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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 29, 1998
COMMISSION FILE NO.
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10
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GENERAL FORM FOR REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12(b) OR 12(g) OF
THE SECURITIES EXCHANGE ACT OF 1934
PINNACLE OIL INTERNATIONAL, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<S> <C>
NEVADA 61-1126904
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
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SUITE 750, PHOENIX PLACE, 840-7TH AVENUE S.W., CALGARY, ALBERTA, CANADA T2P 3G2
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (403) 264-7020
SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
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TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH
TO BE SO REGISTERED EACH CLASS IS TO BE REGISTERED
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NONE N/A
</TABLE>
SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK
PAR VALUE $0.001 PER SHARE
(TITLE OF CLASS)
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PINNACLE OIL INTERNATIONAL, INC.
FORM 10 REGISTRATION STATEMENT
TABLE OF CONTENTS
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PAGE
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Item 1 Description of Business......................................... 1
Item 2 Financial Information........................................... 42
Item 3 Properties...................................................... 49
Item 4 Security Ownership of Certain Beneficial Owners and Management.. 49
Item 5 Directors and Executive Officers................................ 50
Item 6 Executive Compensation.......................................... 52
Item 7 Certain Relationships and Related Transactions.................. 55
Item 8 Legal Proceedings............................................... 56
Item 9 Market Price of and Dividends on the Registrant's Common Equity
and Related Stockholder Matters................................. 57
Item 10 Recent Sales of Unregistered Securities......................... 57
Item 11 Description of Registrant's Securities to Be Registered......... 59
Item 12 Indemnification of Directors and Officers....................... 62
Item 13 Financial Statements and Supplementary Data..................... 63
Item 14 Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure............................................ 63
Item 15 Financial Statements and Exhibits............................... 64
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ADVISEMENT
CERTAIN STATEMENTS CONTAINED IN THIS REGISTRATION STATEMENT CONSTITUTE
"FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995 (THE "REFORM ACT"), WHICH REFLECT THE COMPANY'S
CURRENT EXPECTATIONS REGARDING THE FUTURE RESULTS OF OPERATIONS, PERFORMANCE
AND ACHIEVEMENTS OF THE COMPANY, OR INDUSTRY RESULTS. THE COMPANY HAS TRIED,
WHEREVER POSSIBLE, TO IDENTIFY THESE FORWARD LOOKING STATEMENTS BY, AMONG
OTHER THINGS, USING WORDS SUCH AS "ANTICIPATE," "BELIEVE," "ESTIMATE,"
"EXPECT" AND SIMILAR EXPRESSIONS. THESE STATEMENTS REFLECT THE CURRENT BELIEFS
OF MANAGEMENT OF THE COMPANY, AND ARE BASED ON CURRENTLY AVAILABLE
INFORMATION. ACCORDINGLY, THESE STATEMENTS ARE SUBJECT TO KNOWN AND UNKNOWN
RISKS, UNCERTAINTIES AND OTHER FACTORS WHICH COULD CAUSE THE ACTUAL RESULTS,
PERFORMANCE OR ACHIEVEMENTS OF THE COMPANY TO DIFFER MATERIALLY FROM THOSE
EXPRESSED IN, OR IMPLIED BY, THESE STATEMENTS. (SEE, IN GENERAL, "DESCRIPTION
OF BUSINESS--UNCERTAINTIES AND RISK FACTORS" BELOW). THE COMPANY IS NOT
OBLIGATED TO UPDATE OR REVISE THESE "FORWARD-LOOKING" STATEMENTS TO REFLECT
NEW EVENTS OR CIRCUMSTANCES.
ITEM 1. DESCRIPTION OF BUSINESS
OVERVIEW
Pinnacle Oil International, Inc. (the "Company"), and its wholly-owned
subsidiaries, Pinnacle Oil Inc. ("Pinnacle Oil") and Pinnacle Oil Canada Inc.,
("Pinnacle Canada"), are engaged in the exploration, discovery and development
of hydrocarbon (oil and gas) deposits. The Company is a publicly traded
company whose common stock trades over-the-counter on the NASD Electronic
Bulletin Board under the symbol "PFSD."
The Company and its subsidiaries identify commercially viable hydrocarbon
deposits ("SFD Prospects") through the analysis of certain information ("SFD
Data") provided exclusively to the Company for petroleum and natural gas
exploration purposes by Momentum Resources Corporation ("Momentum") pursuant
to the terms of a Restated Technology Agreement (the "License"). The SFD Data
is generated by Momentum's proprietary Stress Field Detector or "SFD" used in
conjunction with the Company's proprietary electronic data acquisition and
global positioning systems (collectively, the "SFD Survey System"). The SFD
Survey System operates on the theory that subsurface mechanical stresses in
rocks and pressure differentials in fluids produce above ground, non-
electromagnetic energy patterns (which the Company refers to as a "stress
field"), which patterns can be recognized and translated by the Stress Field
Detector in the form of a digitized electronic signal (which the Company
refers to as a "wave form"). Each type of stress-influenced subsurface
condition exhibits a unique or "signature" wave form.
In field operation, the SFD Survey System is flown over a pre-selected survey
area in an airplane, and continuously records the changing wave forms from the
underlying area, together with the corresponding global coordinates associated
with each such waveform. The waveforms from the survey are subsequently
interpreted, analyzed and compared against the signatures of known viable oil
and gas pools, which allows the Company to ascertain the character and scope
of the oil and gas accumulations indicated by the wave form being examined.
The Company uses the term "SFD Anomaly" to indicate a wave form which varies
from the norm and may be associated with hydrocarbon deposits. The Stress
Field Detector and its underlying scientific theories are referred to as the
"SFD Technology."
The Company's present strategy is to exploit SFD Prospects by entering into
joint venture, working participation, royalty and other arrangements with a
small and select number of experienced, well-capitalized strategic partners.
These strategic arrangements will ultimately target both domestic (United
States and Canada) and international prospects, as well as off-shore
prospects. As of the date of this Registration Statement, the Company has
entered into joint ventures or other arrangements with three strategic
partners, Encal Energy Ltd. ("Encal") in December of 1996, February of 1997
and September of 1997 for the exploration and exploitation of prospects in
Western Canada; Renaissance Energy Ltd. ("Renaissance") in February of 1998
for the exploration of prospects in Western Canada; and CamWest Limited
Partnership ("CamWest") in April 1998 for the exploration and exploitation of
prospects in the United States and foreign countries other than Canada.
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As of the date of this Registration Statement, Renaissance has commenced
drilling activities in Canada on selected SFD Prospects. CamWest has
identified, and is in the process of acquiring, SFD Prospects in the United
States, and the Company anticipates this strategic partner will shortly
commence its drilling activities with respect to these prospects. The
Company's third strategic partner, Encal, is currently evaluating SFD Data;
the Company anticipates Encal will identify and acquire SFD Prospects in
Canada, and commence drilling activities with respect to these prospects, by
the end of 1998.
The principal executive offices of the Company and each of its subsidiaries
are located at Suite 750, Phoenix Place, 840-7th Avenue S.W., Calgary,
Alberta, Canada T2P 3G2, and its telephone number is (403) 264-7020. Unless
the context otherwise requires, all references herein to the Company include
the Company and its subsidiaries.
The information set forth in this Registration Statement is current as of June
16, 1998, unless an earlier or later date is indicated, and references to the
"date of this Registration Statement" shall be deemed to refer to such date.
DEVELOPMENT OF THE COMPANY
The Company was initially incorporated in Nevada on September 27, 1994 under
the name "Auric Mining Corporation" ("Auric"). Auric was formed by Mega-Mart,
Inc. ("Mega-Mart"), a Delaware corporation formed on January 28, 1987, for the
purpose of facilitating the change of Mega-Mart's corporate domicile from
Delaware to Nevada. On September 28, 1994, Auric and Mega-Mart entered into a
Plan Of Reorganization pursuant to which the shareholders of Mega-Mart
received 1,096,500 shares of the common stock of Auric, constituting 100% of
its outstanding capital stock, in exchange for 100% of their outstanding
shares of common stock in Mega-Mart. The Plan of Reorganization also
contemplated a subsequent merger of Mega-Mart into Auric, however, the parties
subsequently determined not to merge the companies, thereby retaining Mega-
Mart as a wholly-owned subsidiary of Auric. Auric subsequently determined that
its investment in Mega-Mart was without value, and abandoned this investment.
On March 21, 1995, the Company (as Auric) entered into a Plan Of
Reorganization with Fiero Mining Corporation, a Nevada corporation ("Fiero"),
whereby Auric agreed to issue 3,833,357 shares of common stock (constituting
approximately 16.8% of its outstanding shares of common stock) in exchange for
100% of the outstanding shares of the common stock of Fiero. Fiero was
retained as a wholly-owned subsidiary of Auric until December 16, 1995, at
which time Fiero was spun-off to the shareholders of Auric on a one share for
one share basis.
On December 12, 1995, Pinnacle Oil and the Company (as Auric) entered into a
letter of intent under which: (i) the Company agreed to issue 10,090,675
shares of the Common Stock, par value $0.001 (the "Common Stock") of the
Company (constituting approximately 92% of its outstanding shares of Common
Stock) to the shareholders of Pinnacle Oil, in exchange for all of the
outstanding shares of Common Stock of Pinnacle Oil; (ii) the Company agreed to
solicit shareholder consent to a 6:1 reverse stock split immediately prior to
the share exchange; and (iii) the Company agreed to change its name to
"Pinnacle Oil International, Inc." upon consummation of the reorganization.
Pinnacle Oil was a Nevada corporation formed on October 20, 1995, by Mr.
George Liszicasz, the inventor of the Stress Field Technology (and presently
the Chief Executive Officer, Chairman and a significant stockholder of the
Company), and Mr. R. Dirk Stinson (presently the President and a director and
significant stockholder of the Company), together with five other investors,
for the purpose of engaging in hydrocarbon exploration utilizing SFD Data
generated by the SFD Technology. Messrs. Liszicasz and Stinson formed Pinnacle
Oil pursuant to a partnership agreement amongst themselves (the "Liszicasz-
Stinson Agreement") to exploit the SFD Technology. On January 1, 1996,
pursuant to his obligations under the Liszicasz-Stinson Agreement,
Mr. Liszicasz and Pinnacle Oil entered into a license agreement (the "Original
Technology Agreement," subsequently superceded in August 1996 by the License)
whereby Pinnacle Oil obtained its original license to utilize the data
generated by the SFD Technology. For a description of the Liszicasz-Stinson
Agreement, the Original Technology Agreement, and related transactions amongst
Messrs. Liszicasz, Stinson and Pinnacle Oil, see "Item 7--Certain
Relationships and Related Transactions." For a description of the License, see
"Momentum License Agreement" below.
2
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On January 12, 1996, the shareholders and directors of the Company approved
the transactions contemplated by the letter of intent, and consented to a 6:1
reverse stock split. A formal Plan of Reorganization and Acquisition was
executed and effective as of January 20, 1996, and the change in the Company's
name to "Pinnacle Oil International, Inc." was effective on February 23, 1996.
Since the date of its formation and through the date of consummation of the
noted transactions with Pinnacle Oil, the Company (as Auric) was a holding
company and never (with the exception of Auric's subsidiary, Fiero) conducted
an active business. Auric's predecessor, Mega-Mart, was also a holding company
which conducted no active business from its date of formation through its date
of abandonment by Auric. Prior to its spin-off in December 1995, Fiero engaged
in limited gold exploration activities.
None of the officers, directors or stockholders of Pinnacle Oil or Momentum,
including Messrs. Liszicasz and Stinson, were directly or indirectly
affiliated with Auric or any of its officers, directors or stockholders during
the course of the transactions contemplated by the Plan of Reorganization and
Acquisition, and such transactions were made on an arms' length negotiated
basis. With the exception of Mr. Terrence Dunne, the secretary and a director
and nominal shareholder of Auric, the officers and directors of Auric were
replaced with officers and directors designated by Pinnacle Oil, including
Messrs. Liszicasz (as Chief Executive Officer and Chairman) and Stinson (as
President and a director), immediately following the consummation of the noted
transactions.
As a result of the noted transactions, Pinnacle Oil became a wholly owned
subsidiary of the Company, and will conduct the Company's operations in the
United States. The Company formed Pinnacle Canada, a federal Canadian
corporation, on April 1, 1997 to conduct the Company's operations in Canada.
On August 1, 1996, the Company, Pinnacle Oil, Mr. Liszicasz, Mr. Stinson and
Momentum Resources Corporation ("Momentum"), a Bahamas corporation indirectly
owned and controlled by Messrs. Liszicasz and Stinson, entered into the
License. Under the License, Momentum, as the owner of the SFD Technology,
granted to the Company use of the Stress Field Detector and SFD Technology for
the identification of hydrocarbons, through Momentum's agreement to survey
designated areas with the SFD Technology, and to provide the SFD Data
generated thereby exclusively to the Company. The initial term of the License
is ten years, with automatic renewals for one year periods absent either (i)
an election by the Company to terminate the License; or (ii) a termination by
Momentum based upon a default by the Company, or certain other events,
including a "Change in Control" of the Company (as defined in the License).
During the term of the License, Momentum is prohibited from engaging in the
identification and/or exploitation of hydrocarbons, and from granting to any
third party any license or sublicense of the SFD Technology, the Stress Field
Detector or the SFD Data for the identification and/or exploitation of
hydrocarbons.
Under the terms of the License (as amended), the Company will pay Momentum a
fee equal to 1% of "Prospect Profits" (as such term is defined in the License)
received by the Company and its subsidiaries on or before December 31, 2000,
and 5% of Prospect Profits received by the Company and its subsidiaries after
December 31, 2000. Prospect Profits is defined as the aggregate of all gross
revenues actually received by the Company with respect to the commercial
exploitation of all SFD Prospects, less all project expenses actually paid by
the Company with respect to the commercial exploitation of such SFD Prospects.
In addition, the License provides for the grant of "Performance Options" on
the Company's Common Stock for each month in which production from prospects
identified through the SFD Technology exceeds 20,000 barrels (See "Momentum
License Agreement" below).
BUSINESS OVERVIEW
Management believes that by utilizing the SFD Survey System, it has a
substantial competitive advantage over other oil and gas companies in
discovering new, highly productive oil fields. The SFD Survey System is most
effective when utilized as a "wide area exploration" tool, because the SFD
Survey System is able to identify large oil and gas deposits while moving at
speeds in excess of 150 mph in an airplane. The SFD Survey System
thus affords a capability to carry out "wide-area exploration" far more
rapidly than traditional methods, and at a fraction of the cost of those
methods.
3
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The Company's central strategy is to engage in hydrocarbon exploration
utilizing the SFD Survey System for the dual purpose of (i) validating the
technology's efficacy in identifying SFD Prospects; and (ii) establishing
joint ventures, working participations and/or royalty agreements with
experienced, well capitalized venture partners for the development,
exploitation and operation of such SFD Prospects. The Company anticipates
joint venture arrangements which will provide an election to the Company to
receive either a participating working interest or a royalty interest on SFD
Prospects which are identified by the Company. As of the date of this
Registration Statement, the Company has entered into (i) an Exploration Joint
Venture Agreement with Encal; (ii) SFD Survey and Royalty Agreements with
Renaissance; and (iii) a Joint Exploration and Development Agreement with
CamWest.
THE ENCAL EXPLORATION JOINT VENTURE
During 1996 and 1997, the Company and Pinnacle Canada entered into several
agreements with Encal, an intermediate oil and gas exploration and production
company based in Calgary, Alberta, Canada. Encal is publicly traded on the
Toronto and New York Stock Exchanges. For the three months ended March 31,
1997, Encal averaged 8,405 barrels of oil and equivalent natural gas
production per day. At December 31, 1997, Encal had 40.9 million barrels of
proven and probable oil and natural gas liquids reserves, and 605 billion
cubic feet of proven and probable natural gas reserves.
The Company's relationship with Encal began in December, 1996, when the
Company and Encal entered into their initial agreement to field test the SFD
Survey System. Under the initial agreement, the Company agreed to perform
vehicle-based surveys utilizing the SFD Survey System over specific lands
owned by Encal in southern Alberta. The initial agreement provided to the
Company the right to acquire and assume a 5% interest in any well which Encal
elected to drill on an SFD Anomaly identified by the Company, subject to
certain capital payments by the Company.
During the spring and summer of 1997, the Company enhanced the SFD Survey
System (i) to operate airborne, as opposed to in a ground-based vehicle, and
(ii) to fully incorporate a global positioning system into the data
acquisition system. In light of these enhancements and Encal's ongoing field
evaluations, the Company and Encal agreed to amend and supersede all prior
agreements, by executing an Exploration Joint Venture Agreement on September
15, 1997 (the "Encal Agreement"). The Encal Agreement currently governs the
parties' relationship, is for a term of three (3) years, and may be extended
by mutual agreement. Under the terms of the Encal Agreement:
(i) The size of each potential exploration area was expanded to 2,400
square miles.
(ii) The Company agreed to provide and maintain a minimum inventory of 18
"Exploratory Prospects" (as defined in the agreement) during the term.
(iii) The Company was granted the right to elect to either: (A)
participate at a working interest ranging from 40% to 45% of Encal's
interest (depending on underlying property rights); or (B) receive a
sliding scale gross overriding royalty from all wells on a prospect,
ranging from 5% to 8%, based on Encal's share of production.
(iv) The Company granted to Encal certain preferential rights with
respect to the SFD Survey System, including but not limited to an exclusive
right to the utilization of the system in the province of British Columbia,
and in a minimum of 50% selected regions of the province of Alberta. (For a
detailed description of the Encal Agreement, see "Joint Venture and Royalty
Agreements--The Encal Exploration Joint Venture Agreement" below).
Company management believes that the terms of the Encal Agreement reflect
Encal's recognition of the viability and value of the SFD Survey System. More
importantly, management views the venture with Encal as an opportunity to
combine the revolutionary aspects of the SFD Survey System with the expertise
and experience of an established oil and gas company. For a detailed
description of the Encal Agreement, see "Joint Venture and Royalty
Agreements--The Encal Exploration Joint Venture Agreement."
4
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CAMWEST JOINT EXPLORATION AGREEMENT
On April 3, 1998, the Company entered into a Joint Exploration and Development
Agreement (the "CamWest Agreement") with CamWest, an Arkansas limited
partnership. CamWest is a privately held oil and gas exploration company, and
an affiliate of SFD Investment LLC, which became a major investor in the
Company concurrently with CamWest entering into the CamWest Agreement. (See
"Item 10--Recent Sales of Unregistered Securities" below).
The CamWest Agreement has a term of four (4) years commencing on the date upon
which the parties first identify five mutually acceptable exploratory
prospects, and may be extended thereafter by mutual agreement. Under the
CamWest Agreement, the Company has granted to CamWest the exclusive rights to
SFD surveys in certain "exclusive areas" to be identified by CamWest;
provided, however, that such areas (i) must not be within Canada; (ii) must be
identified in segments of at least 2,400 square miles in size; and (iii)
cannot exceed an aggregate of 1,000,000 square miles within the United States,
and an additional 1,000,000 square miles outside of the United States and
Canada.
Once a prospect identified by the SFD has been accepted by CamWest as an
exploratory prospect, the Company will have an initial working interest
participation in the prospect of 45%. However, under the Camwest Agreement,
the Company may elect (i) to retain its entire 45% working interest in the
prospect; (ii) to participate at a percentage level ranging from 1% up to 45%
(the "Participation Percentage"); or (iii) to convert the interest to a gross
overriding royalty interest. If the Company does nothing, or makes an election
to participate at less than 45%, the Company will bear 45%, or the
Participation Percentage, of all land acquisition costs, and CamWest will bear
the remainder of such costs. If the Company elects to receive a sliding scale
gross overriding royalty from all wells on the exploratory prospect, the
royalty percentage will be from 5% (if production is less than 1,000 barrels
per month of crude oil) or 8% (if production is more than 1,000 barrels per
month) of CamWest's net revenue interest.
If the Company retains or elects to participate through a working interest on
an exploratory prospect, it must pay the Participation Percentage of the
acquisition costs of the petroleum or natural gas rights, as well as the same
percentage of the costs of drilling all wells and other development costs, and
CamWest will pay the balance of such costs. Where the Company has elected the
working interest, the Company will receive the Participation Percentage of
revenues from the production of petroleum substances from the applicable
exploratory prospect, and CamWest will receive the remainder of such revenues.
For a detailed description of the CamWest Agreement, see "Joint Venture and
Royalty Agreements--The Camwest Joint Exploration Agreement".
THE RENAISSANCE SURVEY AND ROYALTY AGREEMENTS
The Company's wholly-owned subsidiary, Pinnacle Canada, has entered into two
short term SFD Survey Agreements, each dated February 1, 1998 (the
"Renaissance Agreements") with Renaissance. Reuters Financial Service has
called Renaissance "Canada's busiest oil and gas driller." Renaissance is
engaged in seismic analysis, exploratory and development drilling, and
petroleum production and marketing. For the nine months ended September 30,
1997, Renaissance reported Cdn. $697,000,000 in gross revenues, oil production
of 22,154,000 barrels and natural gas production of 115,046 million cubic
feet. For the same period, Renaissance reported 1,253 wells drilled, with an
average working interest of 98%.
Under the terms of the Renaissance Agreements, Pinnacle Canada will conduct
airborne surveys utilizing the SFD Survey System over a total of 360,000 acres
in the Province of Alberta in which Renaissance holds petroleum and natural
gas rights (the "Prospect Lands"). Pinnacle Canada has agreed to conduct such
surveys during the period February 23, 1998 to March 31, 1998, and to submit
to Renaissance any "SFD Anomalies" (as defined in the agreements) identified
by the surveys by the end of such period. The Renaissance Agreements further
provide that if Renaissance, in its sole discretion (i) drills a test well on
an identified SFD Anomaly presented by Pinnacle Canada; (ii) such well is
drilled to a depth below the base of the Mississippian Formation; and
(iii) such well is spudded on or before August 31, 1998, Renaissance will
grant to Pinnacle Canada a 5% gross overriding royalty on all petroleum
substances produced from the wells drilled below the base of the Mississippian
Formation on the SFD Anomaly.
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Each Renaissance Agreement also provides that Renaissance shall reimburse
Pinnacle Canada 100% of all charter airplane costs and expenses actually
incurred by Pinnacle Canada in conducting the SFD surveys under the applicable
agreement, up to a maximum of Cdn. $25,000 under each agreement, or Cdn.
$50,000 in the aggregate. The Renaissance Agreements also contain
confidentiality provisions prohibiting either party from releasing certain
information without the prior written consent of the other party, which
consent may not be unreasonably withheld. (See "Joint Venture and Royalty
Agreements--The Renaissance Survey and Royalty Agreements" below).
THE SFD SURVEY SYSTEM
The SFD Survey System is an integrated modular electronic system comprised of
(i) Momentum's proprietary Stress Field Detector, and (ii) various electronic
subsystems proprietary to the Company, including a data acquisition system
incorporating a global positioning system ("GPS"). The SFD Survey System
operates on the theory that subsurface mechanical stresses in rocks and
pressure differentials in fluids produce above ground, non-electromagnetic
energy patterns (which the Company refers to as a "stress field"), which
patterns can be recognized by the Stress Field Detector in the form of a
digitized electronic signal (which the Company refers to as a "wave form").
Each type of stress-influenced subsurface condition exhibits a unique or
"signature" wave form. The primary component of the Stress Field Detector is
the "SFD Sensor," a passive transducer which captures or recognizes these
energy patterns.
In field operation, the SFD Survey System is flown over a pre-selected survey
area (either land or water) in an airplane. During each traverse, the
Company's data acquisition system continuously records the changing wave forms
from the underlying area captured by the Stress Field Sensor, and the
corresponding GPS coordinates associated with each such wave form.
Simultaneously, all relevant information including original and processed
signal wave forms ("SFD Profiles") are displayed on a monitor in "real time."
In addition, the SFD Survey System maintains a database of wave forms
collected in a given area, as well as creating a "library" of signatures wave
forms of known subsurface conditions for reference purposes. The waveforms
from the SFD Profiles are subsequently interpreted, analyzed and compared
against the signatures of known viable oil and gas pools, which allows the
Company to ascertain the character and scope of the oil and gas accumulations
indicated by the wave form being examined. The Company uses the term "SFD
Anomaly" to indicate a wave form which varies from the norm and may be
associated with hydrocarbon deposits. The Stress Field Detector and its
underlying scientific theories are referred to as the "SFD Technology."
As noted above, the Company has an exclusive License for the worldwide
utilization of the SFD Data for hydrocarbon exploration. Under the terms of
the License, Company personnel review and analyze the SFD Profiles for what
are termed "SFD Anomalies." SFD Anomalies are deviations and irregularities in
the SFD Profile which indicate a subsurface geological deformity, the
structural beginning of a subsurface field and/or a hydrocarbon accumulation.
If the first traverse of a location generates an SFD Anomaly, second and third
traverses of the same location are undertaken, with a different orientation or
direction on the subsequent flight or trip. Often these sequential traverses
of the site will be perpendicular to, or in the opposite direction from, the
original line of travel. In this way multiple SFD Profiles of the same site
are generated, from which a Company analyst can (i) verify the original
anomaly, (ii) further delineate the edges of the identified deformity, and
(iii) evaluate the viability of the prospect.
THEORETICAL BASIS
Momentum does not possess any patents or other registered intellectual
property rights with respect to the SFD Technology, and Momentum does not
anticipate that if it were to apply for and receive patent protection, that
such patent protection would necessarily protect Momentum and the Company from
actual or potential competition. In addition, patent counsel has advised
Momentum and the Company (i) that a patent application would inhere
unwarranted disclosure risks; and (ii) that the Company's present practices
afford common law trade secret protection. For these and other reasons,
Momentum will not disclose a comprehensive explanation of the SFD Technology.
However, a brief description of the theoretical basis and reasoning which
support the technology are set forth below.
6
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Abrupt variations in subsurface geology (called "geological deformities")
cause stresses to develop in the surrounding rock materials. It is generally
known by geologists that when certain materials in the earth's crust (such as
single crystals) rupture due to stress, they generate electromotive force as a
release mechanism. A premise of the SFD Technology is the theory that prior to
such a rupture and the release of electromotive force, there are constant sub-
atomic interactions that release non-electromagnetic energy. The SFD
Technology is based on the theory that: (i) both mechanical stress in rocks
and the pressure differentials in fluids produce non-electromagnetic energy
patterns; (ii) that the energy patterns reflect subsurface conditions which
are geological and may be hydraulic; and (iii) that the SFD Sensor, a passive
transducer which generates a quantum field, captures the interaction of these
energy patterns against the field. This interaction is registered by the SFD
Sensor as it is moved over major hydrocarbon accumulations, and these energy
patterns are converted into electrical signals that are forwarded to the data
acquisition system.
Several observations support the theory that hydrocarbon accumulations produce
the observed energy patterns:
1. THE DETECTED ENERGY PATTERNS ARE NON-ELECTROMAGNETIC. Field tests were
conducted with the SFD Sensor both (i) while shielded from electromagnetic
forces, and (ii) without such shields. In both cases the SFD Sensor registered
no change. When the sensor was subjected to high voltage static, alternating
current and/or strong magnetic fields, it did not indicate any changes in
operation. In addition, the amplitude of the signal captured by the SFD Sensor
decreased as the speed of traverse of the sensor was increased. This is
essentially the opposite of what would occur while measuring electromagnetic
energy with a conventional magnetometer.
2. THE DETECTED ENERGY PATTERNS ARE BOTH DYNAMIC AND DIRECTIONAL. In field
tests over known major faults the SFD Sensor captured energy patterns which
were dynamic while the sensor was stationary. In addition, the "radiation"
field vectors of the energy patterns showed different magnitudes during the
traverse of a known deposit.
3. THE DETECTED ENERGY PATTERNS REFLECTED KNOWN HYDROCARBON ACCUMULATIONS
WHERE TECTONIC OR MECHANICAL STRESS SHOULD NOT BE A MAJOR FACTOR. In field
tests the SFD Sensor was shown to react to the following known geological and
hydraulic phenomenon:
. Mechanical forces due to tectonic activity in areas prone to earthquakes;
. Sediment loading resulting in faulting and dewatering of sediments; and
. Pressure differentials in the subsurface that are caused by different
fluid densities.
SFD Sensor reactions were observed over faults caused by both tectonic and
sedimentary loading, in areas including the Texas and Louisiana Gulf Coast,
the San Andreas fault in California, the lower mainland of British Columbia,
and the foothills of Alberta. These observations tend to indicate that the SFD
Sensor reacts to mechanical stress in the subsurface. However, in field
observations the SFD Sensor was shown to react to known, significant
accumulations of hydrocarbons in the subsurface where mechanical and tectonic
stress would not be a major factor. In these instances it appears that the SFD
Technology reacts to energy patterns caused by pressure differentials in the
hydrocarbon accumulations themselves.
7
<PAGE>
Experts who have reviewed the SFD Technology have suggested that a possible
explanation for these reactions over significant hydrocarbon pools can be
obtained by examining the effect a column of gas or oil has on the pressure
within a reservoir, and the resulting stress on the surrounding shales. The
pressure vs. elevation graph below indicates the effect changes in the
relative density of subsurface fluids can have on the pressure within a
reservoir at any given depth.
LOGO
These pressure changes are due to buoyancy forces that develop whenever a
fluid of lower density (i.e., oil or gas) is emerged in a fluid of higher
density (water.) As the column of oil or gas becomes higher, representing a
thicker pay zone, the pressure differential caused by the buoyancy forces of
the hydrocarbons vs. the normal hydrostatic pressure of the formation waters
will increase. This increase in pressure should cause a corresponding increase
in the stress exerted on the rock that contains and confines an oil or gas
accumulation, because immediately outside the boundaries of the oil or gas
pool, the pressure with the reservoir will be consistent with the normal
hydrostatic pressure for the reservoir. This known effect of buoyancy forces
that develop due to hydrocarbon columns lends strong support to the theory
that pressure differentials in hydrocarbon accumulations produce stress energy
patterns which are detected by the SFD Sensor.
Based on field evaluations by both Company personnel and third parties,
management of the Company believes that the SFD Technology can reliably:
. Detect from an altitude of 1,000 feet major oil and gas accumulations,
sandstone or limestone/dolomite deposits at depths from 1,000 to at least
12,600 feet.
. Detect and discriminate between a wide variety of subsurface geological
deformities, including anticlines, faults, fractures, unconformities
including reefs, dome structures. Major known faults have been detected
at an altitude of 10,000 feet.
8
<PAGE>
. Detect structures, faults and hydrocarbon accumulations in shallow waters
up to 100 feet in depth. Tests have not yet been conducted over deeper
waters.
. Determine whether an identified geological trap contains gas, oil, water
or no fluid at all.
. Indicate whether a basin is shallow or deep.
. Indicate the lateral extent and horizon of a reservoir, pool or reef.
. Detect and identify large underground water beds, coal deposits and hard
rock mineral deposits.
. Indicate whether an identified hydrocarbon accumulation has sufficient
porosity and permeability to be exploitable.
To appreciate the significance of these attributes of the technology, one must
first understand certain aspects of geology and traditional oil and gas
exploration.
GEOLOGY AND TRADITIONAL EXPLORATION
GEOLOGY AND OIL ORIGINATION
Scientists generally support the "organic theory" of oil origination--that
decaying plant and animal remains, when subjected to heat, pressure and a lack
of oxygen for long periods of time, become natural gas or oil. Under the
organic theory hydrocarbons originate in decomposed prehistoric plant and
animal life. Decomposition takes place in an oxygen-free environment within
layers of mud and silt. Due to the extreme pressure of overlying beds, buried
sediments consolidate to form rock layers. Petroleum is squeezed out of source
beds and is accepted by a receiver bed in a process called "primary
migration." Once within a receiver bed, petroleum travels upward and laterally
within the receiver bed in "secondary migration" until either a suitable
"geological deformity" or "trap" is reached, or until the petroleum can find
an exit from the receiver bed. In extreme cases the petroleum may exit the
receiver bed at the earth's surface, resulting in oil or gas seepage at rock
outcrops that reach the surface. Thus oil creation occurs in three primary
phases: (i) decomposition and compaction; (ii) primary migration; and (iii)
secondary migration and accumulation.
DECOMPOSITION AND COMPACTION
Sedimentary rocks are formed by incremental particle deposition in an aqueous
or watery environment such as rivers, lakes, and oceans. Water is almost
always intimately associated with petroleum deposits. As millennium of years
pass, the sediments become thicker and thicker; or if the depositional
environment changes, one type of sediment may be replaced by the deposition of
another type of sediment. This type of activity, coupled with the eons of time
available for the process, yields sequential layers, or strata of depositional
sediments. When sediments have been buried by enough other sediments, they
become compacted rock layers or strata that contain the microscopic remains of
plants and animals.
Experts generally believe that most organic source beds are shales and
limestones. However, of all commercial petroleum deposits discovered to date,
about 60% have been located within sandstones and 40% have been found in rocks
such as limestone and dolomite. Because such a high percentage of petroleum
has been found in sandstone-type rocks, scientists believe that petroleum has
migrated, or moved, from the original shale and limestone source beds into new
receiver beds of sandstone, limestone, and dolomite. The process by which
petroleum is expelled, or squeezed out, from source beds and received by other
beds is called "primary migration."
Primary migration is dependent on porosity and permeability of surrounding
rock. Contrary to popular belief, oil and gas deposits do not exist as
underground pools or lakes. Oil and gas deposits actually occupy the
infinitesimal void spaces, or pores, between the individual grains of a rock.
Porosity is the amount of void space within a rock, expressed as a percent of
the bulk volume occupied by the rock. With respect to a reservoir, it is the
volume of the non-solid or fluid portion of the reservoir, divided by the
volume, expressed as a percentage. As the rock's
9
<PAGE>
porosity increases, its capacity to contain fluids (including petroleum)
increases. Hence high relative porosity is a requirement for a commercial
petroleum deposit to exist. Permeability is the factor within a reservoir that
determines how difficult (or easy) it is for oil to flow through the rock
formation. The permeability will be based on several factors--the property of
the fluid itself, or its viscosity; the size and shape of the formation; the
pressure, and the resulting flow.
GEOLOGICAL DEFORMITIES
As noted above, geologists believe that petroleum originates in source rock
(shale and limestone), and then moves to receiver beds of sandstone, limestone
and dolomite in primary migration. Such migration is caused by the relative
porosity and permeability of the source bed as compared to the porosity and
permeability of the receiver bed. Because oil and gas are lighter than water,
they tend to migrate upward and follow the line of least resistance, until
they either escape to the surface or are trapped by a geological deformity or
trap.
One basic assumption of geological studies is that all sedimentary beds were
originally deposited horizontally. If sedimentary rocks remained horizontal
throughout geologic time, younger rock layers or strata would always be on top
of older rock layers. However, the tectonic forces that alter the crust of the
earth-- volcanoes, earthquakes, floods--also deform its interior. These forces
shift, twist and crack rock layers that were previously neat and horizontal.
Consequently, clean-cut horizontal rock layers seldom exist. More typically, a
cross section of the earth will appear wavy, erratic and deformed. Because of
tectonic forces, no rock layers in nature are ever perfectly horizontal. When
rock layers are not horizontal, they are said to be dipping. The severity of
dip, or angle, is expressed as degrees of deviation from a horizontal plane.
Petroleum, migrating through receiver beds, can become trapped inside the
geological deformities created by tectonic forces and dipping.
SECONDARY MIGRATION AND ACCUMULATION
As noted above, primary migration from a source bed to a receiver bed occurs
when the receiver bed is more permeable than a source bed. Once petroleum has
entered a receiver bed, it will migrate straight through until it is stopped
by an overlying impermeable layer. Then, because rock layers dip, the
petroleum will have to migrate laterally (secondary migration), following the
general upward incline of the rock layers. This lateral movement will continue
until the oil and gas reaches the highest point possible and begins to
accumulate. Geological deformities that become the points of accumulation are
called "traps." Some typical traps are anticlines, faults and unconformities.
By far the most common structural traps are anticlines, in which approximately
80% of the world's oil and gas has been discovered. An anticline is an arching
up of the strata caused by a salt dome thrusting up from below, or compression
from earth movements that wrinkle the ground and produce an uplift to
counterbalance the subsidence. Anticlines often (though not always) have
surface manifestations like hills, knobs or ridges. Ideally, an anticline will
form a dome or roof of impermeable strata above a permeable oil-bearing
stratum. Oil in secondary migration will move upward through various permeable
strata, and eventually become trapped under the roof. Typically such a trap
will have gas in the space directly under the impermeable rock, a layer of
oil, and beneath that salt water.
Another important structure to oil exploration is a fault trap. A fault is a
break in the continuity of stratified rocks. Forces on either side of the
fault move in different directions or at different magnitudes. Eventually, the
force becomes greater than the rock's resistance, and the rock breaks. The
opposite faces of the break slip against one another, and the related layers
of the strata are displaced from their original positions. To the petroleum
geologist faults are significant for two reasons. On the negative side, faults
break open other types of traps and prevent oil accumulations. However, by
moving an impervious stratum across an open-ended permeable one, a fault can
form a trap for oil and prevent further migration. An anticline nose can
become an effective reservoir if a fault blocks it before oil can escape.
The size of a given petroleum accumulation depends on the amount of petroleum
available from the source beds and the size of the trap. Thus in almost all
petroleum accumulations: (i) the source bed is different from the receiver bed
in porosity and permeability; (ii) the receiver bed is overlain by an
impermeable bed called a cap or cap rock; and (iii) a geological deformity is
necessary to form a trap for petroleum accumulation.
10
<PAGE>
The accumulation of petroleum within geologic deformities or traps is the
target of exploration activities of the petroleum industry, because a
reasonably large accumulation is necessary for a commercial deposit to exist.
Therefore, a geological deformity or trap becomes a requirement for commercial
production.
REQUIREMENTS FOR A COMMERCIAL PETROLEUM DEPOSIT
Any oil and gas exploration company tries to locate and produce commercial
petroleum deposits. That is, it tries to locate deposits that exist in
sufficient quantity and quality to yield revenues from petroleum sales in
excess of investment costs, operating costs and overhead expenses.
For a viable commercial hydrocarbon accumulation, all of the following must
occur simultaneously:
1. Petroleum is contained within the pore spaces and cracks of a rock, so
the rock must have enough porosity to hold a commercial quantity of oil or
gas.
2. The permeability of a rock must be high enough to let the petroleum flow
from one pore space to another, and then to a well, at a commercial rate.
3. A sufficiently large petroleum accumulation must exist within a
geological deformity or trap.
4. A reservoir must have enough stored energy or pressure, either naturally
or artificially induced, to force the petroleum through the pore spaces and
into a well where it may be raised to the surface.
The absence of one or more of these four requirements is responsible for every
dry hole, duster, or noncommercial well ever drilled. As a result, most oil
and gas exploration activity is focused on identifying geological deformities,
and determining the porosity and permeability within the deformity.
TRADITIONAL OIL AND GAS EXPLORATION
Traditional oil exploration may be divided very roughly into two risk
categories: "wildcatting" (extremely high risk) and developmental exploration
(low to moderate risk). While there are no specific definitions of these two
categories, wildcatting generally means prospecting in a new area many miles
distant from existing deposits. Developmental exploration means prospecting in
locations that are adjacent or relatively close to existing known deposits.
True wildcat exploration activity is without question the highest-risk venture
within the petroleum industry. Historically, only 1 well drilled out of 8-15
finds enough petroleum to pay for drilling the well. Only 1 well out of 50-66
drilled yields enough petroleum to economically justify drilling an adjacent
well. And only 1 well out of 700 will discover enough petroleum to justify
developing a field extensively.
It is generally recognized that geological deformities within the earth are
necessary for commercial accumulations of petroleum to exist. Hence most
exploratory techniques have been geared toward locating these geological
deformities. Techniques that obtain subsurface geological information by
physical measurements taken at the earth's surface are called geophysical
techniques. Since the 1920s, geophysicists have used several different surface
methods to locate subsurface traps. These methods have included aerial and
satellite surveys, gravimeter and torsion balance readings, and magnetometer
surveys.
TWO DIMENSIONAL AND THREE DIMENSIONAL SEISMIC TECHNOLOGY
Although the noted geophysical methods are still used, seismic technology and
surveys have become the preferred method for wide area exploration. Most
productive or potentially productive regions in the United States and Canada
have been or are being surveyed by seismic methods. Refractive and reflective
seismic techniques are based on creating an explosion or artificial sound wave
at the surface, observing how that sound wave moves through various subsurface
layers, and recording how each layer of rock reflects the created wave.
11
<PAGE>
The seismic method is simple in concept. The subsurface is composed of layers
which vary in density and thickness. As the wave of the sound or vibration
strikes each of the layers, part of it is reflected back to the surface, where
it is detected and recorded by the seismograph. The process is comparable to a
child bouncing a rubber ball--if the ball strikes a concrete sidewalk it
reacts quite differently than it would if it landed in a pile of sand.
Seismology is really very similar. A small charge of dynamite is exploded,
usually in a shallow gully. The resulting waves spread out through the ground
encountering different strata and formations. As with the bouncing ball, each
formation reflects the energy waves according to its own "bounce"
characteristics. The waves deflect upwards to the surface where they are
picked up by geophones, sensitive detection devices embedded in the ground at
predetermined locations. The geophones are attached to cables which carry
their signals to a seismic recording truck. There they are amplified and
translated onto permanent tapes, which are used to produce maps of the
subsurface. The data is gathered over a horizontal distance and compiled to
create a vertical cross section of the earth. By careful examination of
seismic surveys, the geophysicist is able to ascertain the possibility of the
presence of oil and gas.
In the past, the traditional land-based seismic crew consisted of a party
chief in overall charge of the crew; the geologists or geophysicists who
decided where the shot would be made, plotted the locations of the various
pieces of equipment, and decided on the "pattern" to be used; the surveyors
who marked the shot hole and geophone locations in the pattern desired; the
drillers who drilled the shot holes; the loaders who made up and loaded the
explosive charges; the shooters who connected the charges and fired them on
command from the geologist; and finally, the jug hustlers who pulled the
cables from the cable truck, arranged them in the desired patterns, and
attached the geophones. After the shot was fired, the crew had to pick
everything up and quickly transport it to the next location to repeat the
process.
In the past 20 years, the use of high explosives by land-based seismic crews
has decreased greatly. While some soil and surface conditions still call for
the use of dynamite to get accurate data, today much information is garnered
by the use of vibrating or weight-dropping machines. Non-explosive seismic is
basically another method of creating man-made vibrations or waves for those
caused by an explosion. Specially designed equipment built into either wheeled
or tracked vehicles makes contact with the earth, and creates shock waves by
either dropping a heavy weight or using a vibrating device to create waves.
These penetrate the surface, strike underground formations, and are reflected
back to the seismograph in exactly the same manner as explosion-generated
waves.
One of the biggest breakthroughs in oil and gas exploration has been the
evolution from two-dimensional ("2-D") to three-dimensional ("3-D") seismic
technology. 3-D seismic surveys were first proposed commercially in 1972.
Phillips Petroleum was one of the first exploration companies to use 3-D
seismic imaging, the most advanced--and expensive--of the new techniques. This
involves recording seismic data from several thousand locations, as compared
with several hundred with traditional 2-D methods. The 3-D process compiles
the data and feeds it into a super computer (in Phillips' case a Cray 1M 2800)
which is capable of millions of computations per second. In the most advanced
systems, the computer converts the data into a cube-like picture of the
underground area under study, in place of the older seismic strip charts.
By the mid-1980s, computer aided trace interpretation systems were starting to
appear that provided electronic storage and retrieval of seismic sections.
These interpretation systems included the ability to (i) auto-track horizons
in a data set, and (ii) display the resulting maps using color schemes to
represent the height and depth of a horizon.
However, despite the 3-D nature of seismic data, interpretation was often
performed in an essentially multi-2-D manner on sequential sections through
the data set. The resulting subsurface model was then built based on surfaces
(auto-tracked horizons, hand-picked faults and unconformities). Although this
type of model may be sufficient for a structural understanding, it is only a
skeleton of the possible 3-D seismic image. The multi-level 2-D model was
lacking in "muscle" and "sinew"--the seismo-stratigraphic and reservoir
character information and complex faulting that was available from the base
data, yet seldom used. This was due to the huge manual efforts required to
interpret and extract this information from the 3-D data by hand.
12
<PAGE>
A number of technological developments contributed significantly to the wide
acceptance of 3-D seismic data during the past decade, including:
. Workstation technology
. Multi-streamer, multi-source, multi-vessel 3-D marine technology
. Onboard and real-time processing of navigation and seismic data
. Depth imaging (now utilized principally in the Gulf of Mexico)
The main contribution of these developments has been to make the 3-D product
much more available (through price and time) and impactive (through full three
dimensional visualization). With acceptance and use of 3-D technology growing,
the challenge has become computational as the industry advances beyond
conventional, but already data-intensive, 3-D processing into more
comprehensive techniques, such as depth imaging. Parallel seismic computing
has been crucial to this progress. It is parallel computer technology that has
made 3-D prestack depth imaging possible as an exploration and production
tool.
However, the processing of seismic data has significant limitations. As World
Oil has reported, industry participants have stated that "The biggest blessing
of 3-D is that you have a large volume of data that ties geology to seismic
signature. The biggest curse of 3-D is that you have a large volume of data,
and the time and money required to gather and process it is enormous."
According to World Oil, these enormous costs have resulted in projected
worldwide seismic spending (acquisition and processing) of $3,500,000,000 for
1997, and that amount is expected to reach almost $4,800,000,000 by 1999. 3-D
costs include the expense associated with using more sophisticated equipment
and computers, and covering a greater land surface area during the sweep,
which usually means increased expenses in arranging permission to use the land
with the property owners. Moreover, protracted timeframes are required for
survey design, set-up and execution, and computer processing. A seismographic
crew, covering only 25 to 50 square miles in a month, may cost $1,000,000 in
salaries, equipment and computer and geological analysis. At current prices,
3-D surveys cost $50,000-$100,000 per square mile. In water of approximately
100 feet in depth, 3-D surveys cost approximately $250,000 per square mile to
complete.
ADVANTAGES OF THE SFD TECHNOLOGY
Company management believes that SFD Technology offers significant cost and
practical advantages over traditional seismic methods.
To date the Company has focused its exploration activities in the provinces of
British Columbia and Alberta. In the relatively new exploration areas of
northern British Columbia and northern Alberta, single-line seismic surveys
cost up to $10,000 per mile (including both acquisition and processing costs).
In comparison, surveys conducted with the SFD Technology in the same areas
cost approximately $5,000 per day for 400 miles of survey work, or
approximately $12.50 per mile.
Moreover, Company management believes the SFD Technology offers the following
strategic advantages over traditional seismic:
. The SFD Technology can be operated airborne, avoiding the accessibility
and environmental concerns that limit seismic exploration.
. The SFD Technology can detect hydrocarbons and discriminate them from
other fluids, though seismic cannot. This capability could greatly reduce
drilling risks and accompanying costs.
. The SFD Profiles are captured and initially interpreted in real time.
Even with multiple traverses and several SFD Profiles, the signals are
analyzed and interpreted in a period of days. In comparison, the same
amount of seismic data would take months to analyze and interpret.
13
<PAGE>
THIRD PARTY FIELD EVALUATIONS OF THE SFD SURVEY SYSTEM
As noted above, Company management believes that the SFD Survey System offers
a unique and revolutionary alternative to traditional seismic exploration, at
a fraction of the time and cost. That belief is predicated on extensive first-
hand observation of the SFD Technology, and on the following third party field
evaluations:
. Field Evaluation by Rod Morris, Geologist, Association of Professional
Engineers, Geologists and Geophysicists of Alberta
. Field Evaluations by the Company and Encal Energy Ltd.
. Report of Field Evaluation by CamWest Limited Partnership
. Report of Gilbert Lausten Jung Associates Ltd., independent professional
engineers
A summary of each of the noted evaluations is provided below. The following
summaries are neither complete nor exact, and each summary is therefore
qualified in its entirety for reference to the complete report included as an
exhibit to this Registration Statement from which such summary is derived.
FIELD EVALUATION BY ROD MORRIS, GEOLOGIST
In September 1996 the Company retained Mr. Rod Morris, an independent
geologist, to design and conduct a field evaluation of the SFD Technology. Mr.
Morris is a geologist with over 15 years of multidisciplinary experience in
hydrocarbon exploration in western Canada. His experience includes oil and gas
exploration and development, as well as seismic data acquisition,
interpretation and research. Apart from his retention as a consultant, Mr.
Morris had no affiliation with the Company at the time of the evaluation or at
any time thereafter. Although principals of the Company were present and
cooperated during the actual field tests, the design and planning of trip
routes, and the selection of sites to be evaluated, the conclusions summarized
below were entirely those of Mr. Morris. The principals of the Company had no
input in, or prior knowledge of, the areas to be traversed, the known
accumulations therein, or the trap types which would be included.
Mr. Morris' field evaluation of the SFD Technology was conducted in the
southern portion of the province of Alberta, Canada. The evaluation involved
over 1,000 miles covered by vehicle over a period of 7 days, and 27 hours of
recordings of SFD Data. In his evaluation report, Mr. Morris indicated that he
designed the trip routes and pool targets to:
1. Assess the reliability of the SFD Technology in detecting significant oil
and gas accumulations;
2. Determine, on a "blind test" basis, whether the SFD Technology would
detect 20 previously known oil and gas pools; and
3. Test the technology's ability to detect accumulations in a variety of
hydrocarbon trap types and reservoirs.
The field tests were directed at Devonian Leduc, Nisku and Wabamun formations;
and Mississippian Pekisko and Elkton formations. Oil pools evaluated ranged in
size from 6.6 million to 88 million barrels, in place, and from 0.25 to 6
square miles in aerial extent, at depths ranging from 5,200 to 7,300 feet. Gas
pools evaluated ranged in size from 25 billion to 1.9 trillion cubic feet of
natural gas in place, and from 2 to 112 square miles in aerial extent, at
depths ranging from 5,000 to 11,700 feet.
14
<PAGE>
Specifically, the field tests were designed to profile six primary trap types,
as described below.
. FIGURE 1. illustrates a subcrop or
erosional edge trap and is
representative of typical Elkton and [CHART]
Pekisko reservoirs evaluated in central Figure 1. Subcrop Edges
Alberta. These traps are profiled by and Outliers
SFD traverses of the Chestermere Elkton
oil pool; and the Carstairs and
Crossfiled Elkton gas pools.
. FIGURE 2. is typical of Nisku pools
that develop behind the Leduc reef
margins in Alberta. These traps are a [CHART]
combination of structural highs and Figure 2. Drape over
facie changes. SFD traverses of the Structures or Reefs
Wayne-Rosedale and Drumheller Nisku "B"
oil pools were included.
. FIGURE 3. represents a typical pinnacle
reef development in the Leduc and Nisku
Formations. SFD traverses of Nisku [CHART]
patch reefs at Mikwan; and Leduc Figure 3. Isolated Pinnacle
pinnacles at Fenn West are illustrated. or Patch Reefs
At Fenn West the drape of the Nisku
formation over the underlying Leduc
Pinnacles creates multi-zone pools.
. FIGURE 4. depicts a porosity pinch out
and is the type of trap that contains
oil in the Nisku Formation at Joffre, [CHART]
and gas in the giant Wabamun pools Figure 4. Porosity Lenses
found in the Crossfield area of or Pinch Outs
Alberta. A traverse of the Crossfield
East pool is illustrated.
. FIGURE 5. illustrates a typical large
Devonian atoll in which hydrocarbons
are trapped along the updip margins of
the reef complex, or in overlying [CHART]
formations that drape over the reef Figure 5. Large Reef
margins creating a structural high. SFD Complexes and Atolls
Profiles of the Wimborne Leduc and
Nisku oil pools; and West Drumheller
Nisku "A" are representative of this
type of trap.
. FIGURE 6. is a simplified diagram of
thrust faulted structural traps that
develop along the foothills of the
Rocky Mountains. These traps are very [CHART]
complex but can contain significant Figure 6. Thrust Faults
hydrocarbon accumulations in
Mississippian and Devonian reservoirs.
A traverse of the Jumping Pound west
pool is illustrated.
15
<PAGE>
The twelve SFD Profiles included in Mr. Morris' report are summarized in the
table below.
<TABLE>
<CAPTION>
AVG. PAY, NUMBER,
OIL/ DEPTH POROSITY, PROVEN DIRECTION OF
SFD PROFILE # POOL NAME GAS FEET AREA (SQ. MI.) RESERVES(1) TRAVERSE SFD ANOMALY
- ----------------------- ---- ------ -------------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
1. CHESTEMERE ELKTON... Oil Unknown new pool 2, E to W Excellent,
and W to E repeatable
oil signature
2. WAYNE ROSEDALE D2 Oil 5,800 Up to 65 feet, new pool 2, E to W Excellent,
"A".................... 12% > 3.5 and W to E repeatable
oil signature
3. DRUMHELLER NISKU B.. Oil 5,430 31 feet, 36 MMBbls(2) 2, S to N Excellent
7.6%, 4.7 and N to S repeatable
oil signature
4. DRUMHELLER W NISKU Oil 5,500 46 feet, 63 MMBbls(2) 1, N to S Excellent
A...................... 7%, 6.7 oil signature
5. CARSTAIRS ELKTON.... Gas 7,600 Unknown Est.50 BCF(3)+ 1, N to S Good gas signature
NGLs(4)
6. CROSSFIELD EAST, Gas 8,526 31 feet, 1.3 TCF(5) 1, E to W Strong repeatable
WABAMUN................ 7%, 112 3, N to S gas signature
7. CROSSFIELD EAST, Gas 7,520 34 feet, 70 BCF(3) 3, N to S Excellent,
ELKTON................. 6%, 3.7 & 6.6 MMBbls(2) repeatable
gas signature
8. MIKWAN NISKU D2-1... Oil 7,000 Area <0.25 9 pools up to 1, N to S Distinctive SFD
9 MMBbls(2) signature
9. FENN WEST NISKU & Oil 5,800 Area < 0.25 9 pools up to 1, N to S SFD profile
LEDUC.................. 9 MMBbls(2) questionable, requires
further field work
10. WIMBOME NISKU B Oil 7,300 26, 5%, 6 & 620 BCF(3) 1, W to E Excellent gas and
LEDUC.................. 60, 8%, 24 & 88 MMBbls(2) oil signatures
Total
11. JUMPING POUND AREA, Gas 9,400- 180 feet, 874 BCF(3) & 1, E to W Strong, repeatable
RUNDLE................. 11,240 8% 7 & 2.76 TCF(5) signature
120 feet,
6%, 30
12. GADSBY CRETACEOUS... Gas 3,700 24 feet, 15 BCF(2) 1, N to S Excellent gas
20-25%, signature
<1.5
</TABLE>
- -------
(1) Reserve data derived from Alberta Energy and Utilities Board 1992 Report.
(2) MMBbls. One thousand barrels of crude oil or other liquid hydrocarbons.
(3) BCF. One billion cubic feet.
(4) NGL. Natural gas liquid.
(5) TCF. One trillion cubic feet of natural gas.
SUMMARY OF FINDINGS
The SFD field evaluations were made during three separate trips on September
18, 22 and 28, 1996. The trips were conducted on primary and secondary roads
covering a total of 1,000 miles and 27 hours of traverses throughout central
Alberta. In his report, Mr. Morris made the following observations:
. The SFD Technology produced a 95% success rate in identifying known oil
and gas accumulations in carbonate reservoirs.
. Definite anomalous SFD responses were recorded over 19 of the 20 targeted
known pools, representing all of the six trap types surveyed.
. The SFD appears to become more definitive in proportion to the size and
quality of the hydrocarbon accumulation.
16
<PAGE>
. Pools within the boundaries of larger regional hydrocarbon reservoirs
were detected, substantiating the ability of the SFD to detect multiple
horizon oil and gas accumulations.
. Oil versus gas accumulations were successfully differentiated as
experience was gained in an area.
. Existing boundaries of fully developed pools were delineated with
accuracies approaching several hundred meters.
. Signal saturation appeared to be cumulative, with decreasing instrument
sensitivity during extended use. Multiple traverses from opposing
directions must be conducted to minimize this effect.
Brief summaries of Mr. Morris' detailed discussion of each of the twelve SFD
Profiles in the report are set forth below.
DISCUSSION OF SFD PROFILES
Each of the 20 pools traversed were selected and profiled for specific
reasons, as described in each profile. The traverses were designed to test the
response, reliability and repeatability of the SFD Technology to various trap
types, pool sizes, reservoir fluids and reservoir quality. In the Crossfield
area natural gas is produced from wells that have encountered multiple
carbonate horizons. This area was profiled to test for the ability of the SFD
Technology to detect smaller pools either above or below a regionally
extensive gas bearing carbonate reservoir.
Twelve of the 20 pools traversed in the field evaluation were summarized by
Mr. Morris.
SFD PROFILE 1. CHESTERMERE ELKTON
The Chestermere Elkton pool is a recent discovery that produces 36% oil from
an Elkton Formation, erosional subcrop edge or outlier. This trap type is
shown in Figure 1, and is typical of the majority of Elkton reservoirs that
produce oil or gas in southern Alberta.
