with the notes thereto and the auditors'report thereon;
6.13 "Management's Discussion and Analysis"of financial results and financial condition fore the yearended December 31, 2001 contained on pages 15 to 19 of Viking's2001 Annual Report;
6.14 the comparative unaudited consolidatedfinancial statements of Viking for the nine months endedSeptember 30, 2002;
6.15 "Management Discussion and Analysis"of financial results and financial condition for the ninemonths ended September 30, 2002 contained on pages 1 to3 of Viking's Third Quarter Interim Report; and
6.16 the material change report of Vikingdated December 30, 2002 relating to the proposed acquisitionof KeyWest; and
6.17 any material change reports (excludingconfidential reports), comparative interim financial statements,comparative annual financial statements and the auditors'report thereon and information circulars (excluding thoseportions that are not required pursuant to NI 44-101 tobe incorporated by reference in a short form prospectus)filed by KeyWest or Viking with the securities commissionsor similar authorities in the provinces of Canada subsequentto the date of the Circular and prior to the effective dateof the Arrangement.
January 23, 2003.
"Mavis Legg"