Securities Law & Instruments

Headnote

Mutual Reliance Review System for ExemptiveRelief Applications - Exemption granted from take-over bid requirementsin connection with acquisition of shares of non-reporting issuers.Boards of directors of target companies authorized under shareholders'agreements and powers of attorney to negotiate the sale of thecompanies.

Applicable Ontario Statute

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

IN THE MATTER OF

THE SECURITIES LEGISLATIONOF

ALBERTA, BRITISH COLUMBIA,ONTARIO AND QUÉBEC

AND

IN THE MATTER OF

THE MUTUAL RELIANCE REVIEWSYSTEM

FOR EXEMPTIVE RELIEF APPLICATIONS

AND

IN THE MATTER OF

NORTHROCK RESOURCES LTD.

AND QWEST ENERGY I CORP.

AND QWEST ENERGY II CORP.

 

MRRS DECISION DOCUMENT

1. WHEREAS the local securities regulatoryauthority or regulator (the "Decision Maker") ineach of British Columbia, Alberta, Ontario, and Québec(the "Jurisdictions") has received an applicationfrom Northrock Resources Ltd. ("Northrock") fora decision under the securities legislation of the Jurisdictions(the "Legislation") that the requirements in theLegislation relating to take-over bids (the "Take-overBid Requirements") will not apply to the acquisitionby Northrock of all of the Shares (as defined below) of QwestEnergy I Corp. ("Qwest I") and Qwest Energy II Corp.("Qwest II", and together with Qwest I, the "Corporations");

2. AND WHEREAS under the Mutual Reliance Systemfor Exemptive Relief Applications (the "System"),the Alberta Securities Commission is the principal regulatorfor this application;

3. AND WHEREAS, unless otherwise defined,the terms herein have the meaning set out in National Instrument14-101 Definitions or in Québec Commission Notice14-101;

4. AND WHEREAS Northrock has represented tothe Decision Makers that:

4.1 Northrock is amalgamated under the BusinessCorporations Act (Alberta);

4.2 Northrock's head office is located inCalgary, Alberta;

4.3 Northrock is an indirect, wholly-ownedsubsidiary of Unocal Corporation, a publicly-traded companyincorporated in Delaware in the United States of Americaand whose securities are listed on the New York Stock Exchange;

4.4 Northrock is not a reporting issuerin any jurisdiction, nor are any of their securities listedor posted for trading on any stock exchange;

4.5 the Corporations were incorporated pursuantto the Company Act (British Columbia) on November24, 1999. Neither of the Corporations are extra-provinciallyregistered in any other province;

4.6 the head and principal office addressof the Corporations is located in Vancouver, British Columbia;

4.7 each of the Corporations is authorizedto issue 100,000,000 class A common shares (the "Shares"),100,000,000 class A non-voting preferred shares, 100,000,000class B common shares, and 100,000,000 class B non-votingpreferred shares, of which there are 1,960,100 Shares ofQwest I and 1,918,450 Shares of Qwest II outstanding;

4.8 pursuant to an offering memorandum (the"Offering Memorandum") dated November 25, 1999,the Corporations distributed (the "Initial Offering")units comprised of Shares and Class A preferred shares.The Corporations have not distributed any other securities;

4.9 the outstanding Class A preferred shareswere redeemed by the Corporations in 2000 and 2001;

4.10 each holder of the Shares (the "Shareholders")is entitled to one vote per Share;

4.11 the Corporations are not in defaultof any of the requirements of the Legislation;

4.12 neither of the Corporations is (orhas been) a reporting issuer in any jurisdiction, nor areany of their securities listed or posted for trading onany stock exchange;

4.13 Qwest I has 88 Shareholders (holdinga total of 1,535,100 Shares) resident in British Columbiaand one Shareholder (holding a total of 425,000 Shares)resident in Ontario;

4.14 Qwest II has 11 Shareholders (holding238,000 Shares) resident in Alberta, 57 Shareholders (holding1,616,700 Shares) resident in British Columbia and one Shareholder(holding 63,750 Shares) resident in Québec;