The Chestermere traverse clearly demonstrated that an erosional edge filled
with oil could be detected by the SFD Sensor. The SFD Profile and Mr.
Liszicasz' immediate interpretation of a strong oil signature established
strong credibility for the SFD Technology. This particular oil pool was
traversed twice and was successfully identified in both directions.
SFD PROFILE 2. WAYNE/ROSEDALE NISKU OIL
The Wayne/Rosedale oil pool was selected as the second pool to be traversed
for three reasons. First, the pool is a recent discovery that is being
developed with directionally drilled wells from central pads. Second, the pool
does not appear to be draped over a Leduc reef margin like other surrounding
Nisku pools. The third reason was that the Nisku Formation is a blanket
carbonate that extends over hundreds of square miles in this area, and is
approximately 100 kilometers from the Chestermere Elkton pool discussed above.
There are no known hydrocarbon accumulations in carbonate pools along the
route that was taken between these two pools. Furthermore, the route was
designed to remain on the continuous Leduc and Nisku Formation carbonate
complex. The purpose was to observe how the SFD Sensor reacted in an area
which has not produced any known carbonate pools, but has numerous shallow gas
pools and fields. In this situation many weak signals and changes in the SFD
recording were observed, but there were no violent or drastic changes similar
to the Chestermere Elkton profile.
Due to the nature of the development of the Wayne/Rosedale Nisku Pool, the
pool boundaries would not be obvious to the casual observer. Most of the
surface equipment is located at central pads with directional wells that are
deviated up to 0.5 miles laterally. Although the terrain is open prairie, the
rolling land also obscures any vision of the limited surface equipment as the
pool is approached.
There was no prior warming to the operators of the SFD that a significant oil
pool was being approached. At the south western margin of the pool the SFD
Sensor produced a strong anomalous reading, which continued until 300 meters
past the most northeastern wells in the pool. Dramatic variations in the
amplitude of the signal were also observed, which appeared to indicate changes
in the reservoir quality, pay thickness or continuity.
The Wayne/Rosedale Nisku oil pool was profiled on two separate traverses from
opposing directions. Both traverses recorded powerful SFD signatures, and
support the ability of the SFD Sensor to detect localized hydrocarbon
accumulations within regionally extensive carbonate banks.
17
<PAGE>
SFD PROFILE 3. DRUMHELLER NISKU "B" POOL
The Drumheller Nisku "B" oil pool is approximately 7 miles north of the
Wayne/Rosedale Nisku pool, and was discovered in 1961. It is important to note
that 34 years elapsed before the next major Nisku oil pool was discovered,
although the second oil pool is only 7 miles to the south of the original
pool.
The Drumheller Nisku "B" pool is formed by a combination of drape along the
underlying Leduc carbonate bank margin, structural highs and patch reef
development. This is similar to the trap shown in Figure 2, but with elements
of the traps shown in Figure 5. This pool is thought to be very similar to the
Wayne/Rosedale pool described above.
A traverse across this pool was done to observe how the SFD Sensor would
profile a very complex reservoir. The Drumheller Nisku "B" pool is well known
for being heterogeneous in geographic as well as reservoir development.
Especially along its eastern flank, oil wells that produce hundreds of
thousands of barrels of oil can be offset by 200 meters and encounter water
filled reservoir.
The SFD Profile of this pool was very abrupt with sharp boundaries. The full
meaning of this signature would require detailed waveform analysis and
comprehensive study of future surveys. However, there is no doubt that the SFD
Sensor reacted very dramatically when traversing this pool.
SFD PROFILE 4. WEST DRUMHELLER NISKU "A"
The West Drumheller Nisku "A" pool is located 5 kilometers west of the
Drumheller Nisku "B" pool discussed above. This pool is typical of the trap
type illustrated in Figure 5. The trap was created by drape over the
underlying margin of the Leduc carbonate complex. In portions of the pool,
both the Leduc and Nisku Formations contain oil. This pool was traversed in
order to compare its SFD Profile with that of the more irregularly shaped and
heterogeneous Drumheller Nisku "B" pool discussed immediately above. The SFD
Profiles of the two pools displayed dramatically different SFD signatures,
even though they produce from the same formation and are only 5 kilometers
apart. However, the SFD Sensor produced strong anomalous readings over both
pools.
SFD PROFILE 5. CARSTAIRS ELKTON
The Carstairs Elkton Gas pool was discovered in September of 1995. The pool is
typical of the trap type illustrated in Figure 1, and is essentially the same
type as the Chestermere pool, except Carstairs is a gas and natural gas
liquids pool.
The Carstairs pool was originally discovered using a combination of 2-D
seismic and subsurface geological information from surrounding well bores. The
original 2-D seismic interpretation indicated that there was a potential
erosional remnant of the Elkton formation that had not been previously
drilled. The Elkton Formation to the west of Carstairs had been producing
natural gas for over 35 years. The seismic over the prospect was tied to the
older Elkton "A" gas pool and surrounding wells that had not encountered the
Elkton reservoir.
Subsequent reprocessing of a key seismic line over the prospect indicated that
the proposed exploration well would not encounter any Elkton Formation, and
would likely result in a dry hole. The reprocessed seismic data was ultimately
ignored and the prospect was drilled based upon the original interpretation.
The well is currently producing 20-25 MMCF and 1000 Bbls of NGL per day.
The key lesson in the above history is that seismic does not provide a unique
interpretation of the subsurface. After fifty plus years of development, the
geophysical industry is still learning how to acquire, process and interpret
seismic data. Furthermore, only in very specific circumstances can seismic
make any indication of the type of reservoir fluids.
The purpose of the SFD traverse was three-fold: (i) to compare the signature
with that of the Chestermere oil discovery (SFD Profile 1); (ii) to determine
if the SFD could detect relatively small carbonate gas pools; and
18
<PAGE>
(iii) to examine the potential size of the Carstairs discovery. The SFD
Profile of the Carstairs Elkton pool clearly produced a strong anomalous
reading. North and south boundaries of the pool were well defined by the SFD.
The profile was similar in character to that of Chestermere Elkton (SFD
Profile 1), except the profile was much "tighter", indicating gas as opposed
to oil.
SFD PROFILE 6. CROSSFIELD EAST WABAMUN
Crossfield in Alberta is famous for the giant Wabamun and Elkton formation gas
pools that have been producing in this area since the later 1950s. The Wabamun
Crossfield member reservoir is a porous dolomite, sandwiched between tight
limestone and sealed up dip by anhydrite and salts. The trap type is
illustrated in Figure 4.
The traverse of this reservoir was designed to determine if the SFD Technology
could detect pools that did not have a significant structural component, or a
major change in reservoir thickness that controlled the development of the
reservoir. The blanket-like nature of the Crossfield reservoir, and the
tremendous aerial extent, would also indicate to what degree "saturation" (or
extended use) of the SFD can become a factor in the effectiveness of the
device. Finally, the Crossfield east pool has several overlying Elkton pools
that are completely enclosed within the boundaries of the Wabamun pool. This
would allow an opportunity to observe SFD signatures over multi-formation
carbonate pools.
The SFD Profile for this reservoir reflected the following:
1. Elevated base level of the overall SFD Profile;
2. Sharp increases in amplitude across known Elkton accumulations;
3. Oil (as opposed to gas) signals observed across shallower Cretaceous oil
pools; and
4. Significant drops in the SFD signal amplitude in areas where the
Crossfield member of the Wabamun is known to be tight and non-productive.
The results of three traverses of the Crossfiled area all showed SFD
Anomalies, verifying the repeatability of an SFD Anomaly signature. They also
substantiated the ability of the SFD Technology to detect multiple zone pools
and their boundaries with a high degree of accuracy and repeatability, in
areas where regionally extensive hydrocarbon reservoirs are known to exist.
SFD PROFILE 7. CROSSFIELD EAST ELKTON "A"
The Crossfield East Elkton "A" profile was a part of the Crossfiled East
Wabamun (SFD Profile 6). The Crossfield SFD Profile was included to examine
the type of SFD signature that would be obtained from a pool within a pool.
The pool is an Elkton formation outlier that is typical of the trap type shown
in Figure 1.
The Elkton "A" pool traverse is important because it demonstrates the ability
of the SFD Sensor to detect smaller pools within the boundaries of larger
pools. The SFD Sensor recorded an abrupt increase in readings on entering the
Elkton "A" pool, despite the elevated background levels of the underlying
Wabamun reservoir. The change in signal strength closely matched the proven
limits of the pool. This ability to detect the Elkton "A" pool was
demonstrated on three separate field excursions. These observations indicate
that the SFD Technology could be used to detect "sweet spots" within regional
reservoirs, by matching SFD signal characteristics with detailed mapping of
known reservoir production information.
SFD PROFILE 8. MIKWAN NISKU
The Mikwan Nisku D2-1 pool was traversed to determine whether small patch
reefs could be detected with the SFD Technology. The reservoir trap type is
illustrated in Figure 3. The Mikwan Nisku D2-1 is a single well
19
<PAGE>
pool with less than 160 acres of aerial extent. The patch reefs are encased in
a tight anhydrite off reef facies that provides the lateral and vertical
seals. Although these pools are small, they are very prolific producers.
Historically, these pools have been very difficult to detect, even with 3-D
seismic technology.
SFD Profile 8 illustrated an SFD signature that was recorded approximately 300
feet west of the producing well on a north to south traverse. The SFD
signature showed an abrupt increase in amplitude and activity at that
location.
SFD PROFILE 9. FEN WEST NISKU AND LEDUC
The Fen West area has several prolific Leduc pinnacle reefs that were
discovered in the early 1980s. After the initial discovery the area was the
target of intense exploration efforts by the oil and gas industry. However,
the reefs proved to be a difficult and expensive target. This was primarily
due to the small aerial size of the pools. Figure 3 is a diagram typical of
pinnacle reef traps.
The reefs are usually less than 320 acres (approximately 0.5 square miles) in
size, and several are believed to be less than 35 acres in size. Despite the
small aerial extent, such pools can hold significant oil reserves with larger
reefs capable of producing several million barrels of oil.
Historically, locating reefs without having to shoot large grids of closely
spaced 2-D or 3-D seismic surveys has not been possible. Therefore, the
purpose of the traverses in the Fenn West area were to determine whether the
SFD could detect these small target reefs.
Several producing Leduc reefs were traversed during the field evaluations. The
results were mixed and further work would be required before a conclusion
could be reached as to the validity of SFD sampling for this type of trap.
SFD Profile 9 did not record any signals across an area that has three known
Leduc pinnacles within 1.5 square miles. However, closer inspection revealed
that three wells were directionally drilled virtually directly under the road
that was used to traverse the area. Two of these wells were dry holes and the
third did not produce enough oil to justify the cost of drilling.
This profile raised many questions, especially after the success encountered
in detecting equally small Nisku patch reefs in the Mikwan (SFD Profile 8). It
should be noted that this was the only planned SFD traverse of a known
hydrocarbon pool that did not record an SFD Anomaly.
SFD PROFILE 10. WIMBOME LEDUC AND NISKU
The Wimborne Leduc and Nisku pools were selected to test the lateral
resolution of the SFD signals. These two pools represent the trap type
illustrated in Figure 5. They are situated along the updip margin of the Leduc
reef complex, which covers several hundred square miles. These pools are
different in fluid composition, in that the Leduc reservoir has a substantial
associated gas column (45 feet) above a relatively thinner oil column
(15 feet); while the Nisku D2-A pool does not have an associated gas column.
During the traverse of the Nisku pool the SFD Sensor correctly identified the
Niksu as an oil pool, and the limits of the pool were very precisely defined
in the profile. As the Leduc pool was traversed Mr. Liszicasz correctly
identified the limits of the pool, and also made remarks regarding the signal
that indicated a much more "gassy" reservoir. These remarks were made without
any prior knowledge of either the producing zone or the fluid type. The
results of this traverse indicate that SFD profiling can identify separate
hydrocarbons within a given reservoir.
SFD PROFILE 11. JUMPING POUND WEST RUNDLE
The Jumping Pound and Jumping Pound West pools are giant gas reservoirs found
along the eastern margin of the Rocky Mountains. The pools are contained in
traps similar to Figure 6, although this is an extremely simplified
representation of these complex traps.
20
<PAGE>
The geology of these pools is very complex due to the thrust faulting that
created the traps. The reservoir and surrounding formations are often inclined
at steep angles, or tightly folded, which makes seismic imaging of these
reservoirs extremely difficult. Thrust faulting creates fractures and fault
planes that can enhance the productivity of the reservoir, but which also
scatter seismic reflections.
These pools were selected for two reasons. First, to evaluate the ability of
the SFD Sensor to detect hydrocarbons in purely structural traps. Second, to
evaluate the horizontal resolution of the SFD in heavily structured areas. The
later would provide clues as to whether the SFD Sensor would detect the pools
at the surface expression of the thrust faults, or actually above the
underlying pool.
For this test the SFD Sensor was calibrated to acquire only high energy
signals. This was due to the SFD Sensor's propensity to react to strong
faulting in the region. During the traverse recorded the SFD recorded strong
anomalous signatures directly above the Jumping Pound and Jumping Pound West
pools. Both of the SFD signatures were comparable in character, but the larger
Jumping Pound West anomaly was stronger and wider than the signature of the
smaller Jumping Pound pool.
These pools were traversed on three separate road trips with anomalous
signatures recorded each time. These signatures indicated that the SFD not
only detects hydrocarbon reservoirs, but inferences can indicate the relative
size of two adjacent anomalies. These findings indicate that examination of
the magnitude of two proximate SFD signatures could allow geologists to place
a relative ranking on the size of separate prospects.
SFD PROFILE 12. GADSBY CRETACEOUS GAS.
Although the field evaluations of the SFD were targeted at carbonate
reservoirs in central Alberta, many Cretaceous age oil and gas pools were
traversed during the miles of surveys. Most of these pools were shallow gas
pools (at less than 1,500-2,000 feet). However, several significant SFD
Anomalies were encountered and clearly recorded over Cretaceous age clastic
reservoirs. These reservoirs had one common characteristic--they have all
produced abnormally high volumes of gas in comparison to surrounding wells.
Although the SFD Technology recorded anomalies over these reservoirs, more in-
depth study would be required before any detailed conclusions could be drawn
regarding the technology's effectiveness in analyzing classic reservoirs.
FIELD EVALUATION BY ENCAL ENERGY LTD.
BACKGROUND
As noted above, Encal is an intermediate oil and gas exploration and
production company based in Calgary, Alberta, Canada. The Company's
relationship with Encal began on December 13, 1996, when the Company and Encal
entered into their initial joint venture agreement. The primary purpose of the
initial agreement was to field test the SFD Technology. In September of 1997
the Company and Encal entered into the Encal Agreement, which provides for the
worldwide exploration, development and subsequent production of petroleum
substances through the utilization of the SFD Technology by the Company and
Encal. (See "Joint Venture and Royalty Agreements--The Encal Exploration Joint
Venture Agreement" below).
Under the initial agreement, in December 1996 the Company acquired several
hundred miles of SFD Data in Southern Alberta. Encal personnel were not
present during the recording of this data. After interpretation by the
Company, the SFD Data was shown to the Encal staff with the location of SFD
Anomalies marked on topographic maps.
By July 1997, the Company redesigned the SFD Survey System for airborne
surveying by, among other things, incorporating a global positioning system
into the data acquisition system. Between August and October of 1997,
approximately 8,300 miles of airborne SFD Data was acquired by the Company for
Encal during 22 flights throughout Alberta and British Columbia. An Encal
geologist was present on the aircraft and witnessed the recording of SFD Data
for most of these flights.
21
<PAGE>
GENERAL OBSERVATIONS
Encal geologists made the following observations concerning SFD output and
interpretation:
. Man made electromagnetic conductors such as power lines, pipelines,
railroads or well casings generally do not correlate with SFD Anomalies.
. Known geologic faults, major stratigraphic changes and known oil and gas
pools each generally had an SFD Anomaly associated with them.
. The type of SFD Anomalies observed over gas fields appears to be
different than the anomalies observed over oil fields.
. Larger oil and gas pools have more obvious SFD Anomalies associated with
them than smaller oil and gas pools.
. By carefully examining the SFD Profiles within an oil or gas field, the
Company personnel could, in some cases, accurately predict the location
of the better wells within that field.
Observations by Encal geologists were made in three contexts:
1. Pool Identification by the SFD Technology;
2. Seismic Evaluations of SFD Anomalies; and
3. Well Predictions by the SFD Technology
POOL IDENTIFICATION BY THE SFD TECHNOLOGY
Encal designed a series of SFD survey flights for the purpose of evaluating
the response of the SFD Sensor to existing oil and gas pools. The following
statistics reflect preliminary interpretations that the Company provided for
nine SFD survey flights conducted over Central Alberta during August of 1997.
. A total of 192 "pool crossings" were tabulated from the 9 test flights. A
"pool crossing" occurs when a flight line passes within 500 meters of a
producing well or group of wells in the same pool. Pool designations were
provided by the Alberta Energy Utilities Board (AEUB).
. 129 of the pool crossings included in the SFD surveys were analyzed and
interpreted by Company personnel.
. SFD Anomalies were identified by the Company on 67% of the 129 single
line pool crossings.
. 23 pools had more than one crossing. In these multiple crossing cases,
the Company identified SFD Anomalies consistent with the crossings 75% of
the time.
. The AEUB pool reserve data was reviewed for 64 different pools for which
the Company had interpreted the SFD flyovers. This analysis showed that
larger reserve pools were more likely to produce SFD Anomalies than
smaller reserve pools. Within this segment, 91% of pools with more than 5
million barrels or 50 BCF in-place produced SFD Anomalies, and 63% of
pools with less than 5 million barrels or 50 BCF in-place produced SFD
Anomalies.
SEISMIC CONFIRMATIONS OF SFD ANOMALIES
Encal acquired, reviewed and completed the interpretation of seismic data for
the purpose of evaluating 9 different undrilled SFD Anomalies. For 8 of these
9 SFD Anomalies, the location of changes in seismic amplitude or time
structure corresponded to the geographic location of the SFD Anomalies. For
the remaining SFD Anomaly, no seismic anomaly was mapped, however, the Company
also classified this SFD Anomaly as being weak. It should be noted that the
occurrence of a seismic amplitude or time structure anomaly does not
necessarily confirm or imply the presence of commercial hydrocarbons in the
subsurface.
22
<PAGE>
WELL PREDICTIONS BY THE SFD TECHNOLOGY
During the late summer of 1997, Encal drilled and evaluated three wells over
which the Company had previously conducted airborne SFD surveys, and
interpreted the results of such surveys. All three wells were located in the
Western Canadian Sedimentary Basin, and all three well locations were selected
for drilling independently by Encal's technical staff based on conventional
geological and geophysical data and interpretations. These wells were selected
for drilling prior to any SFD surveys being conducted. Prior to the time that
each well reached its primary target, the Company's predictions regarding the
outcome of these three wells were communicated verbally by Mr. George
Liszicasz to Encal, and in writing to Gilbert Laustsen Jung Associates Ltd.,
an independent engineering firm hired to review the process.
The three wells, the Company's outcome predictions, and the actual drilling
results were as follows:
1. WELL #1 WEST CENTRAL ALBERTA was drilled between August 24 and September
-------------------------------
15, 1997, to 2,978 meters in the Devonian Beaverhill Lake Formation. This well
was targeting a seismically defined Leduc Formation pinnacle reef buildup, and
was expected to discover light conventional crude within this interval. SFD
survey data was acquired over the location on five separate flights flown
between August 2 and August 22, 1997. Based on interpretations of the SFD
surveys, Mr. Liszicasz predicted that "no structures and no economic
hydrocarbons would be encountered in this well".
THE WELL RESULTS CONFIRM THIS PREDICTION. A Leduc reef buildup was not
----------------------------------------
found, and no other potentially commercial hydrocarbon zones were identified
from borehole information. No drillstem or production testing was performed on
this well, and the well was declared dry and abandoned.
2. WELL #2 WEST CENTRAL ALBERTA was drilled between August 26 and September
-------------------------------
27, 1997, to 3,375 meters in the Devonian Winterburn Formation. This well was
targeting a seismically defined Wabamun stratigraphic porosity development,
and was expected to discover natural gas within this porosity interval. SFD
survey data was acquired over the location on three separate flights flown
between August 19 and August 23, 1997. Based on interpretations of the SFD
surveys, Mr. Liszicasz predicted that "the Wabamun interval would be dry, but
that a shallower zone would produce hydrocarbons at a gross rate not exceeding
2 million cubic feet per day".
THE WELL RESULTS CONFIRM THIS PREDICTION. The well failed to encounter any
----------------------------------------
significant porosity development within the Wabmun Formation, and the lower
portion of this wellbore was declared dry and abandoned. However, the well did
encounter a significant hydrocarbon show in the Cardium Formation, at an
approximate drilling depth of 1,925 meters. This zone was subsequently
completed, fractured and production tested to yield conventional light oil at
an initial rate of 75 barrels per day. During December of 1997, the well
produced clean oil at a gross average rate of 30 barrels per day. No other
zones in this well are considered capable of commercial hydrocarbon
production.
3. WELL #3 WEST CENTRAL ALBERTA was drilled between September 11 and
-------------------------------
September 27, 1997, to 1,965 meters in the Lea Park Formation. This well was
targeting a basal Belly River Formation sandstone reservoir, and was expected
to discover natural gas within this interval. SFD survey data was acquired
over the location on two separate flights on September 20, 1997. Mr. Liszicasz
predicted that "this well would not be a commercially viable new hydrocarbon
discovery".
THE WELL RESULTS CONFIRM THIS PREDICTION. The basal Belly River sand was not
----------------------------------------
well developed, and therefore did not warrant completion or testing. However,
the well did encounter a well-developed upper Belly River sand. This sand was
perforated, but produced only water on production tests. Therefore, the Belly
River interval was declared non-commercial, and the well was suspended. No
other zones in this well are considered capable of commercial hydrocarbon
production.
The observations of Encal personnel were confirmed to the Company in writing
in February of 1998.
23
<PAGE>
FIELD EVALUATION BY CAMWEST LIMITED PARTNERSHIP
In December of 1988, CamWest conducted "blind" airborne tests of the SFD
Technology over 14 oil and gas fields in southeastern Alberta and the adjacent
portion of northwestern Montana. The fields traversed, and their respective
reservoir types, trap types, approximate sizes and SFD responses are
summarized below.
<TABLE>
<CAPTION>
OIL GAS
# FIELD RESERVOIR SYSTEM TRAP TYPE OIL/GAS RESERVES(1) RESERVES(2) SFD RESPONSE(3)
- ----- ---------------- --------- ------- ----------- ----------- ---------------
<C> <C> <S> <C> <C> <C> <C> <C>
1 A Cretaceous Stratigraphic Oil/Gas 1.1 MMBO(4) 59.7 BCF(4) Offset, Anomaly
2 B Devonian Structural Oil/Gas 3.1 MMBO(4) 35.2 BCF(4) Offset, Anomaly
3 C Devonian Structural Oil 5.7 MMBO(4) Offset, Anomaly
4 D Devonian Structural Oil 9.6 MMBO(4) Offset, Fault, Anomaly
5 E Cretaceous Stratigraphic Oil/Gas <1 MMBO(4) 6.2 BCF(4) Offset, Anomaly
6 F Cretaceous Stratigraphic Oil <1 MMBO(4) Offset, Anomaly
7 G Cretaceous Stratigraphic Oil 3.9 MMBO(4) None (while turning)
8 H Cretaceous Stratigraphic Oil/Gas 3.9 MMBO(4) 1.8 BCF(4) Offset Anomaly?
9 I Mississippian/Cretaceous Structural Oil Subpart of J None
10 J Mississippian/Cretaceous Combined Oil 167.6 MMBO(5) Offset, Anomaly
K Cretaceous Stratigraphic Oil Subpart of J Anomaly
P Cretaceous Stratigraphic Oil crossing of J Offset, Anomaly
11 L Mississippian Structural Oil 27.3 MMBO(5) Offset, Anomaly
12 M Cretaceous Structural Oil <1 MMBO(5) Offset, Anomaly
13 N Devonian Stratigraphic Oil/Gas <1 MMBO(5) Offset, Anomaly
14 O Mississippian Structural Oil/Gas 80.8 MMBO(5) Offset, Anomaly
</TABLE>
- --------
(1) MMBO. One thousand barrels of crude oil or other liquid hydrocarbons.
(2) BCF. One billion cubic feet of gas hydrocarbons
(3) The term "offset" means that the SFD Technology successfully identified
the structural beginning of a field.
(4) Reserve data derived from the Alberta Energy and Utilities Board 1996
Report.
(5) Reserve data derived from the Montana Oil and Gas Conservation Division
1996 Report.
CamWest concluded (i) that the SFD Technology had accurately identified 85% of
the known oil and gas fields traversed; and (ii) that the remaining 15% of the
known fields not detected by the SFD Technology involved fields with reserves
of less than one million barrels. Based on the field evaluations and
subsequent meetings with the principals of the Company, CamWest entered a
Joint Exploration and Development Agreement with the Company in April of 1998.
REVIEW BY GILBERT LAUSTEN JUNG ASSOCIATES LTD.
In June, 1997, the Company engaged Gilbert Lausten Jung Associates Ltd.
("Gilbert Lausten"), a petroleum consulting firm located in Calgary, Alberta,
to provide independent observation and documentation of certain exploration
and evaluation activities conducted by the Company on behalf of Renaissance
and Encal utilizing the SFD Survey System. These activities were conducted
with respect to (i) a general survey conducted for Renaissance over a large
area of Southwest Saskatchewan, and (ii) specific surveys of several
exploration well locations in Alberta previously identified by Encal and
Renaissance utilizing conventional methods. Gilbert Lausten's two areas of
focus as set forth in its report were (1) to observe and document the process
involved in survey design, collection of data, analysis of data and
identification and ranking of SFD Anomalies, and (2) to observe and document
the Company's pre-drill predictions and subsequent post-drill results. Of the
SFD Prospects evaluated by the Company, Renaissance and Encal selected 12
prospects for drilling. After completion of drilling, Gilbert Lausten
concluded in its report that "The drill results of the twelve wells are
consistent with the predictions resulting from SFD surveys in the primary zone
of interest."
24
<PAGE>
Renaissance's observations with respect to the noted activities are as
follows:
SASKATCHEWAN SURVEY CONDUCTED FOR RENAISSANCE
From April to May, 1997, the Company conducted a ground-based survey in
Southwest Saskatchewan pursuant to which the Company identified 38 SFD
Anomalies on lands selected by Renaissance for evaluation and drilling. These
SFD surveys were conducted from the Company's vehicle and were therefore
restricted to roadways. Renaissance selected five of these SFD Prospects as
drilling sites.
Following the development of the Company's airborne SFD survey capability,
which permitted the actual well location to be directly surveyed and provide a
better definition of the areal extent and quality of an SFD anomaly, the
Company resurveyed the five selected drilling sites (Wells #1 through #5) in
August and September 1997, and ranked these locations as marginal with low
probability of commercial viability. Upon conclusion of its drilling,
Renaissance disclosed that four of the five wells were dry, and that while the
fifth well tested some heavy oil, it was suspended as not being capable of
commercial production.
The Company's specific observations with respect to Wells #1 through #5 based
upon its airborne surveys, and Renaissance's specific drilling results with
respect to these prospects, are set forth below. Note that the Company rates
SFD Anomalies on a scale of 1 through 10, which represents the sum of an "A"
rating of between 1 and 5 indicating the structural size and strength of an
SFD Anomaly, and a "CV" rating of between 1 and 5 indicating the commercial
viability of an SFD Prospect. The Company states that if an A or CV rating of
an SFD Anomaly is below 2, neither the existence of a hydrocarbon-bearing
structure nor the type of hydrocarbon can be reliably determined. The Company
further states that it will not participate in any well which has a combined
rating of less than 7 out of 10, or an A rating below 3.5, or a CV rating
below 3.5.
1. COMPANY PREDICTION FOR RENAISSANCE WELLS #1 AND #2 (SASKATCHEWAN): Two
--------------------------------------------------------------------
SFD survey flights flown over Well #1 and Well #2 on August 30, 1997 indicated
an SFD anomaly at these locations, however, the Company indicated that the
best part of the anomaly was east of Well #1. Two additional flights flown on
September 11, 1997 were designed to cross the location of Well #2 and a road
anomaly. The results of these two flights were similar, with the SFD data
indicating a structural change at the well location and under the road. The
SFD signal did not indicate a hydrocarbon accumulation in commercial
quantities. The Company rated the Well #1 location a 4.5 out of 10 (A=2.5,
CV=2.0), and the Well #2 location 3.5 out of 10 (A=2.0, CV=1.5).
RESULTS FOR WELL #1: After testing heavy oil in the target Basal Mannville
-------------------
channel sand, the well was suspended by Renaissance on the basis of not being
capable of commercial production.
RESULTS FOR WELL #2: This well was declared dry and abandoned by
-------------------
Renaissance. The target Basal Mannville sand was developed, but tight.
2. COMPANY PREDICTION FOR RENAISSANCE WELL #3 (SASKATCHEWAN): Only the
------------------------------------------------------------
Company's second SFD survey flight on September 11, 1997 over the Well #3
location provided meaningful SFD data. The SFD survey indicated that there
definitely was an anomaly at the location. The SFD indicated a fault to the
southeast of the location, and that the road anomaly appeared to be part of
the fault. Fault related anomalies were identified continuously to an
offsetting dryhole to the northwest. The Company believed the structure looked
like a channel. Low quality hydrocarbon signals were indicated at the
anomalies. The Company rated the Well #3 location 3 out of 10 (A=2, CV=1).
RESULTS FOR WELL #3: The well was drilled to the Devonian Birdbear Formation
-------------------
and was found by Renaissance to be dry and abandoned. The target Basal
Mannville channel and the Birdbear Formations were interpreted to be wet on
logs. No tests were run in the well.
4. COMPANY PREDICTION FOR RENAISSANCE WELL #4 (SASKATCHEWAN): Two flights
------------------------------------------------------------
were made over the Well #4 location and a road defined anomaly on September
11, 1997. No anomaly was detected on the first flight. The SFD data indicated
a structural change at the location; however, the SFD signal indicating the
presence of a
25
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reservoir had poor response at the location. The Company therefore determined
that the anomaly at the drill site would not be commercially viable. The
Company believed the original SFD signals at the road anomaly to be related to
faulting. The Company's rating for this location was 3.5 out of 10 (A=2.5,
CV=1.0).
RESULTS FOR WELL #4: Well #4 was found by Renaissance to be dry and
-------------------
abandoned. The target Basal Mannville channel sand was developed at this
location, but was interpreted from well log data to be wet. No tests were run
in the well.
5. COMPANY PREDICTION FOR RENAISSANCE WELL #5 (SASKATCHEWAN): Two flights
------------------------------------------------------------
were made over the Well #5 location on August 30, 1997. SFD signals at the
location did not provide a good hydrocarbon response; however, the signals did
confirm the existence of a structural anomaly. Two additional flights made
over the location September 11, 1997 confirmed the presence of a structural
anomaly with poor hydrocarbon signals at the location. The Company stated that
the commercial viability of this location was low, and interpreted the road
anomaly to be a better hydrocarbon anomaly than the well location. A stronger
hydrocarbon anomaly was also identified a half mile to the northeast of the
drill location. The Company's rating for this location was 3.75 out of 10
(A=2.25, CV=1.5).
WELL RESULTS FOR WELL #5: This location was drilled to test the Devonian
------------------------
Birdbear Formation. The well was found by Renaissance to be dry and abandoned.
The Birdbear was found wet based on well log interpretation and the uphole
section appeared to be tight or wet on logs. No tests were run in the well.
ALBERTA SURVEYS CONDUCTED FOR ENCAL AND RENAISSANCE
As part of Encal's and Renaissance's evaluation of the SFD Technology, the
Company was requested by Encal and Renaissance to make predictions from SFD
surveys with respect to 7 well locations, 3 for Encal and 4 for Renaissance.
The well locations were all located in the Western Canada Sedimentary Basin
and were selected by Encal or Renaissance technical staff based on
conventional geological and geophysical data and interpretations. The 3 Encal
wells were the same wells discussed in Encal's report previously discussed
(see "Field Evaluation by the Company and Encal Energy Ltd." above). All test
flight lines were designed and witnessed during flights by Encal or
Renaissance personnel. The Company's SFD analysis indicated that none of the 7
locations were likely to be commercially viable in the zone of primary
interest. Drilling results confirmed the Company's predictions, and the
primary zone of interest in each well was abandoned. Certain of the wells are
producing from a secondary target.
The Company's specific observations with respect to the seven locations based
upon its airborne surveys, and Encal's and Renaissance's specific drilling
results with respect to these prospects, are set forth below.
1. COMPANY PREDICTION FOR ENCAL WELL #1 (WEST CENTRAL ALBERTA): Encal Well
--------------------------------------------------------------
#1 was drilled between August 24 and September 15, 1997 to a depth of 2,978
meters in the Devonian age Beaverhill Lake Group. The well selection was based
on local geology and seismic interpretation and targeted a Leduc pinnacle reef
buildup off the main Leduc reef in the area. The zone was expected by Encal to
contain light conventional crude oil. The Company conducted three ground
surveys and crossed the location five times on four separate flights. The
Company used two locations as templates in evaluating the location (one was a
good Leduc pinnacle pool and the other a poor Leduc pinnacle pool). Only one
survey had a slight SFD signal at the Encal #1 location, which showed no
structural buildup or hydrocarbon signal. Therefore the Company concluded this
well would not be successful.
RESULTS FOR WELL #1: Drill results indicated a Leduc reef was not developed
-------------------
at this location, and no other potentially commercial hydrocarbon zones were
identified from borehole information. No tests were performed on the well, and
Encal declared the well dry and abandoned the location.
2. COMPANY PREDICTION FOR ENCAL WELL #2 (WEST CENTRAL ALBERTA): Encal Well
--------------------------------------------------------------
#2 was drilled between August 26 and September 27, 1997 to a depth of 3,375
meters in the Devonian Winterburn Formation. The well was targeting a Wabamun
stratigraphic porosity development that was evaluated by seismic. The well was
26
<PAGE>
expected to discover gas within the porous interval. The Company conducted
airborne surveys over this location in early August 1997, both before the well
was spudded and also while it was being drilled. The Company interpreted the
well to be in a flank position, and concluded that the well would not be
economic in the target zone. The Company did identify the possibility of a
small shallower pool, capable of production but not in large quantities.
RESULTS FOR WELL #2: The well did not encounter any significant porosity
-------------------
development in the Wabamun and the deeper portion of the well was abandoned. A
significant hydrocarbon show was encountered in the Cardium Formation in this
well. The Cardium was completed, fractured and production tested at an initial
production rate of 75 barrels of oil per day. During December 1997, the zone
produced at an average rate of 330 barrels of oil per day. No other zones in
the well are considered capable of commercial production. Cardium reserves
appear to be relatively low and the well is not considered to have resulted in
a commercial discovery.
3. COMPANY PREDICTION FOR ENCAL WELL #3 (WEST CENTRAL ALBERTA): Encal Well
--------------------------------------------------------------
#3 was drilled between September 11 and September 27, 1997 to a depth of 1,965
meters in the Lea Park Formation based on seismic. The well was targeting
natural gas in the Basal Belly River sandstone. The location has an offsetting
well which was interpreted to have by-passed pay in the target zone. A single
airborne survey was conducted over this location on September 20, 1997. The
Company reported SFD data from this flight was poor, but suggested the well
would not be commercially viable.
RESULTS FOR WELL #3: The Basal Belly River sandstone was not well developed,
-------------------
and therefore was not tested or completed. The well encountered a developed
upper Belly River sandstone which was perforated but produced only water on
production testing. The well has been suspended by Encal and no other zones in
the well are considered capable of commercial production.
4. COMPANY PREDICTION FOR RENAISSANCE WELL #1 (EAST CENTRAL ALBERTA):
--------------------------------------------------------------------
Renaissance Well #1 was drilled as a development well between July 9 and July
20, 1997 to a depth of 1,950 meters. The well targeted a Devonian age Nisku
Formation pinnacle reed buildup. The Company surveyed this location from a
vehicle while the well was being drilled. Ratings assigned to this location by
the Company were based upon SFD signals acquired on the road (not at the
wellsite) and two traverses of the well location itself. At this time the
Company did not have airborne survey capability, therefore the exact drilling
location was not surveyed. The Company stated that two anomalies are present,
one structure upon the other. The Company also reported that the SFD survey
indicated hydrocarbons at the well, but not in commercial quantities. The
anomaly at the wellsite appeared tighter in the target zone and with a less
intense hydrocarbon signal than possible locations to the south and west. The
Company rated the location 5.5 out of 10 (A=3, CV=2.5).
RESULTS FOR WELL #1: The Nisku was developed at the location but appears
-------------------
tight on logs. No tests were performed over the target zone and the deeper
portion of the well was abandoned. The well did encounter a gas-bearing
Mannville sand. Renaissance indicated that it has been unable to fully test
the zone, but believes it to be capable of producing at commercial rates. The
well is currently classified by Renaissance as standing.
5. COMPANY PREDICTION FOR RENAISSANCE WELL #2 (NORTHWEST ALBERTA): Renaissance
-----------------------------------------------------------------
Well #2 was spudded February 14, 1997 and drilled to a depth of 2,275 meters
into the Devonian Muskeg Formation. The well targeted the Devonian age Slave
Point Formation, and is adjacent to a known Slave Point pool. Airborne surveys
of this location were conducted on September 24 and September 25, 1997, however,
the well was still confidential at that time. The Company's SFD survey indicated
that the well was structurally separate from the Slave Point A Pool, and that
the SFD porosity signal recorded at the well site was from a new zone. The
Company indicated that any production from this new zone would be minimal. The
Company rated this well 4 out of 10 (A=2, CV=2).
RESULTS FOR WELL #2: The well did not encounter any porosity development in
-------------------
the Slave Point. No tests were reported for Slave Point or in any uphole
horizons.
27
<PAGE>
6. COMPANY PREDICTION FOR RENAISSANCE WELL #3 (NORTHWEST ALBERTA): Renaissance
-----------------------------------------------------------------
Well #3 was drilled between February 21 and March 22, 1997 to a depth of 2,607
meters as a Slave Point gas test. Airborne surveys of this location were
conducted on September 24 and September 25, 1997, however, the well was still
confidential at that time. The Company's SFD survey indicated a small structural
anomaly and the Company stated that the well would not be commercially viable.
The Company rated this well 3 out of 10 (A=2, CV=1).
RESULTS FOR WELL #3: No porosity was encountered in the Slave Point
-------------------
Formation, and no other potential commercial hydrocarbon zones were identified
from borehole information. No tests were performed on the well and the well
was plugged and abandoned.
7. COMPANY PREDICTION FOR RENAISSANCE WELL #4 (NORTHWEST ALBERTA): Renaissance
-----------------------------------------------------------------
Well #4 was spudded in August 1994. This well targeted the Devonian Slave Point
Formation. The Company surveyed this location on September 24 and September 25,
1997. When asked to comment on this location, the Company stated that there may
be a small structure at the location, but that the SFD did not indicate the
presence of hydrocarbons in the Slave Point Formation. The Company's review for
this location was not considered a full detailed review and no rating was
assigned.
RESULTS FOR WELL #4: Renaissance stated that the well did not encounter any
-------------------
significant porosity development in the primary target (Slave Point). The well
did encounter gas in a secondary zone, the Mississippian age Debolt Formation.
Renaissance has indicated that an initial production test flowed at the rate
of 65,000 m/3//d, and that the well is expected to be placed on production in
the near future.
JOINT VENTURE AND ROYALTY AGREEMENTS
THE ENCAL EXPLORATION JOINT VENTURE AGREEMENT
During 1996 and 1997, the Company entered into several agreements with Encal,
an oil and gas exploration and production company, based in Calgary, Alberta,
Canada. (See "Business Overview" above). In September of 1997 the Company and
Encal entered into the Encal Agreement, in order to (i) amend and supersede
all prior agreements; and (ii) provide an agreement for the worldwide
exploration, development and production of petroleum substances through the
utilization of the SFD Technology by the Company and Encal.
The Encal Agreement runs for a term of three (3) years beginning on September
15, 1997, and may be extended thereafter by mutual agreement. Under the Encal
Agreement the Company has agreed to conduct airborne surveys utilizing the SFD
Technology over certain exploration areas chosen by Encal. If the SFD Data
obtained from such surveys indicates that SFD anomalies are present, the
parties may then attempt to obtain and jointly develop such areas pursuant to
the terms of the Agreement.
The Encal Agreement provides that Encal will periodically advise the Company
of one or more areas which it has selected for exploration (the "Exploration
Area(s)"). The Exploration Areas may be up to a maximum size of 2,400 square
miles. The Company has the right to reject an Exploration Area selected by
Encal for any bona fide reason, including safety or technical concerns. Once
an Exploration Area has been identified, the Company will survey the area
using the SFD Technology, and present Encal with the flight lines, visual SFD
Profiles and the location of any SFD Anomalies, as well as written
interpretation and recommendations with respect to SFD anomalies which are of
particular significance. Encal must chose to either accept or reject each SFD
anomaly presented by the Company. Upon acceptance of an SFD anomaly by Encal,
such anomaly will become an exploratory prospect under the Encal Agreement
(the "Exploratory Prospect(s)").
The Encal Agreement provides that Encal will reimburse the Company for 50% of
all costs of daily aircraft rental, pilot salary, food and accommodations
incurred by the Company in conducting the SFD surveys. Encal is required to
use its best efforts to cause further conventional oil and gas evaluation work
to be done on each Exploratory Prospect, as such work is prioritized by the
agreement of the parties. Such work is to be for the purpose of confirming
whether or not a location will be selected, and whether or not a test well
will be drilled on each Exploratory Prospect. All seismic and conventional
geological costs for the evaluation of each Exploratory Prospect are to be
borne solely by Encal during the term of the agreement.
28
<PAGE>
Upon Encal having conducted conventional oil and gas industry analysis of an
Exploratory Prospect, the parties are to meet and consult on whether the
petroleum and natural gas rights for the prospect will be acquired. The
Company will have the right to elect either (i) participate through a working
interest in each Exploratory Prospect; or (ii) to receive a sliding scale
gross overriding royalty from all wells on the Exploratory Prospect. If the
Company elects the royalty, the royalty percentage will be (i) a minimum of 5%
and a maximum 8% for crude oil; and (ii) 8% for all other petroleum
substances. The royalty for crude oil will vary from a 5% minimum to an 8%
maximum depending on the productivity of each well and which royalty is based
and payable on Encal's interest from time to time.
Once the petroleum and natural gas rights for an Exploratory Prospect have
been acquired and prior to the drilling of a first test well on an Exploratory
Prospect, the Company will be given a second election (if it initially elected
a working interest) to either (i) retain its working interest in the prospect;
or (ii) convert the same to a gross overriding royalty interest. In addition,
should Encal advise of its intention to drill a well on an Exploratory
Prospect, and the Company elects a working participation, the Company will be
required to pay 45% of Encal's share of any unpaid land costs with respect to
such Prospect.
If the Company elects to participate through a working interest on an
Exploratory Prospect, it must pay a 45% participating interest share of the
acquisition costs of the petroleum or natural gas rights, as well as the same
percentage of the costs of drilling all wells and other development costs, and
Encal will pay the 55% balance of such costs. Where the Company has elected
the working interest, revenues from the production of petroleum substances
from the applicable Exploratory Prospects will be shared 45% by the Company
and 55% by Encal.
However, the Encal Agreement provides an interim limit on the amount which the
Company must spend for the costs of the acquisition of petroleum and natural
gas rights (the "Land Costs"). The Company is required to pay 45% of Land
Costs until it has expended a total of Cdn. $2,250,000 (the "Interim Limit").
After the Company has spent an amount equal to the Interim Limit for its share
of Land Costs, the Company is to be "carried" by Encal for 50% of the
Company's share of Land Costs in excess of the Limit Amount, until the later
of (i) March 15, 1999; or (ii) the time at which Encal has drilled three (3)
wells pursuant to the Encal Agreement. Upon the expiration of such period, the
Company will be required to repay the amounts which were previously "carried"
and paid by Encal, and to again pay its full 45% share of all costs
thereafter.
The terms of the Encal Agreement vary in those instances where a third party
owns the petroleum and natural gas rights for the Exploratory Prospect. In
these cases, Encal and the applicable third party will enter into what is
termed a "farm-in agreement". Under this type of transaction, the owner of the
petroleum and natural gas rights will grant an interest in the underlying
lease, or the prospect profits, to a party that performs development, seismic
or drilling activity on the prospect, at no or reduced cost to the owner.
Under the Encal Agreement, if it is necessary for Encal to farm-in on
petroleum or natural gas rights held by third parties with respect to an
Exploratory Prospect, the Company may elect to either participate in the farm-
in, or to receive a gross overriding royalty with respect to Encal's "after
payout" earned interest under the farm-in agreement (i.e., subject to Encal's
recovery of costs under the farm-in agreement). If the Company elects to
participate in the farm-in, then the parties' participating interests in both
the payment obligations and revenues earned under the farm-in agreement will
be 60% to Encal, and 40% to the Company.
The Company has agreed under the Encal Agreement to conduct SFD surveys
throughout the term to ensure that there will be a minimum number of
Exploratory Prospects for Encal at any point in time during the term (the
"Prospect Inventory"). An Exploratory Prospect will be deleted from the
pending Prospect Inventory under each of the following circumstances:
1. If Encal is unable to obtain petroleum and natural gas rights for the
Exploratory Prospect;
2. If a test well is drilled on the Exploratory Prospect; or
3. If the Exploratory Prospect is rejected by Encal.
29
<PAGE>
If at any time during the term of the Encal Agreement the number of
Exploratory Prospects in the Prospect Inventory is less than fifteen, the
Company is required to commence and continue SFD surveying until there are
again eighteen Exploratory Prospects in the Prospect Inventory. In addition,
the Company has agreed to dedicate a minimum of 50% of its worldwide SFD
survey capacity to Encal at any time when the number of Exploratory Prospects
in the Prospect Inventory is below the minimum requirement.
Under the Encal Agreement, the Company has also granted Encal the following
preferential rights:
. The Company has agreed to have no more than two additional joint venture
partners in Canada (although there are no restrictions on the number of
joint venture partners the Company may utilize outside of Canada);
. Until October 31, 1998, Encal has a right to include under the Encal
Agreement any SFD Anomalies identified in Canada by the Company for the
Company's own account;
. The Company has agreed that it will not grant larger or more numerous
exploration areas to any other joint venture partners than those granted
to Encal under the Encal Agreement;
. The Company has granted Encal exclusive rights to SFD survey in the
Province of British Columbia and has agreed to ensure that Encal will
have at least up to 50% of the aggregate area in selected regions of the
Province of Alberta available to it for SFD surveys pursuant to the Encal
Agreement; and
. The Company has agreed to offer to Encal a first opportunity to
participate in any transaction utilizing SFD Technology to explore for
petroleum substances outside of Canada, where, in the Company's sole
judgment, there is an opportunity for Encal to participate as operator or
a participant if (i) such role is available; and (ii) the Company
believes it is appropriate for Encal to perform such role.
The Encal Agreement also establishes areas of mutual interest ("AMIs") which
are defined as any petroleum and natural gas rights which are laterally or
diagonally within one mile of the spacing unit of an Exploratory Prospect. Any
lands acquired within the AMI by either of the parties are agreed to be
subject to the terms of Encal Agreement.
The parties will attempt to agree on a procedure for dealing with SFD
Prospects rejected by Encal. If they cannot agree, the Encal Agreement
provides that rejected SFD Prospects are the exclusive property of the Company
and may be dealt with by the Company as it decides, subject to a two year
confidentiality restriction on SFD Prospects located on certain Encal lands.
Under the Encal Agreement, Encal will be the operator, and will make all
decisions relating to management and control for all prospects developed by
the joint venture. In this regard, Encal is responsible for (i) conventional
oil and gas exploration, operation, development and management of the joint
venture and any of its oil and gas properties; and (ii) the production and
marketing of any petroleum substances which are produced from the joint
venture. With respect to any production facilities utilized by the joint
venture that Encal does not own, the Company will be charged its participant's
portion of the actual costs for services performed. With respect to production
facilities owned by Encal, the Company will be charged a reasonable
proportional fee for the services utilized. The Encal Agreement provides that
if either of the parties wishes to construct new facilities to treat, process
or transport petroleum substances produced from the joint venture, such party
will allow the other party the opportunity to participate in such project.
CAMWEST JOINT EXPLORATION AGREEMENT
On April 3, 1998, the Company entered into a Joint Exploration and Development
Agreement (the "CamWest Agreement") with CamWest Limited Partnership, an
Arkansas limited partnership ("CamWest"). (See "Business Overview" above).
The CamWest Agreement has a term of four (4) years commencing on the date upon
which the parties first identify five mutually acceptable exploratory
prospects, and may be extended thereafter by mutual agreement.
30
<PAGE>
Under the CamWest Agreement the Company has agreed to conduct airborne surveys
utilizing the SFD Technology over certain areas in the United States chosen by
CamWest. If the SFD Data obtained from such surveys indicates that petroleum
substances are likely to be present, the parties may then attempt to obtain
and jointly develop such areas pursuant to the terms of their agreement.
The CamWest Agreement provides that CamWest will periodically advise the
Company of one or more areas which it has selected for exploration (the
"CamWest Area(s)"). The Exploration Areas may be up to a maximum size of 2,400
square miles. The Company has the right to reject a CamWest Area selected by
CamWest for any bona fide reason, including safety or technical concerns. Once
a CamWest Area has been identified, the Company will survey the area using the
SFD Technology, and present CamWest with the flight lines, visual SFD Profiles
and the location of any SFD Anomalies, as well as written interpretation and
recommendations with respect to SFD anomalies which are of particular
significance. CamWest must chose to either accept or reject each of the SFD
Prospects presented by the Company. Upon acceptance of an SFD Prospect by
CamWest, such anomaly will become an exploratory prospect under the CamWest
Agreement (the "CamWest Prospect(s)").
Once a prospect has been accepted as a CamWest Prospect, the Company will have
an initial working interest participation in the prospect of 45%. However, for
the period from the identification of a CamWest Prospect until 15 days after
Cam West notifies the Company that it intends to drill (or 48 hours after such
notice if a drilling rig is located on the test well site), the Company will
have an election as to how it will participate in the prospect from land
acquisition through full development (the "Election"). Under the Election, the
Company may elect (i) to retain its entire 45% working interest in the
prospect; (ii) to participate at a percentage level ranging from 1% up to 45%
(the "Participation Percentage"); or (iii) to convert the interest to a gross
overriding royalty interest. If the Company does nothing, or makes an Election
to participate, the Company will bear 45%, or the Participation Percentage, of
all land acquisition costs, and CamWest will bear the remainder of such costs.
If the Company elects to receive a sliding scale gross overriding royalty from
all wells on the CamWest Prospect, the royalty percentage will be from 5% (if
production is less than 1,000 barrels per month of crude oil) or 8%
(if production is more than 1,000 barrels per month) of CamWest's net revenue
interest. If the Company retains or elects to participate through a working
interest on a CamWest Prospect, it must pay 45%, or the Participation
Percentage, of the acquisition costs of the petroleum or natural gas rights,
as well as the same percentage of the costs of drilling all wells and other
development costs, and CamWest will pay the balance of such costs. Where the
Company has elected the working interest, the Company will receive 45%, or the
Participation Percentage, of revenues from the production of petroleum
substances from the applicable CamWest Prospect, and CamWest will receive the
remainder of such revenues.
The CamWest Agreement provides that CamWest will reimburse the Company for all
costs of daily aircraft rental, pilot salary, food and accommodations incurred
by the Company in conducting the SFD surveys. CamWest is required to use its
best efforts to cause further conventional oil and gas evaluation work to be
done on each CamWest Prospect, as such work is prioritized by the agreement of
the parties. Such work is to be for the purpose of confirming whether or not a
location will be selected, and whether or not a test well will be drilled on
each CamWest Prospect. All seismic and conventional geological costs for the
evaluation of each CamWest Prospect are to be borne solely by CamWest during
the term of the agreement.
The Company has agreed under the CamWest Agreement to conduct SFD surveys
throughout the term to ensure that there will be a minimum "CamWest Inventory"
for CamWest at any point in time during the term. If at any time during the
term of the CamWest Agreement the number of CamWest Prospects in the CamWest
Inventory is 30 or less, the Company is required to commence and continue SFD
surveying until there are again 36 CamWest Prospects in the CamWest Inventory.
In addition, the Company has agreed that when the number of CamWest Prospects
in the CamWest Inventory is below the minimum requirement, the Company will
(i) dedicate a minimum of 50% of its worldwide SFD survey capacity to CamWest,
until such time as the Company has three other joint venture agreements; and
(ii) dedicate a minimum of 25% of its worldwide SFD survey capacity to CamWest
at any such time thereafter.
31
<PAGE>
Under the CamWest Agreement, the Company has granted to CamWest the exclusive
rights to SFD surveys in certain "exclusive areas" to be identified by
CamWest; provided, however, that such areas (i) must not be within Canada;
(ii) must be identified in segments of 2,400 square miles in size; and (ii)
cannot exceed an aggregate of 1,000,000 square miles within the United States,
and an additional 1,000,000 square miles outside of the United States and
Canada. The CamWest Agreement also establishes "areas of mutual interest",
which are defined as any petroleum and natural gas rights which are laterally
or diagonally within one mile of the land encompassing any CamWest Prospect.
Any lands acquired within such areas by either of the parties are agreed to be
subject to the terms of CamWest Agreement.
Under the CamWest Agreement, CamWest will be the operator, and will make all
decisions relating to management and control for all prospects developed by
the joint venture. In this regard, CamWest is responsible for (i) conventional
oil and gas exploration, operation, development and management of the joint
venture and any of its oil and gas properties; and (ii) the production and
marketing of any petroleum substances which are produced from the joint
venture. With respect to any production facilities utilized by the joint
venture that CamWest does not own, the Company will be charged it's
participant's portion of the actual costs for services performed. With respect
to production facilities owned by CamWest, the Company will be charged a
reasonable proportional fee for the services utilized. The CamWest Agreement
provides that if either of the parties wishes to construct new facilities to
treat, process or transport petroleum substances produced from the joint
venture, such party will allow the other party the opportunity to participate
in such project.
Under the CamWest Agreement, if an SFD Prospect is not accepted as a CamWest
Prospect by CamWest, such anomaly will become a "Rejected Anomaly". The rights
associated with all Rejected Anomalies, including all applicable SFD
information, will be contributed by both parties to a Colorado limited
liability company (the "Colorado LLC"), which will be managed by CamWest, and
in which each of CamWest and the Company will own a 50% membership interest.
Under the CamWest Agreement, the Colorado LLC will be responsible for all
marketing of the property and rights contributed to or acquired by the
Colorado LLC. Any petroleum and natural gas rights assigned to or acquired by
the Colorado LLC will be free and clear of any royalty interest or other
rights created under the CamWest Agreement.
THE RENAISSANCE AGREEMENTS
The Company's wholly-owned subsidiary, Pinnacle Canada, has entered into two
short term SFD Survey Agreements, each dated February 1, 1998 (the
"Renaissance Agreements") with Renaissance Energy Ltd. ("Renaissance"). The
Renaissance Agreements provide that if Renaissance, in its sole discretion (i)
drills a test well on an identified SFD Anomaly presented by Pinnacle Canada;
(ii) such well is drilled to a depth below the base of the Mississippian
Formation; and (iii) such well is spudded on or before August 31, 1998,
Renaissance will grant to Pinnacle Canada a 5% gross overriding royalty on all
petroleum substances produced from the wells drilled on the SFD Anomaly at
certain depths. (See "The Renaissance Survey and Royalty Agreements" above).
MOMENTUM LICENSE AGREEMENT
The rights of the Company to the exclusive use for petroleum and natural gas
exploration purposes of SFD Data generated by the SFD Technology are governed
by a Restated Technology Agreement (the "License") entered into on August 1,
1996, between the Company, Pinnacle Oil, Mr. Liszicasz, Mr. Stinson and
Momentum, a Bahamas corporation indirectly owned and controlled by Messrs.
Liszicasz and Stinson. This agreement reflected and restated the relationships
and rights of the parties under certain prior agreements relating to the SFD
Technology, namely, the Liszicasz-Stinson Agreement, the Original Technology
Agreement and the Momentum Transfer Agreement. For a detailed discussion of
these prior agreements see "Item 7--Certain Relationships and Related
Transactions."
Under the License, Momentum, as the owner of the SFD Technology, granted to
the Company exclusive use of the SFD Technology for the identification of
hydrocarbons, through Momentum's agreement to survey designated areas with the
SFD Technology, and to provide the information and analyses generated (the
"SFD
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Data"), exclusively to the Company. The initial term of the License is ten
years, with automatic renewals for one year periods absent either (i) an
election by the Company to terminate the License, or (ii) a termination by
Momentum based upon a default by the Company, or certain other events,
including a "Change in Control" of the Company (as defined in the License).
During the term of the License, Momentum is prohibited from engaging in the
identification and/or exploitation of hydrocarbons, and from granting to any
third party any license or sublicense of the SFD Technology, the Stress Field
Detector or the SFD Data for the identification and/or exploitation of
hydrocarbons.
The initial term of the License expires on December 31, 2005, but will renew
automatically for additional one year terms, unless (i) the Company gives
written notice to Momentum, no later than 60 days prior to the expiration of
the pending term, of its election not to automatically renew the License, or
(ii) the License is terminated earlier in accordance with the provisions of
the License. Momentum has the right to terminate the License if: (1) the
Company fails to make any payment required under the License; (2) the Company
and its Subsidiaries collectively abandon or discontinue the conduct of the
oil and gas exploration business; (3) the Company dissolves or liquidates; (4)
the Company makes an assignment for the benefit of creditors, or files
bankruptcy, or if any receiver is appointed for the Company's business or
property; (5) the Company fails to perform any other material covenant,
agreement or term of the License; or (6) there is a "Change in Control" of the
Company (as defined in the License).
Under the License, a "Change in Control" is defined as: (i) an acquisition
whereby immediately after the acquisition, a person holds beneficial ownership
of more than 50% of the total combined voting power of the Company's then
outstanding voting securities; or (ii) if in any period of three consecutive
years after the date of the License, the incumbent board at the beginning of
such period ceases to constitute a majority of the Board of Directors for
reasons other than (A) voluntary resignation, (B) refusal by one or more Board
members to stand for election, or (C) removal of one or more Board members for
good cause, provided that: (1) if the nomination or election of any new
director was approved by a vote of at least a majority of the incumbent board,
then such new director shall be deemed a member of the incumbent board, and
(2) no individual shall be considered a member of the incumbent board if such
individual initially assumed office as a result of either an actual or
threatened "election contest" (as described in Rule 14a-11 promulgated under
the Securities Exchange Act of 1934); or (iii) the Board of Directors or the
shareholders of the Company approve (A) a merger, consolidation or
reorganization; (B) a complete liquidation or dissolution of the Company; or
(C) the agreement for the sale or other disposition of all or substantially
all of the assets of the Company. However, the License provides that a Change
in Control shall not be deemed to occur because of: (i) a redemption of stock
by the Company; or (ii) a "non-control transaction" in which the stockholders
of the Company immediately before a transaction, directly or indirectly own
immediately following such transaction at least a majority of the total
combined voting power of the outstanding voting securities of the surviving
corporation, in substantially the same proportion as such stockholders'
ownership of the Company's voting securities immediately before such
transaction.
Under the License, Momentum and Mr. Liszicasz are obligated to provide SFD
Data to the Company for its exclusive use, and to provide 500 man-hours per
year to generate such data. In addition, the License provides that Mr.
Liszicasz will interpret and analyze all raw SFD Data provided to the Company
by Momentum. The License obligates the Company to pay for all capital costs
incurred in order to facilitate the identification of prospective drilling
sites.
Pursuant to the License, within 180 days after designation by the Company of a
"Prospect" (as defined in the License), the Company has agreed to use its best
efforts to commercially and economically exploit the Prospect for its
hydrocarbon potential, subject to certain exceptions as stated in the License.
However, it is in the Company's discretion to pursue and determine the
commercial viability of the Prospect. The License was amended by the parties
thereto on April 3, 1998 (the "Amendment"). The sole purpose of the Amendment
was to change contingent payments to Momentum to be calculated as a percentage
of project profits, less actual project expenses incurred, rather than gross
revenues. Under the License and Amendment, the Company shall pay Momentum
certain sums contingent on the commercial exploitation of the Prospects,
including 1% of the "Prospect Profits" (as defined in the Amendment) actually
received by the Company on or before December 31,
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2000, and 5% of the "Prospect Profits" actually received after December 31,
2000. Under the Amendment, "Prospect Prospects" means "Prospect Revenues"
(defined as the aggregate of all gross revenues received by the Company and/or
its subsidiaries with respect to the commercial exploitation of all Prospects
under the License, whether through cash flows of a joint venture, sale of
"leads" for Prospects, or revenues from the Company's direct ownership and
sale of hydrocarbons from Prospects), less "Prospect Expenses" (defined as all
project expenses actually paid by the Company and/or its subsidiaries with
respect to the commercial exploitation of all SFD Prospects).
In addition to the noted payments, commencing on January 1, 2001 the License
provides that the Company shall grant Momentum certain "Performance Options"
(as defined in the License). In general, for each month in which the
Prospects' production exceeds twenty thousand (20,000) barrels of
hydrocarbons, Momentum shall be granted Performance Options to purchase 16,000
shares of the Company's Common Stock, subject to certain limitations. The
exercise price for the Performance Options will be the "fair market value" of
the Company's Common Stock on the last business day of the quarter of the
calculation. Under the License, "fair market value" is determined by reference
to the closing price, last reported price, or mean price for the shares,
depending on where the Common Stock is then trading.
INTERCOMPANY AGREEMENTS
On April 1, 1997 the Company and Pinnacle Canada entered into an agreement
regarding the utilization of the SFD Technology by both the Company and
Pinnacle Canada (the "Canadian License"). Under the Canadian License, the
Company granted to Pinnacle Canada an exclusive license to a supply of SFD
Data generated in Canada. Under the Canadian License, the Company will use its
best efforts to select sufficient surveys in Canadian territory to ensure
Pinnacle Canada a supply of Canadian SFD Data sufficient to enable Pinnacle
Canada to carry on a commercially viable business. Under the Canadian License,
within 180 days after Pinnacle Canada has interpreted the Canadian SFD Data
and identified a Canadian prospect, Pinnacle Canada shall use its best efforts
to commercially and economically exploit the Canadian prospect. Under the
Canadian License, Pinnacle Canada shall pay the Company a license fee equal to
50% of all "Gross Revenues" (as defined in the Canadian License) actually
received by Pinnacle Canada with respect to the Canadian prospects.
On April 1, 1997 the Company and Pinnacle Canada entered into an agreement
which allocates certain costs between the Company and Pinnacle Canada (the
"Cost Agreement"). Under the terms of the Cost Agreement, the Company will
make its data acquisition equipment available to Pinnacle Canada for
sufficient periods to enable Pinnacle Canada to fulfil its obligations under
the Cost Agreement and its obligations under all third party agreements. In
consideration for such use, Pinnacle Canada will make lease payments to the
Company in an amount to be determined by the parties from time to time, based
on the per day cost to provide the data acquisition equipment, with the intent
that the Company recover all of its actual costs of the equipment, plus a
reasonable competitive market return on capital. Pinnacle Canada will supply
management services to the Company in connection with the world-wide
activities of the Company, for an annual fee equal to the actual employment
costs of all personnel engaged by Pinnacle Canada to supply such services,
plus an annual fee of US $20,000.
In each of April, September and November, 1997, the Company and Pinnacle
Canada entered into assignment agreements (the "Assignment Agreements")
whereby the Company assigned all of its right, title and interest pertaining
to operations in Canada to Pinnacle Canada regarding: (i) the Exploration
Joint Venture Agreement dated September 15, 1997 with Encal Energy Ltd.; (ii)
the Exploration Joint Venture Agreement dated February 19, 1997 with Encal
Energy; and (iii) the SFD Survey Agreement dated November 1, 1997 with
Renaissance Energy Ltd.
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RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION AND FINANCIAL DATA SET FORTH ELSEWHERE IN
THIS REGISTRATION STATEMENT, THE FOLLOWING RISK FACTORS SHOULD BE CONSIDERED
CAREFULLY IN EVALUATING THE COMPANY AND ITS BUSINESS.
RISKS RELATING TO THE COMPANY AND ITS BUSINESS
CONTINUING OPERATING LOSSES; GOING CONCERN OPINION. The Company has not
generated operating revenues to date, and should be considered a development
stage entity. As reflected in the financial statements for the period ending
December 31, 1997, the Company had a deficit of $1,442,595, and working
capital of $680,820, prior to a private placement of securities in April,
1998. (See "Item 2--Financial Information" and "Item 15--Financial Statements
and Exhibits"). The Company's ability to increase revenues and generate
profits in the longer term, will depend primarily upon the successful
implementation of the Company's business plan. It is anticipated that such
implementation will depend upon (i) one or more of the Company's joint
ventures successfully identifying, financing, developing, producing and
marketing commercially viable quantities of natural gas or petroleum, and (ii)
cash distributions from the joint venture(s) to its venture partners,
including the Company. No assurance can be given that the Company will be
successful in implementing its business plan, or that the revenues of the
Company will increase, or that the Company will be able to achieve or maintain
profitable operations. The extremely limited operating history of the Company
makes the prediction of future results of operations difficult or impossible.
LIMITED OPERATING HISTORY. The Company has a limited operating history upon
which any evaluation of the Company and its long-term prospects might be
based. The Company did not commence its business plan for the exploitation of
the SFD Technology until December of 1995. The Company is subject to the risks
inherent in a new business enterprise, as well as the more general risks
inherent to the operation of an established business. The Company and its
prospects must be considered in light of the risks, expenses and difficulties
encountered by all companies engaged in the extremely volatile and competitive
oil and gas markets. Any future success that the Company might achieve will
depend upon many factors, including factors which will be beyond its control
or which cannot be predicted at this time. These factors may include changes
in hydrocarbon and exploration technologies, price and product competition,
developments and changes in the international oil and gas market, changes in
the Company's strategy, changes in expenses, the timing of research and
development expenditures, the level of the Company's international revenues,
fluctuations in foreign currency exchange rates, general economic conditions,
both in the United States and Canada, and economic and regulatory conditions
specific to the areas in which the Company competes, among others. (See
"Canadian Government Regulation and Industry Conditions"). To address these
risks, the Company must, among other things, continue to respond to
competitive developments; attract, retain and motivate qualified personnel;
implement and successfully execute its business plan; obtain additional and
viable joint venture partners; negotiate additional working interests and
participations; and upgrade and perfect the SFD Technology. There can be no
assurance that the Company will be successful in addressing these risks.
UNCERTAIN DISCOVERY OF VIABLE COMMERCIAL PROSPECTS. The Company's future
success is dependent upon its ability, through utilization of the SFD
Technology, to economically locate commercially viable hydrocarbon deposits.
Based on the Company's business plan, the Company will be dependent on both
(i) the efficacy of the SFD Technology in locating prospects; and (ii) the
cooperation and capital of joint venture partners in exploiting such
prospects. Although the results of the SFD Technology have been satisfactorily
tested by the Company's strategic partners, the Company can make no
representations, warranties or guaranties that the SFD Technology will be able
to consistently locate hydrocarbons or oil and gas prospects, or that such
prospects will be commercially exploitable. There can be no assurance that the
Company will be able to discover commercial quantities of oil and gas, or that
the Company's joint venture partners will have success in acquiring properties
at low finding costs and in drilling productive wells. Because the Company's
revenues will be solely from its joint venture participations with respect to
prospects identified by the SFD Technology, an inability of the Company to
identify and exploit commercially viable hydrocarbon deposits would have a
material and adverse effect on the Company's business and financial position.
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UNCERTAIN MARKET ACCEPTANCE OF THE SFD TECHNOLOGY AND JOINT VENTURE
PARTICIPATION. The market for the Company's SFD Technology is undeveloped, and
such technology must compete with established geological and geophysical
technologies which have already achieved market acceptance. As is typical in
the case of any new technology, demand and market acceptance for new services
are subject to a high level of uncertainty and risk. Because the market for
the Company's exploration services is new and evolving, it is difficult to
predict the future growth rate, and the size of the potential market. There
can be no assurance that a market for the Company's services will develop, or
be sustainable. If the market fails to develop, or if the Company's services
do not achieve or sustain market acceptance, the Company's business, results
of operations and financial condition would be materially and adversely
affected.
RELIANCE ON JOINT VENTURE PARTNERS--NON-OPERATOR STATUS. The Company has and
will rely upon its joint venture partners for opportunities to participate in
exploration prospects, through equity participations, carried interests or
royalties. The Company focuses exclusively on exploration and the review and
identification of viable prospects through the SFD Technology, and relies upon
joint venture partners to provide and complete all other project operations
and responsibilities, including land acquisition, drilling, marketing and
project administration. As a result, the Company has only a limited ability to
exercise control over the selection of prospects for development, drilling or
production operations, or the associated costs of such operations. The success
of each project will be dependent upon a number of factors which are outside
the Company's control, or controlled by the Company's joint venture partner(s)
as the operators of the project(s), in accordance with the applicable joint
venture agreement. Such factors include: (i) the selection and approval of
prospects for lease/ acquisition and exploratory drilling; (ii) obtaining
favorable leases and required permitting for projects; (iii) the availability
of capital resources of the joint venture partner for land acquisition and
drilling expenditures; (iv) the timing of drilling activity, and the economic
conditions at such time, including then prevailing prices for oil and gas; and
(iv) the timing and amount of distributions from the joint venture. The
Company's reliance on joint venture partners, and its limited ability to
directly control project operations, costs and distributions, could have a
material adverse effect on the realization of return from the Company's
interest in projects, and on the Company's overall financial condition.
RISK OF EXPLORATORY DRILLING ACTIVITIES. Pursuant to the Company's business
plan, the Company's revenues and cash flow will be principally dependent upon
the success of drilling and production from prospects in which the Company
participates through joint ventures, in the form of a royalty, working
interest or other participation. The success of such prospects will be
determined by the economical location, development and production of
commercial quantities of hydrocarbons. Exploratory drilling is subject to
numerous risks, including the risk that no commercially productive oil and gas
reservoirs will be encountered. The cost to the applicable joint venture of
drilling, completing and operating wells is often uncertain, and drilling
operations may be curtailed, delayed or canceled as a result of a variety of
factors including unexpected formation and drilling conditions, pressure or
other irregularities in formations, equipment failures or accidents, as well
as weather conditions, compliance with governmental requirements and shortages
or delays in the delivery of equipment. In addition, the Company's reliance
upon the SFD Technology may require greater seismic and pre-drilling
expenditures than alternative exploration strategies. The inability to
successfully locate and drill wells that will economically produce commercial
quantities of oil and gas would have a material adverse effect on the
Company's business, financial position and results of operations.
VOLATILITY OF OIL AND NATURAL GAS PRICES. Although the Company's primary
efforts are focused on locating commercially viable prospects and obtaining
joint venture participations, the Company's ultimate profitability, cash flow
and future growth will be affected by changes in prevailing oil and gas
prices. Oil and gas prices have been subject to wide fluctuations in recent
years in response to relatively minor changes in the supply and demand for oil
and natural gas, to market uncertainty and a variety of additional factors
that are beyond the control of the Company, including economic, political and
regulatory developments, and competition from other sources of energy. It is
impossible to predict future oil and natural gas price movements with any
certainty. The Company does not engage in hedging activities. As a result, the
Company may be more adversely affected by fluctuations in oil and gas prices
than other industry participants that do engage in such activities. No
assurances
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can be given as to the future level of activity in the oil and gas exploration
and development industry, or as to the future demand for the technology
offered by the Company. An extended or substantial decline in oil and gas
prices would have a material adverse effect on (i) the ability of the Company
to negotiate favorable joint ventures with viable industry participants; (ii)
the volume of oil and gas that could be economically produced by the joint
ventures in which the Company participates; (iii) the Company's access to
capital; and (iv) the Company's financial position and results of operations.
COMPETITION. The Company competes directly with independent, technology-driven
exploration and service companies, and indirectly (through its joint ventures
and participations) with major and independent oil and gas companies in its
exploration for and development of desirable oil and gas properties. With
respect to the SFD Technology, the Company has experienced and expects to
continue to experience competition from numerous hydrocarbon exploration
competitors, which offer a wide variety of geological and geophysical
services. Many of such competitors have substantially greater financial,
technical, sales, marketing and other resources, as well as greater historical
market acceptance than the Company. Accordingly, such competitors or future
competitors may be able to respond more quickly to changes in customer
requirements, or to devote greater resources to the development, promotion and
sales of their services than the Company. There can be no assurance that the
Company's competitors will not develop exploration services that are superior
to those of the Company, or that such technologies will not achieve greater
market acceptance than the Company's SFD Technology. Increased competition
could impair the Company's ability to attract viable industry participants,
and to negotiate favorable participations and joint ventures with such
parties, which could materially and adversely affect the Company's business,
operating results and financial condition.
The Company's joint ventures will engage in the exploration for and production
of oil and gas, industries which are highly competitive. Many companies and
individuals are engaged in the business of acquiring interests in and
developing onshore oil and gas properties in the United States and Canada, and
the industry is not dominated by any single competitor or a small number of
competitors. The Company's joint ventures will compete with numerous industry
participants for the acquisition of land and rights to prospects, and for the
equipment and labor required to operate and develop such prospects. Many of
these competitors have financial, technical and other resources substantially
in excess of those available to the Company. Such competitive disadvantages
could adversely affect the Company's ability to participate in projects with
favorable rates of return.
TECHNOLOGICAL CHANGES. The oil and gas industry is characterized by rapid
technological advancements and the frequent introduction of new products,
services and technologies. As new technologies develop, the Company may be
placed at a competitive disadvantage, and competitive pressures may force the
Company to improve or complement the SFD Technology, or to implement
additional technologies at substantial cost. In addition, other oil and gas
exploration companies may implement new technologies before the Company, and
such companies may be able to provide enhanced capabilities and superior
quality compared with those of the Company. There can be no assurance that the
Company will be able to respond to such competitive pressures and implement or
enhance its technology on a timely basis, or at an acceptable cost. One or
more of the technologies currently utilized by the Company or implemented in
the future may become obsolete. In such case, the Company's business,
financial condition and results of operations could be materially adversely
affected.
OPERATING HAZARDS. The exploration and development projects in which the
Company will participate through joint ventures will be subject to the usual
hazards incident to the drilling of oil and gas wells, such as explosions,
uncontrollable flows of oil, gas or well fluids, fires, pollution and other
environmental risks. These hazards can cause personal injury and loss of life,
severe damage to and destruction of property and equipment, environmental
damage and suspension of operations. Company management that the applicable
joint venture operator will, in accordance with prevailing industry practice,
maintain insurance against some, but not all, of these risks. The occurrence
of an uninsured casualty or claim would have an adverse impact on the affected
joint venture, and indirectly on the financial condition of the Company.
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VARIABILITY OF OPERATING RESULTS. The Company's operating results may in the
future fluctuate significantly depending upon a number of factors including
industry conditions, prices of oil and gas, rate of drilling success, rates of
production from completed wells and the timing of capital expenditures. Such
variability could have a material adverse effect on the Company's business,
financial condition and results of operations. In addition, any failure or
delay in the realization of expected cash flows from initial operating
activities could limit the Company's future ability to continue exploration
and to participate in economically attractive projects. (See "Item 2--
Financial Information".)
DEPENDENCE ON KEY PERSONNEL. The Company's success depends to a significant
extent on the continued efforts of its senior management team, which currently
is composed of a small number of individuals, including Mr. George Liszicasz,
the Chief Executive Officer and a director of the Company, who is responsible
for the development of the SFD Technology and the interpretation of SFD Data,
and Mr. Dirk Stinson, the President and a director of the Company, who is
responsible for the overall management of, and strategic planning for, the
Company. The Company has entered into employment agreements with each of these
executive officers, although they are not obligated, (and as a result of their
relationships with Momentum may in the future be unable), to devote their
entire undivided time and effort to or for the benefit of the Company. The
Company does not currently carry key person life insurance on Mr. Stinson; it
recently obtained key personal life insurance in the amount of at least $5
million on the life of Mr. Liszicasz. The loss of the services of either of
Messrs. Liszicasz or Stinson could have a material adverse effect on the
business, results of operations and financial condition of the Company. The
services of Mr. Liszicasz would be particularly difficult to replace since he
is the inventor of, and has intimate knowledge of, the theoretical basis of
the SFD Technology and the SFD Sensor, and has also developed the
methodologies used to interpret the SFD Data. The Company is presently
training personnel to operate the SFD Technology and to interpret the SFD
Data; however, no assurance can be given that these personnel could fully
replace Mr. Liszicasz with respect to these functions, at least in the short-
term. Moreover, the Company does not know if it would be able to successfully
replicate the SFD Technology and, in particular, the SFD Sensor, in the event
of the loss of Mr. Liszicasz. The Company's ability to implement its growth
strategies also depends upon its continuing ability to attract and retain
highly qualified engineering, managerial, sales and marketing and
administrative personnel. Competition for such personnel is intense and there
can be no assurance that the Company will be able to retain its key managerial
and/or technical employees, or that it will be able to attract and retain
additional highly qualified managerial and/or technical personnel in the
future. The inability to attract and retain the necessary personnel could
impede the growth of the Company. (See "Management of Growth" below).
MANAGEMENT OF GROWTH. The success of the Company will depend upon the rapid
expansion of its business. Such expansion will place a significant strain on
the Company's financial, management and other resources and will require the
Company to: (i) change, expand and improve its operating, managerial and
financial systems and controls; (ii) improve coordination between corporate
functions; and (iii) hire additional geophysical, geological, professional,
administrative and managerial personnel. There can be no assurance that the
Company will be successful in hiring or retaining these personnel to the
extent required, or that it will be able to manage the expansion of its
operations effectively. If the Company were unable to effectively manage
growth, or if new personnel were unable to achieve anticipated performance
levels, the Company's business, financial position and results of operations
will be materially and adversely affected.
IMPORTANCE OF TRADEMARKS AND PROPRIETARY RIGHTS. The business of the Company
is to interpret and utilize SFD Data to identify commercially viable petroleum
and natural gas deposits. The Company has the exclusive right to utilize the
SFD Data for hydrocarbon exploration, pursuant to a Restated Technology
Agreement with Momentum Resources Corporation, a Bahamas corporation
("Momentum"). Momentum claims common law ownership of the SFD Technology.
However, Momentum has not obtained patent or trademark protection for either
(i) the technology, or (ii) the names "Stress Field Detector," "SFD" or "SFD
Technology." Based in part on an opinion of patent counsel, management of
Momentum and the Company believe that the disclosure risks inherent in patent
or trademark registration far outweigh any legal protections which might be
afforded by patent or trademark protection. In the absence of trademark
protection, the Company may be unable to take
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advantage of potential brand name recognition for the technology. In the
absence of significant patent or copyright protection, the Company may be
vulnerable to competitors who attempt to imitate the SFD Technology, or to
develop functionally similar technologies. Although the Company believes that
it has all rights necessary to market its services without infringing upon any
patents, copyrights or trademarks held by others, there can be no assurance
that conflicting patent, copyright or trademark rights do not exist. The
Company relies upon trade secret protection and confidentiality and/or license
agreements with its employees, consultants, customers, venture partners and
others to protect its proprietary rights. Furthermore, management of the
Company does not believe that if Momentum were to apply for and receive patent
protection, that such patent protection would necessarily protect Momentum or
the Company from competition. Momentum and the Company therefore anticipate
continued reliance upon contractual rights and on common law validating trade
secrets. The steps taken by Momentum and the Company to protect their
respective rights may not be adequate to deter misappropriation, or to
preclude an independent third party from developing functionally similar
technology. There can be no assurance that others will not independently
develop substantially equivalent proprietary information and techniques, or
otherwise gain access to the Momentum's or the Company's trade secrets, or
otherwise disclose aspects of the technology, or that the Company can
meaningfully protect its trade secrets. Litigation to enforce and/or defend
intellectual property rights is costly, and either Momentum or the Company may
not have sufficient resources to pursue such litigation.
CANADIAN GOVERNMENT REGULATION AND INDUSTRY CONDITIONS
COMPLIANCE WITH GOVERNMENTAL REGULATIONS. The oil and natural gas industry is
subject to extensive controls and regulations imposed by various levels of the
federal and provincial governments in Canada. It is not expected that any of
these controls or regulations will affect the operations of the Company in a
manner materially different than they would affect other oil and gas companies
of similar size. All current legislation is a matter of public record and the
Company is unable to accurately predict what additional legislation or
amendments may be enacted. All of the governmental regulations noted below may
be changed from time to time in response to economic or political conditions.
Company management believes that the trend of more expansive and stricter
environmental laws and regulations will continue. The implementation of new or
the modified environmental laws or regulations could have a material adverse
impact on the Company.
PRICING AND MARKETING OF OIL AND NATURAL GAS. In Canada, producers of oil
negotiate sales contracts directly with oil purchasers, with the result that
the market determines the price of oil. The price depends in part on oil
quality, prices of competing fuels, distance to market, the value of refined
products and the supply/demand balance. Oil exports may be made pursuant to
export contracts with terms not exceeding one year in the case of light crude,
and not exceeding two years in the case of heavy crude, provided that an order
approving any such export is obtained from the National Energy Board ("NEB").
Any oil export to be made pursuant to a contract of longer duration (to a
maximum of 25 years) requires an exporter to obtain an export license from the
NEB and the issue of such a license requires the approval of the Governor in
Council.
In Canada the price of natural gas sold in inter-provincial and international
trade is determined by negotiation between buyers and sellers. Natural gas
exported from Canada is subject to regulation by the NEB and the federal
government of Canada. Exporters are free to negotiate prices and other terms
with purchasers, provided that the export contracts must continue to meet
certain criteria prescribed by the NEB and the government of Canada. Natural
gas exports for a term of less than two years or for a term of two to 20 years
(in quantities of not more than 30,000 m/3//day), must be made pursuant to an
NEB order. Any natural gas export to be made pursuant to a contract of longer
duration (to a maximum of 25 years) or a larger quantity requires an exporter
to obtain an export license from the NEB and the issue of such a license
requires the approval of the Governor in Council.
THE NORTH AMERICAN FREE TRADE AGREEMENT. On January 1, 1994 the North American
Free Trade Agreement ("NAFTA") among the governments of Canada, the United
States and Mexico became effective. The NAFTA carries forward most of the
material energy terms contained in the Canada-United States Free Trade
Agreement. In the context of energy resources, Canada continues to remain free
to determine whether exports to the United States or Mexico will be allowed,
provided that any export restrictions do not: (i) reduce the proportion of
energy
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resource exported relative to domestic use (based upon the proportion
prevailing in the most recent 36 month period); (ii) impose an export price
higher than the domestic price; and (iii) disrupt normal channels of supply.
All three countries are prohibited from imposing minimum export or import
price requirements. The NAFTA contemplates the reduction of Mexican
restrictive trade practices in the energy sector and prohibits discriminatory
border restrictions and export taxes. The agreement also contemplates clearer
disciplines on regulators to ensure fair implementation of any regulatory
changes and to minimize disruption of contractual arrangements, which is
important for Canadian natural gas exports.
PROVINCIAL REGULATION--ROYALTIES AND INCENTIVES. In addition to federal
regulation, each province has legislation and regulations which govern land
tenure, royalties, production rates, extra-provincial export, environmental
protection and other matters. The royalty regime is a significant factor in
the profitability of oil and natural gas production. Royalties payable on
production from lands other than Crown lands are determined by negotiations
between the mineral owner and the lessee. Crown royalties are determined by
government regulation and are generally calculated as a percentage of the
value of the gross production, and the rate of royalties payable generally
depends in part on prescribed reference prices, well productivity,
geographical location, field discovery date and the type or quality of the
petroleum product produced. From time to time the governments of Canada,
Alberta, British Columbia and Saskatchewan have established incentive programs
which have included royalty rate reductions, royalty holidays and tax credits
for the purpose of encouraging oil and natural gas exploration or enhanced
planning projects.
CANADIAN ENVIRONMENTAL REGULATION. The oil and natural gas industry is
currently subject to environmental regulation pursuant to provincial and
federal legislation. Environmental legislation provides for restrictions and
prohibitions on releases or emissions of various substances produced or
utilized in association with certain oil and gas industry operations. In
addition, legislation requires that well and facility sites be abandoned and
reclaimed to the satisfaction of provincial authorities. A breach of such
legislation may result in the imposition of fines and penalties. In Alberta,
environmental compliance has been governed by the Alberta Environmental
Protection and Enhancement Act ("AEPEA") since September 1, 1993. In addition
to replacing a variety of older statutes which related to environmental
matters, AEPEA also imposes certain new environmental responsibilities on oil
and natural gas operators in Alberta and in certain instances also imposes
greater penalties for violations. British Columbia's Environmental Assessment
Act became effective June 30, 1995. This legislation rolls the previous
processes for the review of major energy projects into a single environmental
assessment process which contemplates public participation in the
environmental review.
The Company is committed to meeting its responsibilities to protect the
environment wherever it operates and anticipates making increased, although
not material, expenditures of both a capital and expense nature as a result of
the increasingly stringent laws relating to the protection of the environment.
RISKS RELATING TO THE COMPANY'S COMMON STOCK
POSSIBLE VOLATILITY OF STOCK PRICE. The market price for the Company's Common
Stock may be volatile and subject to significant fluctuations in response to a
variety of internal and external factors, including the liquidity of the
market for the Common Stock, variations in the Company's quarterly operating
results, regulatory or other changes in the oil and gas industry generally,
announcements of business developments by the Company or its competitors,
changes in operating costs and variations in general market conditions.
Because the Company is a development stage entity with a limited operating
history and no prior revenues, the market price for the Company's Common Stock
may be more volatile than that of a seasoned issuer. Changes in the market
price of the Company's securities may have no connection with the Company's
operating results. No predictions or projections can be made as to what the
prevailing market price for the Company's Common Stock will be at any time.
LIMITED PUBLIC TRADING MARKET; RESTRICTIONS ON TRANSFERABILITY. There is only
a limited public market on the NASD Electronic Bulletin Board for the Common
Stock, and no assurance can be given that a broad and/or active public trading
market for such securities will develop or be sustained. The Company is under
no obligation
40
<PAGE>
to take any action to improve the public market for such securities, including
without limitation filing an application to list of the Common Stock on any
stock exchange. Investors in the Common Stock will not be able to sell,
transfer or otherwise dispose of such securities unless and until such
securities are registered and/or qualified with the Securities and Exchange
Commission and any applicable state, territorial or provincial securities
regulatory agencies under applicable blue sky laws, and such investors furnish
the Company a satisfactory opinion from their legal counsel, at their own
expense, in form and substance satisfactory to the Company and its counsel,
that such sale, transfer or disposition is otherwise exempt from registration
or qualification under the Securities Act of 1933 (the "Securities Act") and
any applicable blue sky laws. There can be no assurance that any exemption(s)
from such registration or qualification will be available. Even if an
exemption from registration and/or qualification were available, Common Stock
would nevertheless have limited marketability due to the following factors,
each of which could impair the timing, value and market for such securities:
(i) the Company's limited operating history, lack of profits, need for
additional capital, and the other factors discussed in this Risk Factors
section; (ii) the limited public market for such securities; (iii) the lack of
qualification of such securities under applicable blue sky laws; (iv) the
applicability of certain resale requirements or under the Securities Act and
applicable blue sky laws; and (v) the fact that such securities will, in the
aggregate, constitute a nominal minority interest in the Company.
NO LIKELIHOOD OF DIVIDENDS. The Company plans to retain all available funds
for use in its business, and therefore does not plan to pay any cash dividends
with respect to its securities in the foreseeable future. Hence any investors
in the Common Stock could not expect to receive any distribution of cash
dividends with respect to such securities.
NO ASSURANCE OF LIQUIDATION DISTRIBUTION. If the Company were to be liquidated
or dissolved, holders of shares of its capital stock would be entitled to
share ratably in its assets only after satisfaction of the Company's
liabilities. After satisfaction of those liabilities and satisfaction of any
liquidation preference with respect to any then outstanding senior securities
of the Company (if any), the holders of the Common Stock would share ratably
in the remaining assets of the Company. If such liquidation or dissolution
were attributable to the failure or inability of the Company to profitably
operate its business, then it is likely that the Company would have material
liabilities at the time of such liquidation or dissolution. Accordingly, no
assurance can be given that sufficient assets would remain available after the
payment of creditors in the liquidation or dissolution of the Company to
enable the holders of the Company's capital stock to recover their investment
or any portion thereof. (See "Item 11--Description of the Registrant's
Securities" below).
CONTROL BY MANAGEMENT. All decisions with respect to the management of the
Company will be made by the Board of Directors and officers of the Company,
who beneficially own approximately 70% of the Common Stock. The present
stockholders of the Company have the power to elect the Board of Directors who
shall, in turn, have the power to appoint the officers of the Company and to
determine, in accordance with their fiduciary duties and the business judgment
rule, the direction, objectives and policies of the Company, including without
limitation the purchase of businesses or assets; the sale of all or a
substantial portion of the assets of the Company; the merger or consolidation
of the Company with another corporation; raising additional capital through
financing and/or equity sources; the retention of cash reserves; the expansion
of the Company's business and/or acquisitions; the filing of a registration
statement with the Securities and Exchange Commission for an initial public
offering of the Company's capital stock; transactions which may cause or
prevent a change in control of the Company; or the winding up and dissolution
of the Company. (See "Item 4--Security Ownership of Certain Beneficial Owners
and Management").
CONFLICTS OF INTEREST. Mr. George Liszicasz (the Chief Executive Officer and a
director and principal stockholder of the Company) and Mr. Dirk Stinson (the
President and a director and principal stockholder of the Company) indirectly
own and control Momentum. Momentum owns the SFD Technology, and provides raw
SFD Data to the Company for its exclusive use in identifying petroleum and
natural gas prospects under the License. However, Momentum reserves the
exclusive right under the License to use SFD Technology and the SFD Data for
purposes other than petroleum and natural gas exploration. Additionally,
although Messrs. Liszicasz and
41
<PAGE>
Stinson have entered into employment agreements with the Company, they are not
obligated, (and as a result of their relationships with Momentum may in the
future be unable), to devote their entire undivided time and effort to or for
the benefit of the Company. As a result of the foregoing relationships amongst
the Company, Momentum and Messrs. Liszicasz and Stinson, certain conflicts of
interests between the Company and one or more of Momentum and Messrs.
Liszicasz and Stinson may directly or indirectly arise including, among
others: (i) the inability of Messrs. Liszicasz and Stinson to devote their
undivided time and attention to the affairs of the Company; and (ii) the
proper exercise by Messrs. Liszicasz and Stinson of their fiduciary duties on
behalf of the Company in connection with any matters concerning Momentum such
as, by way of example and not limitation, disputes regarding the validity,
scope or duration of the License; the exploitation of corporate opportunities;
rights to proprietary property and information; maintenance of confidential
information as between entities; and potential competition between the Company
and Momentum. The Company and Messrs. Liszicasz and Stinson have executed
disclosures and consents with respect to these conflicts. Nevertheless, such
disclosures and consents will not remediate any such conflicts, but will
merely release Messrs. Liszicasz and Stinson from liability as a result of
such conflicts so long as they use reasonable efforts to minimize the
conflicts. In the event any of the conflicts prove to be irreconcilable,
Messrs. Liszicasz and Stinson may be forced to resign their positions with the
Company. (See "Item 7--Certain Relationships and Related Transactions").
POTENTIAL ISSUANCE OF ADDITIONAL STOCK. As of the date of this Registration
Statement, the Company has granted options to certain directors of the Company
and its subsidiaries to purchase up to 210,000 shares of Common Stock. The
Company has also approved a stock option plan wherein the Company is
authorized to issue up to one million shares of Common Stock, pursuant to
options to purchase Common Stock, or outright grants of Common Stock, to the
employees, directors and/or consultants of the Company. As of the date of this
Registration Statement, the Company has granted options under this plan to
certain employees to purchase 180,000 shares of Common Stock. In addition, as
of the date of this Registration Statement, the Company has issued 800,000
shares of Series A Convertible Preferred Stock (the "Preferred Shares") and
200,000 warrants for Common Stock of the Company (the "Warrants"). The
Preferred Shares are convertible to Common Stock, and the Warrants are
exercisable from April 3, 1998 to April 3, 2000. The issuance of additional
shares of Common Stock could adversely reduce the proportionate ownership and
voting rights and powers of the present holders of the Common Stock, and could
also result in dilution in the net tangible book value per share of Common
Stock. There can be no assurance that the Company will not, under certain
circumstances, issue additional shares of its Common Stock. (See "Item 11--
Description of Registrant's Securities" below).
ITEM 2. FINANCIAL INFORMATION
SELECTED FINANCIAL DATA
The following table sets forth selected consolidated financial data of the
Company and its subsidiaries for (i) the Company's initial 72-day fiscal
period commencing October 20, 1995 (the date of inception for financial
accounting purposes of the Company's subsidiary, Pinnacle Oil) and ended
December 31, 1995, and the Company's subsequent twelve-month fiscal periods
ended December 31, 1996 and December 31, 1997, and (ii) the three-month
interim periods ended March 31, 1997 and 1998.
The selected consolidated statement of loss data set forth below for the
fiscal period ended December 31, 1997, and the selected consolidated balance
sheet data set forth below at December 31, 1997, are derived from the
consolidated financial statements of the Company which have been audited by
Deloitte & Touche, independent chartered accountants, as indicated in its
report which is included elsewhere in this Registration Statement. The
selected consolidated statement of loss data set forth below for each of the
two fiscal periods ended December 31, 1995 and December 31, 1996, and the
selected consolidated balance sheet data set forth below at December 31, 1995
and December 31, 1996, are derived from the consolidated financial statements
of the Company which have been audited by BDO Dunwoody, independent chartered
accountants, as indicated in its report which is included elsewhere in this
Registration Statement.
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<PAGE>
The selected consolidated statement of loss data set forth below for the
three-month interim periods ended March 31, 1997 and 1998, and the selected
consolidated balance sheet data set forth below as of March 31, 1998, have
been derived from the unaudited consolidated interim statements of loss
included as part of the unaudited consolidated financial statements of the
Company included elsewhere in this Registration Statement. In the opinion of
management, the unaudited consolidated three-month interim financial
statements for the Company have been prepared on the same basis as the audited
consolidated financial statements, and include all adjustments, consisting
only of normally recurring adjustments, necessary for a fair presentation of
the results of operations for such periods. The results of operations for the
Company for the three-month interim period ended March 31, 1998 are not
necessarily indicative of results to be expected for the Company for the full
fiscal year ended December 31, 1998.
The selected consolidated financial data should be read in conjunction with
the consolidated financial statements of the Company and the notes thereto
included elsewhere in this Registration Statement, and "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
below.
<TABLE>
<CAPTION>
3-MONTH FISCAL QUARTER
FISCAL PERIOD ENDED DECEMBER 31, ENDED MARCH 31,
---------------------------------- -----------------------
1995 1996 1997 1997 1998
---------- ---------- ---------- ---------- -----------
(AUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT
OF LOSS DATA:
Revenues................ $ -- $ -- $ -- $ -- $ --
Operating expenses:
Administrative......... 53,024 355,391 742,438 116,247 258,345
Amortization........... 672 24,435 25,474 7,459 7,612
Exploration
expenditures, net of
exploration costs
reimbursed by joint
venture partners...... -- 101,010 120,666 6,646 22,678
Survey system
development........... -- -- 103,001 -- 10,633
Write-down of
automotive............ -- -- 17,074 -- --
---------- ---------- ---------- ---------- ----------
Total operating
expenses............ 53,696 480,836 1,008,653 130,352 299,268
Operating loss.......... (53,696) (480,836) (1,008,653) (130,352) (299,268)
Other income (expenses):
Interest cost on
promissory notes...... -- -- (110,000) (20,000) (10,000)
Interest income........ -- 5,258 47,832 9,358 6,988
Settlement of damages.. -- -- 157,500 -- --
---------- ---------- ---------- ---------- ----------
Total other income
(expenses).......... -- 5,258 95,332 (10,642) (3,012)
---------- ---------- ---------- ---------- ----------
Net loss................ $ (53,696) $ (475,578) $ (913,321) $ (140,994) $ (302,280)
========== ========== ========== ========== ==========
Basic and diluted loss
per share.............. $ (0.01) $ (0.04) $ (0.08) $ (0.01) $ (0.02)
Weighted average number
of shares outstanding.. 10,090,675 11,472,992 11,979,385 11,943,281 12,285,153
<PAGE>
<CAPTION>
3-MONTH
FISCAL
FISCAL YEAR ENDED DECEMBER 31, QUARTER
---------------------------------- ENDED MARCH
1995 1996 1997 31, 1998
---------- ---------- ---------- -----------
(AUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE
SHEET DATA:
Working capital.................... $ (87,208) $ 339,118 $ 680,820 $ 189,399
Current assets..................... 49,517 534,150 969,957 556,112
Total assets....................... 88,029 639,508 1,179,861 965,157
Total liabilities.................. 0 195,032 1,482,165 449,741
Shareholders' equity (deficit)..... 48,696 444,476 (302,304) 515,416
</TABLE>
43
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
GENERAL
The following discussion of the consolidated financial condition and results
of operations of the Company should be read in conjunction with the
consolidated financial statements of the Company and the notes thereto
included elsewhere in this Registration Statement.
OVERVIEW
The Company and its subsidiaries, Pinnacle Oil and Pinnacle Oil Canada, are
engaged in the exploration, discovery and development of commercially viable
hydrocarbon (oil and gas) deposits. The Company identifies prospects through
the use of SFD Data provided exclusively to the Company for petroleum and
natural gas exploration purposes by Momentum pursuant to the terms of the
License.
The Company's present strategy is to exploit SFD prospects by entering into
joint venture, working participation, royalty and other arrangements with a
small and select number of experienced, well-capitalized strategic partners.
These strategic arrangements will ultimately target both domestic (United
States and Canada) and international prospects, as well as off-shore
prospects. As of the date of this Registration Statement, the Company has
entered into joint ventures or other arrangements with three strategic
partners, Encal (December of 1996, February of 1997 and September of 1997) for
the exploration and exploitation of prospects in Western Canada; Renaissance
(February of 1998) for the exploration of prospects in Western Canada; and
CamWest (April 1998) for the exploration and exploitation of prospects in the
United States and foreign countries other than Canada.
Pursuant to its agreements with Encal and Renaissance, the Company identified
SFD prospects for these strategic partners in early 1998, and anticipates that
these strategic partners will commence drilling activities with respect to
identified prospects in mid-to-late summer 1998. Due to the recent date of its
joint venture agreement with CamWest, the Company has just commenced the
identification of SFD prospects in the United States under this agreement and
anticipates that drilling will commence before year end.
The Stress Field Detector and its underlying technology, upon which the
Company is dependent for SFD Data, is a recently developed proprietary
technology owned by Momentum. Working with Momentum the Company has applied a
significant portion of its working capital toward: (i) developing and refining
the data acquisition systems used with the SFD Survey System, including
adopting it for airborne surveys and incorporating a global positioning
system; (ii) conducting initial exploratory activities using the SFD Survey
System to develop and refine the data acquisition system; and (iii) conducting
additional exploratory activities to confirm the efficacy of the Stress Field
Detector for the Company's strategic partners to date. Although the Company
entered into joint venture or other arrangements with three strategic
partners, activities under such arrangements to identify prospects have only
recently commenced, and no revenues have been generated to date. Pursuant to
the terms of the Restated Technology Agreement, the Company will pay Momentum
a fee equal to 1% of "Prospect Profits" (as such term is defined in the
amended License) received by the Company and its subsidiaries on or before
December 31, 2000, and 5% of Prospect Profits received by the Company and its
subsidiaries after December 31, 2000.
Since the Company has not generated operating revenues to date, it should be
considered a development stage entity. As of December 31, 1997, the Company
had a shareholders' deficit of $302,304 and working capital of $680,820. In
addition, the Company has incurred operating losses since its inception. The
Company converted $1,120,000 of debt in February of 1998, which eliminated its
shareholders' deficit, and raised $6 million in April 1998 through a private
placement of convertible preferred stock and warrants. These transactions
eliminated the Company's shareholders' deficit and provided it with
substantial working capital. Although the Company, as a result of the April
1998 private placement, has sufficient working capital as of the date of this
Registration Statement to fund operations for several years, the Company's
ability to continue as a going concern in the longer term will nevertheless be
dependent upon any joint venture or other arrangement in which the Company
44
<PAGE>
participates successfully identifying, financing, developing, extracting and
marketing petroleum and natural gas deposits for a profit, and making
distributions of distributable cash flow from such profits to its
participants, including the Company. The Company expects it will continue to
incur further losses until such time as such joint ventures and/or other
arrangements make such distributions in meaningful amounts. (See "Outlook and
Prospective Capital Requirements" and "Item 10--Recent Sales of Unregistered
Securities" below).
ACQUISITION OF PINNACLE OIL, INC.; ACCOUNTING PRINCIPLES
On January 20, 1996, the Company (while Auric) consummated a Plan of
Reorganization with Pinnacle Oil and its shareholders in which the Company
agreed to issue 10,090,675 shares of the Common Stock of the Company,
constituting approximately 92% of the outstanding shares of Common Stock, to
the shareholders of Pinnacle Oil in exchange for all of the outstanding shares
of common stock of Pinnacle Oil. The Company's acquisition of Pinnacle Oil is
accounted for as a "reverse acquisition" in accordance with United States
Generally Accepted Accounting Principles. As a result of the application of
these accounting principles, Pinnacle Oil (and not Auric) is treated as the
"acquiring" or "continuing" entity for financial accounting purposes,
notwithstanding that the Company, as successor to Auric (and not Pinnacle Oil)
is the continuing entity for legal purposes. Accordingly, the consolidated
statements of loss of the Company for the fiscal period ended December 1996
are deemed to be a continuation of Pinnacle Oil's financial statements, and
therefore reflect (i) the operations of Pinnacle Oil since October 20, 1995
(the date of Pinnacle Oil's formation) through the date of the Plan of
Reorganization (January 20, 1996); and (ii) the operations of the Company
after January 20, 1996.
RESULTS OF OPERATIONS OF THE COMPANY (INCLUDING PREDECESSOR, PINNACLE OIL)
The Company had no revenues for its three fiscal periods ended December 31,
1997, or its three-month interim fiscal periods ended March 31, 1998 and 1997.
The Company incurred operating expenses of $299,268 for its three-month
interim fiscal period ended March 31, 1998, as compared to $130,352 for its
corresponding three-month interim fiscal period ended March 31, 1997. The
Company incurred operating expenses of $1,008,653 for its twelve-month fiscal
period ended December 31, 1997, as compared to $480,836 for its twelve-month
fiscal period ended December 31, 1996 and $53,696 for its 72-day fiscal period
ended December 31, 1995.
The increase in operating expense for the Company's three-month interim fiscal
period ended March 31, 1998 was primarily attributable to: (i) an increase in
administrative expense to $258,345, as compared to $116,247 for the prior
corresponding interim fiscal period; (ii) survey system development expenses
of $10,633, as compared to $0 for the prior fiscal period; and (iii) an
increase in exploration expenditures $22,678, as compared to $6,646 for the
prior corresponding interim fiscal period. The increase in administrative
expense was primarily attributable to: (i) greater legal fees incurred to
support the Company's increased level of business activities in the first
fiscal quarter of 1998, including negotiating and entering into various
agreements (including those with certain of the Company's strategic partners),
raising capital and preparing securities filings; and (ii) increases in wages
and benefits. The survey system development costs were attributable to the
further development and refinement of the data acquisition systems used with
the SFD Survey System, including adopting it for airborne surveys and
incorporating a global positioning system. The increase in exploration
expenses resulted from the shift in exploratory activities from the Company's
vehicle to leased airplanes, which expenditures were partially offset by
reimbursements to the Company by its strategic partners.
The increase in operating expense for the Company's twelve-month fiscal period
ended December 31, 1997 was primarily attributable to: (i) an increase in
administrative expense to $742,438, as compared to $355,391 for the prior
fiscal period; (ii) survey system development expenses of $103,001, as
compared to $0 for the prior fiscal period; and (iii) an increase in
exploration expenditures (net of reimbursements by strategic partners in the
amount of $57,795) to $120,666, as compared to $101,010 for the prior fiscal
period. The increase in administrative expense was primarily attributable to:
(i) greater legal fees incurred to support the Company's increased level of
business activities in 1997, including properly setting up the affairs of the
Company,
45
<PAGE>
negotiating and entering into various agreements (including those with the
Company's strategic partners), and preparing securities filings; and (ii)
increases in wages and benefits. The survey system development costs were
attributable to the further development and refinement of the data acquisition
systems used with the SFD Survey System, including adopting it for airborne
surveys and incorporating a global positioning system. The increase in
exploration expenses resulted from the shift in exploratory activities from
the Company's vehicle to leased airplanes, which expenditures were partially
offset by reimbursements to the Company by its strategic partners.
The increase in operating expenses for the Company's twelve-month fiscal
period ended December 31, 1996 was primarily attributable to: (i) an increase
in administrative expenses to $355,391, as compared to $53,024 for the prior
fiscal period; (ii) an increase in exploration expenditures to $101,010, as
compared to $0 for the prior fiscal period; and (iii) amortization expenses of
$24,435, as compared to $672 for the prior fiscal period. The increase in
administrative expenses was primarily attributable to: (i) greater legal fees
incurred to support the Company's increased level of business activities in
1996 following the share exchange with Auric in January of 1996, raising
capital in February of 1996, and negotiating and entering into various
agreements (including those with the Company's strategic partners); and (ii)
increases in wages and benefits. The increase in exploration expenses was
attributable to the Company's initial exploratory activities using the SFD
Survey System.
The Company incurred $10,000 in interest expense for its three-month interim
fiscal period ended March 31, 1998, as compared to $20,000 for its three-month
interim fiscal period ended March 31, 1997. The Company incurred $110,000 in
interest expense for its twelve-month fiscal period ended December 31, 1997,
as compared to $0 for its twelve-month fiscal period ended December 31, 1996
and its 72-day fiscal period ended December 31, 1995. The noted expense
represented interest accrued on $1 million in loans made to the Company in
January of 1997 by Messrs. R. Dirk Stinson and George Liszicasz. Interest
expense for the three-month interim fiscal period ended March 31, 1998 was
lower than the amount incurred for the corresponding prior interim fiscal
period insofar as the loan balances were carried for only one month for the
former interim fiscal period, as compared to two months for the latter interim
fiscal period.
The Company earned $6,988 in interest income for its three-month interim
fiscal period ended March 31, 1998, as compared to $9,358 for its three-month
interim fiscal period ended March 31, 1997. The decrease in interest income
was attributable to lower cash balances in the Company's accounts for the
three-month interim fiscal period ended March 31, 1998 as compared to the
corresponding prior interim fiscal period. For the reasons just noted, net
loss for the Company's three-month interim fiscal period ended March 31, 1998
increased to $302,280 (or $0.02 per share), as compared to a net loss of
$140,994 (or $0.01 per share) for the Company's three-month interim fiscal
period ended March 31, 1997. The Company earned $47,832 in interest income for
its twelve-month fiscal period ended December 31, 1997, as compared to $5,258
for its twelve-month fiscal period ended December 31, 1996, and $0 for its 72-
day fiscal period ended December 31, 1995. The increase in interest income was
attributable to the maintenance of the Company's cash funds in higher
interest-bearing accounts.
The Company had earnings of $157,500 in settlement damages in the twelve-month
fiscal period ended December 31, 1997, attributable to cash proceeds received
in settlement of breach of contract litigation.
As a result of the increase in expenses, net loss for the Company increased to
$913,321 (or $0.08 per share) for its fiscal period ended December 31, 1997,
as compared to a net loss of $475,578 (or $0.04 per share) for its fiscal
period ended December 31, 1996, and a net loss of $53,696 (or $0.01 per share)
for its 72-day fiscal period ended December 31, 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash flow requirements from the inception of Pinnacle Oil
(October 20, 1995) through March 31, 1998 were funded principally from sales
of the Company's Common Stock in the amount of $975,000 in February 1996,
loans to the Company by Messrs. Liszicasz and Stinson in the amount of
$1,000,000 in January 1997, and payment for services to consultants in Common
Stock. In April of 1998, the Company raised $6 million through a private
placement of convertible preferred stock and warrants. (See "Item 10--Recent
Sales of Unregistered Securities").
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<PAGE>
As of December 31, 1997, the Company was indebted to Messrs. George Liszicasz
and Dirk Stinson in the amounts of $555,000 each, pursuant to two unsecured
loans, each in the original principal amount of $500,000 made to the Company
by each of these affiliates on January 31, 1997. These loans bore interest at
the rate of 12% per annum, and were repayable on January 31, 1998. The
promissory notes provided that Messrs. Liszicasz and Stinson could elect to
convert the outstanding principal and interest under the loans into the
Company's Common Stock at the rate of $4.07 per share, and that the Company
could elect to convert the outstanding principal and interest under the loans
into the Company's Common Stock at the rate of $2.72 per share. These loans
were each converted by the Company into 205,882 shares of Common Stock on
February 1, 1998, due to the Company's inability to repay such notes on their
respective due dates. (See "Item 7--Certain Relationships and Related
Transactions").
The Company's cash position as of March 31, 1998 and March 31, 1997 was
$385,180 and $1,399,911, respectively, as compared to $848,339 and $519,621 as
of the beginning of each such interim period, respectively. The Company's cash
position as of December 31, 1997 was $848,339, as compared to $519,621 as of
December 31, 1996, and $145 as of December 31, 1995.
The $463,159 decrease in the Company's cash position for the three-month
interim fiscal period ended March 31, 1998 was attributable to $236,870 in
cash used in operating activities and $226,289 in cash used in investing
activities. The $880,290 increase in the Company's cash position for the
corresponding prior interim fiscal period ended March 31, 1997 was
attributable to $1,000,000 in cash provided by financing activities, partially
offset by $118,134 in cash used in operating activities and $1,576 in cash
used in investing activities.
The $328,718 increase in the Company's cash position for the twelve-month
fiscal period ended December 31, 1997 was attributable to $1,000,000 in cash
provided by financing activities, partially offset by $659,705 in cash used in
operating activities and $11,577 in cash used in investing activities. The
$519,476 increase in the Company's cash position for the twelve-month fiscal
period ended December 31, 1996 was attributable to $868,750 in cash provided
by financing activities, partially offset by $257,993 in cash used in
operating activities and $91,281 in cash used in investing activities.
The Company's operating activities required cash in the amount of $659,705 for
the three-month fiscal period ended March 31, 1998, as compared to cash
requirements of $118,134 for the corresponding prior three-month fiscal period
ended March 31, 1997. The $659,705 in cash used in operating activities for
the three-month interim fiscal period ended March 31, 1998 reflected the
Company's net loss of $302,280 for such period, as decreased for non-cash
deductions (interest accrued of $10,000 and amortization of $7,612), and a net
decrease in non-cash working capital balances ($47,798). The $118,134 in cash
used in operating activities for the three-month interim fiscal period ended
March 31, 1997 reflected the Company's net loss of $140,994 for such period,
as decreased for non-cash deductions (interest accrued of $20,000 and
amortization of $7,459), and a net increase in non-cash working capital
balances ($4,599).
The Company's operating activities required cash in the amount of $826,246 for
the twelve-month fiscal period ended December 31, 1997, as compared to cash
requirements of $257,993 for the prior twelve-month fiscal period ended
December 31, 1996. The $826,246 in cash used in operating activities for the
twelve-month fiscal period ended December 31, 1997 reflected the Company's net
loss of $913,321 for such period, as decreased for non-cash deductions
(interest accrued of $110,000, amortization of $25,475, costs settled by the
issuance of Common Stock of $166,541, and write-down of property and equipment
of $28,077), and a net increase in non-cash working capital balances
($76,476). The $257,993 in cash used in operating activities for the twelve-
month fiscal period ended December 31, 1996 reflected the Company's net loss
of $475,578 for such period, as decreased for non-cash deductions
(amortization of $24,435) and a net decrease in non-cash working capital
balances ($193,150).
The Company generated cash of $0 from financing activities for the three-month
fiscal period ended March 31, 1998, as compared to generating cash of
$1,000,000 from financing activities for the corresponding prior three-month
fiscal period ended March 31, 1997. Cash of $1,000,000 was generated by the
Company's financing activities for the twelve-month fiscal period ended
December 31, 1997, as compared to cash of $868,750
47
<PAGE>
generated by financing activities for the prior twelve-month fiscal period
ended December 31, 1996. The $1,000,000 in cash generated by financing
activities for the three-month fiscal period ended March 31, 1997 was
comprised of the proceeds of loans made to the Company by Messrs. Liszicasz
and Stinson.
The $1,000,000 in cash generated by financing activities for the twelve-month
fiscal period ended December 31, 1997 was comprised of $1,000,000 in loans
made to the Company by Messrs. Liszicasz and Stinson. The $868,750 in cash
generated by financing activities for the twelve-month fiscal period ended
December 31, 1996 was comprised of $975,000 from the sale of Common Stock,
partially offset by $100,000 for the repayment of loans, and $6,250 in Common
Stock issuance costs.
The Company used cash in the amount of $226,289 for investing activities for
the three-month fiscal period ended March 31, 1998, as compared to cash of
$1,576 used for investing activities for the corresponding prior three-month
fiscal period ended March 31, 1997. Cash of $11,577 was used for the Company's
investing activities for the twelve-month fiscal period ended December 31,
1997, as compared to cash of $91,281 for investing activities for the twelve-
month fiscal period ended December 31, 1996. The principal use of cash in
investing activities was to acquire property and equipment.