4.15 a total of 233,750 Shares of QwestII, and no Shares of Qwest I, have been transferred sincethe Initial Offering;

4.16 each transferee (collectively, the"Transferees") acquired the Shares as a resultof the death of an original Shareholder;

4.17 at the time of the Initial Offering,each initial Shareholder was provided with a copy of theOffering Memorandum and entered into a subscription agreementwith the relevant Corporation which, among other things,contained a shareholders' agreement (the "Shareholders'Agreements") and granted a power of attorney (the "Powersof Attorney") to the relevant Corporation;

4.18 the terms and conditions of the Shareholders'Agreements and the Powers of Attorney are identical withthe exception that one of the Shareholders' Agreements andPowers of Attorney relates to Qwest I and the other Shareholders'Agreement and Power of Attorney relates to Qwest II;

4.19 all of the Shareholders, includingeach of the Transferees, are parties to a Shareholders'Agreement and have given a Power of Attorney to the relevantCorporation;

4.20 the Offering Memorandum, Shareholders'Agreements and the Powers of Attorney provide, amongst otherthings, that:

4.20.1 each Corporation shall negotiateand complete (on behalf of the Shareholders) an agreementto sell all of the Shares of the Corporation, subjectto Shareholder approval;

4.20.2 if Shareholders approve a resolutionregarding an agreement to sell all of the Shares of theCorporation by two-thirds of the votes cast at a meetingheld for the purpose of considering such an acquisition,the Corporation shall complete the sale of all of theoutstanding Shares to the buyer; and

4.20.3 if such a resolution is approved,all Shareholders are required to sell their Shares onidentical terms and conditions;

4.21 the Corporations received an offerfrom Northrock to acquire all of the Shares (the "Acquisitions")in accordance with the Offering Memorandum, Shareholders'Agreements, and Powers of Attorney;

4.22 Northrock has agreed to purchase fromthe Shareholders, and the Shareholders (by their respectiveattorneys pursuant to the Powers of Attorney) have agreedto sell, all of the Shares;

4.23 the completion of the Acquisitionsis subject to the terms of the Shareholders' Agreements,including the approval by two-thirds of the votes cast byShareholders at a meeting to be held (the "Meeting")for the purpose of considering a resolution approving theAcquisitions (the "Special Resolution") and certainother conditions;

4.24 the board of directors of each of theCorporations (collectively, the "Boards") hascomplied in all material respects with the terms of theOffering Memorandum, Shareholders' Agreements, and Powersof Attorney with respect to the Acquisitions;

4.25 the Boards have determined that therelevant Acquisition is fair, from a financial point ofview, to the Shareholders and is in the best interests ofthe relevant Corporations and the Shareholders;

4.26 the purchase price for the Shares regardingthe Acquisitions is based on an estimate of the value ofreserves held by the Corporations as described in an independentengineering report prepared by McDaniel & AssociatesConsultants Ltd. at the request of the Boards and the estimatednet working capital of each of the Corporations;

4.27 Qwest I and Qwest II will mail an informationcircular which substantially complies with the relevantdisclosure requirements specified by the Take-over Bid Requirementsin respect of take-over bid circulars and directors' circularsto the Shareholders in respect of the Meeting;

4.28 the Boards have determined that itis in the best interests of Shareholders to sell the Sharesand will unanimously recommend to the Shareholders thatthey vote in favour of the Special Resolution;

4.29 Shareholders who control a total of30% and 18% of the Shares of Qwest I and Qwest II, respectively,have entered into voting agreements with Northrock, wherebythey have agreed to vote in favour of the relevant SpecialResolution;

4.30 there are no exemptions from the Take-overBid Requirements available to allow the Acquisitions;

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

6. AND WHEREAS each Decision Maker is satisfiedthat the test contained in the Legislation that provides theDecision Maker with the jurisdiction to make the Decisionhas been met;

7. THE DECISION of the Decision Makers underthe Legislation is that Northrock is exempt from the Take-overBid Requirements provided that the Acquisitions are completedin compliance with the Shareholders Agreements and the Powersof Attorney.

June 10, 2003.

"Glenda A. Campbell"
"Stephen R. Murison"