OUTLOOK AND PROSPECTIVE CAPITAL REQUIREMENTS
The Company's ability to begin earning revenues and profits is dependent upon
joint ventures or other arrangements in which the Company participates
successfully identifying, financing, developing, extracting and marketing
petroleum and natural gas deposits for a profit, and making distributions of
distributable cash flow from such profits to the parties to such ventures,
including to the Company. As of the date of this Registration Statement,
Renaissance has commenced drilling activities in Canada on selected SFD
Prospects. CamWest has identified, and is in the process of acquiring, SFD
Prospects in the United States, and the Company anticipates this strategic
partner will shortly commence its drilling activities with respect to these
prospects. The Company's third strategic partner, Encal, is currently
evaluating SFD Data; the Company anticipates Encal will identify and acquire
SFD Prospects in Canada, and commence drilling activities with respect to
these prospects, by the end of 1998. The Company does not anticipate it will
receive revenues until late 1998, at the earliest (assuming a currently
identified prospect is successfully drilled).
The Company expects it will continue to incur further losses until such time
as any joint venture or other arrangement makes distributions in meaningful
amounts. The Company estimates it will incur operating costs of approximately
$1.5 million over the twelve-month period ended March 31, 1999. In April of
1998, the Company raised $6 million through a private placement of convertible
preferred stock and warrants, which will enable the Company to fund its
operations for at least the next twelve months following the date of this
Registration Statement. (See "Item 10--Recent Sales of Unregistered
Securities" below).
FOREIGN EXCHANGE
The Company's business to date is principally conducted in Canada and the
United States, in transactions denominated in Canadian and United States
dollars, respectively. The Company maintains its cash and investments in
United States denominated funds, and only converts such funds into Canadian
dollars at such time as necessary to pay Canadian expenses. Management does
not believe that the fluctuation in the value of the United States dollar in
relation to the Canadian dollar in the last three fiscal periods has adversely
affected the Company's operating results. No assurance can be given, however,
that adverse currency exchange rate fluctuations will not occur in the future,
which would affect the Company's operating results.
EFFECT OF INFLATION
In the Company's view, at no time during any of the last three fiscal periods
have inflation or changing prices had a material impact on the Company.
48
<PAGE>
YEAR 2000 COMPLIANCE
Management has reviewed the Company's internal computer systems and software
products for Year 2000 problems, and believes they are generally Year 2000
compliant. In the event Year 2000 considerations do arise, management does not
believe such considerations will materially impact the Company's internal
operations or future financial or operating results or future financial
condition. Management also does not believe that the Company's internal
operations or future financial or operating results or future financial
condition will be materially affected by any Year 2000 considerations which
may effect the Company's strategic partners.
ITEM 3. PROPERTIES
The Company's executive offices consist of 6,237 square feet, and are located
at Suite 750, Phoenix Place, 840-7th Avenue S.W., Calgary, Alberta, T2P 3G2.
The offices are leased for a five year term extending through January 31,
2003. The annual base lease payments are Cdn. $68,604, payable in monthly
installments of Cdn. $5,717. At the expiration of the five year term, the
Company has the option to renew the lease if there have been no defaults by
the Company under the lease.
The principal executive offices for the Company's subsidiaries, Pinnacle Oil
and Pinnacle Canada, are located in the same office suite located at the same
address as for the Company. Management of the Company believes that such
facilities are adequate for its needs for the foreseeable future, and expects
no difficulties in renewing the noted lease.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of June 16, 1998, certain information with
respect to the amount and nature of beneficial ownership of the common stock
held by: (i) each person known to management of the Company to be a beneficial
owner of more than 5% of the Company's outstanding common stock; (ii) each
person who is a director or an executive officer of the Company; and (iii) all
directors and executive officers of the Company as a group. The term
"executive officer" is defined as the President, Secretary, Treasurer, or any
Vice President in charge of a principal business function (such as sales,
administration or finance), or any other person who performs a similar policy
making function for the Company.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF
BENEFICIAL
OWNERSHIP
OF COMMON
NAME(1) IDENTITY STOCK(2)(3) PERCENTAGE(2)(3)
- ------- -------- ----------- ----------------
<S> <C> <C> <C>
George Liszicasz........ Director, Chairman of the Board, 5,262,232(4) 42.2%(4)
and Chief Executive Officer
R. Dirk Stinson......... Director and President 3,489,761(4)(5) 28.0%(4)(5)
Terrence J. Dunne....... Director, Secretary and Treasurer 20,000 *
Andrew F. Pollet........ Director 126,000(6) 1.0%(6)
Lorne W. Carson......... Director 15,000(7) * (7)
Jon E.M. Jacoby......... Director 78,834(8) * (8)
K. Rick Turner.......... Director 11,893(9) * (9)
SFD Investment LLC...... Investor 1,000,000(10) 7.9%(10)
Directors and Executive
Officers as a group
(7 persons)............ 9,003,720(11) 71.7%(11)
</TABLE>
- --------
* Less than 1%.
(1) The business address of each person named is c/o Pinnacle Oil
International, Inc., Suite 750 Phoenix Place, 840-7th Avenue S.W.,
Calgary, Alberta, Canada, T2P-3G2.
(2) Based on 12,426,983 shares of Common Stock outstanding on the transfer
records as of June 16, 1998.
49
<PAGE>
(3) Calculated pursuant to Rule 13d-3(d)(1) of the Securities Exchange Act of
1934. Under Rule 13d-3(d), shares not outstanding which are subject to
options, warrants, rights or conversion privileges exercisable within 60
days are deemed outstanding for the purpose of calculating the number and
percentage owned by a person, but not deemed outstanding for the purpose
of calculating the percentage owned by each other person listed. The
Company believes that each individual or entity named has sole investment
and voting power with respect to the shares of Common Stock indicated as
beneficially owned by them (subject to community property laws where
applicable) and except where otherwise noted.
(4) Includes 30,000 shares issuable upon exercise of exercisable director's
options. (See "Item 6--Executive Compensation").
(5) Includes 1,000 shares of Common Stock held by RRSP.
(6) Includes (i) 30,000 shares issuable upon exercise of exercisable
director's options (see "Item 6--Executive Compensation") and (ii) 40,000
shares of Series A Preferred Stock convertible to 40,000 shares of Common
Stock and 10,000 warrants convertible to 10,000 shares of Common Stock
attributed to Mr. Pollet by reason of the Andrew F. Pollet and Sally M.
Pollet Revocable Trust's (dated March 6, 1990) 5% membership interest in
SFD Investment LLC.
(7) Includes 15,000 shares issuable upon exercise of exercisable director's
options. (See "Item 6--Executive Compensation").
(8) Includes 62,667 shares of Series A Preferred Stock convertible to 62,667
shares of Common Stock and 16,167 warrants convertible to 16,167 shares of
Common Stock attributed to Mr. Jacoby by reason of an 8.83% membership
interest in SFD Investment LLC held by Mr. Jacoby and certain entities
controlled by Mr. Jacoby.
(9) Includes 9,066 shares of Series A Preferred Stock convertible to 9,066
shares of Common Stock and 2,267 warrants convertible to 2,267 shares of
Common Stock attributed to Mr. Turner by reason of his 1.133% membership
interest in SFD Investment LLC.
(10) Includes 800,000 Series A Preferred Stock presently convertible into
800,000 shares of Common Stock and 200,000 shares of Common Stock
issuable upon exercise of 200,000 Warrants (See "Item 10--Recent Sales of
Unregistered Securities").
(11) Includes (i) 105,000 shares of Common Stock issuable upon exercise of
105,000 exercisable directors options, (ii) 111,733 shares of Common
Stock issuable upon conversion of 111,733 shares of Series A Preferred
Stock, and (iii) 28,434 shares of Common Stock issuable upon exercise of
28,434 warrants convertible to Common Stock.
To the knowledge of management of the Company, as of the date of this
Registration Statement there are no existing arrangements the operation of
which may, at a subsequent date, result in a change in control of the Company.
ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the names of all current directors and
executive officers of the Company as of the date of this Registration
Statement, with each position and office held by them in the Company, and the
date of election or appointment.
<PAGE>
<TABLE>
<CAPTION>
DATE FIRST
ELECTED AS
DIRECTOR OR
APPOINTED AS
POSITION WITH THE OFFICER OF
COMPANY THE COMPANY
AND/OR ITS AND/OR ITS
NAME AGE SUBSIDIARIES SUBSIDIARIES
---- --- ----------------- -------------
<C> <C> <S> <C>
George Liszicasz............ 44 Director and Chief Executive February 1996
Officer of Pinnacle Oil
International, Pinnacle Oil
and Pinnacle Canada
R. Dirk Stinson............. 45 Director and President of February 1996
Pinnacle Oil International,
Pinnacle Oil and Pinnacle
Canada
Terrence J. Dunne........... 49 Director, Secretary and March 1995
Treasurer of Pinnacle Oil
International
Andrew F. Pollet............ 47 Director of Pinnacle Oil April 1997
International
Lorne W. Carson............. 44 Director of Pinnacle Oil March 1998
International
Jon E.M. Jacoby............. 60 Director of Pinnacle Oil April 1998
International
Rick Turner................. 40 Director of Pinnacle Oil April 1998
International
</TABLE>
In April 1998, the Board of Directors amended the Bylaws to expand the Board
from five to seven members. The incumbent Board filled the two vacancies by
electing Mr. Jon Jacoby and Mr. Rick Turner to the Board of Directors. The
directors have served in their respective capacities since their election or
appointment, and will serve until the next annual meeting, or until a
successor is duly elected, unless the office is vacated in accordance
50
<PAGE>
with the Articles or Bylaws of the Company. The executive officers are
appointed by the Board of Directors to serve until the earlier of their
resignation or removal with or without cause by the Board of Directors.
There are no family relationships between any two or more directors or
executive officers. There are no arrangements or understandings between any
two or more directors or executive officers.
Mr. George Liszicasz is the Chief Executive Officer and a director of the
Company, Pinnacle Oil, and Pinnacle Canada. Mr. Liszicasz has been the CEO and
a director of the Company since February 23, 1996. Over the past five years
Mr. Liszicasz has concentrated his efforts on the development and testing of
various geophysical technologies. During the course of this development work
he as acquired a working knowledge of the oil exploration and drilling
business. Mr. Liszicasz studied electronics and general sciences in Hungary
and at the University of British Columbia. In 1983, he worked on several
innovations in the design of high power laser systems and a root-canal laser
treatment system in the field of dentistry. In addition, Mr. Liszicasz has
participated in the invention of numerous products, including electronic
monitoring devices, geophysical instruments, and a new pyroelectric material.
His interest in "unconventional energy phenomena" and Quantum Mechanics lead
to the development of the Stress Field Detector. From 1987 to 1995, Mr.
Liszicasz was President of Owl Industries Ltd., a developer of electronic
controlling devices, where he had both engineering and business
responsibilities.
Mr. R. Dirk Stinson has been the President and a director of the Company since
February 23, 1996. Mr. Stinson also holds these positions with Pinnacle Oil
and with Pinnacle Oil Canada. During the past 20 years Mr. Stinson has worked
as a business management consultant and entrepreneur. Mr. Stinson spent 10
years in Hawaii, building and managing a number of businesses, including
Commercial Energy Systems, Inc., an alternative energy business that was
acquired by Pacific Resources, Inc. Mr. Stinson remained with Pacific
Resources under a two-year contract as manager of the Industrial and
Commercial division of PRI Energy Systems. From 1985 through 1990 Mr. Stinson
continued to exclusively represent Wartsila Diesel Inc. in Hawaii, one of the
world's largest manufacturers of medium speed diesels. Before leaving Hawaii
he worked for several years as Director of Marketing for Pacific Marine, a
private shipyard company with diversified subsidiaries in hazardous waste
management, asbestos abatement, ultra-high pressure water jetting, and
specialty concrete finishing. Mr. Stinson moved to British Columbia, Canada in
1990. Mr. Stinson worked in the automobile industry primarily in the fleet and
lease sales, and as fleet and lease manager for a Nissan dealership. From 1992
to 1994, Mr. Stinson worked as a sales executive for Premier Plastics Ltd. and
Century Plastics Ltd. and in 1995, Mr. Stinson became the President of EIC-
Energy Interface Corporation in Vancouver, British Columbia, Canada, a wholly-
owned subsidiary of International Parkside Products, Inc., a public company
trading on the Vancouver Stock Exchange. Mr. Stinson studied Communication
Arts at the Southern Alberta Institute of Technology.
Mr. Terrence Dunne has served as Secretary, Treasurer and a director of the
Company since March 1995. Mr. Dunne received his B.A. in Business in 1970, his
M.A. in Business in 1975, and his M.A. in Taxation in 1984 from Gonzaga
University. Mr. Dunne was employed from 1970 to 1975 as an accountant with the
Spokane County Auditor's Office and from 1975 to 1978 as a Certified Public
Accountant with LeMasters & Daniels, CPA's in Spokane, Washington. From 1978
to the present, as an independent CPA, Mr. Dunne has served as an officer and
director of several public and private companies, and has taught accounting
courses at Spokane Falls Community College. Mr. Dunne presently holds
directorships in Powercold Corporation, New Hilarity Mining Company and
Intrex, Inc.
Mr. Andrew F. Pollet has been a director of and consultant to the Company
since April of 1997. Mr. Pollet has been a principal of Pollet Law
Corporation, and its predecessor law firms from 1980 to the present time.
Mr. Pollet serves as a director of STAAR Surgical Company, a publicly traded
company which manufactures, licenses and sells medical device equipment, and
Empyrean Diagnostics, Ltd., a publicly traded company which manufactures,
licenses and sells medical test kits. Mr. Pollet received his Juris Doctor
degree from the University of San Diego School of Law and received his
Bachelor of Science and Master in Business Administration degrees from the
University of Southern California.
51
<PAGE>
Mr. Carson has been retained as Canadian counsel for the Company and its
predecessors since November of 1995, and has served as a director of the
Company since March of 1998. Mr. Carson is currently a partner at Bennett
Jones Verchere, a law firm located in Calgary, Alberta, and has been employed
there since 1980. His area of specialty is natural resource and energy law,
with particular focus on oil and gas ventures and energy financing. Mr. Carson
is a member of the Association of Professional Engineers of British Columbia
and the Law Society of Alberta. In addition to the Company, Mr. Carson serves
as a director of Hunting Chase, Inc. and Hunting Oilfield Services Canada
Holdings Inc., subsidiaries of Hunting Group, an international oilfield
service company. Mr. Carson received a Bachelor of Science in Mining and
Engineering from Queens University in 1975 and an LL.B. from the University of
Victoria in 1980.
Mr. Jon E.M. Jacoby has been a director of the Company since April of 1998.
Mr. Jacoby is a director and an Executive Vice President of Stephens Group,
Inc., a private company headquartered in Little Rock, Arkansas, which invests
primarily in media, telecommunications and energy companies. Mr. Jacoby is a
Senior Executive Vice President of Stephens Inc., an investment banking firm
also located in Little Rock, Arkansas, and an affiliate of Stephens Group,
Inc., where he has been employed since 1963. He received his Bachelor of
Science degree from the University of Notre Dame and his Master in Business
Administration from Harvard Business School. He is a director of Delta & Pine
Land Company, Medicus Systems, Inc., Beverly Enterprises Inc., and Power One
Inc.
Mr. K. Rick Turner has been a director of the Company since April of 1998. Mr.
Turner is a Vice President of Stephens Group, Inc., a private company
headquartered in Little Rock, Arkansas, which invests primarily in media,
telecommunications and energy companies, and a Vice President of Stephens
Inc., an investment banking firm also located in Little Rock, Arkansas, and an
affiliate of Stephens Group, Inc., where he has been employed since 1983. He
received his Bachelor of Science degree from the University of Arkansas and is
a Certified Public Accountant.
ITEM 6. EXECUTIVE COMPENSATION
The following table shows the compensation paid over the past three fiscal
years to the Company's Chief Executive Officer and the two other most highly
compensated executive officers serving at the end of the last fiscal year (the
"Named Executive Officers"). As of the date of this Registration Statement,
there were only three executive officers of the Company.
<TABLE>
<CAPTION>
OTHER ANNUAL
NAME AND PRINCIPAL POSITION YEAR SALARY COMPENSATION($)(1)
--------------------------- ---- ------- ------------------
<S> <C> <C> <C>
George Liszicasz...................... 1997 $76,250 $ --
Chief Executive Officer 1996 47,536(/2/) 9,000(/3/)
and Director 1995 -- 18,000(/3/)
R. Dirk Stinson....................... 1997 76,250 --
President and Director 1996 47,536(/4/) 9,000(/5/)
1995 -- 18,000(/5/)
Terrence J. Dunne..................... 1997 -- --
Secretary, Treasurer 1996 -- 50,000(/6/)
and Director 1995 -- 2,273(/7/)
</TABLE>
- --------
(1) None of the Named Executive Officers listed received perquisites or other
personal benefits that exceeded the lesser of $50,000 or 10% of the salary
and bonus for such officer.
(2) George Liszicasz received Cdn. $65,034 from the Company as salary for the
period March 1, 1996 to December 31, 1996.
(3) George Liszicasz received $27,000 from Pinnacle Oil as consulting fees for
the period September 1, 1995 to February 29, 1996, pursuant to a
Promissory Note with the subsidiary. (See "Item 7--Certain Relationships
and Related Transactions").
(4) Dirk Stinson received Cdn. $65,034 from the Company as salary for the
period March 1, 1996 to December 31, 1996.
(5) George Liszicasz received $27,000 from Pinnacle Oil as consulting fees for
the period September 1, 1995 to February 29, 1996, pursuant to a
Promissory Note with the subsidiary. (See "Item 7--Certain Relationships
and Related Transactions").
52
<PAGE>
(6) Mr. Dunne received 20,000 shares of Company Common Stock on July 1, 1997
as compensation for services rendered under a Consulting Agreement dated
September 15, 1996.
(7) Mr. Dunne received 75,000 shares of common stock of Auric Mining
Corporation on September 1, 1995. Auric Mining Corporation was the
Company's predecessor.
The aggregate amount of compensation paid by the Company during the last
fiscal year to all directors and Named Executive Officers as a group was
$152,640.
EMPLOYMENT CONTRACTS AND "CHANGE IN CONTROL" ARRANGEMENTS
The Company retained Mr. Terrence Dunne pursuant to a Consulting Agreement,
for services rendered during the period from September 15, 1996 to December
31, 1997. Beginning in September of 1996, Mr. Dunne was responsible for
performing all internal accounting for the Company, and also acted as the
Company's liaison with its independent public accountants in connection with
their 1995 and 1996 audits of the Company. Mr. Dunne received 20,000 shares of
the Company's Common Stock as full compensation for his services under the
Consulting Agreement.
In April, 1997, the Company entered into employment agreements with each of
Messrs. Liszicasz and Stinson (the "Employment Agreements"). The economic
terms of the Employment Agreements are substantially identical, although Mr.
Liszicasz serves as Chief Executive Officer and Mr. Stinson serves as
President of the Company. Under the agreements, Messrs. Liszicasz and Stinson
(the "Executives") perform responsibilities for the Company and its
subsidiaries, as determined by the Company's Board of Directors.
Under the Employment Agreements, each Executive will receive (i) a 1998 base
salary of US $10,000 per month, subject to annual increases of 5%; (ii) an
annual bonus equal to 5% of the "net income" of the Company (as defined in the
agreements); and (iii) an annual performance bonus, in the sole discretion of
the Board of Directors. In addition to the noted compensation, the Employment
Agreements provide that each Executive will receive certain perquisites,
including but not limited to an automobile allowance, cellular telephone,
relocation allowance, expense reimbursements, vacation and health insurance.
The initial term of each Employment Agreement will expire on December 3, 2002,
subject to earlier termination in accordance with the terms of the agreements.
After the initial term, each of the agreements will renew automatically for
successive one year terms, unless (A) either party elects by a written, 60-day
notice not to renew; or (B) the agreement is terminated earlier in accordance
with its terms.
Each of the Employment Agreements provides for early termination in the case
of (i) death or disability; (ii) a "Change in Control" of the Company (as
defined in the agreements); (iii) termination by the Company for "Cause" (as
defined in the agreements); and (iv) termination by the Executive for "Good
Reason" (as defined in the agreements). In general, where a termination is for
death, disability, "Cause" or by the Executive without "Good Reason," the
Executive's compensation allowances and benefits will accrue only through the
effective date of the termination. However, and again in general, where a
termination is due to a "Change in Control," without "Cause," or by the
Executive for "Good Reason," the Employment Agreements provide that the
Company will pay compensation and certain allowances and benefits to the
Executive through the end of the then applicable term.
Under the Employment Agreements a "Change in Control" means (i) an acquisition
whereby immediately after such acquisition, a person holds beneficial
ownership of more than 50% of the total combined voting power of the Company's
then outstanding voting securities; (ii) if in any period of three consecutive
years after the date of the Employment Agreements, the then incumbent board,
ceases to constitute a majority of the Board for reasons other than voluntary
resignation, refusal by one or more Board members to stand for election, or
removal of one or more Board member for good cause; or (iii) the Board of
Directors or the stockholders of the Company approve (A) a merger,
consolidation or reorganization; (B) a complete liquidation or dissolution of
the Company; or (C) the agreement for the sale or other disposition of all or
substantially all of the assets of the Company (a "Sale").
53
<PAGE>
As noted above, if an Executive's termination is attributable to a Change in
Control, the Employment Agreements provide that the Company will pay
compensation and certain allowances and benefits through the end of the then
applicable term. In addition, if both (i) the termination is directly or
indirectly attributable to a Sale, and (ii) the Sale is approved by a
"disinterested" majority of the Board of Directors (as defined in the Nevada
Revised Statutes), then the Company will pay to each Executive 2% of the total
consideration received by the Company in connection with the Sale.
The foregoing summaries are intended as general descriptions of the terms of
the Employment Agreements, and are limited in their entirety by the actual
language of the Employment Agreements, which are included as Exhibits to this
Registration Statement.
For the fiscal year 1997, Messrs. Liszicasz, Pollet, Stinson and Dunne
comprised the Board of Directors. Although Mr. Liszicasz and Mr. Stinson were
present during deliberations concerning their executive officer compensation,
they abstained from voting thereon, and Mr. Dunne approved the executive
compensation paid to each of Mr. Liszicasz and Mr. Stinson.
DIRECTORS' COMPENSATION
During the fiscal year ended December 31, 1997, none of the Company's
directors received monetary compensation for their services as directors.
However, during the same fiscal year, a disinterested majority of the Board of
Directors granted: (i) 45,000 options to buy shares of Common Stock at an
exercise price of $5.81 per share, to Mr. Andrew Pollet, a director of the
Company; and (ii) 30,000 of such options at the same exercise price to Mr.
Clive Boulton, a director of Pinnacle Oil Canada Inc. Each of Messrs.
Liszicasz and Stinson (each a director of the Company) were granted 45,000
options to buy shares of Common Stock at an exercise price of $5.25 in fiscal
year 1997. On March 10, 1998, Mr. Lorne Carson, a director of the Company, was
granted 45,000 options to buy shares of Common Stock at an exercise price of
$8.31 per share.
All of the options granted to directors in 1997 and 1998 were (i) at an
exercise price equal to the trading price of the Common Stock on the date of
grant; and (ii) subject to vesting conditions, under which one-third of the
granted options vested on the date of grant, and one-third of the granted
options will vest on each of the first anniversary and the second anniversary
of the date of grant.
1997 PINNACLE OIL INTERNATIONAL, INC. STOCK PLAN
In June of 1997, the Board of Directors adopted the 1997 Pinnacle Oil
International, Inc. Stock Plan (the "1997 Stock Plan"). The 1997 Stock Plan
permits the Company to issue up to 1,000,000 shares of its Common Stock to
directors, officers, employees and consultants as stock awards or as stock
options.
The 1997 Stock Plan is administered by the Board of Directors of the Company
or, at the Board's discretion, the Compensation Committee of the Board or any
other committee selected by the Board, or the Chief Executive Officer of the
Company or his or her designee. Options granted under the 1997 Stock Plan may
be either non-qualified or incentive stock options; cannot have an exercise
price of less than 85% of the fair market value of the Common Stock as of the
date of grant (and not less than 100% of fair market value in the case of
incentive stock options); and may not have a term which exceeds ten years from
date of grant. Certain additional restrictions apply in the case of grants of
incentive stock options to persons who are 10% stockholders of the Company.
Options granted under the 1997 Stock Plan are generally not transferable, may
be subject to vesting conditions as selected by the Board of Directors, and
also may be subject to certain repurchase rights in favor of the Company, all
as governed by applicable securities laws. An optionee must generally pay
consideration for the exercise of the option in cash. However, the Company may
permit the optionee to pay consideration for shares in Common Stock and/or
other property, including a promissory note.
54
<PAGE>
As of the date of this Registration Statement, the Company has granted
incentive options under the 1997 Stock Plan to purchase 180,000 shares of
Common Stock, none of which are vested. The exercise price for the noted
options were fixed at or above the fair market value on the date of the grant,
as determined by the Board.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During the last three fiscal years, and through the date of this Registration
Statement, the Company and its subsidiaries have entered into several
transactions with directors, executive officers and security holders
identified in "Item 4--Security Ownership of Certain Beneficial Owners and
Management."
In September of 1995, Messrs. Liszicasz and Stinson entered into a partnership
agreement relating to the ownership and use of the Stress Field Detector and
the SFD Technology for hydrocarbon exploration (the "Liszicasz-Stinson
Agreement") wherein, among other things, they agreed: (i) that the Stress
Field Detector and the SFD Technology would be owned by Mr. Liszicasz for a
period and, upon the occurrence of certain events, would subsequently be owned
and exploited by a corporation to be formed (later named "Momentum Resources
Corporation") which would be owned jointly by Messrs. Liszicasz and Stinson;
(ii) that Mr. Liszicasz, and eventually Momentum, would provide raw SFD data
to third parties in return for the payment of a fee; and (iii) that such third
parties would include the Company, which would be organized for the specific
business purpose of identifying and commercially exploiting petroleum and
natural gas deposits, and which would be managed, and owned in part, by
Messrs. Liszicasz and Stinson.
In satisfaction of the terms of the Liszicasz-Stinson Agreement, Mr. Liszicasz
entered into an agreement with the Pinnacle Oil on January 1, 1996 (the
"Original Technology Agreement"), in which Mr. Liszicasz agreed that from the
date of the Original Technology Agreement through the period ended December
31, 2000, Mr. Liszicasz would survey selected properties using the Stress
Field Detector and the SFD Technology, and provide raw SFD data generated from
such activities to Pinnacle Oil for its exclusive use, to identify petroleum
and natural gas deposits on such properties, and to commercially exploit such
prospects.
On June 18, 1996, Messrs. Liszicasz and Stinson, on one hand, and Momentum, on
the other hand, entered into an agreement (the "Momentum Transfer Agreement").
The Momentum Transfer Agreement transferred the legal and beneficial ownership
in the SFD Technology from Messrs. Liszicasz and Stinson and from their
partnership, to Momentum. Momentum is a Bahamas corporation whose beneficial
owners are Messrs. Liszicasz and Stinson.
On August 1, 1996, the Company, Pinnacle Oil, Momentum, Mr. Liszicasz and Mr.
Stinson entered into a Restated Technology Agreement (the "License"), which
reflected and restated the relationships and rights of the parities to the
Liszicasz-Stinson Agreement, the Original Technology Agreement and the
Momentum Transfer Agreement. Under the License, Momentum, as the owner of the
SFD Technology, granted to the Company exclusive use of the SFD Technology for
the identification of hydrocarbons, through Momentum's agreement to survey
designated areas with the SFD Technology, and to provide the information and
analyses generated (the "SFD Data"), exclusively to the Company. The initial
term of the License is ten years, with automatic renewals for one year periods
absent either (i) an election by the Company to terminate the License, or (ii)
a termination by Momentum based upon a default by the Company, or certain
other events, including a "Change in Control" of the Company (as defined in
the License). During the term of the License, Momentum is prohibited from
engaging in the identification and/or exploitation of hydrocarbons, and from
granting to any third party any license or sublicense of the SFD Technology,
the Stress Field Detector or the SFD Data for the identification and/or
exploitation of hydrocarbons.
Pursuant to the License, within 180 days after designation by the Company of a
"Prospect" (as defined in the License), the Company has agreed to use its best
efforts to commercially and economically exploit the Prospect for its
hydrocarbon potential, subject to certain exceptions as stated in the License.
However, it is in the Company's discretion to pursue and determine the
commercial viability of the Prospect. The License was amended by the parties
thereto on April 3, 1998 (the "Amendment"). The sole purpose of the Amendment
was to change contingent payments to Momentum to be calculated as a percentage
of project profits, less actual
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project expenses incurred, rather than gross revenues. Under the License and
Amendment, the Company shall pay Momentum certain sums contingent on the
commercial exploitation of the Prospects, including 1% of the "Prospect
Profits" actually received by the Company on or before December 31, 2000, and
5% of the "Prospect Profits" actually received after December 31, 2000.
In addition to the noted payments, commencing on January 1, 2001 the License
provides that the Company shall grant Momentum certain "Performance Options"
(as defined in the License). In general, for each month in which the
Prospects' production exceeds twenty thousand (20,000) barrels of
hydrocarbons, Momentum shall be granted Performance Options to purchase
16,000 shares of the Company's Common Stock, subject to certain limitations.
The exercise price for the Performance Options will be the "fair market value"
of the Company's Common Stock on the last business day of the quarter of the
calculation. Under the License, "fair market value" is determined by reference
to the closing price, last reported price, or mean price for the shares,
depending on where the Common Stock is then trading.
For a detailed description of the terms of the License, see "Item 1--
Description of Business--Momentum License Agreement."
On October 21, 1995 each of Messrs. Liszicasz and Stinson entered into a
promissory note with Pinnacle Oil under which Pinnacle Oil promised to pay
each of Messrs. Liszicasz and Stinson US $4,500 per month for consulting
services performed between September 1, 1995 and April 30, 1996. The notes
were payable by Pinnacle Oil on or before March 1, 1996. Total compensation
paid to each of Messrs. Liszicasz and Stinson under the promissory notes was
US $18,000 in 1995, and US $9,000 in 1996.
In a separate promissory note dated as of October 21, 1995, Mr. Liszicasz
loaned Pinnacle Oil US $100,000 for working capital advances to the Company.
The note did not provide for any interest, and was payable on or before March
1, 1996.
On January 31, 1997, each of Messrs. Liszicasz and Stinson loaned the Company
US $500,000, pursuant to the terms of unsecured convertible promissory notes
(the "Convertible Notes"). In accordance with the terms of the Convertible
Notes, the Company elected to exercise a conversion of the indebtedness
thereunder at a conversion rate of one share of Common Stock for each $2.72 of
indebtedness. As a result, each of Messrs. Liszicasz and Stinson received
205,882 shares of Common Stock in full satisfaction of his Convertible Note.
In April of 1998, concurrently and in connection with the Company entering
into a Joint Exploration and Development Agreement with CamWest, the Company
sold to CamWest's affiliate, SFD Investment LLC, 800,000 shares of the
Company's Series A Preferred Stock and 200,000 warrants to purchase the
Company's Common Stock. For a more detailed description of these transactions
see "Item 1--Description of Business--CamWest Joint Exploration Agreement" and
"Item 10--Recent Sales of Unregistered Securities." Company management
believes that the terms and conditions of the CamWest Agreement are at least
as favorable to the Company as comparable provisions in its joint venture
agreements with unrelated third parties.
Each of Mr. Andrew Pollet and Mr. Lorne Carson is a director of the Company,
and each is a member of a law firm which rendered legal services to the
Company during fiscal year 1997 (Pollet Law Corporation and Bennett Jones
Verchere, respectively). Legal fees paid by the Company to each of the noted
firms did not exceed 5% of such firm's gross revenues.
ITEM 8. LEGAL PROCEEDINGS
As of the date of this Registration Statement, there are no material pending
legal proceedings or, to the knowledge of the Company, contemplated or
threatened legal proceedings, to which the Company or its subsidiaries are or
may become a party, or with respect to properties of the Company or of its
subsidiaries. As of the date of this Registration Statement, there are, to the
knowledge of the Company, no material proceedings to which any director,
officer of affiliate of the Company is a party adverse to the Company or its
subsidiaries or has a material interest adverse to the Company or its
subsidiary.
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ITEM 9. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
The Common Stock of the Company is listed on the NASD Bulletin Board, under
the trading symbol "PSFD".
The following table lists, by calendar quarter, the volume of trading, and the
high and low sales prices on the NASD Bulletin Board for the Company's Common
Stock for the most recent fiscal quarter and the two most recent fiscal years.
The prices listed below are stated in U.S. dollars, which is the currency in
which they were quoted.
<TABLE>
<CAPTION>
PERIOD VOLUME HIGH LOW
------ ------ ---- ---
<S> <C> <C> <C>
1998:
First Quarter................................... 4,770,148 $14.375 $7.375
1997:
Fourth Quarter.................................. 4,667,954 $13.250 $6.500
Third Quarter................................... 4,155,507 $15.000 $7.688
Second Quarter.................................. 3,155,612 $ 9.375 $4.375
First Quarter................................... 3,896,838 $ 7.438 $3.813
1996:
Fourth Quarter.................................. 3,822,467 $ 4.938 $2.375
Third Quarter................................... 3,351,135 $ 2.375 $0.344
Second Quarter.................................. 1,839,843 $ 3.125 $1.250
First Quarter................................... 313,348 $ 2.625 $1.250
</TABLE>
The closing price for the Company's Common Stock as of June 16, 1998 was
$12.625.
As of June 16, 1998, there were options and/or warrants outstanding to
purchase 590,000 shares of Common Stock (see "Item 5--Executive Compensation--
Stock Plan" and "Item 10--Recent Sales of Unregistered Securities"). As of the
date of this Registration Statement, the Company has granted only limited
registration rights to holders of the Preferred Stock (see "Item 10--Recent
Sales of Unregistered Securities").
On June 16, 1998, the shareholders' list provided by Jersey Transfer and Trust
Company for the Company's Common Stock showed 54 registered shareholders and
12,426,983 shares outstanding. Since a portion of the Common Stock is held by
agents in street name the Company cannot estimate the number of beneficial
holders of its Common Stock.
The Company also has outstanding 800,000 shares of Series A Convertible Stock,
for which no trading market presently exists. For a more detailed description
of these securities see "Item 11--Description of Registrants Securities to be
Registered."
DIVIDEND POLICY
The Company has not declared or paid any cash dividends on its Common Stock
since its formation, and does not presently anticipate paying any cash
dividends on its Common Stock in the foreseeable future. The Company currently
intends to retain any future earnings to finance the expansion development of
its business. The future payment of cash dividends on the Common Stock will be
within the sole discretion of the Company's Board of Directors and will depend
on the earnings, capital requirements and financial position of the Company,
applicable requirements of the Nevada corporate law, general economic
conditions and other factors considered relevant by the Company's Board of
Directors.
ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES
During the three fiscal years preceding the date of this Registration
Statement, the Company issued Common Shares in several transactions which were
not registered under the Securities Act.
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In March 1995, pursuant to a Plan of Reorganization with Fiero, the Company
(while Auric) agreed to issue 3,833,357 shares of Common Stock, with an
aggregate value of $32,698 or $0.0084 per share, to the shareholders of Fiero
in exchange for all of their shares of common stock of Fiero. (See Item 1--
Description of Business--Development of the Company"). The exchange of
securities was made pursuant to Sections 3(b) and 4(2) of the Securities Act
and Regulation D promulgated thereunder.
In 1995, the Company (while Auric) agreed to issue (i) 2,948,000 shares of
Common Stock, with an aggregate value of $32,698 or $0.0043 per share, as
consideration for services; (ii) 660,000 shares, with an aggregate value of
$12,799 or $0.0043 per share, as loan consideration; and (iii) 350,000 shares
of Common Stock, with an aggregate value of $1,516 or $0.0043 per share, as a
land payment. The issuance of securities was made pursuant to Sections 3(b)
and 4(2) of the Securities Act and Regulation D promulgated thereunder.
Each of the issuances noted above were made before the 6:1 reverse stock split
effectuated January 21, 1996.
In January of 1996 the Company entered a Plan of Reorganization under which
shareholders of the Company (then Auric) acquired all of the shares and assets
of Pinnacle Oil in exchange for 10,090,675 shares of the Company's Common
Stock. The 10,090,675 shares of the Company represented 92% of the outstanding
shares of the Company. The 10,090,675 shares were valued at $.001 per share or
$10,091 in the aggregate, and were later subject to a 6-1 reverse stock split.
(See "Item 2--Management's Discussion and Analysis of Financial Condition and
Results of Operations" above). The exchange of the securities was made
pursuant to Section 4(2) of the Securities Act and Regulation D promulgated
thereunder.
In February of 1996 the Company conducted a private placement of 975,000
shares of its Common Stock at a price of US $1.00 per share. As a result of
the private placement, the Company raised $975,000 to be used for working
capital, development of the SFD Technology and survey work. Sales of these
securities were made pursuant to Section 4(2) of the Securities Act and
Regulation D promulgated thereunder.
Between March and December of 1996, the Company agreed to issue 71,938 shares
of the Company's Common Stock in ten separate private transactions to
consultants of the Company, in exchange for various services rendered by such
consultants pursuant to Section 3(b) of the Securities Act and Rule 701
promulgated thereunder.
In February of 1998, the Company issued 511,764 shares of Common Stock to
Messrs. George Liszicasz and Dirk Stinson in satisfaction of $1,000,000 in
convertible promissory notes and $120,000 in accrued interest. The conversion
rate was $2.72 of indebtedness per share in accordance with the terms of the
notes. The issuance of these shares was made pursuant to Section 4(2) of the
Securities Act. For a more detailed description of this transaction see "Item
7--Certain Relationships and Related Transactions."
In April of 1998 the Company completed a private placement of its securities
(the "Placement") with SFD Investment LLC, an Arkansas limited liability
company (the "Investor"). The Placement included the issuance of 800,000
shares of Series A Preferred Stock, and the issuance of 200,000 warrants to
purchase Common Stock of the Company, in consideration of US $6,000,000
received by the Company.
The Placement was made in accordance with the requirements of Rules 506 and
509 of Regulation D, as promulgated by the Commission under Section 4(2) of
the Securities Act. The Placement was closed on April 3, 1998, through the
execution and delivery of certain documents, including a Certificate of
Amendment to the Articles of Incorporation of the Company (as amended, the
"Articles"); a Warrant Agreement and Certificate (the "Warrant Agreement");
and a Registration and Participation Rights Agreement (the "Rights
Agreement"). Although certain provisions of the noted agreements are
summarized below, such summaries are limited in their entirety by reference to
the actual agreements, copies of which are included as Exhibits to this
Registration Statement.
The Articles provide that the Board may issue up to 800,000 shares of
convertible preferred stock, par value $0.001 (the "Preferred Shares"). All of
the authorized Preferred Shares were issued to the Investor in the Placement.
Each Preferred Share (i) is convertible into one share of the Company's Common
Stock; (ii) may be
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redeemed by the Company at $7.50 per share commencing two years following the
date of issuance; and (iii) has a $7.50 liquidation preference. The Preferred
Shares do not have a dividend preference, although such shares may, at the
election of the Board of Directors, participate in dividends on the same basis
as if they had been converted into Common Stock. Subject to certain
conditions, the Articles provide that the Preferred Shares (i) may elect one-
sixth of the Company's Board of Directors; and (ii) must consent by a majority
vote of the class to certain material corporate events (See "Item 11--
Description of Securities to Be Registered" below).
The Warrant Agreement grants to the Investor the right to purchase 200,000
shares of the Company's Common Stock (the "Warrants"), at an exercise price of
$7.50 per share (subject to certain adjustments), from the date of issuance of
the Warrants until two years after such date.
The Rights Agreement provides that the Investor may, under certain conditions,
demand that the Company effect the registration of "Registrable Securities"
(generally defined in the Rights Agreement as Common Stock of the Company
issuable upon conversion of the Preferred Shares or exercise of the Warrants).
The noted demand registration rights are subject to certain conditions,
including but not limited to: (i) the demand registration rights do not arise
until one year after the original issuance of the Preferred Shares and the
Warrants; (ii) at the time of the demand, the Investor must own at least 1% of
the outstanding shares of Common Stock of the Company; (iii) the demand
registration must include at least one-half of the Registrable Securities; and
(iv) the Company shall not be required to effect more than two registrations
pursuant to the demand registration rights.
The Rights Agreement also provides certain "piggyback" registration rights to
the Investor at any time the Company proposes to register any of its
securities under the Securities Act. The noted "piggyback" registration rights
provide that the Company will use its best efforts to include all of the
Registrable Securities in the prospective offering, subject to requirements of
the underwriter, and to the Investor's compliance with certain terms imposed
by the underwriter (including but not limited to the execution and delivery of
any required underwriting or "lock-up" agreements). The Rights Agreement
provides, with respect to both the demand and the "piggyback" registration
rights, that underwriting discounts and commissions will be borne by the
Company and the Investor pro rata based on number of shares, and that the
remainder of registration expenses (including registration, printing, blue sky
and accounting fees and expenses) will be borne by the Company.
In addition, the Rights Agreement provides to the Investor certain preemptive
rights with respect to any prospective private offering by the Company (the
"Participation Rights"). The Participation Rights grant to the Investor the
right to purchase a portion of the prospective offering in the same ratio as
the number of shares of Common Stock then held by the Investor bears to the
number of shares of the Company's Common Stock then outstanding, on terms and
conditions fixed by the Board of the Company. The noted Participation Rights
expire on the earlier of (i) the second anniversary of the date of issuance of
the Preferred Shares and the Warrants; or (ii) the date on which all of the
Preferred Shares have been redeemed or converted in full.
Simultaneously and in connection with the closing of the Placement, the
Company entered into the CamWest Agreement with CamWest (See "Item 1--
Description of Business--CamWest Joint Exploration Agreement").
Stephens Group, Inc. is an affiliate of CamWest, and is also an affiliate of
the limited liability company which is the Investor. Company management
believes that the terms and conditions of the CamWest Agreement are at least
as favorable to the Company as comparable provisions in its joint venture
agreements with unrelated third parties.
ITEM 11. DESCRIPTION OF REGISTRANT'S SECURITIES TO BE REGISTERED
GENERAL
The Company was incorporated as "Auric Mining Corporation" in the State of
Nevada, pursuant to Articles of Incorporation filed on September 27, 1994, and
amended in April of 1998 (as amended, the "Articles"). The authorized capital
stock of the Company consists of 50,000,000 shares of Common Stock, par value
$.001 per share, and 800,000 shares of Series A Preferred Stock, which is
convertible into Common Stock, par value $0.001 per share ("Preferred Stock").
At the close of business on June 16, 1998, the Company had outstanding
12,426,983 shares of Common Stock and 800,000 shares of Preferred Stock all of
which are fully paid and nonassessable.
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Information concerning the Common Stock, which class of securities is being
registered pursuant to this Registration Statement, and information concerning
the Preferred Stock, which class of securities is not being registered
pursuant to this Registration Statement, is set forth below.
COMMON STOCK
Each holder of Common Stock is entitled to one vote for each share owned of
record on matters voted upon by stockholders. Under the Nevada Revised
Statutes Chapter 78 (the "Nevada Code") a majority vote is required for all
action to be taken by stockholders, except that, subject to certain limited
exceptions, any director may be removed from office by the vote of
stockholders representing not less than two-thirds of the voting power of the
issued and outstanding Common Stock. In the event of a liquidation,
dissolution or winding-up of the Company, the holders of Common Stock are
entitled to share equally and ratably in the assets of the Company, if any,
remaining after the payment of all debts and liabilities of the Company, and
payment of the liquidation preference of any outstanding preferred stock. The
Common Stock has no preemptive rights, no cumulative voting rights and no
redemption, sinking fund or conversion provisions.
Holders of Common Stock are entitled to receive dividends if, as, and when
declared by the Board of Directors out of funds legally available therefor,
subject to the dividend and liquidation rights of any preferred stock that may
be issued, and subject to any dividend restrictions that may be contained in
future credit facilities. Under Nevada law, no dividend or other distribution
(including redemptions or repurchases of shares of capital stock) may be made
if, after giving effect to such distribution, the Company would not be able to
pay its debts as they become due in the usual course of business, or the
Company's total assets would be less than the sum of its total liabilities
plus the amount that would be needed, if the Company were to be dissolved at
the time of distribution, to satisfy the preferential rights upon dissolution
of stockholders whose preferential rights are superior to those receiving the
distribution. The Company does not currently intend to pay dividends on shares
of Common Stock. (See "Item 9--Market Price of and Dividends on the
Registrant's Common Equity--Dividend Policy" above).
The Nevada Code contains provisions restricting the ability of a Nevada
corporation to engage in business combinations with an interested stockholder.
Under the Nevada Code, except under certain circumstances, business
combinations with interested stockholders are not permitted for a period of
three years following the date such stockholder becomes an interested
stockholder. Generally, the Nevada Code defines an interested stockholder as a
person who is the beneficial owner, directly or indirectly, of 10% of the
outstanding shares of a Nevada corporation. In addition, the Nevada Code
generally disallows the exercise of voting rights with respect to "control
shares" of an "issuing corporation" held by an "acquiring person," unless such
voting rights are conferred by a majority vote of the disinterested
stockholders. "Control shares" are those outstanding voting shares of an
issuing corporation which an acquiring person, and those persons acting in
association with an acquiring person, (i) acquire or offer to acquire in the
acquisition of a controlling interest, and (ii) acquire within 90 days
immediately preceding the date when the acquiring person became an acquiring
person. An "issuing corporation" is a corporation organized in Nevada which
has two hundred or more stockholders, at least one hundred of whom are
stockholders of record and residents of Nevada, and which does business in
Nevada directly or through an affiliated corporation. The Nevada Code also
permits directors to resist a change or potential change in control of the
corporation if the directors determine that the change or potential change is
opposed to or not in the best interest of the corporation. As a result, the
Company's Board of Directors may have considerable discretion in considering
and responding to unsolicited offers to purchase a controlling interest in the
Company.
The Common Stock is traded on the NASD bulletin board under the symbol "PSFD".
The transfer agent and registrar for the Common Stock is Jersey Transfer and
Trust Co.
PREFERRED STOCK
In April of 1998, the Board of Directors and shareholders of the Company
approved an amendment to the Articles of Incorporation (as amended, the
"Articles") of the Company providing for a new class of shares denominated
"Series A Preferred Stock."
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Under the Articles, the Company is authorized to issue up to 800,000 shares of
Preferred Stock. Holders of the Preferred Stock are not entitled to vote
except that they may elect members to the Board of Directors equal to one-
sixth of all directors of the Company (or such minimum whole number in excess
of one-sixth in the event the number of directors on the Board is not a
multiple of six) provided that in the event the number of shares of Preferred
Stock then outstanding is less than 400,000 shares, such right shall be
eliminated.
The Articles provide that certain actions may not be taken without the
affirmative vote or consent of a majority of the then outstanding Preferred
Shares. The Company may not, without such consent:
1. Change, amend, or repeal any of the provisions of the Articles applicable
to the Preferred Stock which would adversely affect the rights, preferences,
privileges, and restrictions of the Preferred Stock;
2. Increase or decrease the presently authorized number of shares of
Preferred Stock;
3. Effect an exchange, reclassification, or cancellation of all or part of
the Preferred Stock or effect an exchange, or create a right of exchange, of
all or part of the shares of any other class into the Preferred Stock;
4. Create any new class of shares (or any security convertible into such
shares) ranking on a parity with or having rights, preferences, or privileges,
as to assets, senior to the Preferred Stock;
5. Create any new class of shares (or any security convertible into such
shares) ranking on a parity with or having rights, preferences, or privileges,
as to assets, junior to the Preferred Stock but senior to the Common Stock;
6. Declare, pay or make a distribution with respect to any shares of the
capital stock of the Company ranking junior to the Preferred Stock upon
liquidation or distribution (except in shares of, or warrants or rights to
subscribe for or purchase shares of the Company which are junior to the
Preferred Stock as to assets), if after giving effect to that distribution
there is an accrued but unpaid "Series A Liquidation Preference" (as defined
in the Articles);
7. Merge or consolidate the Company (other than a short-form merger which
does not require the vote of the stockholders of the Company) with or into
another corporation or corporations;
8. Sell or convey all or substantially all of the assets or business of the
Company, except to a wholly owned subsidiary;
9. Dissolve, liquidate or wind-up the Company; or
10. Make an assignment for the benefit of creditors, or file a petition
under any federal, state or provincial bankruptcy law or statute, which
petition is not vacated within ninety (90) days.
Dividends are payable on the Preferred Stock as and when declared by the
Board. The Articles provide that in the event of a voluntary or involuntary
liquidation, dissolution, or winding up of the Company, the holders of
Preferred Stock will be entitled to receive, out of the assets of the Company,
whether those assets are capital or surplus of any nature, an amount equal to
$7.50 per share of Preferred Stock, before any payment will be made or any
assets distributed to the holders of Common Stock or any other junior equity
security.
The Articles provide further that each share of the Preferred Stock is
convertible into Common Stock at the option of the holder of the Preferred
Stock, at any time, at $7.50 divided by the "Conversion Price" (as defined in
the Articles). The Articles provide that the initial Conversion Price will be
$7.50, subject to adjustment in the event the Company issues additional Common
Stock. Generally, the Conversion Price will be adjusted and reduced in
proportion to (i) the number of shares of Common Stock issued after the
initial issuance of Preferred Stock; and (ii) the consideration received by
the Company for such Common Stock (subject to certain exceptions described in
the Articles).
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The Company may redeem the Preferred Stock (subject to the noted conversion
rights): (i) two years after the initial issuance of the Preferred Stock; (ii)
in the event the holders of the Preferred Stock vote not to approve certain
transactions as described in the Articles (provided that only shares which did
not vote in favor of the transaction may be redeemed); or (iii) in the event
an initial holder of Preferred Stock sells, assigns or otherwise transfers any
interest in the Preferred Stock, the Company may redeem any or all of the
Preferred Stock sold, assigned or transferred. If the Company elects to redeem
shares of Preferred Stock, it must pay $7.50 for each redeemed share.
ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Bylaws provide that the Company will indemnify officers and
directors to the fullest extent permitted under applicable Nevada statutes and
caselaw. In accordance with such provisions and appropriate resolutions of the
Company's Board of Directors, the Company has entered into an Indemnity
Agreement with each of its officers and directors. A summary of the
circumstances in which such indemnification is provided is set forth below,
but that description is qualified in its entirety by reference to the Bylaws,
Nevada law and the applicable Indemnity Agreements included as exhibits to
this Registration Statement.
In accordance with the Bylaws, the Indemnity Agreements and Nevada Revised
Statutes 78.7502 and 78.751, the Company has agreed to indemnify officers and
directors as follows:
1. The Company has agreed to indemnify each officer and director for all
actions in his official capacity, or in another capacity while holding office,
except for instances where a final adjudication establishes that his acts or
omissions involved intentional misconduct, fraud or a knowing violation of the
law.
2. In addition, the Company has agreed to indemnify any officer or director
against expenses, including attorneys' fees, fines, settlements or judgments,
which were actually and reasonably incurred by such person in connection with
a threatened, pending or completed action, suit or proceeding, other than one
brought by or on the behalf of the Company, if (i) he actually was or was
threatened to be made a party by reason of the fact that he is or was an
officer or director; (ii) he acted in good faith and in a manner he believed
to be in, or not opposed to, the best interests of the Company; and (iii) with
respect to any criminal action or proceeding, he had no reasonable cause to
believe his conduct was unlawful.
3. If the action or suit is brought by or on behalf of the Company, (i) the
person to be indemnified must have acted in good faith and in a manner he
reasonably believed to be in or not opposed to the Company's best interest;
(ii) criminal penalties, judgments, and fines are not indemnified; and (iii)
no indemnification will be made with respect to any claim, issue or matter as
to which such person shall have been adjudged by a court of competent
jurisdiction, after exhaustion of all appeals, to be liable to the Company;
unless, and only to the extent that, a court of competent jurisdiction
determines upon application that in view of all the circumstances of the case,
the person is fairly and reasonably entitled to indemnity for such expenses.
4. Notwithstanding the provisions of paragraphs 2 and 3, the Company has
agreed to pay expenses, including attorneys' fees, actually and reasonably
incurred by an officer or director in defense of an action, suit or proceeding
covered thereunder, to the extent he has been successful on the merits or
otherwise in defense of such action, suit or proceeding.
5. Any indemnification under paragraphs 2 and 3 above, unless ordered by a
court or advanced as provided in paragraph 6 below, may be made by the Company
only as authorized in the specific case upon a determination that
indemnification of the director or officer is proper in the circumstances. The
determination must be made by: (i) the stockholders; (ii) the Board of
Directors by a majority vote of a quorum consisting of directors who were not
parties to the act, suit or proceeding; (iii) if a majority vote of a quorum
of directors who were not parties to the act, suit or proceeding so orders,
then by independent legal counsel in a written opinion; or (iv) if such a
quorum cannot be obtained, by independent legal counsel in a written opinion.
62
<PAGE>
6. The Company has agreed to pay to an officer or director the expenses of
defending a civil or criminal action, suit or proceeding as they are incurred,
and in advance of the final disposition of the action, suit or proceeding,
upon receipt of an undertaking by the director or officer to repay such
amounts if it is ultimately determined by a court of competent jurisdiction
that he is not entitled to be indemnified by the Company.
The Company has also purchased insurance for its directors and officers for
certain losses arising from claims or charges made against them in their
capacities as directors and officers of the Company.
ITEM 13. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Financial Statements included elsewhere in this Registration Statement.
ITEM 14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
BDO Dunwoody, which audited the financial statements of the Company for the
fiscal period ended December 31, 1995 through December 31, 1996, was dismissed
by the Board of Directors of the Company as the Company's independent auditors
in November and replaced by Deloitte & Touche by the Board of Directors
immediately thereafter. The immediate cause of the dismissal was the lateral
transfer of the individual manager handling the Company's accounts from BDO
Dunwoody to Deloitte & Touche, and the Company's desire that such manager
continue to handle the account of the Company. Such individual manager later
transferred back to BDO Dunwoody, however, the Company decided to continue to
use the services of Deloitte & Touche on the basis of its broader name
recognition in the investment community.
The report of BDO Dunwoody accompanying the audit for the fiscal period ended
December 31, 1996 was not qualified or modified as to audit scope or
accounting principles, and did not contain any adverse opinion or disclaimer
of opinion with the exception of a standard going concern qualification.
During the fiscal periods ended December 31, 1996 and December 31, 1997, and
the subsequent interim period through the date of dismissal, there were no
disagreements between the Company and BDO Dunwoody on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure.
During the fiscal period ended December 31, 1996, and the subsequent interim
period through the date of dismissal, there were no reportable events as such
term is defined in Regulation 229.304(a)(1)(v).
During the fiscal period ended December 31, 1996, and the subsequent interim
period through the date of dismissal of BDO Dunwoody, the Company did not
consult with Deloitte & Touche or any other accounting firm regarding the
application of accounting principles to a specified transaction, either
completed or proposed, or the type of opinion that might be rendered regarding
the Company's financial statements, nor did the Company consult with Deloitte
& Touche with respect to any accounting disagreement or any reportable event
at any time prior to the appointment of such firm.
63
<PAGE>
ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements:
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Auditors (BDO Dunwoody)............................ F-2
Report of Independent Auditors (Deloitte & Touche)....................... F-3
Consolidated Balance Sheets at March 31, 1998, December 31, 1997 and
1996.................................................................... F-4
Consolidated Statements of Loss for the three-month periods ended March
31, 1998 and 1997 and the twelve-month periods ended December 31, 1997,
1996 and 1995........................................................... F-5
Consolidated Statements of Stockholders' Equity (deficit) from inception
(October 20, 1995) through December 31, 1997............................ F-6
Consolidated Statements of Cash Flows for the three-month periods ended
March 31, 1998 and 1997 and the twelve-month periods ended December 31,
1997, 1996 and 1995..................................................... F-7
Notes to Consolidated Financial Statements............................... F-8
</TABLE>
64
<PAGE>
(b) Exhibits
<TABLE>
<C> <S>
2.1 Reorganization Plan dated September 28, 1994 between Mega-Mart, Inc. and
Auric Mining Corporation
2.2 Reorganization Plan dated December 31, 1995 between Auric Mining
Corporation and Fiero Mining Corporation
2.3 Reorganization Plan dated January 20, 1996 between Auric Mining
Corporation and Pinnacle Oil Inc.
3.1 Articles of Incorporation for Auric Mining Corporation
3.2 Amended Bylaws for Pinnacle Oil International, Inc.
3.3 Certificate of Amendment of Articles of Incorporation of Pinnacle Oil
International, Inc.
4.1 Specimen Common Stock certificate
4.2 Specimen Series A Preferred Stock certificate
4.3 Form of Non-Qualified Stock Option Agreement for grants to directors
4.4 Warrant certificate for 200,000 Common Shares issued to SFD Investment
LLC
9.1 Stockholder Agreement dated April 3, 1998 among Pinnacle Oil
International, Inc., R. Dirk Stinson, George Liszicasz and SFD
Investment LLC
10.1 Partnership Agreement of Messrs. Liszicasz and Stinson dated September
1, 1995
10.2 Agreement between Pinnacle Oil Inc. and Mr. Liszicasz dated January 1,
1996
10.3 Momentum Transfer Agreement dated June 18, 1996
10.4 Restated Technology Agreement dated August 1, 1996
10.5 Amendment to Restated Technology Agreement dated April 3, 1998
10.6 Letter Agreement with Encal Energy Ltd. dated December 13, 1996
10.7 Exploration Joint Venture Agreement with Encal Energy Ltd. dated
February 19, 1997
10.8 Exploration Joint Venture Agreement with Encal Energy Ltd. dated
September 15, 1997
10.9 Letter Agreement with Renaissance Energy Ltd. dated April 16, 1997
10.10 SFD Survey Agreement with Renaissance Energy Ltd. dated November 1, 1997
10.11 SFD Survey Agreement with Renaissance Energy Ltd. dated February 1, 1998
(Prospect Lands #1)
10.12 SFD Survey Agreement with Renaissance Energy Ltd. dated February 1, 1998
(Prospect Lands #2)
10.13 Joint Exploration and Development Agreement with CamWest Limited
Partnership dated April 3, 1998
10.14 Canadian Data License Agreement with Pinnacle Oil Canada Inc. dated
April 1, 1997
10.15 American Data License Agreement with Pinnacle Oil Inc. dated April 1,
1997
10.16 Cost Recovery Agreement with Pinnacle Oil Canada Inc. dated April 1,
1997
10.17 Assignment Agreement with Pinnacle Oil Canada Inc. dated September 15,
1997
10.18 Assignment Agreement with Pinnacle Oil Canada Inc. dated April 1, 1997
10.19 Assignment Agreement with Pinnacle Oil Canada Inc. dated November 1,
1997
10.20 Employment Agreement dated April 1, 1997 with Mr. Dirk Stinson
10.21 Employment Agreement dated April 1, 1997 with Mr. George Liszicasz
10.22 Unsecured Convertible Promissory Note ($500,000) in favor of Mr.
Liszicasz
10.23 Unsecured Convertible Promissory Note ($500,000) in favor of Mr. Stinson
10.24 1997 Pinnacle Oil International, Inc. Stock Plan
10.25 Promissory Notes of Pinnacle Oil Inc. in favor of Messrs. Liszicasz and
Stinson dated October 21, 1995
</TABLE>
65
<PAGE>
<TABLE>
<C> <S>
10.26 Registration and Participation Rights Agreement dated April 3, 1998
between Pinnacle Oil International, Inc. and SFD Investment LLC
10.27 Form of Indemnification Agreement between Pinnacle Oil International,
Inc. and each Director
10.28 Evaluation of Stress Field Detector Technology/Implications for oil and
gas exploration in Western Canada
10.29 Lease Agreement between Phoenix Place Ltd. and Pinnacle Oil
International, Inc. dated November 25, 1997
16 Letter from BDO Dunwoody
18 Consent letter from Gilbert, Lausten and Jung Associates, Ltd.
23.1 Consent of Independent Auditors--Deloitte & Touche
23.2 Consent of Independent Auditors--BDO Dunwoody
99.1 Report captioned "Evaluation of Stress Field Detector Technology--
Implications for Oil and Gas Exploration in Western Canada" dated
September 30, 1996 prepared by Rod Morris, P. geologist, A.P.E.G.G.A.
99.2 Report regarding "Stress Field Detector Technology" dated May 22, 1998
prepared by Encal Energy Ltd.
99.3 Interoffice Memorandum captioned "SFD Data Summary" dated January 19,
1998 prepared by CamWest, Inc.
99.4 Report captioned "Pinnacle Oil International Inc.--Stress Field Detector
Documentation of Certain Exploration and Evaluation Activities" dated
February 27, 1998 prepared by Gilbert Lausten Jung Associates Ltd.
</TABLE>
66
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Act of 1934, the
Registrant certifies that it meets all of the requirements for filing on Form
10 and has duly caused this Registration Statement to be signed on its behalf
by the undersigned, thereunto authorized.
Dated at Calgary, Alberta Canada this 25th day of June, 1998.
PINNACLE OIL INTERNATIONAL, INC.
/s/ Dirk Stinson
By: _________________________________
R. Dirk Stinson
67
<PAGE>
Consolidated Financial Statements of
PINNACLE OIL INTERNATIONAL, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Shareholders
Pinnacle Oil International, Inc.
(formerly Auric Mining Corporation)
We have audited the Consolidated Balance Sheets of Pinnacle Oil
International, Inc. (formerly Auric Mining Corporation) (a development stage
enterprise) as at 31 December 1996 and 1995 and the Consolidated Statements of
Loss, Shareholders' Equity (Deficit) and Cash Flow for the year ended 31
December 1996 and the period from 20 October 1995 (inception) to 31 December
1995. We have also audited the Consolidated Statements of Loss, Shareholders'
Equity (Deficit) and Cash Flow for the period from 20 October 1995 (inception)
to 31 December 1996 (cumulative). These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards in the United States. Those standards require that we plan and
perform an audit to obtain reasonable assurance whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, these consolidated financial statements present fairly, in
all material respects, the financial position of the Company as at 31 December
1996 and 1995 and the results of its operations and cash flows for the year
ended 31 December 1996, the period from 20 October 1995 (inception) to 31
December 1995 and the period from 20 October 1995 (inception) to 31 December
1996 (cumulative) in accordance with generally accepted accounting principles
in the United States.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As described in Note 1 to the
financial statements, the Company has incurred recurring losses, has an
accumulated deficit and is a development stage Company which raises
substantial doubt about its ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 1.
The financial statements do not include any adjustments that might result from
the outcome of this uncertainty.
/s/ BDO Dunwoody
Chartered Accountants
(Internationally BDO Binder)
Vancouver, British Columbia
15 March 1997
F-2
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Shareholders of
Pinnacle Oil International, Inc.
We have audited the accompanying consolidated balance sheet of Pinnacle Oil
International, Inc. (a development stage enterprise) as at December 31, 1997
and the related consolidated statements of loss and deficit, shareholders'
equity (deficit) and cash flows for the year ended December 31, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards in the United States. Those standards required that we plan and
perform an audit to obtain reasonable assurance whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, these consolidated financial statements present fairly, in
all material respects, the financial position of the Company as at December
31, 1997 and the consolidated results of its operations and its cash flows for
the year ended December 31, 1997 in conformity with accounting principles
generally accepted in the United States.
The consolidated financial statements for the period ended December 31, 1995
and the year ended December 31, 1996 were audited by another firm of auditors.
Their audit report dated March 15, 1997 contained no reservations or
qualifications other than the reference to the going concern presumption.
/s/ Deloitte & Touche
Chartered Accountants
Vancouver, British Columbia
April 3, 1998
F-3
<PAGE>
PINNACLE OIL INTERNATIONAL, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED BALANCE SHEETS
(EXPRESSED IN U.S. DOLLARS)
<TABLE>
<CAPTION>
AT DECEMBER 31,
AT MARCH 31 ----------------------
1998 1997 1996
----------- ----------- ---------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
------
CURRENT
Cash.................................... $ 385,180 $ 848,339 $ 519,621
Accounts receivable..................... 139,506 88,104 12,892
Prepaid costs and other................. 31,426 33,514 1,637
----------- ----------- ---------
556,112 969,957 534,150
DEFERRED COSTS (Note 4)................... 139,635 154,287 --
PROPERTY AND EQUIPMENT (Note 5)........... 269,410 55,617 105,358
----------- ----------- ---------
$ 965,157 $ 1,179,861 $ 639,508
=========== =========== =========
LIABILITIES
-----------
CURRENT
Accounts payable........................ $ 322,757 $ 225,645 $ 195,032
Current portion of long-term liability
(Note 6)............................... 43,956 63,492 --
----------- ----------- ---------
366,713 289,137 195,032
PROMISSORY NOTE PAYABLE (Note 7).......... -- 1,110,000 --
LONG-TERM LIABILITY (Note 6).............. 83,028 83,028 --
----------- ----------- ---------
449,741 1,482,165 195,032
----------- ----------- ---------
SHAREHOLDERS' EQUITY (DEFICIT)
------------------------------
Share capital (Note 8).................... 12,427 12,015 11,943
Authorized 50,000,000 common shares with
a par value of $0.001 per share
Issued 12,426,983 common shares (1997--
12,015,219;
1996 --11,943,281)
Additional paid-in capital................ 2,247,864 1,128,276 961,807
Accumulated deficit during the development
stage.................................... (1,744,875) (1,442,595) (529,274)
----------- ----------- ---------
515,416 (302,304) 444,476
----------- ----------- ---------
$ 965,157 $ 1,179,861 $ 639,508
=========== =========== =========
</TABLE>
F-4
<PAGE>
PINNACLE OIL INTERNATIONAL, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF LOSS
(EXPRESSED IN U.S. DOLLARS)
<TABLE>
<CAPTION>
OCTOBER 20,
OCTOBER 20, 1995
1995 (INCEPTION) TO
THREE MONTHS ENDED MARCH 31 (INCEPTION) TO YEARS ENDED DECEMBER 31, DECEMBER 31,
--------------------------- MARCH 31, 1998 ---------------------------------- 1997
1998 1997 (CUMULATIVE) 1997 1996 1995 (CUMULATIVE)
-------------- ------------- -------------- ---------- ---------- ---------- --------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING EXPENSES
Administrative......... $ 258,345 $ 116,247 $ 1,409,198 $ 742,438 $ 355,391 $ 53,024 $ 1,150,853
Amortization........... 7,612 7,459 58,193 25,474 24,435 672 50,581
Exploration
expenditures, net of
exploration costs
reimbursed by Joint
Venture partners...... 22,678 6,646 244,354 120,666 101,010 -- 221,676
Survey system
development........... 10,633 -- 113,634 103,001 -- -- 103,001
Write-down of
automotive............ -- -- 17,074 17,074 -- -- 17,074
------------- ------------- ----------- ---------- ---------- ---------- -----------
OPERATING LOSS.......... (299,268) (130,352) (1,842,453) (1,008,653) (480,836) (53,696) (1,543,185)
------------- ------------- ----------- ---------- ---------- ---------- -----------
OTHER INCOME (EXPENSES)
Interest cost on
promissory notes...... (10,000) (20,000) (120,000) (110,000) -- -- (110,000)
Interest income........ 6,988 9,358 60,078 47,832 5,258 -- 53,090
Settlement of damages.. -- -- 157,500 157,500 -- -- 157,500
------------- ------------- ----------- ---------- ---------- ---------- -----------
(3,012) (10,642) 97,578 95,332 5,258 -- 100,590
------------- ------------- ----------- ---------- ---------- ---------- -----------
NET LOSS FOR FOR THE
PERIOD................. $ (302,280) $ (140,994) $(1,744,875) $ (913,321) $ (475,578) $ (53,696) $(1,442,595)
============= ============= =========== ========== ========== ========== ===========
Basic and diluted loss
per share.............. $ (0.02) $ (0.01) $ (0.08) $ (0.04) $ (0.01)
============= ============= ========== ========== ==========
Weighted average shares
outstanding............ 12,285,153 11,943,281 11,979,385 11,472,992 10,090,675
============= ============= ========== ========== ==========
</TABLE>
F-5
<PAGE>
PINNACLE OIL INTERNATIONAL, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
(EXPRESSED IN U.S. DOLLARS)
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED
COMMON SHARES ADDITIONAL DURING THE
------------------ PAID-IN DEVELOPMENT
SHARES AMOUNT CAPITAL STAGE
---------- ------- ---------- -----------
<S> <C> <C> <C> <C>
Balance, October 20, 1995
(inception)....................... 5,000,000 $ 5,000 $ -- $ --
Net loss........................... -- -- -- (53,696)
---------- ------- ---------- -----------
Balance December 31, 1995.......... 5,000,000 5,000 -- (53,696)
Reverse acquisition--January 30,
1996.............................. 5,968,281 5,968 (5,968) --
Shares issued for cash--May 29,
1996.............................. 975,000 975 967,775 --
Net loss........................... -- -- -- (475,578)
---------- ------- ---------- -----------
Balance, December 31, 1996......... 11,943,281 11,943 961,807 (529,274)
Shares issued for service--July 1,
1997.............................. 71,938 72 166,469 --
Net loss........................... -- -- -- (913,321)
---------- ------- ---------- -----------
Balance, December 31, 1997......... 12,015,219 $12,015 $1,128,276 $(1,442,595)
Shares issued on conversion of
promissory note--February 1, 1998. 411,764 412 1,119,588 --
Net loss........................... -- -- -- (302,280)
---------- ------- ---------- -----------
Balance, March 31, 1998
(Unaudited)....................... 12,426,983 $12,427 2,247,864 (1,744,875)
========== ======= ========== ===========
</TABLE>
F-6
<PAGE>
PINNACLE OIL INTERNATIONAL, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF CASH FLOW
(EXPRESSED IN U.S. DOLLARS)
<TABLE>
<CAPTION>
OCTOBER 20,
OCTOBER 20, 1995
1995 (INCEPTION) TO
THREE MONTHS ENDED MARCH 31 (INCEPTION) TO YEARS ENDED DECEMBER 31, DECEMBER 31,
------------------------------ MARCH 31, 1998 ------------------------------- 1997
1998 1997 (CUMULATIVE) 1997 1996 1995 (CUMULATIVE)
------------- -------------- -------------- ---------- --------- -------- --------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss for the
period................ $ (302,280) $ (140,994) $(1,744,875) $ (913,321) $(475,578) $(53,696) $(1,442,595)
Adjustments to
reconcile net loss to
net cash provided by
operating activities
Amortization......... 7,612 7,459 58,007 25,474 24,435 486 50,395
Write-down of
property and
equipment........... -- -- 28,077 28,077 -- -- 28,077
------------- -------------- ----------- ---------- --------- -------- -----------
Accrued interest on
promissory notes...... 10,000 20,000 120,000 110,000 -- -- 110,000
Costs settled by
issuance of common
stock................. -- -- 166,541 166,541 -- -- 166,541
Accounts receivable.... (51,402) (7,980) (134,674) (75,212) (8,060) -- (83,272)
Prepaid expenses and
other................. 2,088 -- (31,426) (31,877) (1,637) -- (33,514)
Due from/to officers... -- -- (4,832) -- 44,540 (49,372) (4,832)
Accounts payable....... 97,112 3,381 322,757 30,613 158,307 36,725 225,645
------------- -------------- ----------- ---------- --------- -------- -----------
Net cash used in
operating activities... (236,870) (118,134) (1,220,425) (659,705) (257,993) (65,857) (983,555)
------------- -------------- ----------- ---------- --------- -------- -----------
FINANCING ACTIVITIES
Proceeds of promissory
notes................. -- 1,000,000 1,100,000 1,000,000 -- 100,000 1,100,000
Repayment of
promissory notes...... -- -- (100,000) -- (100,000) -- (100,000)
Issuance of common
shares................ -- -- 980,000 -- 975,000 5,000 980,000
Share issue costs...... -- -- (6,250) -- (6,250) -- (6,250)
------------- -------------- ----------- ---------- --------- -------- -----------
Net cash generated by
financing activities... -- 1,000,000 1,973,750 1,000,000 868,750 105,000 1,973,750
------------- -------------- ----------- ---------- --------- -------- -----------
INVESTING ACTIVITIES
Deferred financing..... (4,884) -- (12,650) (7,766) -- -- (7,766)
Acquisition of
property and
equipment............. (221,405) (1,576) (355,495) (3,811) (91,281) (38,998) (134,090)
------------- -------------- ----------- ---------- --------- -------- -----------
Net cash used in
investing activities... (226,289) (1,576) (368,145) (11,577) (91,281) (38,998) (141,856)
------------- -------------- ----------- ---------- --------- -------- -----------
NET CASH (OUTFLOW)
INFLOW................. (463,159) 880,290 385,180 328,718 519,476 145 848,339
CASH POSITION, BEGINNING
OF PERIOD.............. 848,339 519,621 -- 519,621 145 -- --
------------- -------------- ----------- ---------- --------- -------- -----------
CASH POSITION, END OF
PERIOD................. $ 385,180 $ 1,399,911 $ 385,180 $ 848,339 $ 519,621 $ 145 $ 848,339
============= ============== =========== ========== ========= ======== ===========
</TABLE>
SUPPLEMENT OF DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
During the three month period ended March 31, 1998, the Company issued
411,764 common shares on conversion of promissory notes with a face value of
$1,000,000 and accrued interest of $120,000.
During the year ended December 31, 1995, the Company issued 10,090,675
common shares to acquire 100% of the common shares of Pinnacle Oil Inc. The
business combination has been accounted for as a reverse acquisition.
F-7
<PAGE>
PINNACLE OIL INTERNATIONAL, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN U.S. DOLLARS)
(INFORMATION AS OF MARCH 31, 1998 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1998 AND 1997 IS UNAUDITED)
1. NATURE OF BUSINESS
Pinnacle Oil International, Inc. (the "Company"), and its wholly-owned
subsidiaries, Pinnacle Oil Inc. ("Pinnacle Oil") and Pinnacle Oil Canada Inc.,
("Pinnacle Canada"), are engaged in the exploration, discovery and development
of hydrocarbon (oil and gas) deposits. The Company and its subsidiaries
identify commercially viable hydrocarbon deposits ("SFD Prospects") through
the analysis of certain information ("SFD Data") provided exclusively to the
Company for petroleum and natural gas exploration purposes by Momentum
Resources Corporation ("Momentum"), which is indirectly owned by certain
officers, directors and significant shareholders of the Company, pursuant to
the terms of a Restated Technology Agreement (the "License"). The SFD Data is
generated by Momentum's proprietary Stress Field Detector or "SFD" used in
conjunction with the Company's proprietary electronic data acquisition and
global positioning systems (collectively, the "SFD Survey System").
The Company was initially incorporated in Nevada on September 27, 1994 under
the name "Auric Mining Corporation" ("Auric"). Auric was formed by Mega-Mart,
Inc. ("Mega-Mart"), a Delaware corporation formed on January 28, 1987, for the
purpose of facilitating the change of Mega-Mart's corporate domicile from
Delaware to Nevada. On September 28, 1994, Auric and Mega-Mart entered into a
Plan Of Reorganization pursuant to which the shareholders of Mega-Mart
received 1,096,500 shares of the common stock of Auric, constituting 100% of
its outstanding capital stock, in exchange for 100% of their outstanding
shares of common stock in Mega-Mart. The Plan of Reorganization also
contemplated a subsequent merger of Mega-Mart into Auric, however, the parties
subsequently determined not to merge the companies, thereby retaining Mega-
Mart as a wholly-owned subsidiary of Auric. Auric subsequently determined that
its investment in Mega-Mart was without value, and abandoned this investment.
On December 12, 1995, Pinnacle Oil and the Company (as Auric) entered into a
letter of intent under which: (i) the Company agreed to issue 10,090,675
shares of its common stock, constituting approximately 92% of its outstanding
shares of common stock, to the shareholders of Pinnacle Oil in exchange for
all of the outstanding shares of common stock of Pinnacle Oil; (ii) the
Company agreed to solicit shareholder consent to a 6:1 reverse stock split
immediately prior to the share exchange; and (iii) the Company agreed to
changes its name to "Pinnacle Oil International, Inc." upon consummation of
the reorganization. Pinnacle Oil was a Nevada corporation formed on October
20, 1995 for the purpose of engaging in hydrocarbon exploration utilizing SFD
Data generated by the SFD Technology. On January 12, 1996, the shareholders
and directors of the Company approved the transactions contemplated by the
letter of intent, and consented to a 6:1 reverse stock split. A formal Plan of
Reorganization and Acquisition was executed and effective as of January 20,
1996, and the change in the Company's name to "Pinnacle Oil International,
Inc." was effective on February 23, 1996.
As a result of the noted transactions, Pinnacle Oil became a wholly-owned
subsidiary of the Company, and will conduct the Company's operations in the
United States. The Company formed Pinnacle Canada, a federal Canadian
corporation, on April 1, 1997 to conduct the Company's operations in Canada.
The Company's current business strategy is to enter joint venture working
participation, royalty and other arrangements with experienced, well financed
petroleum and natural gas exploration companies whereby the Company will
identify prospects using the SFD Data, and the strategic partner will have
primary responsibility to finance the acquisition and development of the
prospect. These strategic arrangements will ultimately target
F-8
<PAGE>
PINNACLE OIL INTERNATIONAL, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
both domestic (United States and Canada) and international prospects, as well
as offshore prospects. Management for the Company is engaged in on-going
discussions with oil and gas exploratory companies to exploit the SFD Data on
a joint venture basis. As of March 31, 1998, the Company has entered into one
Joint Venture agreement with a strategic partner and a SFD Survey Agreement
with a second strategic partner. As of March 31, 1998, activities under such
agreements to identify prospects have only recently commenced, and no revenues
have been generated.
2. SIGNIFICANT ACCOUNTING POLICIES
These financial statements have been prepared in accordance with generally
accepted accounting principles in the United States and reflect the following
significant accounting policies.
(a) Basis of presentation
These consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries, Pinnacle Oil and Pinnacle Canada. All
significant intercompany balances and transactions have been eliminated on
consolidation.
(b) Property and equipment
Property and equipment are stated at cost. Depreciation is provided by the
declining balance method over the estimated service lives of the respective
assets as follows:
<TABLE>
<S> <C>
Furniture and fixtures................................................. 20%
Vehicles............................................................... 30%
Computer equipment..................................................... 30%
Computer software...................................................... 100%
Equipment.............................................................. 20%
</TABLE>
Management periodically reviews the carrying value of property and equipment
to ensure that any permanent impairment in value is recognized and reflected
in the results from operations.
(c) Survey system development and exploration expenditures
The Company continues to incur expenses to improve the performance of the
SFD Survey System and to establish its effectiveness with potential business
partners. Costs incurred in survey system development and other research and
development activities are expensed as incurred.
Costs incurred in demonstrating the SFD survey system to joint venture
partners, including exploration costs (comprising aircraft operating costs and
travel) net of costs reimbursed are expensed as period costs until a specific
area of interest is identified.
Upon the identification of an area of interest, the Company will follow the
full cost method of accounting for its exploration and development activities.
Under this method, all costs associated with the exploration for and
development of oil and gas reserves are capitalized by area of interest.
Upon the commencement of commercial production, costs will be amortized on
the unit of production method based on estimated proven developed reserves.
Currently, the Company has no estimated proven developed reserves and has not
capitalized any costs.
F-9
<PAGE>
PINNACLE OIL INTERNATIONAL, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(d) Foreign currency translation
The Company is a Nevada corporation and considers the United States dollar
to be the appropriate functional currency for the Company's operations and
these financial statements, notwithstanding that the Company does business in
Canada in transactions denominated in Canadian dollars. Assets and liabilities
denominated in Canadian dollars are translated at the rate in effect at the
balance sheet date. Transaction gains and losses relating to conversion of
year end balances denominated in Canadian dollars and revenue and expenses
denominated in Canadian dollars are included in earnings.
The exchange rates between the Canadian and U.S. dollar were:
<TABLE>
<CAPTION>
BALANCE SHEET DATE AVERAGE
------------------ -------
<S> <C> <C>
March 31, 1998.................................... 1.44 1.43
December 31, 1997................................. 1.43 1.38
December 31, 1996................................. 1.37 1.36
December 31, 1995................................. 1.37 1.35
</TABLE>
(e) Estimates and assumptions
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amount of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(f) Earnings (loss) per common share
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, Earnings Per Share (SFAS 128), which established new standards for
computing and presenting earnings per share effective for fiscal years ending
after December 15, 1997. With SFAS 128, Primary earnings per share is replaced
by basic earnings per share, which is computed by dividing income available to
common shareholders by the weighted average number of shares outstanding for
the period. In addition, SFAS 128 requires the presentation of diluted
earnings per share, which includes the potential dilution that could occur if
dilutive securities were exercised or converted into common stock. The
completion of diluted EPS does not assume the conversion or exercise of
securities if their effect is anti-dilutive. Common equivalent shares consist
of the common shares issuable upon the conversion of the convertible loan
notes and special warrants (using the if-converted method) and incremental
shares issuable upon the exercise of stock options and share purchase warrants
(using the treasury stock method).
(g) Derivatives
From time to time the Company may attempt to hedge its position with respect
to currency fluctuations on specific contracts. This is generally accomplished
by entering into forward contracts. Related costs are realized as the forward
contracts are settled. The Company is not engaged in any forward contracts at
March 31, 1998 and December 31, 1997.
(h) Stock-based compensation
The Company accounts for stock-based compensation using the intrinsic value
based method whereby compensation cost is recorded for the excess, if any, of
the quoted market price of the common share over the exercise price at the
date granted for all common stock options. As at December 31, 1997, no
compensation cost has been recorded for any period under this method.
F-10
<PAGE>
PINNACLE OIL INTERNATIONAL, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following pro forma financial information presents the net loss for the
period and loss per common share had the Company adopted Statement of
Financial Accounting Standard No. 123 (SFAS 123) Accounting for Stock-based
Compensation.
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
--------- ------------
<S> <C> <C>
Net loss for the period $(327,280) $(981,321)
========= =========
Diluted loss per common shares $ (0.03) $ (0.08)
========= =========
</TABLE>
Using the fair value method for stock-based compensation, additional
compensation costs of approximately $68,000 and $25,000 would have been
recorded for the year ended December 31, 1997 and the three month period ended
March 31, 1998, respectively. These amounts are determined using an option
pricing model assuming no dividends are to be paid, an average vesting period
of three years, a weighted average annualized volatility of the Company's
share price of 43% and a weighted average annualized risk free interest rate
at 5.9%. There would be no impact for the three month period ended March 31,
1997 and for the years ended December 31, 1995 or 1996.
(i) Recent pronouncements
In June 1997, the Financial Accounting Standards Board issued Statement No.
130 (SFAS 130), Reporting Comprehensive Income, which is required to be
adopted for fiscal years beginning on or after December 15, 1997. SFAS 130
establishes standards for the reporting and display of comprehensive income
and its components in a full set of general purpose financial statements.
Reclassification of financial statements for earlier periods presented is
required. The impact of SFAS 130 on the Company's financial statements is not
expected to be material.
In June 1997, the Financial Accounting Standards Board issued Statement No.
131 (SFAS 131), Disclosures About Segments of an Enterprise and Related
Information, which is required to be adopted for fiscal years beginning on or
after December 15, 1997. SFAS 131 establishes new standards for the reporting
of segmented information in annual financial statements and requires the
reporting of certain selected segmented information on interim reports to
shareholders. The impact of SFAS 131 on the Company's financial statements is
not expected to be material.
(j) Cash and cash equivalents
Cash and cash equivalents consist of cash on hand, deposits in banks and
highly liquid investments with an original maturity of three months or less.
(k) Reclassifications
Certain of the prior years' amounts have been reclassified to conform to the
current year's presentation.
F-11
<PAGE>
PINNACLE OIL INTERNATIONAL, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
3. ACQUISITION OF SUBSIDIARY
The Company acquired Pinnacle Oil in a transaction accounted as a "Reverse
Acquisition" in accordance with United States Generally Accepted Accounting
Principles. The business combination has been accounted for as an issuance of
stock by the accounting acquirer (Pinnacle Oil) in exchange for the tangible
net assets of the acquired (Auric), valued at the historical costs which
approximate fair value. As a result of the application of these accounting
principles, Pinnacle Oil (and not the Company) is treated as the "acquiring"
or "continuing" entity for financial accounting purposes. Accordingly, the
consolidated statements of loss and deficit of the Company for the years ended
December 31, 1997, 1996 and 1995 are deemed to be a continuation of Pinnacle
Oil's financial statements, and therefore reflect (i) the operations of
Pinnacle Oil since October 20, 1995, the date of Pinnacle Oil's formation,
through to the date the Plan of Reorganization and acquisition was executed
(January 20, 1996), and (ii) the operations of the Company after January 20,
1996. The acquisition was effected by the issuance of 10,090,675 common shares
of the Company, constituting approximately 92% of its outstanding shares, in
exchange for all of the outstanding shares of Pinnacle Oil.
4. DEFERRED COSTS
The Company purchased insurance on November 20, 1997 to facilitate
operations for the next three years.
5. PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
DECEMBER 31
MARCH 31 -----------------
1998 1997 1996
----------- -------- --------
(UNAUDITED)
<S> <C> <C> <C>
Furniture and fixtures........................ $124,503 $ 24,379 $ 21,325
Vehicle....................................... 66,184 66,184 83,257
Computer equipment............................ 30,514 10,486 18,800
Computer software............................. 4,886 1,447 1,447
Equipment..................................... 2,929 1,672 5,454
Leasehold improvements........................ 85,019 -- --
Technology upgrade............................ 11,538 -- --
325,573 104,168 130,283
Less accumulated depreciation................. 56,163 48,551 24,925
-------- -------- --------
Net property equipment........................ $269,410 $ 55,617 $105,358
======== ======== ========
</TABLE>
6. LONG-TERM LIABILITY
During the year ended December 31, 1997, the Company entered into a loan
agreement in the amount of $150,000 bearing interest at 6.44% per annum. The
Company is obligated to monthly payments of principal and interest in the
amount of $4,884 to the maturity date of May 22, 1999. The estimated current
portion at March 31, 1998 and December 31, 1997 is $63,492.
7. PROMISSORY NOTE PAYABLE
During the year ended December 31, 1997, two officers of the Company loaned
the Company $1,000,000 pursuant to unsecured, convertible promissory notes.
The promissory notes bear interest at the rate of 12% per annum, and are
payable on or before January 31, 1998. The officers have the right to convert
the notes based upon a ratio of one share per $4.07 in converted principal and
interest, and the Company has the right to convert the notes based upon a
ratio of one share per $2.72 in converted principal and interest.
F-12
<PAGE>
PINNACLE OIL INTERNATIONAL, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
During the period ended March 31, 1998, the Company issued 411,764 common
shares of the Company in settlement of the unsecured convertible promissory
notes in the amount of $1,000,000 plus interest of $120,000.
8. SHARE CAPITAL AND STOCK OPTIONS
During the year ended December 31, 1997 the Company issued 71,938 common
shares in settlement of shares for service agreements from the previous year
in the amount of $145,120 and for agreements for the current year valued in
the amount of $21,421. The shares bear a one year hold from the date of July
1, 1997.
The Company has granted non-qualified stock options to certain directors of
the Company and one of its subsidiaries and incentive stock options to an
employee of one of the Company's subsidiaries to purchase common shares as
follows:
<TABLE>
<CAPTION>
NUMBER
EFFECTIVE DATE EXERCISE PRICE OF OPTIONS
----------------- -------------- ----------
<S> <C> <C> <C>
Directors........................ May 12, 1997 $5.81 75,000
Directors........................ May 20, 1997 $5.25 90,000
Directors........................ March 10, 1998 $8.31 45,000
Employee......................... November 24, 1997 $9.50 50,000
</TABLE>
The Director options vest in one-third increments beginning on the date of
grant and each annual anniversary of the date thereafter. Further vesting of
the options are subject only to re-election of each such director at each
annual meeting of the Company and of the subsidiary. The Employee options vest
annually in one-fifth increments beginning on the first anniversary of the
date of grant, subject to vesting based upon continued performance of
services. As at March 31, 1998, 70,000 (December 31, 1997--55,000) director
share options and no employee share options are vested.
9. INCOME TAXES
(a) As at December 31, 1997, the Company had net operating loss
carryforwards available to reduce taxable income in future years as follows:
<TABLE>
<CAPTION>
EXPIRATION
COUNTRY AMOUNT DATES
------- ---------- ----------
<S> <C> <C>
United States.......................................... $1,128,000 2010-2012
Canada................................................. $ 286,000 2002-2004
</TABLE>
(b) Deferred tax assets, December 31, 1997
<TABLE>
<CAPTION>
STATUTORY TAX
AMOUNT TAX RATE BENEFIT
--------- --------- ---------
<S> <C> <C> <C>
Tax asset related to depreciation........... $ 8,500 $0.34 $ 2,900
Tax benefit of loss carryforward............ 1,414,000 0.34 480,700
Valuation reserve........................... (483,600)
--------- ----- ---------
$ --
========= ===== =========
Deferred tax assets (liabilities), December 31, 1996
<CAPTION>
STATUTORY TAX
AMOUNT TAX RATE BENEFIT
--------- --------- ---------
<S> <C> <C> <C>
Tax liability related to depreciation....... $ (8,571) $0.34 $ (2,914)
Tax benefit of loss carryforward............ 537,835 0.34 182,864
Valuation reserve........................... (179,950)
--------- ----- ---------
$ --
========= ===== =========
</TABLE>
F-13
<PAGE>
PINNACLE OIL INTERNATIONAL, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
10. LITIGATION
During the year ended December 31, 1997 the Company received $157,500 in
cash on the settlement of a lawsuit pertaining to a breach of contract action.
11. RELATED PARTY TRANSACTIONS
Related party transactions and balances not disclosed elsewhere in these
financial statements include:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31 YEARS ENDED DECEMBER 31
----------------------- -----------------------
1998 1997 1997 1996 1995
----------- ----------- -------- ------- ------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Legal fees paid to two law
firms with partners and
directors in common........... $98,502 $19,983 $322,769 $ -- $ --
Wages and benefits paid to
three directors of the company
acting in their capacity as
officers and managers of the
Company....................... 64,200 26,501 165,101 163,072 36,000
Accounts payable due to
officers...................... 297 911 12,167 -- --
Accounts receivable due from
officers...................... -- -- -- 4,832 --
</TABLE>
The Company is obligated under the Restated Technology Agreement to pay to a
Bahama corporation, which is indirectly owned and controlled by certain
officers, directors and significant shareholders of the Company, a fee of 1%
of all "Prospect Revenue" from oil and gas production received on or before
December 31, 2000, and 5% of all such revenues thereafter. No revenue has been
generated to date.
12. FINANCIAL INSTRUMENTS
The Company's financial instruments consist of cash, accounts receivable,
accounts payable and long-term liability. The fair value of these financial
instruments approximates carrying values due to the short-term to maturity of
the financial instruments and similarity to current market rates. The Company
estimates the fair value of the promissory notes payable using discounted cash
flows assuming a borrowing rate equal to the US prime plus 8%.
<TABLE>
<CAPTION>
THREE MONTHS ENDED YEARS ENDED DECEMBER 31
----------------------- -----------------------------------------
MARCH 31, 1998 1997 1996
----------------------- --------------------- -------------------
(UNAUDITED) (UNAUDITED)
CARRYING CARRYING CARRYING
AMOUNT FAIR VALUE AMOUNT FAIR VALUE AMOUNT FAIR VALUE
----------- ----------- ---------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Promissory note payable. $-- $-- $1,110,000 $1,088,000 $-- $--
==== ==== ========== ========== ==== ====
</TABLE>
It is management's opinion that the Company is not exposed to significant
interest, currency or credit risks arising from these financial instruments.
F-14
<PAGE>
PINNACLE OIL INTERNATIONAL, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
13. COMMITMENTS
During the period ended March 31, 1998, the Company entered into a five year
non-cancellable operating lease for office space. Future annual minimum lease
payments in Canadian dollars are as follows:
<TABLE>
<S> <C>
1998........................................... $62,887
1999........................................... 68,604
2000........................................... 68,604
2001........................................... 68,604
2002........................................... 68,604
2003........................................... 5,717
</TABLE>
14. SUBSEQUENT EVENTS
Subsequent to March 31, 1998 and December 31, 1997, the Company:
(a) entered into a private placement on April 3, 1998 for proceeds of
$6,000,000 on the issue of: (i) 800,000 shares of preferred stock, par value
$0.001 (which preferred stock was authorized by the Company on April 1, 1998);
and (ii) two-year warrants to purchase 200,000 shares of the Company's common
stock at $7.50 per share. Each share of preferred stock (i) is convertible
into one share of the Company's common stock, and (ii) may be redeemed by the
Company at $7.50 per share commencing two years following the date of
issuance, and (iii) has a $7.50 liquidation preference. The preferred stock is
not entitled to payment of any dividends, although it may, at the election of
the Board of Directors, participate in dividends on the same basis as if it
had been converted into common stock. Simultaneous with such transaction, the
Company (i) entered into a Joint Exploration and Development Agreement with an
oil and gas exploratory company affiliated with the aforesaid investor in the
Company's securities, and (ii) agreed to amend the Restated Technology
Agreement to provide that fees would be calculated on "Prospect Profits" as
opposed to "Prospect Revenues";
(b) has entered into a month to month engagement letter for the services of
investor relations in the amount of $4,000 per month.
(c) on May 12, 1998 granted incentive stock options to an employee of the
Company's subsidiary to purchase 30,000 shares of common stock at a price of
$10.50 per share. These options vest in annual increments over three years
beginning on the first anniversary of the date of grant based on continued
performance of services. These options lapse 5 years after the vesting date.
(d) on May 12, 1998 granted incentive stock options to an employee of the
Company's subsidiary to purchase 30,000 shares of common stock at a price of
$10.50 per share. These options vest in annual increments over five years
beginning on the first anniversary of the date of grant based on continued
performance of services. These options lapse 5 years after the vesting date.
(e) on May 12, 1998 granted incentive stock options to an employee of the
Company's to purchase 70,000 shares of common stock at a price of $10.50 per
share. These options vest as to 14,000 on the first anniversary of the date of
grant and 3,500 on a quarterly basis thereafter, based on continued
performance of services. These options laps 5 years after the vesting date.
F-15
<PAGE>
EXHIBIT 2.1
PLAN OF REORGANIZATION AND CHANGE OF SITUS
BY WHICH
MEGA-MART, INC.
(A DELAWARE CORPORATION)
AND
AURIC MINING CORPORATION
(A NEVADA CORPORATION)
CHANGES ITS PLACE OF INCORPORATION
THIS PLAN OF REORGANIZATION is made effective and dated this day of
September 28, 1994, by and between the above referenced corporations, sometimes
referred to herein as "the Public Delaware Company" and "the Private Nevada
Company", respectively.
I. THE PARTIES
1. MEGA-MART, INC. ("the Public Delaware Company") is a Delaware
Corporation.
2. AURIC MINING CORPORATION ("the Private Nevada Company") is a Nevada
Corporation, having been created (or to be created) on behalf of Mega-Mart,
Inc., for the purpose of this change of situs.
II. RECITALS
A. THE CAPITAL OF THE PARTIES:
1. THE CAPITAL OF THE PUBLIC COMPANY consists of 30,000,000 shares of
common voting stock of $0.01 par value authorized, of which 1,096,500
shares are issued and outstanding.
AURIC MINING CORPORATION 15C2-11 OCTOBER 15, 1994 EXHIBIT INDEX IS ON PAGE 8
SEQUENTIAL PAGE 38
<PAGE>
PLAN OF REORGANIZATION AND CHANGE OF SITUS
Mega-Mart, Inc./Auric Mining from DELAWARE TO NEVADA
Page 39
2. THE CAPITAL OF THE PRIVATE COMPANY consisted of 50,000,000 shares
of common voting stock of $.001 par value authorized, of which no
shares have been or are issued or outstanding.
B. THE BACKGROUND FOR THE REORGANIZATION: The Public Delaware
Company desires to locate its Corporate Situs in Nevada, for the reason
that its principal offices are located within that State.
C. THE DECISION TO REORGANIZE TO CHANGE SITUS: The Parties have
resolved, accordingly, to relocated the public company, by means of the
following reorganization, by which the Public Company will move to Nevada.
III. PLAN OF REORGANIZATION
A. CHANGE OF SITUS: The Public Delaware Company and the Private
Nevada Company are hereby reorganized for the sole and singular purpose of
changing the respective place of incorporation of the Company from Delaware
to Nevada; such that immediately following the Reorganization--
1. MERGER: Mega-Mart, Inc., of Delaware shall merge with and into
Auric Mining Corporation of Nevada.
2. THE PUBLIC COMPANY: The former Mega-Mart, Inc., of Delaware will
become and thereafter be Auric Mining Corporation of Nevada. The
Public Company will retain its corporate personality and status, and
will continue its corporate existence uninterrupted, in and through,
and only in and through the Nevada Corporation.
B. EFFECTIVE DATE: This Plan of Reorganization shall become
effective immediately approval and adoption by Corporate parties hereto, in
the manner provided by the law of its place of incorporation and its
constituent corporate documents, the time of such effectiveness being
called the effective date hereof.
C. SURVIVING CORPORATIONS: The Nevada Company shall survive the
Reorganization as indicated above, after Reorganization, with the
operational history of the Delaware Company before the Reorganization, and
with the duties and relationships to its shareholders unchanged by the
Reorganization and with all of its property and with its shareholder list
unchanged. The Delaware Company shall cease to exist as a separate entity
and shall survive as and only as the Nevada Company.
AURIC MINING CORPORATION 15C2-11 OCTOBER 15, 1994 EXHIBIT INDEX IS ON PAGE 8
SEQUENTIAL PAGE 39
<PAGE>
PLAN OF REORGANIZATION AND CHANGE OF SITUS
Mega-Mart, Inc./Auric Mining from DELAWARE TO NEVADA
Page 40
D. FURTHER ASSURANCE, GOOD FAITH AND FAIR DEALING: the Directors of
each Company shall and will execute and deliver any and all necessary
documents, acknowledgements and assurances and to do all things proper to
confirm or acknowledge any and all rights, titles and interests created or
confirmed herein; and both companies covenant hereby to deal fairly and
good faith with each other and each others shareholders.
E. CONVERSION OF OUTSTANDING SHARES: Forthwith upon the effective
date hereof, each and every one share of stock in the Public Delaware
Company shall be converted to one share of the Nevada Company. Any such
holders of shares may surrender them to the transfer agent for common stock
of the former Public Delaware Company, which transfer agent shall remain
and continue as transfer agent for the now Public Nevada Company.
THIS REORGANIZATION AGREEMENT is executed on behalf of each Company by
its duly authorized representatives, and attested to, pursuant to the laws
of its respective place of incorporation and in accordance with its
constituent documents.
MEGA-MART, INC. AURIC MINING CORPORATION
(A DELAWARE CORPORATION) (A NEVADA CORPORATION)
by by
/s/ Claude Smith /s/ William Stocker
---------------------------- ------------------------
Claude Smith William Stocker
PRESIDENT, DIRECTOR ATTORNEY AT LAW
INCORPORATOR AND SOLE INITIAL
OFFICER AND DIRECTOR
AURIC MINING CORPORATION 15C2-11 OCTOBER 15, 1994 EXHIBIT INDEX IS ON PAGE 8
SEQUENTIAL PAGE 40
<PAGE>
MEGA-MART, INC.
A DELAWARE CORPORATION
September 21, 1994
MAJORITY SHAREHOLDER ACTION
THE MEETING WAS HELD pursuant to waiver of Notice, Shareholder
Representatives present was CLAUDE SMITH, President and Representative of a
majority of all Shareholders entitled to vote.
A MAJORITY OF ALL SHAREHOLDERS entitled to vote at an regular meeting of
shareholders called upon notice being present by their authorized
representatives, the following action was Resolved and Taken:
1. The Officers are empowered and directed to effectuate a 5 to 1 reverse
split of the Company's Common Stock.
2. The Officers are empowered and directed to change the Company's place
of incorporation from Delaware to Nevada.
3. The Officers are empowered and directed to change the Company's
Corporate Name to Auric Mining Corporation.
4. The Officers are empowered and directed to cause the creation of a new
Nevada Corporation to effectuate the changes authorized herein, and to further
authorize the appointment of WILLIAM STOCKER, attorney at law, to serve as
General Counsel, Incorporator and Sole Initial Interim Director of that Nevada
Corporation for the purposes of that Corporation's creation and the execution of
documents to reorganize this Corporation in conformity with the Authorizations
given herein.
/s/ Claude Smith
----------------
Claude Smith
for
Omni-Quest dba Claude Smith,
Smith Oil of Jerusalem dba Claude Smith,
Smith Oil Corp of Louisiana
and Claude smith personally.
<PAGE>
EXHIBIT 2.2
PLAN OF REORGANIZATION AND SEPARATION
BETWEEN
AURIC MINING CORPORATION
(A NEVADA CORPORATION)
AND
FIERO MINING CORPORATION
(A NEVADA CORPORATION)
This Plan of Reorganization is made effective and dated this day of
December 31, 1995, by and between the above referenced corporations, sometimes
referred to herein as "the Public Company" and "the Private Company",
respectively.
I. THE PARTIES
1. AURIC MINING CORPORATION ("Auric") ("the Public Company") is a Public
Nevada Corporation.
2. FIERO MINING CORPORATION ("the Private Nevada Company") is a Private
Nevada Corporation, having been acquired by Auric as a wholly-owned
subsidiary.
II. RECITALS
A. THE CAPITAL OF THE PARTIES:
1. THE CAPITAL OF THE PUBLIC COMPANY consists of 50,000,000 shares of
common voting stock of $0.001 par value authorized, of which 4,929,855
shares are issued and outstanding.
2. THE CAPITAL OF THE PRIVATE COMPANY consists of 50,000,000 shares of
common voting stock of $.001 par value authorized, of which no shares are
issued and outstanding, Fiero having been acquired by Auric as a wholly-
owned subsidiary.
B. THE BACKGROUND FOR THE REORGANIZATION: Fiero was duly acquired by Auric
on or about March 21, 1995, following a tender by Auric to shareholders of
Fiero. Fiero owns certain businesses and assets which are deemed of substantial
value for the long-term benefit of shareholders. Management, with the advice and
consent of shareholders, have resolved and determined that the best interests of
shareholders favor a reorganization of interests, such that the Fiero and Auric
become independent entities. The Parties have resolved, accordingly, to
reorganize the two companies, by means of the following reorganization and
separation, by which the Auric will release claim and ownership of the assets,
businesses and capital stock of the Fiero, in exchange for the issuance of new
investment share of common stock of Fiero to the shareholders of Auric, share
for share, and Fiero will assume and hold Auric harmless for all liabilities of
the consolidated entity to date hereof.
<PAGE>
PLAN OF REORGANIZATION AND SEPARATION
Auric Mining / Fiero Mining
Page 2
III. PLAN OF REORGANIZATION
A. REORGANIZATION: The Public Company and the Private Company are hereby
reorganized for the purposes set forth above, such that immediately following
the Reorganization: Fiero Mining Corporation shall cease to be a wholly owned
subsidiary of Auric Mining Corporation, both of Nevada, and by which Fiero shall
become independently owned by the shareholders of Auric as of the record date of
December 13, 1995, as of the close of business at 5:00 PM.
B. EFFECTIVE DATE: The Plan of Reorganization shall become effective
immediately approval and adoption by Corporate parties hereto, in the manner
provided by the law of its place of incorporation and its constituent corporate
documents, the time of such effectiveness being called the effective date
hereof.
C. SURVIVING CORPORATIONS: Both Nevada Corporations shall survive the
Reorganization as indicated above.
D. FURTHER ASSURANCE, GOOD FAITH AND FAIR DEALING: the Directors of each
Company shall and will execute and deliver any and all necessary documents,
acknowledgments and assurances and to do all things proper to confirm or
acknowledge any and all rights, titles and interests created or confirmed
herein; and both companies covenant hereby to deal fairly and good faith with
each other and each others shareholders.
E. EFFECT OF REORGANIZATION/OUTSTANDING SHARES: Forthwith upon the
effective date hereof, the Private Company will issue one share of new
investment common stock to the shareholders of the Public Company in
consideration of the Reorganization. The ratio of exchange being one share of
Fiero for each one shares of Auric, as of the record date provided in subpart A
hereof. The Reorganization shall have the following intended consequences and
effects:
1. Auric was and shall remain, immediately before and after
Reorganization, the same public company, with the same shareholders and
management.
2. Fiero was and shall remain, immediately before and after
Reorganization, the same private company, subject to the following
provisions:
a. The Management of Auric shall continue as the Management of
Fiero, until their successors are elected;
b. The "New Investment Shares" of common stock issued by Fiero to
the shareholders of Auric, in consideration of the Reorganization
shall bear the restrictive legend, in substantially the following
form: "The shares represented by this Certificate have not been
registered under the Securities Act of 1933 and may not be resold
unless either a registration statement is then effective or an
exemption from registration is then available."
c. The description of the shares as "New Investment Shares" shall
not represent be a determination that such shares are or are not
"Restricted Securities" as defined by Regulation S 230.144 ("Rule
144"), in subsection (a) of that Rule; nor shall such
<PAGE>
PLAN OF REORGANIZATION AND SEPARATION
Auric Mining / Fiero Mining
Page 3
description represent any determination of the availability of any
exemption from registration or resale as may be established in any
appropriate manner at any appropriate time.
d. The Management shall file a Report of the Issuance on Form D, and
shall preserve a claim of exemption that the Issuance by Fiero is
exempt from registration under Regulation D. The description of the
shares as "New Investment Shares" and the use of the restrictive
legend shall not represent be a determination that such shares are or
are not entitled to qualification under Rule 504 of Regulation D, in
contrast to Rules 505 or 506; nor shall such description or use of
legend represent any determination of the availability of any
exemption from registration or resale under Rule 504 as may be
established in any appropriate manner at any appropriate time.
e. In any case, the Management of Fiero shall and does hereby
undertake to cause the issuance of such "New Investment Shares" with
the appropriate restrictive legend, and to maintain appropriate
restriction of the their resale of such securities, as if they were
"Restricted Securities" until and unless any exemption is established
in an appropriate manner at an appropriate time, and supported by a
proper legal opinion of counsel qualified to render such an opinion.
Furthermore, Fiero shall hold Auric harmless for any issuance or
reissuance of such "New Investment Shares" to shareholders of Auric,
free of such restriction.
THIS REORGANIZATION AGREEMENT is executed on behalf of each Company by its
duly authorized representatives, and attested to, pursuant to the laws of its
respective place of incorporation and in accordance with its constituent
documents.
FIERO MINING CORPORATION AURIC MINING CORPORATION
(A NEVADA CORPORATION) (A NEVADA CORPORATION)
by by
/s/ George M. White /s/ George M. White
- ------------------------ ------------------------
George M. White George M. White
PRESIDENT PRESIDENT
/s/ Arnold W. Wynecoop /s/ Terrence J. Dunne
- ------------------------ ------------------------
Arnold W. Wynecoop Terrence J. Dunne
EXECUTIVE VICE PRESIDENT SECRETARY/TREASURER
<PAGE>
EXHIBIT 2.3
PLAN OF REORGANIZATION AND ACQUISITION
BY WHICH
AURIC MINING CORPORATION
(A NEVADA CORPORATION)
SHALL ACQUIRE
PINNACLE OIL, INC.
(A NEVADA CORPORATION)
THIS PLAN OF REORGANIZATION AND ACQUISITION is made and dated this day of
January 20, 1996, by and between the Parties, as identified hereinafter,
respectively.
I. THE PARTIES
1. AURIC MINING CORPORATION ("Auric") is a public Nevada Corporation,
being the lawful successor of the former Mega-Mart, Inc., formerly, a
Delaware Corporation.
2. PINNACLE OIL, INC. ("Pinnacle") is a private Nevada Corporation.
3. PINNACLE OIL INTERNATIONAL, INC. shall be the name of Auric following
the Reorganization contemplated herein and shall be referred to as "the
Corporation" or "the Resulting Corporation" as necessary to avoid
confusion of name and to maintain clarity of meaning.
II. RECITALS
A. THE CAPITAL OF THE PARTIES:
1. THE CAPITAL OF AURIC consists of 50,000,000 shares of common voting
stock of $0.01 par value authorized, of 877,450 are issued or outstanding.
PLAN OF REORGANIZATION
Auric/Pinnacle
January 20, 1996 Page 1
<PAGE>
2. THE CAPITAL OF PINNACLE consists of 20,000,000 shares of common voting
stock of $0.001 par value authorized, of which 5,000,000 shares are issued and
outstanding.
B. THE BACKGROUND FOR THE REORGANIZATION:
1. PINNACLE has certain interests, technology, fund raising capabilities
concerning the exploration and development of oil and gas properties/joint
ventures, and
2. PINNACLE has an interest to be acquired/merged with a public corporation
(Bulletin Board listed), and
3. AURIC wishes to acquire these rights and maintain this newly formed
Pinnacle, a Nevada Corporation as a wholly-owned subsidiary to conduct these
proposed operations. As required by law, the vote for approval of this
definitive Agreement, this Reorganization has been approved by a vote of the
holders of at a majority of the issued and outstanding shares of Auric, and
4. THE PARTIES contemplate and intend that the acquisition will be a stock
transaction; that all of the issued and outstanding capital stock of Pinnacle
shall be acquired by Auric in exchange solely for Auric voting stock pursuant to
Regulation D, Rule 504, as promulgated by the Securities and Exchange
Commission; that this transaction qualify as a tax-free reorganization under
Section 368(a)(1)(B) of the Internal Revenue Code of 1954, as amended, and
related sections thereunder.
III. PLAN OF REORGANIZATION
A. REORGANIZATION AND ACQUISITION; (1) Auric shall acquire all the
Assets, Businesses and Capital Stock of Pinnacle, and Pinnacle shall become and
be a wholly-owned subsidiary of Auric, on the terms and conditions which follow
and are provided in this Agreement; (2) Auric shall issue (in reliance upon Rule
504 of Regulation D of the Securities Act of 1933 as amended) to the
shareholders of Pinnacle, as Pinnacle shall direct, an aggregate of 10,090,675
(Ten Million Ninety Thousand Six Hundred Seventy Five) shares of common stock of
Auric, which represents approximately 92% of the issued
PLAN OF REORGANIZATION
Auric/Pinnacle
January 20, 1996 Page 2
<PAGE>
and outstanding shares of the common stock of Auric at the time of closing; (3)
Immediately upon closing, control of Auric shall pass to the shareholders of
Pinnacle, as further provided herein, and the Name of the Corporation shall be
changed from Auric Mining Corporation to Pinnacle Oil International, Inc.
B. TRANSFER OF CONTROL: Immediately following closing, Pinnacle shall
submit to Auric a list of Its Nominees for service on the Board of Directors
Auric Mining Corporation/Pinnacle Oil International, Inc. The Existing Directors
shall appoint such nominees to serve until the next meeting of shareholders, and
the Existing Directors shall forthwith resign as Directors, and the Existing
Officers shall forthwith resign as Officers of the Resulting Corporation.
C. SURVIVING CORPORATIONS: Both Nevada Companies shall survive the
Reorganization as indicated above, such that after Reorganization, Pinnacle Oil,
Inc. shall be a wholly-owned subsidiary of Pinnacle Oil International, Inc.
D. CLOSING/EFFECTIVE DATE: This Plan of Reorganization shall become
effective immediately approval and adoption by Corporate parties hereto, in the
manner provided by the law of its place of incorporation and its constituent
corporate documents, and the completion of the Audited Financial Statements of
Auric; the time of such effectiveness being called closing and/or the effective
date hereof.
E. FURTHER ASSURANCE, GOOD FAITH AND FAIR DEALING: the Directors of each
Company shall and will execute and deliver any and all necessary documents,
acknowledgments and assurances and to do all things proper to confirm or
acknowledge any and all rights, titles and interests created or confirmed
herein; and both companies covenant hereby to deal fairly and good faith with
each other and each others shareholders.
F. CONSTRUCTION: This Plan of Reorganization and the resulting legal
relations between the parties hereto shall be governed by and construed in
accordance with the laws of the State of Nevada.
G. REPRESENTATIONS & UNDERTAKINGS BY PINNACLE.
Pinnacle represents and warrants as follows:
PLAN OF REORGANIZATION
Auric/Pinnacle
January 20, 1996 Page 3
<PAGE>
(1) The technology (SFD) that is controlled by Pinnacle is without
contingent or substantial liabilities that are not reflected in statements
to be provided; any obligations are in the usual course of business; and no
such contracts or obligations in the usual course of business are liens or
other liabilities which, if disclosed, would alter substantially the
financial condition of this proposed acquisition herein.
(2) There have not been, and prior to the closing date there will not be,
any material adverse changes in the financial position of these contracts,
except changes arising in the ordinary course of business.
(3) Pinnacle will prepare and the Resulting Company will execute effect a
further $75,000 to $1,000,000 Limited Offering, pursuant to Regulation D,
and/or such other exemptions from Registration as may be available to
further capitalize the Resulting Company.
(4) Pinnacle is not involved in any pending or threatened litigation or
governmental investigation or proceeding not reflected in such financial
statement or otherwise disclosed in writing to Auric and, to the knowledge
of Pinnacle, or its holders, no litigation, is pending or threatened
against Pinnacle.
H. REPRESENTATIONS AND UNDERTAKINGS BY AURIC.
Auric represents and warrants as follows:
(1) As of the closing date, the Auric shares to be delivered to the
Stockholders will constitute valid and legally issued shares of Auric,
fully paid and nonassessable, and will be legally equivalent in all
respects to the common stock of Auric issued and outstanding as of the date
hereof.
(2) The officers of Auric are duly authorized to execute this agreement
pursuant to authorization of its Board of Directors.
(3) The financial statements of Auric, are true and complete statements, as
of that date, of its financial condition, and fairly present the results of
its operations for such period; there are no
PLAN OF REORGANIZATION
Auric/Pinnacle
January 20, 1996 Page 4
<PAGE>
substantial liabilities, either fixed or contingent, not reflected in such
financial statements other than contracts or obligations in the usual
course of business; and no such contracts or obligations in the usual
course of business are liens or other liabilities, which if disclosed,
would alter substantially the financial condition of Auric, as reflected in
such financial statements.
(4) Since March 21, 1995, there have not been, and prior to the closing
date there will not be, any material adverse changes in the financial
position of Auric, except changed arising in the ordinary course of
business and the proposed reorganization and separation of Auric and Fiero
Mining Corp. An audited financial statement will be prepared as of December
31, 1995.
(5) To the best knowledge of Auric, its Officers, Directors or Principal
Shareholders, Auric is not involved in any pending or threatened litigation
or governmental investigation or proceeding not reflected in such financial
statements or otherwise disclosed in writing to Pinnacle.
(6) As of the closing date, Auric will be in good standing as a Neveda
corporation with total authorized capital consisting of Fifty Million
shares of $.001 par value common shares.
(7) The issuance of the 10,090,675 shares of common stock of Auric to the
shareholders of Pinnacle as described above in Section II, A, is in
compliance with the exemption from Registration provided under Rule 504 of
Regulation D of the Securities Act of 1933, as amended, and any applicable
State Securities Rules and Regulations. Auric will provide, at closing, an
Opinion of Counsel, Opining to said compliance and determining the dollar
value of said issuance.
I. COUNTERPART: This Agreement may be signed in counterpart originals.
PLAN OF REORGANIZATION
Auric/Pinnacle
January 20, 1996 Page 5
<PAGE>
THIS REORGANIZATION AGREEMENT is executed on behalf of each Company by its
duly authorized representatives, and attested to, pursuant to the laws of its
respective places of incorporation and in accordance with its constituent
documents.
AURIC MINING CORP. PINNACLE OIL, INC.
by
/s/ George M. White /s/ Dirk Stinson
- -------------------------- -------------------------
George M. White Dirk Stinson
PRESIDENT AND DIRECTOR PRESIDENT AND DIRECTOR
/s/ Terrence J. Dunne /s/ George Liszicasz
- -------------------------- -------------------------
Terrence J. Dunne George Liszicasz
SECRETARY AND DIRECTOR CHAIRMAN AND DIRECTOR
PLAN OF REORGANIZATION
Auric/Pinnacle
January 20, 1996 Page 6
<PAGE>
THIS REORGANIZATION AGREEMENT is executed on behalf of each Company by its
duly authorized representatives, and attested to, pursuant to the laws of its
respective places of incorporation and in accordance with its constituent
documents.
AURIC MINING CORP. PINNACLE OIL, INC.
by
/s/ George M. White /s/ Dirk Stinson
- -------------------------- -------------------------
George M. White Dirk Stinson
PRESIDENT AND DIRECTOR PRESIDENT AND DIRECTOR
/s/ Terrence J. Dunne /s/ George Liszicasz
- -------------------------- -------------------------
Terrence J. Dunne George Liszicasz
SECRETARY AND DIRECTOR CHAIRMAN AND DIRECTOR
<PAGE>
EXHIBIT 3.1
AMENDMENT TO ARTICLES OF INCORPORATION
OF
AURIC MINING CORPORATION
(after payment of capital issuance of stock)
WHEREAS the Articles of Incorporation were filed originally on, or about
September 27, 1994 and whereas the Corporation has duly issued and outstanding
shares of its common stock; and, further, the Corporation having called a
Special Meeting of Majority Shareholders entitled to vote, and such meeting
having been duly held and conducted on January 12, 1996; and the shareholders,
by affirmative vote of 58% of all shareholders entitled to vote having
determined to change the name of this Corporation.
NOW, THEREFORE, by authority and direction of the Shareholders, the Board of
Directors hereby makes and files this AMENDMENT TO ARTICLES OF INCORPORATION for
the sole purpose and effect of changing the Corporate Name.
The former Article read:
ARTICLE I. The Name of the Corporation is Auric Mining Corporation.
Article I is superseded and replaced as follows:
ARTICLE I. The Name of the Corporation is Pinnacle Oil International,
Inc.
In all other respects, the Articles as originally filed remain in full
force and effect as stated.
WE, THE UNDERSIGNED, being the Vice-President and Secretary of this
Corporation do make and file these Articles of Amendment, for the purpose of
Amending the Articles of Incorporation as originally filed pursuant to the
General Corporation Law of the State of Nevada, hereby declaring and certifying
that the facts herein stated true, were taken as of January 12, 1996, and
accordingly have set our hand hereunto this Day in certification thereof,
February 9, 1996.
AMENDMENT TO ARTICLES OF INCORPORATION
Page 1 of 2
<PAGE>
/s/ Arnold W. Wynecoop /s/ Terrence J. Dunne
- ---------------------- ---------------------
Arnold W. Wynecoop Terrence J. Dunne
Vice President Secretary
State of Washington )
) ss.
County of Spokane )
On February 9, 1996, personally appeared before me, a Notary Public, Arnold
W. Wynecoop, who acknowledged that he executed the above instrument.
/s/ SHANNA M. COZZA
-----------------------------
Signature of Notary
Notary Stamp or Seal
State of Washington )
) ss.
County of Spokane )
On February 9, 1996, personally appeared before me, a Notary Public,
Terrence J. Dunne, who acknowledged that he executed the above instrument.
/s/ Dorothy Munson
-----------------------------
Signature of Notary
Notary Stamp or Seal
AMENDMENT TO ARTICLES OF INCORPORATION
Page 2 of 2
<PAGE>
ARTICLES OF INCORPORATION
OF
AURIC MINING CORPORATION
ARTICLE 1. The name of the Corporation is AURIC MINING CORPORATION.
ARTICLE II. Its principal and registered office in the State of Nevada is
760 Mays Blvd, Suite 20, Incline Village NV 89451. The initial registered agent
for services of process at that address is Sierra Business Consultants, a Nevada
Corporation.
ARTICLE III. The purposes for which the corporation is organized are to
engage in any activity or business not in conflict with the laws of the State of
Nevada or of the United States of America. The period of existence of the
corporation shall be perpetual.
ARTICLE IV. The Corporation shall have authority to issue an aggregate of
Fifty Million (50,000,000) shares of common voting equity stock of par value one
mil ($0.001) per share, and no other class or classes of stock, for a total
capitalization of $50,000. The Corporation's capital stock may be sold from time
to time for such consideration as may be fixed by the Board of Directors,
provided that no consideration so fixed shall be less than par value.
ARTICLE V. No shareholder shall be entitled to any preemptive or
preferential rights to subscribe to any unissued stock or any other securities
which the corporation may now or hereafter be authorized to issue, nor shall any
shareholder possess cumulative voting rights at any shareholders meeting for the
purpose of electing Directors.
ARTICLE VI. The affairs of the corporation shall be governed by a Board of
Directors of not less than two (2) persons. The Incorporator, whose name and
address is William Stocker, Attorney at Law, PO Box 4980, Laguna Beach CA 92652,
shall serve as Sole Initial Director for the purpose of appointing the Initial
Board of Directors.
ARTICLE VII. The Capital Stock after the amount of the subscription price
or par value shall not be subject to assessment to pay the debts of the
corporation, and no stock issued as paid up shall ever be assessable or
assessed.
ARTICLE VIII. The initial By-laws of the corporation shall be adopted by
its Board of Directors. The power to alter, amend or repeal the By-laws, or
adopt new By-laws, shall be vested in the Board of Directors, except as
otherwise may be specifically provided in the By-laws.
ARTICLE IX. The name and address of the Incorporator of the corporation is
William Stocker, attorney at Law, PO Box 4980, Laguna Beach CA 92652.
<PAGE>
ARTICLES OF INCORPORATION OF
AUIRC MINING CORPORATION
PAGE 2
I THE UNDERSIGNED, being the Incorporator hereinbefore named for the
purpose of forming a Corporation pursuant the General Corporation Law of the
State of Nevada, do make and file these Articles of Incorporation, hereby
declaring and certifying that the facts herein stated are true, and accordingly
have set my hand hereunto this Day, September 26, 1994.
/s/ William Stocker
WILLIAM STOCKER
Attorney at Law
Incorporator
SUBSCRIBED AND SWORN TO BEFORE ME
THIS 26th DAY OF SEPT 1994
/s/ Sue St. Clair [STAMP APPEARS HERE]
- -----------------------
NOTARY PUBLIC
RECEIVED
SEP 27 1994
_______________________
SECRETARY OF STATE
<PAGE>
EXHIBIT 3.2
BYLAWS
OF
PINNACLE OIL INTERNATIONAL, INC.
(the "Corporation")
A Nevada Corporation
ARTICLE I
OFFICES
Section 1.01 PRINCIPAL EXECUTIVE OR BUSINESS OFFICES. The board of
directors shall designate the location of the principal executive office of the
Corporation at any place within or without the State of Nevada. The location of
the principal executive office may be changed by the board of directors.
Section 1.02 OTHER OFFICES. Branch or subordinate offices may be
established at any time and at any place by the board of directors.
Section 1.03 REGISTERED OFFICE AND AGENT. The registered agent for the
Corporation shall be located within the State of Nevada and shall be designated
by the board of directors, who may change the registered agent from time to time
as they see fit. The registered agent shall have a street address for the
service of process, and such street address is the registered office of the
Corporation in the State of Nevada.
ARTICLE II
MEETINGS OF SHAREHOLDERS
Section 2.01 ANNUAL MEETINGS. Meetings of shareholders of the Corporation
shall be held at any place within or without the State of Nevada as designated
by the board of directors or, in the absence of any designation, shall be held
at the corporation's principal executive office. The annual meeting of
shareholders shall be held each year on a date and at a time designated by the
board of directors. The date so designated shall be within eighteen (18) months
after the last annual meeting of the shareholders has taken place. At each
annual meeting, directors shall be elected and any other proper business within
the power and authority of the shareholders may be transacted.
Section 2.02 SPECIAL MEETINGS. Special meetings of the shareholders may be
called at any time by either the board of directors, by the chairman of the
board, by the President, or by a majority of directors. Written notice of such
meeting stating the place, date and hour of the meeting, the purpose or purposes
for which it is called, and the name of the person by whom or at whose direction
the meeting is called shall be given. The notice shall be given to each
shareholder of record in
<PAGE>
the same manner as the notice of the annual meeting. No business other than as
specified in the notice of the meeting shall be transacted at any such special
meeting.
Section 2.03 NOTICE OF SHAREHOLDERS' MEETINGS. Notice of the meeting
shall be in writing and signed by the President or a Vice President, or the
Secretary, or an Assistant Secretary, or by such other natural person or persons
as these bylaws may prescribe or permit or the directors of the Corporation may
designate. The notice shall state the purpose or purposes for which the meeting
is called and the time when, and the place, which may be within or without the
State of Nevada, where it is to be held. A copy of the notice shall be
delivered personally or mailed postage prepaid to each shareholder of record
entitled to vote at the meeting not less than ten (10) nor more than sixty (60)
days before the meeting. If mailed, the notice shall be directed to the
shareholder at his address as it appears upon the records of the Corporation,
and upon the mailing of any such notice the service thereof is complete, and the
time of the notice begins to run from the date upon which the notice is
deposited in the mail for transmission to the shareholder. Personal delivery of
any such notice to any officer of the Corporation constitutes delivery of the
notice to the Corporation. Any shareholder of the Corporation may waive notice
of any meeting by a writing signed by him, or his duly authorized attorney,
either before or after the meeting.
Section 2.04 PLACE OF MEETING. The board of directors may designate any
place, either within or without the State of Nevada, as the place of meeting for
any annual meeting or for any special meeting called by the board of directors.
A waiver of notice in writing signed by all shareholders entitled to vote at a
meeting may designate any place, either within or without the State of Nevada,
as the place for the holding of such meeting. If no designation is made, or if
a special meeting be otherwise called, the place of meeting shall be the
principal executive office of the Corporation.
Section 2.05 QUORUM. A majority of the outstanding shares of the
Corporation entitled to vote, represented in person or by proxy, shall
constitute a quorum at a meeting of shareholders. At a meeting resumed after
any adjournment at which a quorum shall be present or represented, any business
may be transacted which might have been transacted at the meeting as originally
noticed. The shareholders present at a duly organized meeting may continue to
transact business until adjournment, notwithstanding the withdrawal of
shareholders in such number that less than a quorum remain.
Section 2.06 RECORD DATE FOR SHAREHOLDER NOTICE.
(a) For purposes of determining the shareholders entitled to receive notice
of a vote at a shareholders' meeting or give written consent to corporate action
without a meeting, the board of directors may fix in advance a record date that
is not more than sixty (60) days before the date of a shareholders' meeting, or
not more than sixty (60) days before any other action.
(b) If no record date is fixed:
(i) The record date for determining shareholders entitled to receive
notice of and vote at a shareholders' meeting shall be the business day next
preceding the day on which notice is given, or if notice is waived as provided
in Section 2.03 of this Article II, the business day next
Page 2 of 14
<PAGE>
preceding the day on which the meeting is held;
(ii) The record date for determining shareholders entitled to give
consent to corporate action in writing without a meeting, if no prior action has
been taken by the board of directors, shall be the day on which the first
written consent is given; and
(iii) The record date for determining shareholders for any other
purpose shall be as set forth in Section 2.06(a) of this Article II of these
bylaws.
(c) The directors of the Corporation may prescribe a period not exceeding
sixty (60) days before any meeting of the shareholders during which no transfer
of stock on the books of the Corporation may be made, or may fix a day not more
than sixty (60) days before the holding of any such meeting as the day as of
which shareholders entitled to notice of and to vote at such meetings must be
determined. Only shareholders of record on that day are entitled to notice or
to vote at such meeting.
(d) A determination of shareholders of record entitled to receive notice
of and vote at a shareholders meeting shall apply to any adjournment of the
meeting unless the board of directors fixes a new record date for the adjourned
meeting. The board of directors shall fix a new record date if the adjournment
is to a date more than forty-five (45) days after the date set for the original
meeting.
(e) Only shareholders of record on the Corporation's books at the close
of business on the record date shall be entitled to any of the notice and voting
rights listed in subsection (a) of this Section 2.06, notwithstanding any
transfer of shares on the Corporation's books after the record date except as
otherwise required by law.
Section 2.07 PROXIES. Every shareholder entitled to vote for directors or
on any other matter shall have the right to do so either in person or by one or
more agents authorized by a written proxy signed by that shareholder and filed
with the Secretary of the Corporation before or at the time of the meeting. No
proxy shall be valid after six (6) months from the date of its execution, unless
it is coupled with an interest, or unless otherwise specified by the shareholder
in the proxy, although the length of time may not exceed seven (7) years from
the date of the proxy's execution.
A validly executed proxy which does not state that it is irrevocable shall
continue in full force and effect unless (i) revoked by the person executing it,
before the vote pursuant to that proxy, by a writing delivered to the
Corporation stating that the proxy is revoked, or by attendance at the meeting
and voting in person by the shareholder executing the proxy or by a subsequent
proxy executed by the same shareholder and presented at the meeting; or (ii)
written notice of the death or incapacity of the maker of that proxy is received
by the Corporation before the vote for which that proxy is counted.
Section 2.08 SHAREHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING. Any
action that could be taken at an annual or special meeting of the shareholders
may be taken without a meeting and without prior notice, if a consent in
writing, setting forth the action so taken, is signed by the holders of
outstanding shares having not less than the minimum number of votes
Page 3 of 14
<PAGE>
which would be necessary to authorize or take that action at a meeting at which
all shares entitled to vote on that action were present and voted.
Directors may be elected by written consent of the shareholders without a
meeting only if the written consent of all outstanding shares entitled to vote
are obtained, except that vacancies on the board of directors (other than
vacancies created by removal) not filled by the board of directors may be filled
by the written consent of the holders of a majority of the outstanding shares
entitled to vote.
All consents shall be filed with the Secretary of the Corporation and shall
be maintained in the corporate records.
Section 2.09 INSPECTORS OF ELECTION. Before any meeting of shareholders,
the board of directors may appoint any persons other than nominees for office to
act as inspectors of election at the meeting or its adjournment. If no
inspectors of election are so appointed, the chairman of the meeting may, and
upon the request of any shareholder or a shareholder's proxy shall, appoint
inspectors of election at the meeting. The number of inspectors shall either be
one (1) or three (3). If inspectors are appointed at a meeting upon the request
of one or more shareholders or proxies, the holders of a majority of shares or
their proxies present at the meeting shall determine whether one (1) or three
(3) inspectors are to be appointed. If a person appointed as inspector fails to
appear or fails or refuses to act, the chairman of the meeting may, and upon the
request of any shareholder or a shareholder's proxy shall, appoint a different
person to fill the vacancy.
An inspector shall: (i) determine the number of shares outstanding and the
voting power of each, the shares represented at the meeting, the existence of a
quorum, and the authenticity, validity, and effect of proxies; (ii) receive
votes, ballots, or consents; (iii) hear and determine all challenges and
questions in any way arising in connection with the right to vote; (iv) count
and tabulate all votes or consents; (v) determine when the polls shall close;
(vi) determine the result; and (vii) do any other acts which may be necessary
and proper to conduct the election or vote in a manner fair to all shareholders.
ARTICLE III
DIRECTORS
Section 3.01 POWERS. Subject to the provisions of the Nevada Revised
Statutes and any limitations in the articles of incorporation and these bylaws
relating to actions required to be approved by the shareholders or by the
outstanding shares, the business and affairs of the Corporation shall be managed
and all corporate powers shall be exercised by or under the direction of the
board of directors.
Section 3.02 NUMBER, TENURE AND QUALIFICATIONS. The number of directors
of the Corporation shall be a minimum of three (3) and a maximum of eleven (11).
Until a different number within the foregoing limits is specified in an
amendment to this Section 3.02 duly adopted by the directors or shareholders of
the Corporation, the exact number of authorized directors shall be
Page 4 of 14
<PAGE>
seven (7). Directors shall be elected at each annual meeting of the shareholders
to hold office until the next annual meeting. Each director, including a
director elected to fill a vacancy, shall hold office until the expiration of
the term for which elected and until a successor has been elected and qualified.
No reduction of the authorized number of directors shall have the effect of
removing any director before that director's term of office expires. Directors
need not be residents of the State of Nevada or shareholders of the Corporation.
Section 3.03 REGULAR MEETINGS. Regular or special meetings of the board
of directors may be held at any location within or without the State of Nevada
that has been designated from time to time by the board of directors. In the
absence of such a designation, regular meetings shall be held at the principal
executive office of the Corporation. Any meeting, regular or special, may be
held by telephone conference or similar communications equipment, provided that
all directors participating can hear and communicate with one another. Other
regular meetings of the board of directors shall be held without call at times
to be fixed by the board of directors. Such regular meetings may be held
without notice. Immediately after each annual shareholders meeting, the board
of directors shall hold an annual meeting at the same location, or at any other
location that has been designated by the board of directors, to consider matters
of organization, election of officers, and other business.
Section 3.04 SPECIAL MEETINGS. Special meetings of the board of directors
may be called for any purpose or purposes at any time by the chairman of the
board, the President, any Vice President, the Secretary, or any two (2)
directors. Special meetings shall be held on forty-eight (48) hours' notice
delivered personally or by telephone or facsimile. Oral notice given personally
or by telephone may be transmitted either to the director or to a person at the
director's office who can reasonably be expected to communicate such notice
promptly to the director. Written notice, if used, shall be addressed to each
director at the address shown on the Corporation's records.
Section 3.05 QUORUM. A majority of the members of the board of directors
shall constitute a quorum for the transaction of business. At any meeting at
which every director shall be present, even though without any notice, any
business may be transacted. A meeting at which a quorum is initially present
may continue to transact business, notwithstanding the withdrawal of directors,
if any action taken is approved by at least a majority of the required quorum
for that meeting. Whether or not a quorum is present, a majority of the
directors present may adjourn any meeting to another time or location.
Section 3.06 MANNER OF ACTING. At all meetings of the board of directors,
each director shall have one vote. The act of a majority present at a meeting
shall be the act of the board of directors, provided a quorum is present.
Section 3.07 VACANCIES. A vacancy in the board of directors shall be
deemed to exist in the case of death, resignation, or removal of any director,
or if the authorized number of directors is increased, or if the shareholders
fail, at any meeting of shareholders at which any director is to be elected, to
elect the full authorized number to be elected at that meeting. Any director's
resignation shall be effective upon giving written notice of such to the
chairman of the board,
Page 5 of 14
<PAGE>
the President, the Secretary, or the board of directors, unless said notice
specifies a later effective date. If the resignation is effective at a future
time, the board of directors may elect a successor to take office when the
resignation becomes effective. Except for a vacancy caused by the removal of a
director, vacancies on the board of directors may be filled by a majority of the
directors then in office, whether or not they constitute a quorum, or by a sole
remaining director. A vacancy on the board of directors caused by the removal of
a director may be filled only by the shareholders. The shareholders may elect a
director at any time to fill a vacancy not filled by the board of directors. The
term of office of a director elected to fill a vacancy shall run until the next
annual meeting of the shareholders, and such director shall hold office until a
successor is elected and qualified.
Section 3.08 REMOVALS. Directors may be removed at any time by vote of
the shareholders representing not less than two-thirds (2/3) of the voting power
of the issued and outstanding stock entitled to voting power. Such vacancy
shall be filled by a majority of the remaining directors then in office, though
less than a quorum, to hold office until the next annual meeting or until his
successor is duly elected and qualified, except that any directorship to be
filled by reason of removal by the shareholders may be filled by election by the
shareholders at the meeting at which the director is removed. No reduction of
the authorized number of directors shall have the effect of removing any
director prior to the expiration of his term of office.
Section 3.09 RESIGNATION. A director may resign at any time by delivering
written notification thereof to the President or Secretary of the Corporation.
Resignation shall become effective upon its acceptance by the board of
directors; provided, however, that if the board of directors has not yet acted
thereon within ten (10) days from the date of its delivery, the resignation
shall upon the tenth (10th) day be deemed accepted.
Section 3.10 PRESUMPTION OF ASSENT. A director of the Corporation who is
present at a meeting of the board of directors at which action on any corporate
matter is taken shall be presumed to have assented to such action, unless: (i)
his dissent shall be entered in the minutes of the meeting; (ii) he shall file
his written dissent to such action with the person acting as the Secretary of
the meeting before the adjournment thereof; or (iii) he shall forward such
dissent by registered mail to the Secretary of the Corporation immediately after
the adjournment of the meeting. Such right to dissent shall not apply to a
director who voted in favor of such action.
Section 3.11 FEES AND COMPENSATION OF DIRECTORS. Directors and members of
committees of the board of directors may be compensated for their services, and
shall be reimbursed for expenses, as fixed or determined by resolution of the
board of directors. This Section 3.11 shall not be construed to preclude any
director from serving the Corporation in any other capacity, as an officer,
agent, employee, or otherwise, and receiving compensation for those services.
Section 3.12 ACTION WITHOUT A MEETING. Any action required or permitted
to be taken by the board of directors or a committee thereof may be taken
without a meeting if, before or after the action, all members of the board of
directors or of the committee shall individually or collectively consent in
writing to that action. Any action by written consent shall have the same force
and effect as a unanimous vote of the board of directors. All written consents
shall be filed with the
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<PAGE>
minutes of the proceedings of the board of directors or committee. Members of
the board of directors or of any committee designated by the board may
participate in a meeting of the board or committee by means of a telephone
conference or similar method of communication by which all persons participating
in the meeting can hear each other. Participation in a meeting in this manner
constitutes presence in person at the meeting.
Section 3.13 EXECUTIVE AND OTHER COMMITTEES OF THE BOARD. The board of
directors may, by resolution adopted by a majority of the authorized number of
directors, designate an executive committee or one or more other committees,
each consisting of one or more directors. The board may designate one or more
directors as alternate members of any committee, to replace any absent member at
a committee meeting. The appointment of committee members or alternate members
requires the vote of a majority of the authorized number of directors. A
committee may be granted any or all of the powers and authority of the board of
directors, to the extent provided in the resolution of the board of directors
establishing the committee, except with respect to:
(a) Approving any action for which the Nevada Revised Statutes also
requires the approval of the shareholders or of the outstanding shares;
(b) Filling vacancies on the board of directors or any committee of the
board;
(c) Fixing directors' compensation for serving on the board or a committee
of the board of directors;
(d) Adopting, amending, or repealing bylaws;
(e) Amending or repealing any resolution of the board of directors which
by its express terms is not amendable or cannot be repealed;
(f) Making distributions to shareholders, except at a rate or in a
periodic amount or within a price range determined by the board of directors; or
(g) Appointing other committees of the board or their members.
Meetings and action of committees shall be governed by, and held and taken
in accordance with, bylaw provisions applicable to meetings and actions of the
board of directors.
ARTICLE IV
OFFICERS
Section 4.01 OFFICERS. The officers of the Corporation shall be the
President, one or more Vice Presidents, a Secretary, and a Treasurer or Chief
Financial Officer, each of whom shall be elected by a majority of the board of
directors. In its discretion, the board of directors may leave
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<PAGE>
unfilled, for any such period as it may determine, any office except those of
President and Secretary. Officers may or may not be directors or shareholders of
the Corporation.
Section 4.02 ELECTION OF OFFICERS. The officers of the Corporation,
except for subordinate officers appointed in accordance with this Section, shall
be appointed by the board of directors, and shall serve at the pleasure of the
board of directors. The board of directors may appoint, and may empower the
chief executive officer to appoint, other officers as required by the business
of the Corporation whose duties shall be provided in the bylaws, or shall be
determined from time to time by the board of directors or the President.
Section 4.03 REMOVAL AND RESIGNATION OF OFFICERS. Any officer chosen by
the board of directors may be removed at any time, with or without cause or
notice, by the board of directors. Subordinate officers appointed by persons
other than the board under Section 4.02 of this Article IV may be removed at any
time, with or without cause or notice, by the board of directors or by the
officer by whom appointed. Any officer may resign at any time by giving written
notice to the Corporation. Resignations shall take effect upon the date of
receipt of such written notice, unless a later time is specified in the notice.
Unless otherwise specified in the notice, acceptance of the resignation is not
necessary to make it effective.
Section 4.04 VACANCIES IN OFFICE. A vacancy in any office resulting from
an officer's death, resignation, removal, disqualification, because a new office
shall be created, or from any other cause shall be filled by the board of
directors.
Section 4.05 CHAIRMAN OF THE BOARD. The board of directors shall elect a
chairman who shall preside, if present, at board meetings and shall exercise and
perform such other powers and duties as may be assigned from time to time by the
board of directors.
Section 4.06 CHIEF EXECUTIVE OFFICER. The chief executive officer shall
have general supervision, direction, and control over the Corporation's business
and its officers.
Section 4.07 PRESIDENT. The President shall have supervision over the day
to day business operations of the Corporation.
Section 4.08 VICE PRESIDENT. If desired, one or more Vice Presidents may
be chosen by the board of directors in accordance with the provisions for
electing officers set forth in Section 4.02 of this Article IV. In the absence
or disability of the President, the President's duties and responsibilities
shall be carried out by the Vice President. When so acting, a Vice President
shall have all the powers of and be subject to all the restrictions on the
President. Vice Presidents of the Corporation shall have such other powers and
perform such other duties as prescribed from time to time by the board of
directors, the bylaws, or the President (or chairman of the board if there is
not a President).
Section 4.09 SECRETARY.
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<PAGE>
(a) Minutes. The Secretary shall be present at all shareholders' meetings
-----------
and all board meetings and shall take the minutes of such meetings. If the
Secretary is unable to be present at such meeting, the presiding officer of the
meeting shall designate another person to take the minutes of the meeting.
The Secretary shall keep or cause to be kept, at the principal executive
office or such other place as designated by the board of directors, a book of
minutes of all meetings and actions of the shareholders, of the board of
directors, and of committees of the board of directors. The minutes of each
meeting shall state the date, time and place the meeting was held; the
purpose(s) for which the meeting was called; whether it was regular or special;
if special, how it was called or authorized; the names of directors present at
board or committee meetings; the number of shares present or represented at
shareholders' meetings; and an accurate account of the proceedings.
(b) Record of Shareholders. The Secretary shall keep, or cause to be kept,
--------------------------
at the principal executive office or at the office of the Corporation's transfer
agent or registrar, a record or duplicate record of shareholders. This record
shall show the names of all shareholders and their addresses, the number and
classes of shares held by each, the number and date of share certificates issued
to each shareholder, and the number and date of cancellation of any certificates
surrendered for cancellation.
(c) Notice of Meeting. The Secretary shall give notice, or cause notice to
---------------------
be given, of all shareholders' meetings, board of directors meetings, and
meetings of committees of the board of directors for which notice is required by
statute or by these bylaws. If the Secretary or other person authorized by the
Secretary to give notice fails to act, notice of any meeting may be given by any
other officer of the Corporation.
(d) Other Duties. The Secretary shall keep the seal of the Corporation, if
----------------
any, in safe custody. The Secretary shall have such other powers and perform
such other duties as prescribed by the board of directors or by these bylaws.
Section 4.10 CHIEF FINANCIAL OFFICER. The Treasurer or Chief Financial
Officer shall keep adequate and correct books and records of accounts of the
properties and business transactions of the Corporation, including accounts of
its assets, liabilities, receipts, disbursements, gains, losses, capital,
retained earnings, and shares. The books of account shall be open to inspection
by any director at all reasonable times.
The Chief Financial Officer shall: (i) deposit corporate funds and other
valuables in the Corporation's name and to its credit with depositaries
designated by the board of directors; (ii) make disbursements of corporate funds
as authorized by the board of directors; (iii) render a statement of the
Corporation's financial condition and an account of all transactions conducted
as chief financial officer whenever requested by the President or the board of
directors; and (iv) have other powers and perform other duties as prescribed by
the board of directors or these bylaws.
Section 4.11 OTHER OFFICERS. Other officers shall perform such duties and
have such
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powers as may be assigned to them by the board of directors.
ARTICLE V
GENERAL CORPORATE MATTERS
Section 5.01 AUTHORIZED SIGNATORIES FOR CHECK. All checks, drafts, other
orders for payment of money, notes, or other evidences of indebtedness issued in
the name of or payable to the Corporation shall be signed or endorsed by such
person or persons in such manner authorized from time to time by resolution of
the board of directors.
Section 5.02 EXECUTING CORPORATE CONTRACTS AND INSTRUMENTS. Except as
otherwise provided in the articles of incorporation or in these bylaws, the
board of directors by resolution may authorize any officer, officers, agents, or
agents to enter into any contract or to execute any instrument in the name of
and on behalf of the Corporation. This authority may be general or it may be
confined to one or more specific matters. No officer, agent, employee, or other
person purporting to act on behalf of the Corporation shall have any power or
authority to bind the Corporation in any way, to pledge the Corporation's
credit, or to render the Corporation liable for any purpose or in any amount,
unless that person was acting with authority duly granted by the board of
directors as provided in these bylaws, or unless an unauthorized act was later
ratified by the Corporation.
Section 5.03 CERTIFICATES FOR SHARES. A certificate or certificates for
shares of the capital stock of the Corporation shall be issued to each
shareholder when the shares are fully paid. All certificates shall certify the
number of shares and the class or series of shares represented by the
certificate. All certificates shall be signed in the name of the Corporation by
(i) either the chairman of the board of directors, the vice chairman of the
board of directors, the President, or any Vice President, and (ii) either the
chief executive officer, any assistant treasurer, the Secretary, or any
Assistant Secretary.
ARTICLE VI
CAPITAL STOCK
Section 6.01 TRANSFER OF SHARES. Transfer of shares of the Corporation
shall be made only on the stock transfer books of the Corporation by the holder
of record thereof or by his legal representative, who shall furnish proper
evidence of authority to transfer, or by his attorney thereunto authorized by
power of attorney duly executed and filed with the Secretary of the Corporation,
and on surrender for cancellation of the certificate for such shares. The person
in whose name shares stand on the books of the Corporation shall be deemed by
the Corporation to be the owner thereof for all purposes.
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<PAGE>
Section 6.02 TRANSFER AGENT AND REGISTRAR. The board of directors shall
have power to appoint one or more transfer agents and/or registrars for the
transfer and/or registration of certificates of stock of any class, and may
require that the stock certificates shall be countersigned and/or registered by
one or more of such transfer agents and/or registrars.
Section 6.03 LOST OR DESTROYED CERTIFICATES. The Corporation may issue a
new certificate to replace any certificate theretofore issued by it alleged to
have been lost or destroyed. The board of directors may require the owner of
such certificates or his legal representative to give the Corporation a bond in
such sum and with such sureties as the board of directors may direct to
indemnify the Corporation as transfer agents and registrars, if any, against
claims that may be made on account of the issuance of such new certificates. A
new certificate may be issued without requiring any bond.
Section 6.04 CONSIDERATION FOR SHARES. The capital stock of the
Corporation shall be issued for such consideration, but not less than the par
value thereof, as shall be fixed from time to time by the board of directors.
In the absence of fraud, the determination of the board of directors as to the
adequacy of the consideration received in full or partial payment for shares
shall be conclusive.
Section 6.05 REGISTERED SHAREHOLDERS. The Corporation shall be entitled
to treat the holder of record of any share or shares of stock as the holder
thereof, in fact, and shall not be bound to recognize any equitable or other
claim to or on behalf of this Corporation, or any of the rights and powers
incident to the ownership of such stock at any such meeting, and shall have
power and authority to execute and deliver proxies and consents on behalf of
this Corporation in connection with the exercise by this Corporation of the
rights and powers incident to the ownership of such stock.
ARTICLE VII
INDEMNIFICATION
Section 7.01 INDEMNIFICATION. No officer or director shall be personally
liable for any obligations of the Corporation or for any duties or obligations
arising out of any acts or conduct of said officer or director performed for or
on behalf of the Corporation. The Corporation shall and does hereby indemnify
and hold harmless each person and his heirs, executors and administrators who
shall serve at any time hereafter as a director or officer of the Corporation
from and against any and all claims, judgments and liabilities to which such
persons shall become subject by reason of his having heretofore or hereafter
been a director or officer of the Corporation, or by reason of any action
alleged to have been heretofore or hereafter taken or omitted to have been taken
by him as such director or officer, to the fullest extent permitted under
statute, as may be amended from time to time, and case law, and shall reimburse
such person for all legal and other expenses reasonably incurred by him in
connection with any such claim or liability, including power to defend such
person from all suits or claims as provided for under the provisions of the
Nevada Revised Statutes; provided, however, that no such person shall be
- -----------------------
indemnified against, or be reimbursed for, any expenses incurred in connection
with any claim or liability arising out of his bad faith or willful misconduct.
The rights accruing to any
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<PAGE>
person under the foregoing provisions of this section shall not exclude any
other right to which he may lawfully be entitled, nor shall anything herein
contained restrict the right of the Corporation to indemnify or reimburse such
person in any proper case, even though not specifically herein provided for.
Section 7.02 OTHER INDEMNIFICATION. The indemnification herein provided
shall not be deemed exclusive of any other rights to which those seeking
indemnification may be entitled under any bylaw, agreement, vote of shareholders
or disinterested directors, or otherwise, both as to action in his official
capacity and as to action in another capacity while holding such office, and
shall continue as to a person who has ceased to be a director, officer, agent or
employee, and shall inure to the benefit of the heirs, executors and
administrators of such person.
Section 7.03 INSURANCE. The Corporation may purchase and maintain
insurance on behalf of any person who is or was a director, officer or employee
of the Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, in order to indemnify such person against
liability asserted against him and incurred by him in any such capacity or
arising out of his status as such, whether or not the Corporation would have the
power to indemnify him against liability under the provisions of this Article
VII.
Section 7.04 SETTLEMENT BY THE CORPORATION. The right of any person to be
indemnified shall be subject always to the right of the Corporation by its board
of directors, in lieu of such indemnity, to settle any such claim, action, suit
or proceeding at the expense of the Corporation by the payment of the amount of
such settlement and the costs and expenses incurred in connection therewith.
ARTICLE VIII
WAIVER OF NOTICE
Whenever any notice is required to be given to any shareholder or director
of the Corporation under the provisions of these bylaws, or under the provisions
of the articles of incorporation, or under the provisions of the Nevada Revised
--------------
Statutes, a waiver thereof in writing, signed by the person or persons entitled
- --------
to such notice, whether before or after the time stated therein, shall be deemed
equivalent thereto. Attendance at any meeting shall constitute a waiver of
notice of such meetings, except where attendance is for the express purpose of
objecting to the validity of the meeting.
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<PAGE>
ARTICLE IX
AMENDMENTS
These bylaws may be altered, amended, repealed, or new bylaws adopted by a
majority of the entire board of directors at any regular or special meeting.
Any bylaw adopted by the board may be repealed or changed by action of the
shareholders.
ARTICLE X
FISCAL YEAR
The fiscal year of the Corporation shall be fixed and may be varied by
resolution of the board of directors.
ARTICLE XI
DIVIDENDS
The board of directors may, at any regular or special meeting as they deem
advisable, declare dividends payable out of capital surplus of the Corporation.
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<PAGE>
CERTIFICATE OF SECRETARY
I, the undersigned, do hereby certify:
1. That I am the duly elected and acting secretary of Pinnacle Oil
International, Inc., a Nevada corporation; and
2. That the foregoing bylaws comprising thirteen (13) pages constitute the
bylaws of said Corporation as duly adopted by action of the board of directors
of the Corporation duly taken on _______________________, 1997.
IN WITNESS WHEREOF, I have hereunto subscribed my name and affixed the seal of
said Corporation on this __________________________, 1997.
/s/ Terrence J. Dunne
----------------------------
Terrence J. Dunne, Secretary
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<PAGE>
EXHIBIT 3.3
CERTIFICATE OF AMENDMENT
Of
ARTICLES OF INCORPORATION
Of
PINNACLE OIL INTERNATIONAL, INC.
(A Nevada corporation)
Filed by : ___________________
R. Dirk Stinson and Terrence Dunne, the duly elected and acting President
and Secretary, respectively, of Pinnacle Oil International, Inc., a Nevada
corporation (the "Company"), do hereby certify that the Board of Directors of
the Company, without a meeting by written consent, in accordance with Section
78.930(1)(a) of the Nevada Revised Statutes, and the stockholders of the
Company, without a meeting by written consent, in accordance with Sections
78.390(1)(b) and 78.320(2) of the Nevada Revised Statutes, have each duly
approved the following amendments to the of Articles of Incorporation of the
Company:
I.
Article IV of the Articles of Incorporation of the Company is hereby
amended in its entirety to read as follows:
"Article IV. The Company is authorized to issue two (2) classes of
capital stock, namely, fifty million (50,000,000) shares of common voting equity
stock, par value one mil ($0.001) (the "Common Stock") and eight hundred
thousand (800,000) shares of convertible preferred stock, par value one mil
($0.001) (the "Series A Preferred Stock"). The Company's capital stock may be
sold from time-to-time for such consideration as may be fixed by the Board of
Directors, provided that no consideration so fixed shall be less than par value.
The Series A Preferred Stock shall have the rights, preferences, privileges, and
restrictions as specified below in Article X."
II.
Article X is added to the Articles of Incorporation to read as follows:
"Article X. The rights, preferences, privileges and restrictions granted
to or imposed upon Series A Preferred Stock and the holders thereof are as
follows:
1. Voting.
------
(a) General. Except for the voting rights exclusively granted to
-------
the holders of the Series A Preferred Stock as provided in subparagraph 1(b) and
-----------------
subparagraph 1(d) below, or as otherwise provided by law, the holders of Series
- -----------------
A Preferred Stock shall not be entitled to vote, it being understood that the
holders of Common Stock shall have and possess exclusive voting rights and
powers.
(b) Mandatory Right to Vote for Directors. In the event the
-------------------------------------
number of shares of Series A Preferred Stock then outstanding shall be greater
than four hundred thousand (400,000) shares, the holders of the Series A
Preferred Stock shall have the exclusive right to elect to the Board of
Directors of the Company such
-1-
<PAGE>
number of directors (the "Mandatory Series A Directors") which will, when
aggregated with the number of directors elected by the holders of the Company's
securities other than the Series A Preferred Stock (the "Non-Series A
Directors"), equal one-sixth of such aggregated number of directors (or such
---------
minimum whole number in excess of one-sixth in the event such number of
aggregated directors is not a multiple of six). In the event the number of
shares of Series A Preferred Stock then outstanding shall be less than four
hundred thousand (400,000) shares, such right shall be eliminated in its
entirety. The nominees of the holders of the Series A Preferred Stock for the
Mandatory Series A Director positions shall be persons reasonably acceptable to
the then serving Non-Series A Directors (other than those Mandatory Series A
Directors previously elected pursuant to this subparagraph 1(b)) which consent
shall not be unreasonably withheld. -----------------
In calculating the number of shares of Series A Preferred Stock
outstanding for purposes of determining the number of Mandatory Series A
Directors whom the holders of the Series A Preferred Stock shall have the right
to elect, and until such time as all outstanding shares of Series A Preferred
Stock have been either converted into Common Stock pursuant to paragraph 4, or
-----------
redeemed pursuant to paragraph 5, shares of Series A Preferred Stock which have
-----------
been redeemed (but not shares which have been converted) shall be deemed
outstanding.
The Mandatory Series A Directors elected to the Board of Directors
pursuant to this subparagraph 1(b) shall be in addition to the Non-Series A
-----------------
Directors. The holders of the Common Stock shall have no right to vote for the
Mandatory Series A Directors, and the holders of the Series A Preferred Stock
shall have no right to vote for the Non-Series A Directors. The removal of any
Mandatory Series A Directors shall require only the affirmative vote of holders
of a majority of the then outstanding shares of the Series A Preferred Stock.
The vacancy of any Mandatory Series A Director position from whatever cause,
shall require only the affirmative vote of holders of a majority of the then
outstanding shares of the Series A Preferred Stock.
(c) Discretionary Right to Vote for Directors. The Non-Series A
-----------------------------------------
Directors shall have the right, in their sole discretion and without any
obligation to do so, to allow the holders of the Series A Preferred Stock to
appoint one (1) or more directors to the Board of Directors in addition to the
Mandatory Series A Directors appointed pursuant to subparagraph 1(b) (the
"Additional Series A Directors"). Should any such Additional Series A Director
position be established by the Board, such position shall be appointed by the
holders of the Series A Preferred Stock pursuant to this subparagraph 1(c). The
nominees of the holders of the Series A Preferred Stock for the Additional
Series A Director positions shall be persons reasonably acceptable to the then
serving Non-Series A Directors, which consent shall not be unreasonably
withheld. Any Additional Series A Director position created shall not be
aggregated with the Non-Series A Directors for purposes of determining the
number of Mandatory Series A Directors the holders of the Series A Preferred
Stock may elect pursuant to subparagraph 1(b).
-----------------
The Additional Series A Directors elected to the Board of Directors
pursuant to this subparagraph 1(c) shall be in addition to the Non-Series A
-----------------
Directors and the Mandatory Series A Directors. The holders of the Common Stock
shall have no right to vote for the Additional Series A Directors. The removal
of any Additional Series A Directors shall require only the affirmative vote of
holders of a majority of the then outstanding shares of the Series A Preferred
Stock. The vacancy of any Additional Series A Director position, from whatever
cause, shall require only the affirmative vote of holders of a majority of the
then outstanding shares of the Series A Preferred Stock. Anything in this
subparagraph 1(c) to the contrary notwithstanding, the Non-Series A Directors
- -----------------
may, at any time and for any reason, reduce or eliminate any previously
authorized Additional Series A Director position.
Restrictive Covenants; Protective Voting Provisions. So long as any
---------------------------------------------------
shares of Series A Preferred Stock are outstanding, the Company shall not,
without first obtaining the consent, either expressed in writing or by
affirmative vote at a meeting called for that purpose, of at least a majority,
i.e., more than fifty percent (50%), of the total number of shares of Series A
Preferred Stock then outstanding, as a class, in addition to the vote or written
consent of the outstanding shares of Common Stock as may be required under the
Nevada
-2-
<PAGE>
Revised Statutes:
(1) Change, amend, or repeal any of the provisions of these Articles
of Incorporation applicable to Series A Preferred Stock which would
adversely affect the rights, preferences, privileges, and restrictions of
Series A Preferred Stock or authorize the Board of Directors to do so;
(2) Increase or decrease the presently authorized number of shares of
Series A Preferred Stock;
(3) Effect an exchange, reclassification, or cancellation of all or
part of Series A Preferred Stock or effect an exchange, or create a right of
exchange, of all or part of the shares of any other class into Series A
Preferred Stock;
(4) Create any new class of shares (or any security convertible into
such shares) ranking on a parity with or having rights, preferences, or
privileges, as to assets, senior to the Series A Preferred Stock;
(5) Create any new class of shares (or any security convertible into
such shares) ranking on a parity with or having rights, preferences, or
privileges, as to assets, junior to the Series A Preferred Stock but senior
to the Common Stock;
(6) Declare, pay or make a distribution (other than a dividend payable
in cash or property pursuant to paragraph 2 with respect to any shares of
-----------
the capital stock of the Company ranking junior to the Series A Preferred
Stock upon liquidation or distribution (except in shares of, or warrants or
rights to subscribe for or purchase shares of the Company which are junior
to the Series A Preferred Stock as to assets), if after giving effect to
that distribution there is accrued but unpaid dividends pursuant to
paragraph 2 below or Series A Liquidation Preference pursuant to paragraph 3
-----------
below (if applicable);
(7) Declare or pay any dividend payable in cash or property out of
legally available cash or property therefor (which shall be determined after
taking into consideration provision for the Series A Liquidation Preference)
pursuant to paragraph 2, unless (i) such dividend relates to the issuance of
shares of Common Stock as a dividend on outstanding shares of Common Stock,
or (ii) the holders of Series A Preferred Stock then outstanding are
entitled to participate in such dividend pursuant to paragraph 2;
(8) Merge or consolidate the Company (other than a short-form merger
which does not require the vote of the stockholders of the Company) with or
into another corporation or corporations;
(9) Sell or convey all or substantially all of the assets or business
of the Company (except to a wholly owned subsidiary);
(10) Dissolve, liquidate or wind-up the Company; or
(11) Make an assignment for the benefit of creditors, or file a
petition under any federal, state or provincial bankruptcy law or statute,
which petition is not vacated within ninety (90) days.
2. Dividends. Whenever the Company shall declare any dividends in cash
---------
and/or property out of legally available cash or property therefor (which shall
be determined after taking into consideration provision
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<PAGE>
for the Series A Liquidation Preference) on any shares of its Common Stock (or
on any shares of the Company which are junior to the Series A Preferred Stock),
the Board of Directors may, in its sole discretion and without any obligation to
do so, entitle the holders of Series A Preferred Stock then outstanding to
participate in such dividend, with each holder of Series A Preferred Stock to
receive an amount of cash or property paid with respect to such declared
dividend as such holder of Series A Preferred Stock would have received if such
holder had converted all of his, her or its shares of Series A Preferred Stock
into Common Stock in accordance with paragraph 4 (or, if applicable, into such
-----------
shares of the Company which are junior to the Series A Preferred Stock),
immediately prior to the date and time of declaration. Except as provided in the
preceding sentence, the holders of the Series A Preferred Stock shall have no
right to participate in, and no dividends shall be paid with respect to, the
Series A Preferred Stock. No interest shall accrue on any unpaid dividend to
which the t holders of Series A Preferred Stock may be entitled pursuant to this
paragraph 2.
- -----------
3. Liquidation, Dissolution, or Winding Up.
---------------------------------------
(a) General. In the event of a voluntary or involuntary liquidation,
-------
dissolution, or winding up of the Company, the holders of Series A Preferred
Stock shall be entitled to receive, out of the assets of the Company, whether
those assets are capital or surplus of any nature, an amount equal to seven
dollars and fifty cents ($7.50) per share of Series A Preferred Stock, and no
more (the "Series A Liquidation Preference"), before any payment shall be made
or any assets distributed to the holders of Common Stock or any other junior
equity security. If, upon liquidation, dissolution, or winding up, whether
voluntary or involuntary, the assets thus distributed among the holders of
Series A Preferred Stock shall be insufficient to permit the payment to those
shareholders of the full Series A Liquidation Preferences, then the entire
assets of the Company to be distributed shall be distributed ratably among the
holders of Series A Preferred Stock.
(b) Scope of Liquidation, Dissolution or Winding Up. Neither the
-----------------------------------------------
recapitalization or reclassification of the capital stock of the Company, or the
merger or consolidation of the Company with or into any other corporation or
corporations, or the reorganization of the Company (including an exchange
reorganization or a sale-of-assets reorganization), or the sale or conveyance of
all or substantially all of the assets of the Company, shall be deemed a
liquidation, dissolution, or winding up of the Company within the meaning of
this paragraph 3.
-----------
4. Conversion.
----------
(a) Voluntary Conversion by Preferred Stockholders. Each share of the
----------------------------------------------
Series A Preferred Stock shall be convertible, at the option of the respective
holder of such share, at any time, at the office of the Company or any transfer
agent for such share, initially into such number of fully paid and nonassessable
shares of Common Stock as would be determined by dividing seven dollars and
fifty cents ($7.50) by the Conversion Price (as such term is defined below in
subparagraph 4(b) in effect at the date of surrender of the Series A Preferred
- -----------------
Stock to be converted (as such date is hereinbelow more particularly described).
Before any shares of Series A Preferred Stock may be converted into Common Stock
at the option of the holder, the holder must surrender the certificate or
certificates for those shares, duly endorsed in blank or accompanied by proper
instruments of transfer, at the office of the Company or of any transfer agent
for the Series A Preferred Stock. The holder shall also give written notice to
the Company at such office that the holder elects to convert a specified number
or all of the shares represented by the surrendered certificate(s). The notice
shall also specify the name or names in which the holder wishes the certificate
or certificates for Common Stock to be issued. If a name specified is not that
of the holder, the notice shall also state the address of the new holder and any
other information required by law. The Company shall, as soon as practicable
thereafter, issue and deliver to the holder of Series A Preferred Stock
converted, or that holder's nominee or nominees, certificates for the number of
full shares of Common Stock to which the holder shall be entitled, to receive
together with a scrip certificate or cash in lieu of any fraction of a share as
provided below in subparagraph 4(f). The person or persons entitled to receive
-----------------
shares of Common Stock issuable upon conversion shall be treated for all
purposes as the record holder or holders of such shares of Common Stock on that
date.
-4-
<PAGE>
(b) Conversion Price. The price at which shares of Common Stock shall be
----------------
deliverable upon conversion pursuant to this paragraph 4 shall be initially
-----------
seven dollars and fifty cents ($7.50) per share of Common Stock (the "Conversion
Price"). The initial Conversion Price shall be subject to adjustment from time
to time in certain instances, as provided below in subparagraph 4(c). No
-----------------
adjustment on account of any dividends accrued and unpaid on the Series A
Preferred Stock surrendered for conversion shall be made to the Conversion Price
without the prior written consent of the Company.
(c) Adjustment to Conversion Price. If the Company shall after the first
------------------------------
date of issuance of the Series A Preferred Stock (the "Issue Date") issue any
shares of Common Stock, and if the Conversion Price in effect immediately prior
to the close of business on such date of issuance subsequent to the Issue Date
(the "Adjustment Date") exceeds the amount determined as of the close of
business on the Adjustment Date (the "Adjustment Amount") by dividing (x) a sum
equal to the aggregate of the amount of all consideration received by the
Company upon all issues of shares of Common Stock on or after the Issue Date, by
(y) the total number of all such shares of Common Stock issued on or after the
Issue Date, then the Conversion Price shall be reduced effective at the close of
business on the Adjustment Date by an amount equal to the sum by which the then
effective Conversion Price exceeds the Adjustment Amount, with any fractions of
one cent (one cent) being rounded down. For purposes of this subparagraph 4(c),
the following provisions shall be applicable: -----------------
(1) Any shares of Common Stock directly or indirectly pursuant to (i)
options or warrants granted before the Issue Date, (ii) options or warrants or
shares of Common Stock granted pursuant to rights to receive such securities
granted before the Issue Date, or (iii) options, warrants or grants awarded
after the Issue Date but pursuant to a stock plan approved before the Issue
Date, shall be disregarded;
(2) If the Company shall issue or sell for cash shares of Common
Stock, or any shares or obligations convertible into or exchangeable for shares
of Common Stock, the consideration received by the Company shall be deemed to be
the amount of cash received, before deducting therefrom any commissions or
expenses paid by the Company for any underwriting of, or otherwise in connection
with, the issue or sale.
(3) If the Company shall issue or sell shares of Common Stock to an
underwriter without payment of any commission, the consideration received by the
Company shall be deemed to be the full amount at which those securities are
initially offered by the underwriter to the public.
(4) If the Company shall issue (otherwise than upon conversion or
exchange of obligations or shares of stock of the Company) additional shares of
Common Stock for a consideration wholly or partly other than cash, the amount of
the consideration other than cash received by the Company for those shares shall
be deemed to be (i) the closing sales price for the Common Stock as of the close
of the last trading day for the Common Stock in the event there is a public
trading market for such shares, and (ii) the current fair market value of such
issued shares of Common Stock as determined by the Board of Directors in its
reasonable discretion in the event a public trading market for such shares does
not exist.
(5) If the Company shall issue or sell for cash shares of Common Stock
to its officers, employees, directors, consultants, or agents for a
consideration per share (whether cash, other than cash, or partly other than
cash) less than the Conversion Price in effect immediately prior to the issuance
thereof, and such additional shares of Common Stock are issued pursuant as
compensation for services rendered or to be rendered by such directors,
officers, employees, consultants or agents other than pursuant to a stock plan
described in clause 4(c)(1), the consideration per share received by the Company
--------------
for each such share shall be deemed to be (i) the closing sales price for the
Common Stock as of the close of the last trading day for the Common Stock in the
event there is a public trading market for such shares, and (ii) the current
fair market value of such issued shares of Common Stock as
-5-
<PAGE>
determined by the Board of Directors in its reasonable discretion in the event a
public trading market for such shares does not exist.
(6) If the Company shall issue in any manner any rights to subscribe
for or to purchase Common Stock or any options for the purchase of Common Stock
(other than the issuance referred to in clause 4(c)(4)), at a consideration per
--------------
share (as computed below in clause 4(c)(8)) less than the Conversion Price in
--------------
effect immediately prior to the date of the offering of such rights or the
granting of such options, as the case may be, all shares of Common Stock that
the holders of those rights or options shall be entitled to subscribe for or
purchase pursuant to those rights or options shall be deemed to be issued or
sold as of the date of the offering of those rights or the granting of those
options, as the case may be, and the minimum aggregate consideration named in
those rights or options for the shares of Common Stock covered thereby, plus the
consideration, if any, received by the Company for those rights or options,
shall be deemed to be the consideration actually received by the Company (as of
the date, as the case may be, of the offering of those rights or the granting of
those options), for the issuance of those shares.
(7) If the Company shall issue in any manner any obligations or any
shares of the Company (other than shares of the Series A Preferred Stock) that
shall be convertible into or exchangeable for shares of Common Stock, at a
consideration per share (as computed below in clause 4(c)(8)) less the
--------------
Conversion Price in effect immediately prior to the date such obligations or
shares are issued, all shares of Common Stock issuable upon such conversion or
exchange of those obligations or shares shall be deemed to be issued as of the
date those obligations or shares are issued, and the amount of the consideration
received by the Company for those additional shares of Common Stock shall be
deemed to be the total of (x) the amount of consideration received by the
Company upon the issuance of those shares or obligations, as the case may be,
plus (y) the minimum aggregate consideration, if any, other than those
obligations or shares, received by the Company upon such conversion or exchange,
except in adjustment of interest and dividends.
(8) The amount of the consideration received by the Company upon the
issuance of any rights or options referred to in clause 4(c)(6)) above, or upon
--------------
the issuance of any obligations or shares that are convertible or exchangeable
as described in clause 4(c)(7) above, and the amount of the consideration, if
--------------
any, other than such obligations or shares so convertible or exchangeable,
receivable by the Company upon the exercise conversion or exchange thereof shall
be determined in the same manner as provided in clause 4(c)(1) and clause
-------------- ------
4(c)(4) above with respect to the consideration received by the Company in case
- -------
of the issuance of additional shares of Common Stock; provided, however, that if
the obligations or shares of stock so convertible or exchangeable are issued in
payment or satisfaction of any dividend upon any stock of the Company other than
Common Stock, the amount of the consideration received by the Company upon the
original issuance of the obligations or the value of those obligations or
shares, as of the date of the adoption of the resolutions declaring the
dividend, shall be determined by the Board of Directors at or as of that date.
Upon the expiration of any rights or options referred to in clause 4(c)(6), or
--------------
the termination of any right of conversion or exchange referred to in clause
------
4(c)(7), the Conversion Price then in effect shall be readjusted to the
- -------
Conversion Price that would have applied had the adjustments made upon the
issuance of the option, right, or convertible or exchangeable securities been
made upon the basis of the delivery of only the number of shares of Common Stock
actually delivered upon the exercise of those rights or options, or upon the
conversion or exchange of those securities.
(9) The number of shares of Common Stock at any time outstanding shall
include any outstanding shares of Common Stock then owned or held by or for the
account of the Company, and the number of shares issuable in respect of scrip
certificates issued in lieu of fractions of shares of Common Stock.
-6-
<PAGE>
(10) Each share of Common Stock issued upon conversion of Series A
Preferred Stock shall be deemed to have been issued for a consideration equal
to the Conversion Price in effect at the time of issuance.
(11) If the Company shall issue additional shares of Common Stock as
a dividend, (i) the aggregate number of shares of Common Stock issued in
payment of the dividend for purposes of prospective calculations under this
paragraph 4(c) shall be deemed to have been issued and to be outstanding on
--------------
the day next succeeding the record date for the determination of stockholders
entitled to the dividend and shall be deemed to have been issued without
consideration; and (ii) the Conversion Price shall be adjusted pursuant to
the terms of paragraph 4(e) in lieu of this paragraph 4(c).
-------------- --------------
(12) The term dividend, as used in this subparagraph 4(c), shall
-----------------
mean a dividend or other distribution upon shares of the Company; and, in the
event of a declaration of a dividend by the Company without the fixing of a
record date for the determination of shareholders entitled thereto, the date
fixed by applicable law for the determination of the shareholders entitled
thereto shall be deemed to be the record date.
(d) Subdivision, Stock Dividend, Combination. If the Company shall issue
----------------------------------------
additional shares of Common Stock as a dividend, (i) the aggregate number of
shares of Common Stock issued in payment of the dividend for purposes of
prospective calculations under this paragraph 4(c) shall be deemed to have been
--------------
issued and to be outstanding on the day next succeeding the record date for the
determination of stockholders entitled to the dividend and shall be deemed to
have been issued without consideration, and (ii) the Conversion Price shall be
adjusted pursuant to the terms of paragraph 4(e) in lieu of this paragraph 4(c).
-------------- --------------
(e) Subdivision, Stock Dividend, Combination. If the Company shall at
----------------------------------------
any time subdivide the outstanding shares of Common Stock, or shall issue shares
of Common Stock as a dividend on the outstanding shares of Common Stock, the
Conversion Price in effect immediately prior to that subdivision or the issuance
of such dividend shall be proportionately decreased, and in case the Company
shall at any time combine the outstanding shares of Common Stock, the Conversion
Price in effect immediately prior to that combination shall be proportionately
increased, effective at the close of business on the date of the subdivision,
division, or combination. For the purposes of this subparagraph 4(e), the date
-----------------
of issuance of any such dividend shall be determined in accordance with clause
------
4(c)(11).
- --------
(f) Fractional Shares. No fractional shares of Common Stock shall be
-----------------
issued upon the conversion of Series A Preferred Stock. If any fractional shares
of Common Stock would, except for the provisions of this subparagraph 4(f), be
-----------------
deliverable upon the conversion of any shares of Series A Preferred Stock, the
Company shall, in lieu of delivering the fractional share therefor, at its
option either: (i) adjust the fractional interest by payment to the holder of
the converted Series A Preferred Stock of an amount in cash equal (computed to
the nearest cent) to the current market value of the fractional interest as
determined by the Board of Directors in its reasonable discretion, unless the
current market value of such fractional interest does not exceed ten dollars
($10), in which case the fractional interest may be adjusted by rounding off
such shares of Common Stock to be issued upon the conversion to the nearest
whole share; or (ii) issue non-dividend bearing and non-voting scrip
certificates for fractions of a share which would otherwise be issuable, in form
and containing terms and conditions as determined by the Board of Directors, and
exchangeable, within the period following the date of issue as the Board of
Directors shall fix, together with other unexpired scrip certificates of like
tenor aggregating one or more full shares, for share certificates representing a
full share or shares.
(g) Statement. Immediately upon the adjustment of the Conversion Price,
---------
the Company shall maintain at its principal executive office and file with the
transfer agent, if any, for Series A Preferred Stock, a statement, signed by the
Chairman of the Board, or the President, or a Vice President of the Company and
by its Chief Financial Officer or an Assistant Treasurer, documenting in
reasonable detail the facts requiring the adjustment and the Conversion Price
after the adjustment. The transfer agent, if any, shall be under no duty
-7-
<PAGE>
or responsibility with respect to any such statement except to exhibit the same
from time to time to any holder of Series A Preferred Stock desiring an
inspection.
(h) Recapitalization or Reclassification; Merger or Consolidation;
--------------------------------------------------------------
Reorganization; Right to Receive Series A Liquidation Preference. If there shall
- ----------------------------------------------------------------
occur any recapitalization or any reclassification of the capital stock of the
Company, or the merger or consolidation of the Company with or into another
corporation or corporation, or the reorganization of the Company (including an
exchange reorganization or a sale-of-assets reorganization), or any transaction
in which all or substantially all of the assets of the Company are sold (with
the exception, in all of the above cases, of (i) any transaction whose principal
purpose is to change the State in which the Company is incorporated, or to form
a holding company, or to effect a similar reorganization as to form of entity
without change of beneficial ownership, including a merger into a wholly-owned
subsidiary; or (ii) a merger with or into a corporation that is controlled by
the Company immediately after the transaction), the holders of the Series A
Preferred Stock shall be entitled to receive, in cash or securities, the amount
they would have received upon the voluntary or involuntary liquidation,
dissolution, or winding up of the Company pursuant to paragraph 3 hereof.
-----------
(i) Notice of Events Pertinent to Conversion Rights. In any of the
-----------------------------------------------
following events occurs: (i) the Company shall set a record date for the purpose
of entitling the holders of its Common Stock to receive a dividend, or any other
distribution of property or securities of the Company; (ii) the Company shall
set a record date for the purpose of entitling the holders of its Common Stock,
as a class, to subscribe for or purchase any shares of any class or securities
convertible into or exchangeable for shares of any class, or any option, right
or warrant, to subscribe therefor; (iii) the merger or consolidation of the
Company (other than a short-form merger which does not require the vote of the
stockholders of the Company) with or into another corporation or corporations;
(iv) any reorganization of the Company (including any exchange reorganization or
sale-of-assets reorganization), any recapitalization or reclassification of the
capital stock of the Company; or (v) the voluntary or involuntary dissolution,
liquidation, or winding up of the Company; then, and in any such case, the
Company shall cause to be mailed to the holders of record of the outstanding
Series A Preferred Stock, at least thirty (30) days prior to the date
hereinafter specified, a notice stating the date (x) that has been set as the
record date for the purpose of the dividend, distribution, or rights
subscription as hereinabove described in clause (i) and clause (ii) of this
---------- -----------
subparagraph 4(i), or (y) on which the merger or consolidation, reorganization,
- -----------------
liquidation, dissolution or winding up described in clause (iii) through clause
------------ ------
(v) of this subparagraph 4(i) is to take place.
- --- -----------------
(j) Reservation of Common Stock. The Company shall at all times reserve
---------------------------
and keep available out of its authorized but unissued Common Stock, solely for
the purpose of effecting conversion of its Series A Preferred Stock pursuant to
the terms of this paragraph 4, the full number of shares of Common Stock
-----------
deliverable upon conversion of all Series A Preferred Stock from time-to-time
outstanding. The Company shall from time to time, in accordance with Nevada law,
increase the authorized amount of its Common Stock if at any time the authorized
number of Common Stock remaining unissued shall not be sufficient to permit the
conversion of all of Series A Preferred Stock at that time outstanding .
(k) Costs; Taxes. The Company shall pay any and all issue and other
------------
taxes that may be payable in respect of any issued or delivered shares of Common
Stock upon conversion of Series A Preferred Stock pursuant hereto. The Company
shall not, however, be required to pay any tax payable in respect of any
transfer involved in the issue and delivery of Common Stock in a name other than
that in which Series A Preferred Stock so converted were registered, and no such
issue or delivery shall be made unless and until the person requesting that
issue has paid to the Company the amount of any such tax, or has established to
the satisfaction of the Company that the tax has been paid.
(l) No Reissuance. Once converted into Common Stock, shares of Series A
-------------
Preferred Stock shall be appropriately cancelled on the books of the Company and
retired to treasury, and such shares may not be reissued, and the Company may
from time to time take such appropriate corporate action as may be
-8-
<PAGE>
necessary to reduce accordingly the number of authorized shares of Series A
Preferred Stock.
(m) Capital Stock. Whenever reference is made in these provisions to the
-------------
issue or sale of shares of Common Stock, the term "Common Stock" shall include
any stock of any class of the Company (other than Series A Preferred Stock) with
a fixed limit on dividends and a fixed amount payable in the event of any
voluntary or involuntary liquidation, dissolution, or winding up of the Company.
5. Redemption.
(a) General. The Company may, without any obligation to do so, to the
-------
extent and on the terms permitted in this paragraph 5, redeem the Series A
-----------
Preferred Stock outstanding as of such date upon the occurrence of any of the
following event, subject, however, to the conversion rights of the holders of
the Series A Preferred Stock pursuant to paragraph 4:
-----------
(1) On or after two (2) years after the initial issuance of the
Series A Preferred Stock; in which event the Company may redeem any or all
of shares of Series A Preferred Stock outstanding as of such date. If the
Company elects to redeem less than all of the Series A Preferred Stock
outstanding, then such outstanding shares shall be redeemed ratably, based
upon the number of shares of Series A Preferred Stock held by each holder.
(2) In the event the holders of the Series A Preferred Stock shall
not approve any of the transactions described in paragraph 1(d)(5) through
-----------------
paragraph 1(d)(10) (but excluding paragraph 1(d)(7)); provided, however, in
------------------ -----------------
any such event the Company may elect only to redeem shares of the Series A
Preferred Stock which have not expressly voted in favor of the disapproved
transaction.
(3) In the event an initial holder of the Series A Preferred Stock
shall sell, assign or otherwise transfer any of his, her or its shares of
Series A Preferred Stock (with the exception of any such sale, assignment or
transfer to any party who is an affiliate of such holder or, if such holder
is an entity, an owner of such entity), the Company may redeem any or all of
shares of Series A Preferred Stock so sold, assigned or transferred.
(b) Redemption Mechanics. The Company shall give each holder of record
--------------------
of shares of Series A Preferred Stock written notice (the "Redemption Notice")
of the Company's election to redeem all or any portion of the outstanding shares
of Series A Preferred Stock effective as of the date specified in the Redemption
Notice (the "Redemption Date"), which date shall not be less than forty-five
(45) days from the date of the Redemption Notice. The holders of the outstanding
shares of Series A Preferred Stock shall have thirty (30) days from the date of
the Redemption Notice to exercise their rights to convert their shares of Series
A Preferred Stock into Common Stock pursuant to paragraph 4. The Redemption
-----------
Notice shall be addressed to each holder at his address as shown by the records
of the Company.
(c) Redemption Price and Payment. The shares of Series A Preferred Stock
----------------------------
to be redeemed shall be redeemed by paying for each share an amount equal to the
Series A Liquidation Preference with respect to such share (the "Redemption
Price"). If the Company shall not have legally sufficient cash to permit
redemption of all shares of Series A Preferred Stock to be redeemed, then such
outstanding shares shall be redeemed ratably, based upon the number of shares of
Series A Preferred Stock held by each holder. Payment shall be made in cash, by
cashiers check payable to the order of the holder, or by other immediately
available funds, all in U.S. dollars, forty-five (45) days from the date of the
Redemption Notice or as of such later date as certificates evidencing the shares
of Series A Preferred Stock are surrendered to the Company for cancellation (or
reissuance of any portion of such certificates not redeemed). From and after the
close of business on the Redemption Date, unless there shall have been a default
in the payment of the Redemption Price, all rights of holders of the Series A
Preferred Stock to be redeemed shall cease as of such Redemption Date, and such
shares shall not thereafter be transferred on the books of the Company or be
deemed to be outstanding for
-9-
<PAGE>
any purpose whatsoever.
(d) Retirement of Redeemed Shares. Any shares of Series A Preferred
-----------------------------
Stock redeemed pursuant to this paragraph 5 shall be cancelled and retired to
treasury, and shall not under any circumstances be reissued, and the Company may
from time to time take such appropriate corporate action as may be necessary to
reduce accordingly the number of authorized shares of Series A Preferred Stock.
6. No Assessments Permitted; Partial Payment Allowed. Series A Preferred
-------------------------------------------------
Stock shall not be assessable. Series A Preferred Stock may, at the discretion
of the Board of Directors, be issued partially paid, so long as the par value of
the Series A Preferred Stock is paid.
7. Application to Other Junior Shares. The preferences of Series A
----------------------------------
Preferred Stock over Common Stock shall also apply to any shares ("other junior
shares") hereafter authorized which are junior to Series A Preferred Stock as to
assets; and all prohibitions, limitations, or restrictions upon the declaration
or payment of any distribution of assets upon, or the application of any assets
to the purchase, redemption, or other acquisition of Common Stock shall
correspondingly apply to similar action in respect of other junior shares."
III.
The foregoing amendment of Articles of Incorporation has been duly approved
by the Board of Directors of the Company, without a meeting by written consent,
in accordance with Section 78.930(1)(a) of the Nevada Revised Statutes.
[Balance of Page intentionally left blank]
-10-
<PAGE>
IV.
The foregoing amendment of Articles of Incorporation has been duly approved
by the required vote of shareholders of the Company, without a meeting by
written consent, in accordance with Sections 78.390(1)(b) and 78.320(2) of the
Nevada Revised Statutes. The total number of outstanding shares of the Company
is 12,015,219 shares of Common Stock. An affirmative vote of a majority, i.e.,
more than fifty percent (50%), of the outstanding shares of such stock is
required for approval of the amendment under Section 78.390(1)(b) of the of the
Nevada Revised Statutes. A majority of the outstanding shares of Common Stock
voted in favor of the amendment, without a meeting by written consent, in
accordance with Section 78.320(2) of the Nevada Revised Statutes, thereby
satisfying the approval requirements of Section 78.390(1)(b) of the of the
Nevada Revised Statutes.
We hereby each further declare under penalty of perjury under the laws of
the State of Nevada that the matters set forth in this Certificate of Amendment
are true and correct of our own knowledge.
Dated: March 31, 1998
/s/ R. Dirk Stinson
----------------------------
R. Dirk Stinson, President
/s/ Terrence Dunne
----------------------------
Terrence Dunne, Secretary
-11-
<PAGE>
)
Province of Alberta, Canada )
)
On the______ day of ______________, 1998, before me, the undersigned, a notary
public in and for said state, personally appeared R. Dirk Stinson, personally
known to me (or proved to me on the basis of satisfactory evidence) to be the
person whose name is subscribed to the within Certificate Of Amendment Of
Articles Of Incorporation Of Pinnacle Oil International, Inc. and acknowledged
to me that he executed the same in his authorized capacity, and that by his
signature on the instrument the person, or the entity upon behalf of which the
person acted, executed the instrument.
WITNESS my hand and official seal.
Signature: ______________________ (Seal)
State of Washington )
)
County of ______________ )
On the______ day of ______________, 1998, before me, the undersigned, a notary
public in and for said state, personally appeared Terrence Dunne, personally
known to me (or proved to me on the basis of satisfactory evidence) to be the
person whose name is subscribed to the within Certificate of Amendment of
Articles of Incorporation of Pinnacle Oil International, Inc. and acknowledged
to me that he executed the same in his authorized capacity, and that by his
signature on the instrument the person, or the entity upon behalf of which the
person acted, executed the instrument.
WITNESS my hand and official seal.
Signature: ______________________ (Seal)
<PAGE>
EXHIBIT 4.1
PAR VALUE $0.001
NUMBER SHARES
PINNACLE OIL INTERNATIONAL, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF NEVADA
CUSIP 723473 104
This Certifies that _______________________________________ is the registered
holder of _______________________________________________________________ Shares
FULLY PAID AND NON ASSESSABLE SHARES OF THE COMMON STOCK OF
PINNACLE OIL INTERNATIONAL, INC.
Transferable only on the books of the Corporation by the holder hereof in person
or by Attorney upon surrender of this Certificate properly, endorsed.
IN WITNESS WHEREOF, the said Corporation has, caused this Certificate to be
signed by, its duly authorized officers and its Corporate Seal to be hereunder
affixed this __________________ day of __________________ A.D. _________
Terrence J. Dunne (SEAL) [SIGNATURE ILLEGIBLE]
SECRETARY PRESIDENT
JERSEY TRANSFER AND TRUST CO.
201 BLOOMFIELD AVE, BOX #36
VERONA, NEW JERSEY 07044 _____________________
AUTHORIZED SIGNATURE
TRANSFER AGENT
<PAGE>
EXHIBIT 4.2
SERIES "A" PREFERRED
NUMBER SHARES
PINNACLE OIL INTERNATIONAL, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF NEVADA
THIS CERTIFIES THAT ________________________________________________ is the
registered holder of _______________________________________________ Shares
FULLY PAID AND NON-ASSESSABLE SHARES OF THE SERIES "A" CONVERTIBLE PREFERRED
STOCK, PAR VALUE $0.001, OF
PINNACLE OIL INTERNATIONAL, INC.
Transferable only on the books of the Corporation by the holder hereof in
person or by Attorney upon surrender of this Certificate properly endorsed.
IN WITNESS WHEREOF, the said Corporation has caused this Certificate to be
signed by its duly authorized officers and its Corporate Seal to be hereunto
affixed this ___________________ day of _____________________ A.D. _______
[SIGNATURE ILLEGIBLE] [SIGNATURE ILLEGIBLE]
SECRETARY (SEAL) PRESIDENT
JERSEY TRANSFER AND TRUST CO.
201 BLOOMFIELD AVE BOX #36
VERONA, NEW JERSEY 07044
_________________________
AUTHORIZED SIGNATURE
TRANSFER AGENT
<PAGE>
EXHIBIT 4.3
THE SECURITIES REPRESENTED BY THIS OPTION AGREEMENT HAVE NOT BEEN REGISTERED
UNDER SECTION 5 OF THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), IN RELIANCE UPON ONE OR MORE EXEMPTIONS FROM REGISTRATION
AFFORDED BY THE SECURITIES ACT. THESE SECURITIES CONSTITUTE "RESTRICTED
SECURITIES" UNDER RULE 144 PROMULGATED UNDER THE SECURITIES ACT. THESE
SECURITIES HAVE NOT BEEN REGISTERED OR QUALIFIED UNDER THE SECURITIES LAWS OF
ANY STATE OR TERRITORY OF THE UNITED STATES OR PROVINCE OF CANADA, IN RELIANCE
UPON EXEMPTIONS FROM REGISTRATION OR QUALIFICATION AFFORDED UNDER SUCH
SECURITIES LAWS. THESE SECURITIES HAVE BEEN ACQUIRED BY THE HOLDER FOR
INVESTMENT PURPOSES ONLY. THESE SECURITIES MAY NOT BE SOLD, TRANSFERRED,
ASSIGNED OR HYPOTHECATED, WITH OR WITHOUT CONSIDERATION, OR OFFERED FOR SALE,
TRANSFER, ASSIGNMENT OR HYPOTHECATION, WITHIN THE UNITED STATES OR ANY OF ITS
TERRITORIES OR TO A UNITED STATES PERSON, UNLESS (i) THE SECURITIES ARE
REGISTERED UNDER SECTION 5 OF THE SECURITIES ACT, AND/OR APPLICABLE PROVISIONS
OF CANADIAN SECURITIES LAWS; OR (ii) THE PROPOSED TRANSACTION IS EXEMPT FROM THE
REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF THE SECURITIES ACT AND/OR
APPLICABLE PROVISIONS OF CANADIAN SECURITIES LAWS. THE TRANSFER AGENT (OR THE
COMPANY IF THEN ACTING AS ITS TRANSFER AGENT) WILL REFUSE TO TRANSFER THESE
SECURITIES UNLESS PRESENTED WITH A WRITTEN OPINION SATISFACTORY TO COUNSEL FOR
THE COMPANY TO THE EFFECT THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE
CIRCUMSTANCES OF SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION.
NON-QUALIFIED STOCK OPTION AGREEMENT
------------------------------------
(Incrementally Vested Options)
This Non-Qualified Stock Option Agreement (hereinafter the "Option Agreement"),
----------------
dated as of the 10th day of March, 1998 (hereinafter the "Grand Date"), is
----------
entered into by and between Pinnacle Oil International, Inc., a Nevada
corporation, whose address is Suite 750 Phoenix Place, 840 - 7th Avenue S.W.,
Calgary, Alberta, Canada T2P 3G2 (hereinafter the "Company"), and ,
------- -------------
an individual, whose business address is - (hereinafter the
---------------
"Optionee"), with reference to the following facts:
RECITALS:
WHEREAS, the Optionee is a member of the Board of Directors (hereinafter
the "Board") and is special counsel to the Company; and
-----
WHEREAS, as an incentive for Optionee to continue to render service to the
Company as a member of its Board, the Company has determined that it is in its
best interests to grant an option to the Optionee to purchase the Company's
common stock, (hereinafter, the "Common Stock") under and in accordance with the
------------
terms and conditions of this Option Agreement; and
WHEREAS, the Board adopted this Option Agreement on the 10th day of March,
1998;
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein, and for valuable consideration, the receipt and sufficiency of
which are hereby mutually acknowledged, the parties to this Option Agreement
(hereinafter collectively called the "parties" and individually a "party") agree
------- -----
as follows:
<PAGE>
AGREEMENT:
1. DEFINITIONS.
-----------
Set forth below are definitions of capitalized terms which are generally
used throughout this Option Agreement and have not been defined elsewhere:
(a) "Act" - The term "Act" is defined as the Securities Act of 1933, as
---
amended.
(b) "Code" - The term "Code" is defined as the Internal Revenue Code of
----
1986, as amended.
(c) "Disposed Of" - The term "Disposed Of" (or equivalent terms
-----------
"Disposition Of" or "Dispose Of") is defined as any of the following: (i) the
transfer, sale, assignment and/or gift of the Option; (ii) the granting of an
option or any rights with respect to the Option; (iii) the hypothecation,
encumbrance or pledge of the Option; or (iv) the attachment or imposition of a
lien by a creditor of the Optionee on the Option which is not released within
thirty (30) days after the imposition thereof.
(d) "Exchange Act" - The term "Exchange Act" is defined as the Securities
------------
and Exchange Act of 1934, as amended.
(e) "Expiration Date" - The term "Expiration Date" shall mean 5:00 p.m.
---------------
Pacific Standard Time on the business day immediately preceding the fifth (5th)
annual anniversary of each vesting date (March 10, 2003, March 10, 2004 or
March 10, 2005).
(f) "Fair Market Value" - The term "Fair Market Value" is defined as the
-----------------
fair market value of a share of the Company's Common Stock as of a given date
determined as follows:
(i) The closing bid price of a share of the Company's Common Stock
on the principal exchange on which shares of the Company's Common Stock are then
trading, if any, on such date, or, if shares were not traded on such date, then
on the next preceding trading day during which a sale occurred; or
(ii) If such stock is not traded on an exchange but is quoted on
NASDAQ or a successor quotation system, (1) the last sales price (if the stock
is then listed as a National Market Issue under the NASD National Market
System); or (2) the mean between the closing representative bid and asked price
(in all other cases) for the stock on such date as reported by NASDAQ or such
successor quotation system; or
(iii) If such stock is not publicly traded on an exchange and not
quoted on the NASDAQ or a successor quotation system, the fair market value
established by the Board or any committee established by the Board acting in
good faith (without taking into consideration any restrictions placed on the
underlying stock with the exception of those which, by their terms, will never
lapse).
2
<PAGE>
(g) "Notice of Exercise" - The term "Notice of Exercise" is defined as
------------------
that Notice Of Exercise Of Stock Option in the form of Exhibit "1" attached
-----------
hereto and incorporated herein by this reference.
(h) "Optionee's Successors" - The term "Optionee's Successors" is
---------------------
defined as the Optionee's successors by bequest or inheritance or by reason of
death of the Optionee.
(i) "Qualified Code Provisions" - The term "Qualified Code Provisions"
-------------------------
is defined as Subchapter D of Title A, Chapter 1 of the Code (presently
encompassing Sections 400 to 420 of the Code), as such Subchapter may be amended
from time to time.
(j) "Termination As A Director" - The term "Termination As A Director"
-------------------------
is defined as the time when the Optionee is no longer a member of the Board as a
result of his death, disability, termination by resignation or retirement or
when the Company fails or refuses to nominate Optionee as a member of the Board
for cause. "Cause" shall be defined as the commission by Optionee of such acts
of dishonesty, fraud or misrepresentation as would prevent the effective
performance of his duties as a director or results in material harm to the
Company's business.
2. GRANT OF OPTION.
---------------
Subject to the terms, conditions and limitations provided herein, the
Company hereby grants a stock option (hereinafter the "Option") to the Optionee
------
to purchase (without obligation to do so), in whole or in part, ______________
(______________) shares of Common Stock (hereinafter, collectively and
severally, the "Option Shares") at a purchase price of U.S. __________________s
-------------
(U.S. $______) (hereinafter, per share and in the aggregate, the "Option
------
Price").
- -----
3. VESTING OF OPTION SHARES.
------------------------
(a) Ordinary Vesting of Unvested Options. Beginning on March 10,
------------------------------------
1998, and on each of the subsequent annual anniversaries of that date as
hereinbelow specified, the percentage of the Option Shares hereinbelow specified
shall become vested; provided, however that there has been no Termination As A
-------- -------
Director and the Company does not fail or refuse to nominate Optionee as a
director and Optionee is thereafter elected on or prior to such applicable grant
date:
Date Shares
---- ------
The term "Vested Option" shall refer to the portion of the Option and the
-------------
underlying Option Shares to the extent the Option is vested. The portion of the
Option Shares which become vested shall be referred to, collectively and
severally, as the "Vested Option Shares".
--------------------
The term "Unvested Option" shall refer to the portion of the Option and the
---------------
underlying Option Shares that remain unvested. The portion of the Option Shares
which remain unvested shall be referred to, collectively and severally, as the
"Unvested Option Shares".
----------------------
(b) Accelerated Vesting of Unvested Options. Notwithstanding
---------------------------------------
Paragraph 3(a), Unvested Options shall immediately vest upon (i) the failure or
- --------------
refusal by the Company, without cause,
3
<PAGE>
to nominate Optionee as a member of the Board or upon the failure of the
shareholders to elect Optionee as a member of the Board; or (ii) the occurrence
of any of the following events: (A) the future sale or disposition by the
Company of substantially all of the business or assets of the Company; (B) the
sale of the capital stock of the Company in connection with the sale or transfer
of a controlling interest in the Company to any group other than the present
stockholders of the Company; (C) the merger or consolidation of the Company with
another corporation as part of a sale or transfer of a controlling interest in
the Company to any group other than the present stockholders of the Company; or
(D) the dissolution or liquidation of the Company.
4. ASSIGNMENT OF OPTIONS.
---------------------
Options may not be Disposed Of by the Optionee during his lifetime, nor
exercised by any person other than the Optionee, without the prior written
consent of the Company, which consent the Company may withhold in its sole and
absolute discretion, and such Options shall, upon the Disposition of or exercise
of such Options without the Company's prior written consent, terminate and be
null and void and of no further force and effect. Notwithstanding the
foregoing, Vested Options may, upon the death of the Optionee, be transferred to
the Optionee's Successors, and may thereafter be exercised by the Optionee's
Successors. Provided, however, Vested Options so transferred shall not be
-------- -------
further Disposed Of by the Optionee's Successors, nor exercised by any person
other than the Optionee's Successors, and the Vested Option so Disposed Of or
exercised shall, upon any such Disposition Of or exercise without the Company's
prior written consent, terminate and be null and void and of no further force
and effect. The Company shall have no obligation, whether express or implied, to
consent to any Disposition Of the Vested Option except as hereinabove expressly
provided.
5. OPTION EXPIRATION DATE.
----------------------
(a) Ordinary Expiration. Options shall expire and be null and void
-------------------
and of no further force or effect to the extent not exercised by 5:00 p.m.
P.S.T. on the business day immediately preceding the _______ annual anniversary
of each vesting date (_________________).
(b) Early Expiration of Vested Options if Termination As A Director.
---------------------------------------------------------------
In the event of Termination As A Director or upon the accelerated vesting of
unvested options as discussed hereinabove at Subparagraph 3(b), the Option
-----------------
Expiration Date for Vested Options shall be one year after the date of
Termination As A Director or after the date of the event requiring accelerated
vesting of unvested options, if such date is earlier than the date specified in
Paragraph 5(a).
- --------------
(c) Termination of Unvested Options. Unvested Options shall
-------------------------------
immediately terminate and be null and void and of no further force and effect
upon Termination As A Director.
4
<PAGE>
6. EXERCISE AND PAYMENT.
--------------------
A Vested Option shall be exercised, in whole or in part, solely by
delivery by the Optionee of all of the following to the Secretary of the Company
at such person's office at the Company prior to the Expiration Date:
(a) The Notice of Exercise, duly executed by the Optionee (or the
Optionee's Successors if permitted pursuant to the terms of Paragraph 4 of this
---------
Option Agreement), stating the Optionee's intent to exercise such Vested Option
and the number of Vested Option Shares to be purchased by such exercise
(hereinafter, collectively and severally, the "Purchased Option Shares").
-----------------------
(b) Full payment for the Vested Option Shares to be purchased by
exercise of the Option as follows:
(i) In good funds (in U.S. Dollars) by cash or by check
(provided, however, if the aggregate Option Price for the Vested Option Shares
-------- -------
to be purchased results in fractions of cents, the Option Price shall be rounded
down); or
(ii) If consented to in writing by the Board (with no obligation
to do so) immediately prior to the time of exercise of the Option, shares of the
Common Stock owned by the Optionee duly endorsed for transfer to the Company
with a Fair Market Value on the date of delivery equal to the aggregate Option
Price of the Vested Option Shares to be purchased by exercise of this Option; or
(iii) Unless prohibited by law, if consented to in writing by the
Board (with no obligation to do so) immediately prior to the time of exercise of
the Option, and subject to the provisions of Regulation G promulgated by the
Federal Reserve Board with respect to "Margin Stock" if the Company and the
Optionee are then subject to such Regulation, by (A) a full recourse promissory
note bearing interest (at a rate as shall then be determined by the Board which
shall not, in any event, be less than a rate as shall preclude the imputation of
interest under the Code or any successor provision) and payable upon such terms
as may be prescribed by the Board, and (B) secured by such security as is then
prescribed by the Board; or
(iv) To the extent the Board consents to consideration pursuant
to the foregoing Subsections (ii) and (iii), any combination of the
---------------- -----
consideration provided in the foregoing Subsections (i), (ii), and (iii), as
--------------- ---- -----
applicable.
(c) In the event that a Vested Option shall be exercised by the
Optionee's Successors, appropriate proof of the right of such person or persons
to exercise such Vested Option.
7. CERTIFICATES; REGISTRATION; LEGENDS.
------------------------------------
(a) Issuance of Certificates. As soon as practicable after complete
------------------------
and timely delivery of the Notice Of Exercise and the Option Price with respect
to Vested Options, the Company shall deliver to the Optionee a certificate or
certificates for the Purchased Option Shares.
5
<PAGE>
(b) Exemptions From Registration And Regulatory Approvals And
---------------------------------------------------------
Consents. The Purchased Option Shares shall be issued in reliance upon such
- --------
exemptions from registration or qualification under United States federal and
state securities laws, and under Canadian federal and/or provincial securities
laws, as applicable, that the Company, in its reasonable discretion, shall
determine to be appropriate, including, without limitation:
(i) In the case of United States securities laws, any of the
following: Rule 701 of the Securities Act for employee benefit plans;
Section 3(a)(11) of the Securities Act and Rule 147 promulgated thereto for
intrastate offerings; Section 3(b) of the Securities Act for limited
offerings and Rule 505 of Regulation D promulgated thereto; and/or Section
4(2) of the Securities Act for private offerings and Rule 506 of Regulation
D promulgated thereto, and
(ii) The requirements of any applicable exemptions from
registration or qualification afforded by the securities laws of such
state in which the Optionee is then a resident of and/or domiciled within;
and/or
(iii) The requirements of any applicable exemptions from
registration or qualification afforded by Canadian federal or provincial
securities laws.
If requested by the Company, the Optionee shall provide such further
representations or documents as the Company or its legal counsel, in their
reasonable discretion, deem necessary or advisable in order to effect compliance
with the conditions of any and all of the aforesaid exemptions from United
States and/or Canadian federal, state or provincial registration or
qualification upon which it is relying, or with all applicable rules and
regulations of any applicable securities exchanges.
In the event the Company is unable to obtain, without undue burden or
expense, such consents or approvals as may be required from any applicable
regulatory authority (or may be deemed reasonably necessary or advisable by
counsel from the Company) with respect to the applicable exemptions from United
States and/or Canadian federal or state registration or qualification which the
Company is reasonably relying upon, the Company shall have no obligation under
this Option Agreement to issue or sell the Purchased Option Shares until such
time as such consents or approvals may be reasonably obtained without undue
burden or expense, and the Company shall be relieved of all liability with
respect to its inability to issue or sell the Purchased Option Shares.
The Company shall not be required to register the Purchased Option
Shares under the Securities Act or any applicable Canadian securities law, or
to register or qualify the Purchased Option Shares under the securities laws of
any state, territory or province.
(c) Legend. In the event the Company delivers unregistered shares,
------
the Company reserves the right to place the following legend or such other
legend as it deems necessary on the certificate or certificates to comply with
applicable Canadian securities law, the Securities Act, and any state,
territorial, or provincial securities laws, or any exemption from registration
or qualification thereunder which is being relied upon by the Company.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE
NOT BEEN REGISTERED WITH THE SECURITIES AND
EXCHANGE COMMISSION UNDER SECTION 5 OF THE
6
<PAGE>
SECURITIES ACT OF 1933, OR WITH ANY CANADIAN
REGULATORY AUTHORITY.
Any new, additional or different securities the Optionee may become
entitled to receive with respect to such Option Shares by virtue of a stock
split or stock dividend or any other change in the corporate or capital
structure of the Company shall also bear such legend.
8. SALE OF PURCHASED OPTION SHARES.
-------------------------------
(a) Security Law Requirements for Sale. The Optionee acknowledges
----------------------------------
that he has been informed of the following requirements which must be satisfied
in order to sell any Purchased Option Shares:
(i) With respect to United States or Canadian federal, state or
provincial securities laws, unless the Purchased Option Shares are
registered or qualified, or if not registered or qualified, another
exemption is available which will permit an earlier sale, transfer,
assignment or other disposition of the Purchased Option Shares or any of
them by the Optionee, the Company will not permit the sale, transfer,
assignment or other disposition of the Purchased Option Shares or any of
them except as permitted by Rule 144 of the Securities Act pertaining to
restricted securities and any applicable Canadian securities law.
(ii) For so long as any restrictions placed upon the Option
Shares pursuant to the terms of this Option Agreement are applicable, the
Board may require that the share certificates representing the Option
Shares bear a restrictive legend evidencing said restrictions in such form
and subject to such stop transfer instructions as the Board shall deem
appropriate. The restrictions shall also apply to any new, additional or
different securities the Optionee may become entitled to receive with
respect to such Option Shares by virtue of a stock split or stock dividend
or any other change in the corporate or capital structure of the Company.
The Board shall also have the right, should it elect to do so, to require
the Optionee to deposit the share certificate with the Company or its
agent, endorsed in blank or accompanied by a duly executed irrevocable
stock power or other instrument of transfer, until such time as the
restrictions lapse.
(b) Agreement to Refrain From Resale. Without in any way limiting the
--------------------------------
representations and warranties in this Option Agreement, the Optionee shall,
prior to any sale, transfer, assignment, pledge, hypothecation or other
disposition of the Purchased Option Shares, either:
(i) Furnish the Company with a detailed explanation of the
proposed disposition, and an opinion of the Optionee's counsel in form and
substance satisfactory to the Company to the effect that such disposition
is exempted from and therefore will not require registration of the
Purchased Option Shares under the Act or qualification or registration
under the securities law of Canada or any state, territory or province; and
counsel for the Company shall have concurred in such opinion and the
Company shall have advised the Optionee of such concurrence; or
--
(ii) Satisfy the Company that a registration statement on Form
S-1 under the Act (or any other form appropriate for the purpose under the
Act or any form replacing any such form) with respect to the Purchased
Option Shares proposed to be so disposed of shall be
7
<PAGE>
then effective; and that such disposition shall have been appropriately
qualified or registered in accordance with any applicable Canadian state,
territorial or provincial securities laws.
(c) Company May Refuse to Transfer. Notwithstanding the foregoing, if
------------------------------
in the opinion of counsel for the Company, the Optionee has acted in a manner
inconsistent with the promises, conditions or representations and warranties in
this Option Agreement, the Company may refuse to transfer the Purchased Option
Shares until such time as counsel for the Company is of the opinion that such
transfer (i) will not require registration of the Purchased Option Shares under
applicable Canadian securities laws, and/or the Act, or registration or
qualification of the Purchased Option Shares under the applicable securities
laws of any state, province or territory; or (ii) has complied with the Act or
the securities laws of Canada or of any state, province or territory with
respect to the sale or transfer of the Purchased Option Shares by the Optionee.
The Optionee understands and agrees that the Company may refuse to acknowledge
or permit any disposition of the Purchased Option Shares that is not in all
respects in compliance with this Option Agreement and the Company intends to
make an appropriate notation in its records to that effect.
(d) Section 162(m) Advisement. Section 162(m) of the Code states in
-------------------------
pertinent part, "In the case of any publicly held corporation, no deduction
shall be allowed under this chapter for applicable employee remuneration with
respect to any covered employee to the extent that the amount of such
remuneration for the taxable year with respect to such employee exceeds
$1,000,000." If the Optionee is a United States taxpayer, and is receiving this
Option as an officer of the Company, or an individual acting in that capacity,
or if his compensation is required to be reported to the shareholders under the
Securities Exchange Act of 1934 because he is among the 4 highest compensated
individuals to whom remuneration is payable, he shall be considered an
"applicable employee" within the meaning of section 162(m).
9. AMENDMENT OF OPTION AGREEMENT.
-----------------------------
The Board may at any time or from time-to-time, without consent by or
payment of consideration to the Optionee, modify or amend this Option Agreement
in order to: (i) comport with changes in securities, tax or other laws or rules,
regulations or regulatory interpretations thereof applicable to this Option
Agreement or to comply with stock exchange rules or requirements; or (ii) to
ensure that this Option Agreement is and remains or shall become exempt from the
application of any participation, vesting, benefit accrual, funding, fiduciary,
reporting, disclosure, administration or enforcement requirement of either ERISA
or the Qualified Code Provisions.
10. INTERPRETATION OF AGREEMENT.
---------------------------
The Board shall, in its sole and absolute discretion, determine the
effect of all matters and questions relating to this Option Agreement including,
without limitation, any matters and questions pertaining to Termination As A
Director. All actions taken and all interpretations and determinations made
under this Option Agreement in good faith by the Board shall be final and
binding upon the Optionee, the Company, and all other interested persons. No
member of the Board shall be personally liable for any action taken or decision
made in good faith relating to this Option Agreement.
8
<PAGE>
11. TAX MATTERS.
-----------
(a) Income Tax Consequences. The Optionee (if a United States
-----------------------
taxpayer) acknowledges that he has been informed and understands that the Option
is a "non-qualified" stock option which is subject to taxation under Section 83
of the Code. As such the Optionee will be required, in the year of exercise of
the Option, to recognize as compensation income (taxable at ordinary income tax
rates) an amount equal to the difference between the fair market value of the
Purchased Option Shares as of the date of exercise and the exercise price for
the Purchased Option Shares. When the Optionee later sells or disposes of the
Purchased Option Shares he will recognize, as capital gain income (assuming he
has held the Purchased Option Shares for the requisite period of time and
investment purposes) an amount equal to the difference between his amount
realized for such Purchased Option Shares and his basis for such Purchased
Option Shares (which will correspond with the fair market value of the Purchased
Option Shares as of the date of exercise).
The Optionee also understands that Section 83(b) of the Code, which
would ordinarily permit a taxpayer to elect to accelerate taxation to the year
of grant, in order to avoid taxation on future appreciation in the fair market
value of the underlying stock at ordinary income tax rates, will not be
available with respect to the Purchased Option Shares due to the unascertainable
value of the Option as of the date of the grant. See Section 83(e)(3) of the
Code and Treasury Regulation Sections 1.83-8(a)(iii) and 1.83-7(b)(i).
(b) Tax Withholding. As a condition of the grant of this Option
---------------
and/or the issuance or transfer of any certificate or certificates for the
Purchased Option Shares upon exercise of a Vested Option, the Company shall have
the right to report compensation income to the Optionee (if a United States
taxpayer) pursuant to Section 83 of the Code in the year of exercise of the
Option and, in order for the Company to claim a deduction pursuant to Section
83(h) of the Code in connection therewith, to require the Optionee to remit to
the Company an amount sufficient to satisfy any federal, state and/or local
withholding tax requirements incident to exercise. For withholding tax
purposes, the Purchased Option Shares shall be valued on the date the
withholding obligation is incurred.
(c) Reliance Upon Independent Advisors. THE OPTIONEE ACKNOWLEDGES
----------------------------------
THAT THE OPTIONEE HAS CONSULTED WITH AND IS RELYING SOLELY UPON THE ADVICE OF
THE OPTIONEE'S OWN TAX ADVISORS WITH RESPECT TO THE TAX CONSEQUENCES OF THE
GRANT AND EXERCISE OF THIS OPTION AND THE SUBSEQUENT DISPOSITION OF THE
PURCHASED OPTION SHARES AND THE EFFECT OF SAME UPON THE OPTIONEE'S PERSONAL
FINANCIAL CIRCUMSTANCES. THE OPTIONEE ACKNOWLEDGES AND AGREES THAT THIS
PARAGRAPH IS INTENDED MERELY TO GENERALLY POINT OUT THE COMPLEXITY OF UNITED
STATES FEDERAL TAX LAW WITH RESPECT TO THE TAX TREATMENT OF NON-QUALIFIED STOCK
OPTIONS AND IS NOT INTENDED AS A COMPREHENSIVE OR DETAILED SUMMARY OR ANALYSIS
OF UNITED STATES FEDERAL TAX LAW OR OF ANY CANADIAN TAX LAW WHICH MAY BE
APPLICABLE, AS SUCH LAWS APPLY TO NON-QUALIFIED STOCK OPTIONS, AND THEREFORE
SHALL NOT BE DEEMED TO CONSTITUTE A REPRESENTATION OR WARRANTY BY THE COMPANY OR
ANY OF ITS OFFICERS, DIRECTORS AND AGENTS WITH RESPECT TO SUCH TAX CONSEQUENCES,
AND SHOULD NOT BE RELIED UPON BY THE OPTIONEE.
9
<PAGE>
12. SHAREHOLDER RIGHTS
------------------
The Optionee shall not be, nor have any of the rights or privileges
of, a shareholder of the Company with respect to the Purchased Option Shares
unless and until all conditions for exercise of the Option and the issuance of
certificates for the Purchased Option Shares shall be satisfied, at which time
the Optionee shall become a shareholder of the Company with respect to the
Purchased Option Shares and as such shall thereafter be fully entitled to
receive dividends (if any are declared and paid), to vote and to exercise all
other rights of a shareholder with respect to the Purchased Option Shares.
13. ADJUSTMENTS.
-----------
(a) Subdivision or Stock Dividend. If outstanding shares of the
-----------------------------
Common Stock of the Company shall be subdivided into a greater number of shares,
or a dividend in Common Stock shall be paid in respect of the Common Stock, the
Option Price of the outstanding Options in effect immediately prior to such
subdivision or at the record date of such dividend shall, simultaneously with
the effectiveness of such subdivision or immediately after the record date of
such dividend, be proportionately reduced; and conversely, if the outstanding
shares of the Common Stock of the Company shall be combined into a smaller
number of shares, the Option Price of any outstanding Option in effect
immediately prior to such combination shall, simultaneously with the
effectiveness of such combination, be proportionately increased.
(b) Adjustment to Option Price. When any adjustment is required to be
--------------------------
made in the Option Price, the number of shares purchasable upon the exercise of
any outstanding Option shall be adjusted to that number of shares determined by
(i) multiplying an amount equal to the number of shares purchasable upon the
exercise of the Option immediately prior to such adjustment by the Option Price
in effect immediately prior to such adjustment, and then (ii) dividing that
product by the Option Price in effect immediately after such adjustment.
Provided, however, no fractional shares shall be issued, and any fractional
- -------- -------
shares resulting from the computations pursuant to this Paragraph 13 shall be
------------
eliminated from the Option.
(c) Capital Reorganization or Reclassification; Consolidation or
------------------------------------------------------------
Merger. In case of any capital reorganization or any reclassification of the
- ------
Common Stock of the Company (other than a recapitalization hereinabove described
in Subparagraph (a) of this Paragraph 13), or the consolidation or merger of the
---------------- ------------
Company with another entity, the Optionee shall thereafter be entitled upon
exercise of the Option to purchase the kind and number of shares of stock or
other securities or property of the Company receivable upon such event by a
holder of the number of shares of the Common Stock of the Company, which such
Option entitles the holder to purchase from the Company immediately prior to
such event. In every such case, appropriate adjustment shall be made in the
application of the provisions set forth in this Option Agreement with respect to
the rights and interests thereafter of the Optionee, to the end that the
provisions set forth in this Option Agreement (including the specified changes
and other adjustments to the Option Price) shall thereafter be applicable in
relation to any shares or other property thereafter purchasable upon exercise of
the Option.
(d) Dissolution or Liquidation of Company. Subject to Paragraph 3(b)
-------------------------------------
above, a dissolution or liquidation of the Company shall cause the outstanding
Option to terminate.
(e) Adjustments Determined in Sole Discretion of Board. To the extent
--------------------------------------------------
that the
10
<PAGE>
foregoing adjustments relate to stock or securities of the Company, such
adjustments shall be made by the Board, whose determination in that respect
shall be final, binding and conclusive.
(f) No Other Rights to Optionee. Except as expressly provided in
---------------------------
this Paragraph 13, (i) the Optionee shall have no rights by reason of any
------------
subdivision or consolidation of shares of stock of any class or the payment of
any stock dividend or any other increase or decrease in the number of shares of
stock of any class; and (ii) the dissolution, liquidation, merger, consolidation
or split-up or sale of assets or stock to another corporation, or any issue by
the Company of shares of stock of any class, or securities convertible into
shares of stock of any class, shall not affect, and no adjustment by reason
thereof shall be made with respect to, the number of, or the Option Price for,
the shares. The grant of an Option pursuant to this Option Agreement shall not
affect in any way the right or power of the Company to made adjustments,
reclassification, reorganizations or changes of its capital or business
structure or to merge, consolidate, dissolve or liquidate, or to sell or
transfer all or any part of its business or assets.
14. PERFORMANCE ON BUSINESS DAY.
---------------------------
In the event the date on which a party is required to take any
action under the terms of this Option Agreement is not a business day, the
action shall be deemed to be required to be taken on the next succeeding
business day.
15. NON-LIABILITY FOR DEBTS.
-----------------------
The Options, and each and every interest or right therein or
part thereof, shall not be liable for the debts, contracts, or engagements of
the Optionee or the Optionee's heirs, successors and assigns.
16. ADOPTION OF ARTICLES AND BYLAWS.
-------------------------------
The Optionee hereby adopts, accepts and agrees to be bound by
all the terms and provisions of the Articles of Incorporation and Bylaws of the
Company and to perform all obligations therein imposed upon a holder with
respect to the Purchased Option Shares.
17. MISCELLANEOUS.
-------------
(a) Preparation. It is acknowledged by each party that such
-----------
party either had separate and independent advice of counsel or the opportunity
to avail itself of same. In light of these facts it is acknowledged that no
party shall be construed to be solely responsible for the drafting hereof, and
therefore any ambiguity shall not be construed against any party as the alleged
draftsman of this Option Agreement.
(b) Cooperation. Each party agrees, without further
-----------
consideration, to cooperate and diligently perform any further acts, deeds and
things and to execute and deliver any documents that may from time to time be
reasonably required to consummate, evidence, confirm and /or carry out the
intent and provisions of this Option Agreement, all without undue delay or
expense.
11
<PAGE>
(c) Interpretation.
--------------
(i) Entire Agreement/No Collateral Representations. EACH PARTY
----------------------------------------------
EXPRESSLY ACKNOWLEDGES AND AGREES THAT THIS OPTION AGREEMENT, INCLUDING ALL
EXHIBITS ATTACHED HERETO: (1) IS THE FINAL, COMPLETE AND EXCLUSIVE STATEMENT OF
THE AGREEMENT OF THE PARTIES WITH RESPECT TO THE SUBJECT MATTER HEREOF; (2)
SUPERSEDES ANY PRIOR OR CONTEMPORANEOUS PROMISES, ASSURANCES, GUARANTEES,
REPRESENTATIONS, UNDERSTANDINGS, CONDUCT, PROPOSALS, CONDITIONS, COMMITMENTS,
ACTS, COURSE OF DEALING, WARRANTIES, INTERPRETATIONS OR TERMS OF ANY KIND, ORAL
OR WRITTEN (HEREINAFTER COLLECTIVELY CALLED THE "PRIOR AGREEMENTS"), AND THAT
----- ----------
ANY SUCH PRIOR AGREEMENTS ARE OF NO FORCE OR EFFECT EXCEPT AS EXPRESSLY SET
FORTH HEREIN; AND (3) MAY NOT BE VARIED, SUPPLEMENTED OR CONTRADICTED BY
EVIDENCE OF SUCH PRIOR AGREEMENTS, OR BY EVIDENCE OF SUBSEQUENT ORAL AGREEMENTS.
Any agreement hereafter made shall be ineffective to modify, supplement or
discharge the terms of this Option Agreement, in whole or in part, unless such
agreement is in writing and signed by the party against whom enforcement of the
modification, supplement or is sought.
(ii) Waiver. No breach of any agreement or provision herein
------
contained, or of any obligation under this Option Agreement, may be waived, nor
shall any extension of time for performance of any obligations or acts be deemed
an extension of time for performance of any other obligations or acts contained
herein, except by written instrument signed by the party to be charged or as
otherwise expressly authorized herein. No waiver of any breach of any agreement
or provision herein contained shall be deemed a waiver of any preceding or
succeeding breach thereof, or a waiver or relinquishment of any other agreement
or provision or right or power herein contained.
(iii) Remedies Cumulative. The remedies of each party under this
-------------------
Option Agreement are cumulative and shall not exclude any other remedies to
which such party may be lawfully entitled.
(iv) Severability. If any term or provision of this Option
------------
Agreement or the application thereof to any person or circumstance shall, to any
extent, be determined to be invalid, illegal or unenforceable under present or
future laws effective during the term of this Option Agreement, then and, in
that event: (1) the performance of the offending term or provision (but only to
the extent its application is invalid, illegal or unenforceable) shall be
excused as if it had never been incorporated into this Option Agreement, and, in
lieu of such excused provision, there shall be added a provision as similar in
terms and amount to such excused provision as may be possible and be legal,
valid and enforceable; and (2) the remaining part of this Option Agreement
(including the application of the offending term or provision to persons or
circumstances other than those as to which it is held invalid, illegal or
unenforceable) shall not be affected thereby and shall continue in full force
and effect to the fullest extent provided by law. Anything in the preceding
sentence to the contrary notwithstanding, should any aspect of this Option
Agreement be determined by any Court of law or by any regulatory agency having
jurisdiction over this Option Agreement not to be exempt from the application of
the participation, vesting, benefit accrual, funding, fiduciary, reporting,
disclosure, administration or enforcement requirement of either (1) ERISA or (2)
the Qualified Code Provisions, then this entire Option Agreement shall, at the
election of the Company (without obligation to make such election), be null and
void and of no further force or effect. Provided, however, the Company shall not
-------- -------
be entitled to make such election in the event (A) the Company made application
to such
12
<PAGE>
Court of law or regulatory agency to find or determine this Option Agreement to
be subject to application of any of the participation, vesting, benefit accrual,
funding, fiduciary, reporting, disclosure, administration or enforcement
requirements of either ERISA or the Qualified Code Provisions, or (B) the
actions or participation of the Optionee or Optionee's agents were not directly
or indirectly involved in or a factor of such Court of law or regulatory agency
considering or pursuing such action.
(v) Time is of the Essence. It is expressly understood and
----------------------
agreed that time of performance is strictly of the essence with respect to each
and every term, condition, obligation and provision hereof and that the failure
to timely perform any of the terms, conditions, obligations or provisions hereof
by any party shall constitute a material breach of and a non-curable (but
waivable) default under this Option Agreement by the party so failing to
perform.
(vi) No Third Party Beneficiary. Notwithstanding anything else
--------------------------
herein to the contrary, the parties specifically disavow any desire or intention
to create a "third party" beneficiary contract, and specifically declare that no
person or entity, save and except for the parties or their successors, shall
have any rights hereunder nor any right of enforcement hereof.
(vii) No Reliance Upon Prior Representation. Each party
-------------------------------------
acknowledges that no other party has made any oral representation or promise to
such party which representation or promise would induce such party prior to
executing this Option Agreement to change its position to its detriment,
partially perform, or part with value in reliance upon such representation or
promise; such party acknowledges that it has taken such action at its own risk;
and such party represents that it has not so changed its position, performed or
parted with value prior to the time of its execution of this Option Agreement.
(viii) Headings; References; Incorporation; Gender. The headings
-------------------------------------------
used in this Option Agreement are for convenience and reference purposes only,
and shall not be used in construing or interpreting the scope or intent of this
Option Agreement or any provision hereof. References to this Option Agreement
shall include all amendments or renewals thereof. All cross-references in this
Option Agreement, unless specifically directed to another agreement or document,
shall be construed only to refer to provisions within this Option Agreement, and
shall not be construed to be referenced to the overall transaction or to any
other agreement or document. Any Exhibit referenced as attached to this Option
Agreement shall be construed to be incorporated into this Option Agreement by
such reference. As used in this Option Agreement, each gender shall be deemed to
include each other gender, including neutral genders or genders appropriate for
entities, if applicable, and the singular shall be deemed to include the plural,
and vice versa, as the context requires.
(d) Enforcement.
-----------
(i) Applicable Law. THIS OPTION AGREEMENT AND THE RIGHTS AND
--------------
REMEDIES OF EACH PARTY ARISING OUT OF OR RELATING TO THIS OPTION AGREEMENT
(INCLUDING, WITHOUT LIMITATION, EQUITABLE REMEDIES) SHALL BE SOLELY GOVERNED BY,
INTERPRETED UNDER, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE INTERNAL
LAWS OF THE STATE OF NEVADA, WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES AS
IF THIS OPTION AGREEMENT WERE MADE, AND AS IF ITS OBLIGATIONS ARE TO BE
PERFORMED, WHOLLY WITHIN THE STATE OF NEVADA.
13
<PAGE>
(ii) Consent to Jurisdiction. ANY ACTION OR PROCEEDING ARISING
-----------------------
OUT OF OR RELATING TO THIS OPTION AGREEMENT SHALL BE FILED IN AND HEARD AND
LITIGATED SOLELY BEFORE THE STATE COURTS OF NEVADA. EACH PARTY GENERALLY AND
UNCONDITIONALLY ACCEPTS THE EXCLUSIVE JURISDICTION OF SUCH COURTS AND WAIVES ANY
DEFENSE OR RIGHT TO OBJECT TO VENUE IN SAID COURTS BASED UPON THE DOCTRINE OF
"FORUM NON CONVENIENS". EACH PARTY IRREVOCABLY AGREES TO BE BOUND BY ANY
JUDGEMENT RENDERED THEREBY IN CONNECTION WITH THIS OPTION AGREEMENT.
(e) Successors and Assigns. Subject to the terms of this Option
----------------------
Agreement prohibiting the assignment of Options, all of the representations,
warranties, covenants, conditions and provisions of this Option Agreement shall
be binding upon and shall inure to the benefit of each party and such party's
respective heirs, executors, administrators, legal representatives, Successors
and/or assigns, whichever the case may be.
(f) Notices. Unless otherwise specifically provided in this Option
-------
Agreement, all notices, demands, requests, consents, approvals or other
communications (collectively and severally called "Notices") required or
-------
permitted to be given hereunder, or which are given with respect to this Option
Agreement, shall be in writing, and shall be given by: (i) personal delivery
(which form of Notice shall be deemed to have been given upon delivery); (ii) by
telegraph or by private airborne/overnight delivery service (which forms of
Notice shall be deemed to have been given upon confirmed delivery by the
delivery agency); (iii) by electronic or facsimile or telephonic transmission,
provided the receiving party has a compatible device or confirms receipt thereof
(which forms of Notice shall be deemed delivered upon confirmed transmission or
confirmation of receipt); or (iv) by mailing in the United States mail by
registered or certified mail, return receipt requested, postage prepaid (which
forms of Notice shall be deemed to have been given upon the fifth [5th] business
day following the date mailed). Each party, and their respective counsel,
hereby agree that if Notice is to be given hereunder by such party's counsel,
such counsel may communicate directly with all principals, as required to comply
with the foregoing notice provisions. Notices shall be addressed to the Company
and the Optionee at the addresses hereinabove set forth in the introductory
paragraph of this Option Agreement, or to such other address as the receiving
party shall have specified most recently by like Notice, with a copy to the
other parties hereto. Any Notice given to the estate of a party shall be
sufficient if addressed to the party as provided in this Paragraph.
(g) Counterparts. This Option Agreement may be executed in 2 or more
------------
counterparts, each of which shall be deemed an original, and all of which
together shall constitute but one and the same instrument, binding on all
parties hereto. Any signature page of this Option Agreement may be detached
from any counterpart of this Option Agreement and reattached to any other
counterpart of this Option Agreement identical in form hereto but having
attached to it one or more additional signature pages.
(h) Execution by All Parties Required to be Binding. This Option
-----------------------------------------------
Agreement shall not be construed to be an offer and shall have no force and
effect until this Option Agreement is fully executed by all parties hereto.
14
<PAGE>
IN WITNESS WHEREOF, the Company has caused its duly authorized officers to
execute and attest this Option Agreement, and to apply the corporate seal
hereto, and the Optionee has placed his or her signature hereon, at the City of
Calgary, Alberta, Canada, effective as of the Grant Date.
COMPANY:
Pinnacle Oil International, Inc.
a Nevada corporation
By:
-----------------------------
OPTIONEE:
--------------------------------
15
<PAGE>
Exhibit "1"
to
Non-Qualified Stock Option Agreement
NOTICE OF EXERCISE OF STOCK OPTION
----------------------------------
16
<PAGE>
NOTICE OF EXERCISE OF STOCK OPTION
----------------------------------
(To be signed by Optionee only upon exercise of Option)
TO: President
Pinnacle Oil International, Inc.
Suite 750 Phoenix Place
840 - 7th Avenue S.W.
Calgary, Alberta, Canada T2P 3G2
The undersigned, the Optionee under that certain Non-Qualified Stock Option
Agreement dated March 10, 1998 (hereinafter the "Option Agreement"), between
----------------
Pinnacle Oil International, Inc., a Nevada corporation (hereinafter the
"Company") and the undersigned, hereby irrevocably elects, in accordance with
-------
the terms and conditions of the Option Agreement, to exercise the undersigned's
Option (as such term is defined by Paragraph 2 of the Option Agreement) to
-----------
purchase /(1)/ shares of the Common Stock of the
---------------------------
Company ("Common Stock"), and encloses herewith good funds in the amount of
------------
$ /(2)/ in full payment therefor/(3)/.
---------------------
/(1)/ Insert number of Vested Option Shares (as defined by Paragraph 2 of
-----------
the Option Agreement) which Optionee is exercising his Option to
purchase.
/(2)/ Number of Option Shares multiplied by the Option Price per share set
forth in Paragraph 2 of the Option Agreement (U.S. $8.31 per share).
-----------
/(3)/ Unless the Company permits payment pursuant to the alternatives set
forth in Paragraph 6 of the Option Agreement.
-----------
The undersigned hereby remakes all representations, warranties and
covenants set forth in the Option Agreement as of the date of this Notice, all
of which shall survive the closing with respect to the shares of Common Stock
purchased hereby.
(Signature must conform in all respects to name of Optionee
as specified on the Option Agreement, unless the undersigned
is Optionee's Successor, in which case the undersigned must
submit appropriate proof of the right of the undersigned to
exercise the Option)
Signature:
-----------------------------
Print Name:
-----------------------------
Address:
-----------------------------
-----------------------------
Date:
-----------------------------
<PAGE>
EXHIBIT 4.4
PINNACLE OIL INTERNATIONAL, INC.
--------------------------------
WARRANT AGREEMENT AND CERTIFICATE
---------------------------------
<TABLE>
<CAPTION>
<S> <C>
Name of Holder .......................... SFD Investment LLC, an Arkansas limited liability company
Residence & Domicile of Holder........... 111 Center Street, Suite 2500, Little Rock, AR 72201
Number of Warrant Shares................. Two hundred thousand (200,000)
Warrant Price............................ United States seven dollars and fifty cents (U.S. $7.50)
Warrant Expiration Date.................. April 3, 2000
Warrant Effective Date................... April 3, 1998
Primary U.S. Federal Exemption Relied
Upon at the Time of Grant............... Rule 506 promulgated under Section 4(2) of the Securities Act
Primary Blue Sky Exemption Relied Upon
at the Time of Grant.................... Section 23-42-509 of the Arkansas Securities Act, and Rule
509(B)(1) - (2) promulgated thereunder (Covered Security pursuant
to NSMIA {Section 18(b)(4)(D) of the Securities Act})
</TABLE>
NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK PURCHASABLE UPON EXERCISE OF
THIS WARRANT (COLLECTIVELY, "THE SECURITIES REPRESENTED BY THIS CERTIFICATE")
HAVE BEEN REGISTERED UNDER THE SECURITIES LAWS OF THE UNITED STATES. THIS
WARRANT HAS BEEN, AND THE SHARES OF COMMON STOCK PURCHASABLE UPON EXERCISE OF
THIS WARRANT MUST BE, ACQUIRED FOR THE HOLDER'S OWN ACCOUNT FOR INVESTMENT
PURPOSES ONLY, AND NOT WITH A VIEW FOR RESALE OR DISTRIBUTION. THE SECURITIES
REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, TRANSFERRED, ASSIGNED OR
HYPOTHECATED, OR OFFERED FOR SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION, UNLESS
(i) SUCH SECURITIES ARE REGISTERED UNDER SECTION 5 OF THE SECURITIES ACT OF 1933
("THE "SECURITIES ACT") AND ALSO UNDER THE REGISTRATION AND QUALIFICATION
PROVISIONS OF THE SECURITIES LAWS OF ANY STATE OR TERRITORY OF THE UNITED STATES
OR OF ANY FOREIGN JURISDICTION AS MAY BE APPLICABLE (THE "BLUE SKY LAWS"), OR
(ii) THE PROPOSED TRANSACTION IS EXEMPT FROM (OR, PURSUANT TO REGULATION S
PROMULGATED UNDER THE SECURITIES ACT GOVERNING CERTAIN OFFSHORE TRANSACTIONS TO
NON-U.S. PERSONS, NOT SUBJECT TO) THE REGISTRATION AND PROSPECTUS DELIVERY
REQUIREMENTS OF THE SECURITIES ACT AND THE REGISTRATION AND QUALIFICATION
PROVISIONS OF ANY APPLICABLE BLUE SKY LAWS. THE TRANSFER AGENT (OR THE COMPANY
IF THEN ACTING AS ITS TRANSFER AGENT) WILL REFUSE TO TRANSFER THE SECURITIES
REPRESENTED BY THIS CERTIFICATE UNLESS PRESENTED WITH A WRITTEN OPINION
SATISFACTORY TO LEGAL COUNSEL FOR THE COMPANY (OR A NO-ACTION OR INTERPRETIVE
LETTER FROM THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION AND/OR
SECURITIES REGULATORY AGENCIES OF ANY APPLICABLE STATE OR TERRITORY OF THE
UNITED STATES) TO THE EFFECT THAT SUCH REGISTRATION AND PROSPECTUS DELIVERY
REQUIREMENTS UNDER THE SECURITIES ACT AND SUCH REGISTRATION OR QUALIFICATION
REQUIREMENTS UNDER THE BLUE SKY LAWS ARE NOT REQUIRED UNDER THE CIRCUMSTANCES OF
SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION. AN INVESTMENT IN THE
SECURITIES REPRESENTED BY THIS CERTIFICATE IS SPECULATIVE AND INVOLVES A HIGH
DEGREE OF RISK. AS A RESULT, THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE
SUITABLE ONLY FOR CERTAIN SOPHISTICATED AND QUALIFIED INVESTORS WHO CAN BEAR THE
FINANCIAL RISK OF AN INVESTMENT IN THESE SECURITIES FOR AN INDEFINITE PERIOD OF
TIME.
<PAGE>
WARRANT AGREEMENT AND CERTIFICATE
FOR VALUABLE CONSIDERATION PAID, the receipt of which consideration is
hereby acknowledged, Pinnacle Oil International, Inc., a Nevada corporation (the
"Company"), hereby certifies that the Holder(s) identified on the first page of
this Warrant Agreement and Certificate (the "Warrant"), or his, her or its
registered successor pursuant to section 2 (collectively, the "Holder"), is
---------
entitled to purchase from the Company, a number of unregistered shares (the
"Warrant Shares") of the Company's common stock, par value $0.001 (the "Common
Stock") designated on the first page of this Warrant, at the initial exercise
price per Warrant Share (the "Warrant Price") designated on the first page of
this Warrant (as such price may be adjusted pursuant to section 5), subject to
---------
the provisions, and upon the terms and conditions, of this Warrant hereinafter
set forth.
1. EXERCISE
(A) EXERCISE TERM. The Holder may exercise this Warrant, in whole or
-------------
in part (but not as to fractional shares), at any time or from time to time
during that period (the "Exercise Period") commencing as of the Warrant
Effective Date designated on the first page of this Warrant and ending at 5:00
p.m., Pacific Standard Time, on the Warrant Expiration Date designated on the
first page of this Warrant. This Warrant shall, to the extent this Warrant is
not fully and timely exercised during the Exercise Period, expire and be null
and void and of no further force or effect.
(B) RESERVATION OF COMMON STOCK. The Company shall at all times
---------------------------
reserve and keep available out of its authorized but unissued shares of Common
Stock, solely for the purpose of issuance upon the exercise of this Warrant,
such number of shares of Common Stock as shall be issuable upon the exercise
hereof. The Company covenants and agrees that, upon exercise of this Warrant,
payment of the Warrant Price thereof, and compliance with the pertinent
provisions of the Securities Act and applicable Blue Sky Law (as such term is
defined in section 8(d) as may then be applicable, all shares of Common Stock
------------
issuable upon such exercise shall be duly and validly issued, fully paid, non-
assessable and free of any liens and encumbrances except for (i) liens and
encumbrances incurred by the Holder in financing the exercise of the Warrant (if
such financing is permitted under this Warrant), and (ii) restrictions on
Transfer (as such term is defined in section 8) provided for in this Warrant or
---------
under applicable federal and state securities laws.
(C) MANNER OF EXERCISE. This Warrant is exercisable at the Warrant
------------------
Price, subject to adjustment as provided in section 5 hereof. Exercise of this
---------
Warrant shall be effectuated solely by the surrender of this Warrant with the
annexed Notice of Exercise duly executed by each Holder thereof, together with
payment of the Warrant Price for the Warrant Shares purchased (and any
applicable transfer taxes) at the Company's principal executive offices (as
indicated on the annexed Notice of Exercise). Payment shall be made by cash, by
cashiers check payable to the order of the Company, or by other immediately
available funds, all in U.S. dollars, provided, however, the Holder may, in lieu
of cash payment, pay for the Warrant Shares with Shares of Common Stock or any
preferred stock of the Company owned by the Holder duly endorsed for transfer to
the Company and/or the surrender or relinquishment of options, warrants or other
rights to acquire the Common Stock or any preferred stock of the Company of the
held by the Holder, with a Fair Market Value (as such term is defined below) on
the date of delivery of such securities equal to the aggregate Warrant Price of
the Warrant Shares with respect to which this Warrant or portion is thereby
exercised.
(D) CONVERSION OF WARRANT. In lieu of exercising this Warrant as
--- ---------------------
specified in section 1(c), the Holder may from time-to-time during the Exercise
------------
Period convert this Warrant, in whole or in part, into a number of Warrant
Shares determined by dividing (x) the aggregate Fair Market Value of the Warrant
Shares or other securities issuable upon exercise of this Warrant minus the
aggregate Warrant Price of such Warrant Shares by (y) the Fair Market Value of
one Warrant Share.
<PAGE>
(E) FAIR MARKET VALUE. The Fair Market Value of the securities
-----------------
delivered or surrendered pursuant to section 1(c), or of the Warrant Shares
------------
converted pursuant to section 1(d) (collectively, the "Securities"), as of any
------------
given valuation date shall be determined as follows:
(i) If the Securities to be valued are traded on a stock
exchange, the Fair Market Value will be equal to the closing price of the
Securities on the principal exchange on which the Securities are then
trading as reported by such exchange (or as reported by any composite index
which includes such principal exchange) for the trading day previous to the
date of valuation, or if the Securities are not traded on such date, on the
next preceding trading day during which a trade occurred;
(ii) If the Securities to be valued are traded over-the-counter
on the Nasdaq National Market on the date in question, the Fair Market
Value will be equal to the last transaction price of the Securities as
reported by the Nasdaq National Market for the trading day previous to the
date of valuation, or if the Securities are not traded on such date, on the
next preceding trading day during which a trade occurred;
(iii) If the Securities to be valued are traded over-the-counter
on the Nasdaq SmallCap Market, the Fair Market Value will equal the mean
between the last reported closing representative bid and asked price for
the Securities as reported by the Nasdaq SmallCap Market for the trading
day previous to the date of valuation, or if the Securities are not traded
on such date, on the next preceding trading day during which a trade
occurred; or
(iv) If the Securities to be valued are not publicly traded on
an exchange and are not traded over-the-counter on the Nasdaq National
Market or the Nasdaq SmallCap Market, the Fair Market Value shall be
determined by the Board acting in good faith on such basis as it deems
appropriate, including quotations by market makers if the Securities are
traded over-the-counter on the NASD Electronic Bulletin Board or Pink
Sheets on the date in question should the Board of Directors deem such
quotations to be appropriate given the volume and circumstances of trades.
(F) DELIVERY OF STOCK CERTIFICATES. As soon as practicable, but not
------------------------------
exceeding thirty (30) days after complete or partial exercise of this Warrant
and all required deliveries by the Holder, the Company, at its expense, shall
cause to be issued in the name of the Holder a certificate or certificates for
the number of Warrant Shares which the Holder shall be entitled upon such
exercise, together with such other stock or securities or property or
combination thereof to which the Holder shall be entitled upon such exercise,
determined in accordance with section 5 hereof.
---------
(G) RECORD DATE OF TRANSFER OF WARRANT SHARES. Irrespective of the
-----------------------------------------
date of issuance and delivery of certificates for any shares of Common Stock or
other securities issuable upon the exercise of this Warrant, each person
(including a corporation or partnership) in whose name any such certificate is
to be issued shall for all purposes be deemed to have become the holder of
record of the Common Stock or other securities represented thereby immediately
prior to the close of business on the date on which payment of the Warrant Price
with annexed Notice of Exercise duly executed is received by the Company.
2. NAMED HOLDER DEEMED OWNER
The Company, any conversion agent, and any registrar for this Warrant may deem
and treat the Holder named on the cover page hereof as the absolute owner of
this Warrant; provided, however, in the event such Holder (or any successor
thereto in accordance with the terms of this section 2) shall have delivered to
---------
the
-2-
<PAGE>
Company at its principal executive office written notice requesting the Transfer
of this Warrant or any portion thereof, the Company shall, so long as the
requirements for transfer described in section 8 hereof have been satisfied,
---------
treat the assignee or transferee as the Holder for the purpose of exercise
hereof and for all other purposes, and neither the Company nor any conversion
agent nor any registrar shall be affected by any notice to the contrary.
3. NO STOCKHOLDER RIGHTS
The Holder shall not be, nor have any of the rights or privileges of, a
stockholder of the Company with respect to this Warrant including, by way of
example and not limitation, the right to vote for the election of directors or
upon any matter submitted to stockholders at any meeting thereof, or to give or
withhold consent to any corporate action, or to receive notice of meetings or
other actions affecting stockholders (except as expressly provided in this
Warrant), or to receive dividends, distributions, subscription rights or
otherwise (except as expressly provided in this Warrant), unless and until all
conditions for exercise of this Warrant shall be satisfied, and this Warrant is
duly exercised and the purchased Warrant Shares are duly issued and delivered,
at which time the Holder shall become a stockholder of the Company with respect
to such issued Warrant Shares and, in such capacity, shall thereafter be fully
entitled to receive dividends (if any are declared and paid), to vote, and to
exercise all other rights of a stockholder with respect to such issued Warrant
Shares.
4. RIGHT TO NOTICE OF CERTAIN EVENTS
The Company shall give written notice of the following events to the
Holder of this Warrant in the event this Warrant has not expired and has not
been fully exercised by the Holder:
(a) The Company shall fix a record date of the holders of its shares
of Common Stock for the purpose of entitling them to receive a dividend or
distribution;
(b) A merger or consolidation or stock exchange or divisive
reorganization (i.e., spin-off, split-off or split-up) or other reorganization
in which the Company and/or its stockholders are to be a party; or the sale,
transfer, exchange or other disposition by the Company of fifty percent (50%) or
more of its assets in a single or series of related transactions; or the sale,
transfer, exchange or other disposition of fifty percent (50%) or more of the
capital stock of the Company in a single or series of related transactions, with
the exception, in each of the above cases, of a transaction whose principal
purpose is to change the State in which the Company is incorporated, or to form
a holding company, or to effect a similar reorganization as to form of entity
without change of beneficial ownership; or
(c) The sale, transfer, exchange or other disposition of all or
substantially all of the assets of the Company in complete liquidation or
dissolution of the Company, with the exception of a transaction whose principal
purpose is to change the State in which the Company is incorporated, or to form
a holding company, or to effect a similar reorganization as to form of entity
without change of beneficial ownership, whereupon this Warrant will be assumed
by the successor entity.
In the case of the occurrence of any of the events described in
subsection 4(a) through subsection 4(c), the Company shall give written notice
- --------------- ---------------
of such event to the Holder of this Warrant at least fifteen (15) days prior to
the date fixed as a record date or the date of closing the transfer books for
the determination of the shareholders entitled to receive such dividend,
distribution, convertible or exchangeable securities or subscription rights
described in subsection 4(a), or entitled to vote on such proposed transactions
---------------
described in subsection 4(b) and subsection 4(c). Such notice shall specify such
--------------- ---------------
record date or the date of closing the transfer books, as the case may be.
Failure to give such notice or any defect therein shall not affect the validity
of any
-3-
<PAGE>
action taken in connection with the declaration or payment of any such dividend
or the issuance of any convertible or exchangeable securities, or any
subscription rights, options or warrants described in subsection 4(a) or any
---------------
proposed transactions described in subsection 4(b) and subsection 4(c), unless
--------------- ---------------
such failure cannot be cured to the reasonable satisfaction of the Holder.
5. ADJUSTMENTS
(A) ADJUSTMENT TO WARRANT PRICE TO REFLECT CERTAIN FUTURE ISSUANCES OF
------------------------------------------------------------------
COMMON STOCK. If the Company shall after the Warrant Effective Date issue any
- ------------
shares of Common, and if the Warrant Price in effect immediately prior to the
close of business on the date of such sale or issuance subsequent to the Warrant
Effective Date (the "Adjustment Date") exceeds the amount determined at the
close of business on the Adjustment Date by dividing (x) a sum equal to the
aggregate of the amount of all consideration received by the Company upon all
issues of shares of Common Stock on or after the Warrant Effective Date, by (y)
the total number of all such issued and outstanding shares of Common Stock on or
after the Warrant Effective Date, then the Warrant Price shall be reduced
effective at the close of business on the Adjustment Date by an amount equal to
the sum by which the then effective Warrant Price exceeds the Adjustment Amount,
with any fractions of one cent (one cent) being rounded down. For purposes of
this subsection 5(a), the following provisions shall be applicable:
---------------
(i) Any shares of Common Stock directly or indirectly pursuant to
(i) options or warrants granted before the Warrant Effective Date, (ii)
options or warrants or shares of Common Stock granted pursuant to rights to
receive such securities granted before the Warrant Effective Date, or (iii)
options, warrants or grants awarded after the Warrant Effective Date but
pursuant to a stock plan approved before the Warrant Effective Date, shall
be disregarded;
(ii) If the Company shall issue or sell for cash shares of Common
Stock, or any shares or obligations convertible into or exchangeable for
shares of Common Stock, the consideration received by the Company shall be
deemed to be the amount of cash received, before deducting therefrom any
commissions or expenses paid by the Company for any underwriting of, or
otherwise in connection with, the issue or sale;
(iii) If the Company shall issue or sell shares of Common Stock
to an underwriter without payment of any commission, the consideration
received by the Company shall be deemed to be the full amount at which
those securities are initially offered by the underwriter to the public;
(iv) If the Company shall issue (otherwise than upon conversion
or exchange of obligations or shares of stock of the Company) additional
shares of Common Stock for a consideration wholly or partly other than
cash, the amount of the consideration other than cash received by the
Company for those shares shall be deemed to be (1) the closing sales price
for the Common Stock as of the close of the last trading day for the Common
Stock in the event there is a public trading market for such shares, and
(2) the current fair market value of such issued shares of Common Stock as
determined by the Board of Directors in its reasonable discretion in the
event a public trading market for such shares does not exist.
(v) If the Company shall issue additional shares of Common Stock to
its officers, employees, directors, consultants, or agents for a
consideration per share (whether cash, other than cash, or partly other
than cash) less than the Warrant Price in effect immediately prior
-4-
<PAGE>
to the issuance thereof, and such additional shares of Common Stock are
issued as compensation for services rendered or to be rendered by such
directors, officers, employees, consultants or agents other than pursuant
to a stock plan described in subsection 5(a)(i), the consideration per
------------------
share received by the Company for each such share shall be deemed to (1)
the closing sales price for the Common Stock as of the close of the last
trading day for the Common Stock in the event there is a public trading
market for such shares, and (2) the current fair market value of such
issued shares of Common Stock as determined by the Board of Directors in
its reasonable discretion in the event a public trading market for such
shares does not exist.
(vi) If the Company shall issue in any manner any rights to
subscribe for or to purchase Common Stock or any options for the purchase
of Common Stock (other than the issuance referred to in clause 5(a)(iv)),
---------------
at a consideration per share (as computed below in clause 5(a)(vii)) less
-----------------
than the Warrant Price in effect immediately prior to the date of the
offering of such rights or the granting of such options, as the case may
be, all shares of Common Stock that the holders of those rights or options
shall be entitled to subscribe for or purchase pursuant to those rights or
options shall be deemed to be issued or sold as of the date of the offering
of those rights or the granting of those options, as the case may be, and
the minimum aggregate consideration named in those rights or options for
the shares of Common Stock covered thereby, plus the consideration, if any,
received by the Company for those rights or options, shall be deemed to be
the consideration actually received by the Company (as of the date, as the
case may be, of the offering of those rights or the granting of those
options), for the issuance of those shares;
(vii) If the Company shall issue in any manner any obligations
or any shares of the Company that shall be convertible into or exchangeable
for Common Stock, at a consideration per share (as computed below in clause
------
5(a)(vii)) less than the Warrant Price in effect immediately prior to the
---------
date such obligations or shares are issued, all shares of Common Stock
issuable upon such conversion or exchange of those obligations or shares
shall be deemed to be issued as of the date those obligations or shares are
issued, and the amount of the consideration received by the Company for
those additional shares of Common Stock shall be deemed to be the total of
(x) the amount of consideration received by the Company upon the issuance
of those shares or obligations, as the case may be, plus (y) the minimum
aggregate consideration, if any, other than those obligations or shares,
received by the Company upon such conversion or exchange, except in
adjustment of interest and dividends;
(viii) The amount of the consideration received by the Company
upon the issuance of any rights or options referred to in clause 5(a)(v))
--------------
above, or upon the issuance of any obligations or shares that are
convertible or exchangeable as described in clause 5(a)(vii) above, and the
----------------
amount of the consideration, if any, other than such obligations or shares
so convertible or exchangeable, receivable by the Company upon the
exercise, conversion or exchange thereof shall be determined in the same
manner as provided in clause 5(a)(i) and clause 5(a)(iv) above with respect
-------------- ---------------
to the consideration received by the Company in case of the issuance of
additional shares of Common Stock; provided, however, that if the
obligations or shares of stock so convertible or exchangeable are issued in
payment or satisfaction of any dividend upon any stock of the Company other
than Common Stock, the amount of the consideration received by the Company
upon the original issuance of the obligations or the value of those
obligations or shares, as of the date of the adoption of the resolutions
declaring the dividend, shall be determined by the Board of Directors at or
as of that date. Upon the expiration of any rights or options referred to
in clause 5(a)(v), or the termination of any right of conversion or
--------------
exchange referred to in clause 5(a)(vii), the Warrant Price then in effect
---------
shall be readjusted to the Warrant Price that
-5-
<PAGE>
would have applied had the adjustments made upon the issuance of the
option, right, or convertible or exchangeable securities been made upon the
basis of the delivery of only the number of shares of Common Stock actually
delivered upon the exercise of those rights or options or upon the
conversion or exchange of those securities;
(ix) The number of shares of Common Stock at any time
outstanding shall include any outstanding shares of Common Stock then owned
or held by or for the account of the Company, and the number of shares
issuable in respect of scrip certificates issued in lieu of fractions of
shares of Common Stock;
(x) Each share of Common Stock issued upon exercise of the
Warrants shall be deemed to have been issued for a consideration equal to
the Warrant Price in effect at the time of issuance;
(xi) If the Company shall issue additional shares of Common
Stock as a dividend, the aggregate number of shares of Common Stock issued
in payment of the dividend shall be deemed to have been issued and to be
outstanding on the day next succeeding the record date for the
determination of stockholders entitled to the dividend and shall be deemed
to have been issued without consideration;
(xii) If the Company shall issue additional shares of Common
Stock as a dividend, (i) the aggregate number of shares of Common Stock
issued in payment of the dividend for purposes of prospective calculations
under this section 5(a) shall be deemed to have been issued and to be
------------
outstanding on the day next succeeding the record date for the
determination of stockholders entitled to the dividend and shall be deemed
to have been issued without consideration, and (ii) the Warrant Price shall
be adjusted pursuant to the terms of section 5(b) in lieu of this section
------------ -------
5(a); and
----
(xiii) The term dividend, as used in this subsection 5(a), shall
---------------
mean a dividend or other distribution upon shares of the Company; and, in
the event of a declaration of a dividend by the Company without the fixing
of a record date for the determination of shareholders entitled thereto,
the date fixed by applicable law for the determination of the shareholders
entitled thereto shall be deemed to be the record date.
(B) COMMON STOCK RECAPITALIZATION OR RECLASSIFICATION; COMBINATION OR
--- -----------------------------------------------------------------
REVERSE STOCK SPLIT; FORWARD STOCK SPLIT. If (i) outstanding shares of Common
- ----------------------------------------
Stock are subdivided into a greater number of shares by reason of
recapitalization or reclassification, or (ii) a dividend in Common Stock shall
be paid or distributed in respect of the Common Stock, then the number of
Warrant Shares which a Holder is entitled to purchase under this Warrant shall,
simultaneously with the effectiveness of such subdivision or immediately after
the record date of such dividend, be proportionately increased, and the Warrant
Price for such Warrant Shares in effect immediately prior to such subdivision or
at the record date of such dividend shall, simultaneously with the effectiveness
of such subdivision or immediately after the record date of such dividend, be
proportionately decreased. If outstanding shares of Common Stock are combined
into a lesser number of shares by reason of combination or reverse stock split,
then the number of Warrant Shares which a Holder is entitled to purchase under
this Warrant shall, simultaneously with the effectiveness of such subdivision or
immediately after the record date of such dividend, be proportionately
decreased, and the Warrant Price for such Warrant Shares in effect immediately
prior to such combination shall, simultaneously with the effectiveness of such
combination, be proportionately increased.
-6-
<PAGE>
(C) CONSOLIDATION OR MERGER; EXCHANGE OF SECURITIES; DIVISIVE
---------------------------------------------------------
REORGANIZATION; OTHER REORGANIZATION OR RECLASSIFICATION. In case of (i) the
- --------------------------------------------------------
consolidation, merger, combination or exchange of shares of capital stock with
another entity, or (ii) the divisive reorganization of the Company (i.e., split-
up, spin-off or split-off), or (iii) any capital reorganization or any
reclassification of Common Stock (other than a recapitalization or
reclassification described above in subsection 5(b)), the Holder shall
---------------
thereafter be entitled upon exercise of this Warrant to purchase the kind and
number of shares of capital stock or other securities or property of the Company
(or its successor{s}) receivable upon such event by a holder of the number of
Warrant Shares which this Warrant entitles the Holder to purchase from the
Company immediately prior to such event. In every such case, the Company may
appropriately adjust the number of Warrant Shares which may be issued under this
Warrant, the Warrant Price therefor, and any and all other matters deemed
appropriate by the Company.
(D) ADJUSTMENTS DETERMINED IN SOLE DISCRETION OF COMPANY. All
----------------------------------------------------
adjustments to be made pursuant to the foregoing subsections shall be made in
such manner as the Company shall deem equitable and appropriate, and the
determination of the Company shall be final, binding and conclusive.
(E) NO OTHER RIGHTS TO HOLDER. Except as expressly provided in this
-------------------------
section 5: (i) the Holder shall have no rights by reason of any subdivision or
- ---------
consolidation of shares of capital stock of any class or the payment of any
stock dividend or any other increase or decrease in the number of shares of
stock of any class, and (ii) the dissolution, liquidation, merger, consolidation
or divisive reorganization or sale of assets or stock to another corporation
(including any Approved Corporate Transactions as such term is defined in
section 9), or any issue by the Company of shares of capital stock of any class,
- ---------
or warrants or options or rights to purchase securities (including securities
convertible into shares of capital stock of any class), shall not affect, and no
adjustment by reason thereof shall be made with respect to, the number of, or
the Warrant Price for, the Warrant Shares. The sale of this Warrant shall not
in any way affect or impede the right or power of the Company to make
adjustments, reclassifications, reorganizations or changes of its capital or
business structure or to merge, consolidate, dissolve or liquidate, or to sell
or transfer all or any part of its business or assets.
6. PAYMENT OF TAXES
All Warrant Shares issued upon the exercise of this Warrant shall be
validly issued, fully paid and nonassessable and the Company shall pay all taxes
and other governmental charges (other than income tax) that may be imposed in
respect of this issue or delivery thereof. The Company shall not be required,
however, to pay any tax or other charge imposed in connection with any Transfer
attributable to the issue of any certificate for shares in any name other than
that of the Holder, and in such case the Company shall not be required to issue
or deliver any stock certificate until such tax or other charge has been paid or
it has been established to the Company's satisfaction that no tax or other
charge is due.
7. LEGEND
The Warrant Shares issuable upon the exercise of this Warrant shall
bear the following legend or a legend of similar import, provided, however, that
that the Company, without any obligation to do so, may permit such legend to be
removed from this Warrant or, in the case of the certificate or other instrument
representing the Warrant Shares, may permit such legend not to be placed upon,
or may permit such legend to be removed from, such certificate, as the case may
be, in the event such legend is no longer necessary to assure compliance with
the Securities Act of 1933, as amended (the "Securities Act"):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED OR
QUALIFIED UNDER THE SECURITIES LAWS OF THE UNITED STATES. THESE SECURITIES
-7-
<PAGE>
MAY NOT BE SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED, OR OFFERED FOR
SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION, UNLESS (i) THESE SECURITIES
ARE REGISTERED UNDER SECTION 5 OF THE SECURITIES ACT OF 1933 ("THE
"SECURITIES ACT") AND ALSO UNDER THE REGISTRATION AND QUALIFICATION
PROVISIONS OF THE SECURITIES LAWS OF ANY STATE OR TERRITORY OF THE UNITED
STATES OR OF ANY FOREIGN JURISDICTION AS MAY BE APPLICABLE (THE "BLUE SKY
LAWS"), OR (ii) THE PROPOSED TRANSACTION IS EXEMPT FROM (OR, PURSUANT TO
REGULATION S PROMULGATED UNDER THE SECURITIES ACT GOVERNING CERTAIN
OFFSHORE TRANSACTIONS TO NON-U.S. PERSONS, NOT SUBJECT TO) THE REGISTRATION
AND PROSPECTUS DELIVERY REQUIREMENTS OF THE SECURITIES ACT AND THE
REGISTRATION AND QUALIFICATION PROVISIONS OF ANY APPLICABLE BLUE SKY LAWS.
THE TRANSFER AGENT (OR THE COMPANY IF THEN ACTING AS ITS TRANSFER AGENT)
WILL REFUSE TO TRANSFER THESE SECURITIES TO ANY PERSON WITHIN THE UNITED
STATES OR ANY OF ITS STATES OR TERRITORIES OR TO ANY U.S. PERSON UNLESS
PRESENTED WITH A WRITTEN OPINION SATISFACTORY TO LEGAL COUNSEL FOR THE
COMPANY (OR A NO-ACTION OR INTERPRETIVE LETTER FROM THE UNITED STATES
SECURITIES AND EXCHANGE COMMISSION AND/OR SECURITIES REGULATORY AGENCIES OF
ANY APPLICABLE STATE OR TERRITORY OF THE UNITED STATES) TO THE EFFECT THAT
SUCH REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS UNDER THE SECURITIES
ACT AND SUCH REGISTRATION OR QUALIFICATION REQUIREMENTS UNDER THE BLUE SKY
LAWS ARE NOT REQUIRED UNDER THE CIRCUMSTANCES OF SUCH SALE, TRANSFER,
ASSIGNMENT OR HYPOTHECATION.
8. TRANSFER CONDITIONS
This Warrant shall be registered in the Holder's name on the books of
the Company in accordance with section 2. No Transfer of this Warrant shall be
---------
valid unless made at the Company Office by the registered Holder hereof or by
his, her or its attorney duly authorized in writing and similarly noted hereon.
No Transfer shall be effective unless it has satisfied the following pre-
conditions:
(a) The Holder provides the Company with the name, address and
taxpayer identification number of the proposed Transferee;
(b) The Holder has surrendered this Warrant to the Company for
reissuance to the proposed Transferee (and the Holder, if applicable);
(c) The Transfer of any portion of this Warrant may only be made (to
the extent possible) in whole share increments;
(d) The Holder has, at his, her or its expense, prior to the Transfer,
either: (i) furnished the Company with such investment representations and
legal opinions of the Holder's counsel in form and substance satisfactory to the
Company to the effect that the Transfer is exempted from (or, pursuant to
Regulation S promulgated under the Securities Act governing certain offshore
transactions to non-U.S. Persons, not subject to) the registration and
prospectus delivery requirements of the Securities Act or the securities laws of
any state or territory of the United States or of any foreign jurisdiction as
may be applicable (the "Blue Sky Laws"), and counsel for the Company shall have
concurred in such opinion and the Company shall have advised the Holder of such
concurrence; or (ii) satisfied the Company that a registration statement on Form
--
S-1, SB-1 or SB-2 under the Securities Act (or any other form appropriate for
the purpose under the Securities Act or any form replacing any such form) shall
be then effective, and that such Transfer shall have been appropriately
registered or qualified in accordance with applicable Blue Sky Laws.
-8-
<PAGE>
(e) The proposed Transferee (i) shall have represented to the Company
that he, she or it has been informed and understands the investment risks
associated with the purchase of this Warrant, and (ii) covenants to hold the
Company harmless with respect to any matter concerning the proposed Transferee's
acquisition of this Warrant including, without limitation, any claims that the
transferring Holder and/or the Company failed to fully disclose or
misrepresented material facts.
Upon satisfaction of the foregoing conditions, the Company shall
register this Warrant under the name of the proposed assignee or transferee.
The term "Transfer" means any transfer or alienation of this Warrant
which would directly or indirectly change the legal or beneficial ownership
thereof, whether voluntary or by operation of law, regardless of payment or
provision of consideration, including, by way of example and not limitation: (i)
the sale, assignment, bequest or gift of this Warrant; (ii) any transaction that
creates or grants an option, warrant, or right to obtain an interest in this
Warrant; (iii) any transaction that creates a form of joint ownership in this
Warrant between the Holder and one or more other Persons; (iv) any Transfer of
this Warrant to a creditor of the Holder, including the hypothecation,
encumbrance or pledge of this Warrant or any interest therein, or the attachment
or imposition of a lien by a creditor of the Holder on this Warrant or any
interest therein which is not released within thirty (30) days after the
imposition thereof; (v) any distribution of this Warrant by a Holder which is an
entity to its stockholders, partners, co-venturers or members, as the case may
be; or (vi) any distribution of this Warrant by a Holder which is a fiduciary
such as a trustee or custodian to its settlors or beneficiaries.
9. APPROVED CORPORATE TRANSACTIONS
In the event of the occurrence of any Approved Corporate Transaction
(as defined in subsection 9(d) below), or in the event of any change in
applicable laws, regulations or generally accepted accounting principles, the
Company in its discretion is hereby authorized to take any one or more of the
following actions whenever the Company determines that such action is
appropriate in order to facilitate such Approved Corporate Transactions or to
give effect to changes in laws, regulations or principles:
(A) PURCHASE OR REPLACEMENT OF WARRANT. In its sole and absolute
----------------------------------
discretion, and on such terms and conditions as it deems appropriate, the
Company may by action taken prior to the occurrence of such transaction or event
and either automatically or upon the Holder's request: (i) purchase this
Warrant for an amount of cash equal to the amount that could have been attained
upon the exercise of this Warrant, or upon realization of the Holder's rights
had this Warrant been currently exercisable or payable or fully vested; and/or
(ii) replace this Warrant with other rights or property (which may or may not be
securities) selected by the Company in its sole discretion; provided, however,
the Holder must be given the opportunity, for a specified period of time prior
to the consummation of such transaction of not less than thirty (30) days, to
exercise this Warrant as to all Warrant Shares covered thereby.
(B) ACCELERATION OF EXPIRATION DATE. In its sole and absolute
-------------------------------
discretion, and on such terms and conditions as it deems appropriate, the
Company may, by action taken prior to the occurrence of such transaction or
event, provide that this Warrant may not be exercised after the occurrence of
such event; provided, however, the Holder must be given the opportunity, for a
specified period of time prior to the consummation of such transaction of not
less than thirty (30) days, to exercise this Warrant as to all Warrant Shares
covered thereby.
-9-
<PAGE>
(C) ASSUMPTION OR SUBSTITUTION. In its sole and absolute discretion,
--------------------------
and on such terms and conditions as it deems appropriate, the Company may, by
action taken prior to the occurrence of such transaction or event, provide that
this Warrant be assumed by the successor or survivor corporation, or a parent or
subsidiary thereof, or shall be substituted for by similar warrants covering the
capital stock of the successor or survivor corporation, or a parent or
subsidiary thereof, with appropriate adjustments as to the number and kind of
shares and prices.
(D) DEFINITION OF APPROVED CORPORATE TRANSACTION. - The term "Approved
--------------------------------------------
Corporate Transaction" means any time at which any of the following transactions
are approved by the Board of Directors of the Company and, to the extent
required by law, the Articles of Incorporation or Bylaws of the Company, are
approved by the stockholders of the Company:
(i) A merger or consolidation or stock exchange or divisive
reorganization (i.e., spin-off, split-off or split-up) or other
reorganization in which the Company and/or its stockholders are to be a
party; or the sale, transfer, exchange or other disposition by the Company
of all or substantially all of the assets of the Company in a single or
series of related transactions; or the sale, transfer, exchange or other
disposition of fifty percent (50%) or more of the capital stock of the
Company in a single or series of related transactions, with the exception,
in each of the above cases, of: (1) a Non-Control Transaction (as defined
below), and/or (2) a transaction whose principal purpose is to change the
State in which the Company is incorporated, or to form a holding company,
or to effect a similar reorganization as to form of entity without change
of beneficial ownership, whereupon this Warrant will be assumed by the
successor entity; and/or
(ii) The sale, transfer, exchange or other disposition of all or
substantially all of the assets of the Company in complete liquidation or
dissolution of the Company, with the exception of a transaction whose
principal purpose is to change the State in which the Company is
incorporated, or to form a holding company, or to effect a similar
reorganization as to form of entity without change of beneficial ownership,
whereupon this Warrant will be assumed by the successor entity.
The term "Non-Control Transaction" means any transaction in which
the stockholders of the Company immediately before such transaction directly or
indirectly own, immediately following such transaction, at least a majority of
the Total Combined Voting Power (as defined below) of the outstanding Voting
Securities (as defined below) of the surviving corporation (or other entity)
resulting from such transaction, in substantially the same proportion as such
stockholders' ownership of the Company's Voting Securities immediately before
such transaction. The terms "Total Combined Voting Power" and "Voting
Securities" shall, for purposes of this section 9, have the meaning ascribed to
---------
such terms in Sections 13(d) and 14(d) of the Securities and Exchange Act of
1934, as amended, and Rule 13d-3 promulgated thereunder.
10. MUTILATED, DESTROYED, LOST OR STOLEN WARRANTS
(a) MUTILATED WARRANT. This Warrant, if mutilated, may be surrendered
-----------------
to the Company and thereupon the Company shall execute and deliver in exchange
therefor a new Warrant of like tenor and principal amount.
(B) DESTRUCTION, LOSS OR THEFT OF WARRANT. If there be delivered to
-------------------------------------
the Company (i) evidence to the satisfaction of the Company of the destruction,
loss or theft of this Warrant, and (ii) such security or indemnity as may be
required by the Company to save it harmless, then, in the absence of notice
-10-
<PAGE>
to the Company that this Warrant has been assigned or transferred pursuant to
section 8, the Company shall execute and deliver in lieu of this Warrant, a new
- ---------
Warrant of like tenor and principal amount.
(C) TAXES. Upon issuance of any new Warrant under this section 10, the
----- ----------
Company may require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in relation thereto and any other
expenses connected therewith.
(D) LEGAL EFFECT. The provisions of this section 10 are exclusive and
------------ ----------
shall preclude (to the extent lawful) all other rights and remedies with respect
to the replacement and/or exercise of this Warrant if mutilated, destroyed, lost
or stolen.
11. NO IMPAIRMENT
The Company will not, by amendment to its Articles of Incorporation or
through any other voluntary action, avoid or seek to avoid the observance or
performance of any of the terms of this Warrant, but will at all times, in good
faith, assist all such action as may be necessary or appropriate in order to
protect the rights of the Holder against dilution or other impairment. Without
limiting the generality of the foregoing, the Company will take all such action
as may be necessary or appropriate in order that the Company may validly and
legally issue fully paid and nonassessable stock upon the exercise of this
Warrant.
12. MODIFICATION OF WARRANT TO COMPLY WITH LAWS OR RULES
The Company may, at any time or from time-to-time, without receiving
further consideration from, or paying any consideration to, the Holder, modify
or amend this Warrant to the extent deemed necessary by the Company to comport
with changes in securities, tax or other laws or rules, regulations or
regulatory interpretations thereof applicable to this Warrant or to comply with
the rules or requirements of any stock exchange or of The Nasdaq Stock Market,
Inc.
13. NON-LIABILITY FOR DEBTS
This Warrant shall not be liable for satisfaction of the debts,
contracts, or engagements of the Holder, or the Holder's successors in interest
as permitted under this Warrant, or be subject to involuntary Transfer for the
benefit of a creditor of the Holder by judgment, levy, attachment, garnishment,
or any other legal or equitable proceeding (including bankruptcy), and any
attempted disposition thereof shall be null and void ab initio and of no further
force and effect.
14. MISCELLANEOUS
(A) PREPARATION OF WARRANT. This Warrant was prepared by the Company
----------------------
solely on behalf of the Company. Each party acknowledges that: (i) he, she or
it had the advice of, or sufficient opportunity to obtain the advice of, legal
counsel separate and independent of legal counsel for any other party hereto;
(ii) the terms of the transaction contemplated by this Warrant are fair and
reasonable to such party; and (iii) such party has voluntarily entered into the
transaction contemplated by this Warrant without duress or coercion. Each party
further acknowledges such party was not represented by the legal counsel of any
other party hereto in connection with the transaction contemplated by this
Warrant, nor was such party under any belief or understanding that such legal
counsel was representing his, her or its interests. Each party agrees that no
conflict, omission or ambiguity in this Warrant, or the interpretation thereof,
shall be presumed, implied or otherwise construed against the Company or any
other party to this Warrant on the basis that such party was responsible for
drafting this Warrant.
-11-
<PAGE>
(B) COOPERATION. Each party agrees, without further consideration,
-----------
to cooperate and diligently perform any further acts, deeds and things, and to
execute and deliver any documents that may be reasonably necessary or otherwise
reasonably required to consummate, evidence, confirm and/or carry out the intent
and provisions of this Warrant, all without undue delay or expense.
(C) INTERPRETATION.
--------------
(i) Survival. All representations and warranties made by any
--------
party in connection with any transaction contemplated by this Warrant shall,
irrespective of any investigation made by or on behalf of any other party
hereto, survive the execution and delivery of this Warrant and the performance
or consummation of any transaction described in this Warrant.
(ii) Entire Agreement/No Collateral Representations. Each party
----------------------------------------------
expressly acknowledges and agrees that this Warrant, together with and subject
to the Subscription Agreement pursuant to which this Warrant was sold to the
Holder: (1) is the final, complete and exclusive statement of the agreement of
the parties with respect to the subject matter hereof; (2) supersedes any prior
or contemporaneous agreements, proposals, commitments, guarantees, assurances,
communications, discussions, promises, representations, understandings, conduct,
acts, courses of dealing, warranties, interpretations or terms of any kind,
whether oral or written (collectively and severally, the "prior agreements"),
and that any such prior agreements are of no force or effect except as expressly
set forth herein; and (3) may not be varied, supplemented or contradicted by
evidence of prior agreements, or by evidence of subsequent oral agreements. No
prior drafts of this Warrant, and no words or phrases from any prior drafts,
shall be admissible into evidence in any action or suit involving this Warrant.
(iii) Amendment; Waiver; Forbearance. Except as expressly
------------------------------
provided otherwise herein, neither this Warrant nor any of the terms,
provisions, obligations or rights contained herein may be amended, modified,
supplemented, augmented, rescinded, discharged or terminated (other than by
performance), except by a written instrument or instruments signed by all of the
parties to this Warrant. No waiver of any breach of any term, provision or
agreement contained herein, or of the performance of any act or obligation under
this Warrant, or of any ext ension of time for performance of any such act or
obligation, or of any right granted under this Warrant, shall be effective and
binding unless such waiver shall be in a written instrument or instruments
signed by each party claimed to have given or consented to such waiver and each
party affected by such waiver. Except to the extent that the party or parties
claimed to have given or consented to a waiver may have otherwise agreed in
writing, no such waiver shall be deemed a waiver or relinquishment of any other
term, provision, agreement, act, obligation or right granted under this Warrant,
or any preceding or subsequent breach thereof. No forbearance by a party to seek
a remedy for any noncompliance or breach by another party hereto shall be deemed
to be a waiver by such forbearing party of its rights and remedies with respect
to such noncompliance or breach, unless such waiver shall be in a written
instrument or instruments signed by the forbearing party.
(iv) Remedies Cumulative. The remedies of each party under this
-------------------
Warrant are cumulative and shall not exclude any other remedies to which such
party may be lawfully entitled, at law or in equity.
(v) Severability. If any term or provision of this Warrant or the
------------
application thereof to any person or circumstance shall, to any extent, be
determined to be invalid, illegal or unenforceable under present or future laws,
then, and in that event: (1) the performance of the offending term or provision
(but only to the extent its application is invalid, illegal or unenforceable)
shall be excused as if it had never been incorporated into this Warrant, and, in
lieu of such excused provision, there shall be added a provision as similar
-12-
<PAGE>
in terms and amount to such excused provision as may be possible and be legal,
valid and enforceable; and (2) the remaining part of this Warrant (including the
application of the offending term or provision to persons or circumstances other
than those as to which it is held invalid, illegal or unenforceable) shall not
be affected thereby, and shall continue in full force and effect to the fullest
extent provided by law.
(vi) Parties in Interest. Notwithstanding anything else to the
-------------------
contrary herein, nothing in this Warrant shall confer any rights or remedies
under or by reason of this Warrant on any persons other than the parties hereto
and their respective successors and assigns, if any, as may be permitted under
this Warrant, nor shall anything in this Warrant relieve or discharge the
obligation or liability of any third person to any party to this Warrant, nor
shall any provision give any third person any right of subrogation or action
over or against any party to this Warrant.
(vii) No Reliance Upon Prior Representation. Each party
-------------------------------------
acknowledges that: (i) no other party has made any oral representation or
promise which would induce them prior to executing this Warrant to change their
position to their detriment, to partially perform, or to part with value in
reliance upon such representation or promise; and (ii) such party has not so
changed its position, performed or parted with value prior to the time of the
execution of this Warrant, or such party has taken such action at its own risk.
(viii) Headings; References; Incorporation; "Person; Gender;
-----------------------------------------------------
Statutory References; Currency. The headings used in this Warrant are for
- ------------------------------
convenience and reference purposes only, and shall not be used in construing or
interpreting the scope or intent of this Warrant or any provision hereof.
References to this Warrant shall include all amendments or renewals thereof.
All cross-references in this Warrant, unless specifically directed to another
agreement or document, shall be construed only to refer to provisions within
this Warrant, and shall not be construed to be referenced to the overall
transaction or to any other agreement or document. Any Exhibit referenced in
this Warrant shall be construed to be incorporated in this Warrant by such
reference. As used in this Warrant, the term "person" is defined in its
broadest sense as any individual, entity or fiduciary who has legal standing to
enter into this Warrant such as, by way of example and not limitation,
individual or natural persons and trusts. As used in this Warrant, each gender
shall be deemed to include the other gender, including neutral genders
appropriate for entities, if applicable, and the singular shall be deemed to
include the plural, and vice versa, as the context requires. Any reference to
statutes or laws will include all amendments, modifications, or replacements of
the specific sections and provisions concerned. All references to dollars or
currency shall be in the currency of the United States, unless specifically
references to a currency of another country.
(D) ENFORCEMENT.
-----------
(i) Applicable Law. This Warrant and the rights and remedies of
--------------
each party arising out of or relating to this Warrant (including, without
limitation, equitable remedies) shall (with the exception of the Securities Act
and the Blue Sky Laws) be solely governed by, interpreted under, and construed
and enforced in accordance with the laws (without regard to the conflicts of law
principles) of the State of Nevada, as if this Warrant were made, and as if its
obligations are to be performed, wholly within the State of Nevada.
(ii) Waiver of Right to Jury Trial. Each party hereby waives such
-----------------------------
party's respective right to a jury trial of any claim or cause of action based
upon or arising out of this Warrant. Each party acknowledges that this waiver is
a material inducement to each other party hereto to enter into the transaction
contemplated hereby; that each other party has already relied upon this waiver
in entering into this Warrant; and that each other party will continue to rely
on this waiver in their future dealings. Each party
-13-
<PAGE>
warrants and represents that such party has reviewed this waiver with such
party's legal counsel, and that such party has knowingly and voluntarily waived
its jury trial rights following consultation with such legal counsel.
(E) SUCCESSORS AND ASSIGNS. Subject to section 8 governing
---------------------- ---------
Transfers, all of the representations, warranties, covenants, conditions and
provisions of this Warrant shall be binding upon and shall inure to the benefit
of each party and such party's respective successors and permitted assigns,
spouses, heirs, executors, administrators, and personal and legal
representatives.
(F) NOTICES. Unless otherwise specifically provided in this Warrant,
-------
all notices, demands, requests, consents, approvals or other communications
(collectively and severally called "notices") required or permitted to be given
hereunder, or which are given with respect to this Warrant, shall be in writing,
and shall be given by: (i) personal delivery (which form of notice shall be
deemed to have been given upon delivery), (ii) by telegraph or by private
airborne/overnight delivery service (which forms of notice shall be deemed to
have been given upon confirmed delivery by the delivery agency), (iii) by
electronic or facsimile or telephonic transmission, provided the receiving party
has a compatible device or confirms receipt thereof (which forms of notice shall
be deemed delivered upon confirmed transmission or confirmation of receipt), or
(iv) by mailing in the United States mail by registered or certified mail,
return receipt requested, postage prepaid (which forms of notice shall be deemed
to have been given upon the fifth {5th} business day following the date mailed).
Notices to the Holder shall be addressed to the address designated on the first
page of this Warrant, and notices to the Company shall be addressed to the
address in the annexed Notice of Exercise to this Warrant, or to such other
address as the receiving party shall have specified most recently by like
notice, with a copy to the other parties hereto. Any notice given to the estate
of a party shall be sufficient if addressed to the party as provided in this
section. Any party may, at any time by giving five (5) days' prior written
notice to the other parties, designate any other address in substitution of the
foregoing address to which such notice will be given.
WHEREFORE, the Company has executed this Warrant as of the Warrant Effective
Date first set forth above and subject to and contingent upon the acceptance of
this Warrant by the Holder as set forth below.
COMPANY:
Pinnacle Oil International, Inc.,
a Nevada corporation
By: /s/ R. Dirk Stinson
----------------------------
R. Dirk Stinson, President
-14-
<PAGE>
ACCEPTANCE
----------
By indicating his, her or its acceptance of this Warrant below, the Holder
hereby accepts the terms and conditions of this Warrant.
SFD INVESTMENT, LLC,
AN ARKANSAS LIMITED LIABILITY COMPANY
By: /s/ K. Rick Turner
------------------
Name:
------------------
Title:
------------------
-15-
<PAGE>
Attachment
to
Warrant
NOTICE OF EXERCISE OF WARRANT
-----------------------------
[To be signed by the Holder only upon exercise of Warrant]
TO: Secretary
Pinnacle Oil International, Inc.
840 7th Avenue S.W., Suite 750
Calgary, Alberta, Canada T2P 3G2
The undersigned, the holder of Warrants under that certain Warrant
Agreement and Certificate (the "Warrant") with an Effective Warrant Date of
April 3, 1998 between Pinnacle Oil International, Inc., a Nevada corporation
(the "Company") and the undersigned (the "Holder"), hereby irrevocably elects to
exercise the undersigned's Warrant to purchase ______________________________
____________________________________ (______________)/(1)/ unregistered shares
of the common stock, par value $0.001 ("Common Stock") of the Company
(collectively and severally, the "Warrant Shares") for the aggregate purchase
price of ______________________________________________ ($______________)/(2)/.
(1) Insert number of Warrant Shares as specified in the Warrant which
the Holder is purchasing.
(2) Number of Warrant Shares to be purchased as specified above
multiplied by the Warrant Price as set forth on the first page of
the Warrant (U.S. $7.50), as adjusted pursuant to section 5 of the
Warrant.
(Signature must conform in all respects to name of the Holder, unless the
undersigned is the Holder's successor, in which case the undersigned must
submit appropriate proof of the right of the undersigned to exercise this
Warrant)
Signature:
--------------------------------
Print Name:
--------------------------------
Address:
--------------------------------
Date:
--------------------------------
-1-
<PAGE>
EXHIBIT 9.1
STOCKHOLDER AGREEMENT
This Stockholder Agreement is entered into as of April 3, 1998 by and among
Pinnacle Oil International, Inc., a Nevada corporation (the "Company") and R.
Dirk Stinson, a resident of Calgary, Alberta, Canada, and George Liszicasz, a
resident of Calgary, Alberta, Canada (the latter two parties referred to
individually as a "Controlling Stockholder" or collectively as the "Controlling
Stockholders"), and SFD Investment LLC, an Arkansas limited liability company
(the "Investor") (the latter three parties referred to individually as a
"Stockholder" or collectively as the "Stockholders").
Whereas, the Controlling Stockholders have agreed to certain voluntary
limitations upon their respective rights and obligations to transfer their
shares of capital stock of the Company; and
Whereas, the Investor has subscribed to its shares of capital stock of the
Company in reliance upon the agreements set forth herein.
Now, therefore, in consideration of the premises and the mutual promises
herein made, and in consideration of the representations, warranties, and
covenants herein contained, the parties agree as follows.
1. Definitions. A glossary of the definitions of the capitalized terms
-----------
used in this Agreement is set forth in Appendix A which is attached hereto and
incorporated herein.
2. Transfer and Assignment of Interests. Each Controlling Stockholder
------------------------------------
agrees that he shall not be entitled to Transfer all or any portion of the
Shares owned by him such Stockholder except as expressly provided in this
Agreement.
3. Tag-Along Right. If either Controlling Stockholder (a "Selling
---------------
Stockholder") makes, or desires to accept, a bona fide offer (an "Offer") to
Transfer any of the Shares owned by him (the "Offered Shares"), the Selling
Stockholder shall provide the Investor with notice of such Offer within ten days
(the "Offer Notice"). The Offer Notice shall contain (a) the purchase price for
the Offered Shares; (b) all other material terms of the Offer; and (c) the name
of the offeror. The Investor shall have the right (but not the obligation) to
require the Selling Stockholder's proposed purchaser to purchase all of the
Investor' Shares on the same terms as set forth in the Offer. The election by
the Investor to participate in such sale shall be exercisable by giving notice
of the same to the Selling Stockholder and the Company within thirty days after
receipt of the Offer Notice. In the event that a prospective buyer refuses to
purchase the aggregate Shares held by the Investor and the Selling Stockholder,
the Investor shall have the right to sell a portion of its Shares pro rata to
the prospective buyer, and the Selling Stockholder shall be required to reduce
the number of its Shares to be sold. This right is personal to the Investor,
and is not assignable except to an affiliate of the Investor.
4. Determination of Shares. For purposes of this Agreement, the Shares
-----------------------
owned by the Investor shall be determined as follows: (i) any shares of
preferred stock shall be treated as the number of shares of common stock into
which such shares are convertible, and (ii) any warrants that the Investor owns
entitling it to acquire shares of common stock of the Company shall be treated
as such underlying shares of common stock. With respect to (ii) of the
preceding sentence, the Investor shall be entitled to exercise any then existing
warrant in accordance with its terms prior to or simultaneously with giving the
notice required under section 3 above.
5. Permitted Transfers. The Shares of any Controlling Stockholder may be
-------------------
Transferred free of the restriction of this Agreement with respect to the
following Transfers: (i) to any spouse, parent, sibling, in-law, child or
grandchild of the Controlling Stockholder, to a trust for the benefit of the
Controlling Stockholder or such spouse,
-1-
<PAGE>
parent, sibling, in-law, child, or grandchild of the Controlling Stockholder,
(ii) to any affiliate of the Controlling Stockholders (including between the
Controlling Stockholders), (iii) in any transaction on the public market, (iv)
in any private transaction or series of private transactions, including
transactions pursuant to which the Controlling Stockholders to hypothecate,
encumber or secure any loan, and in connection with the foreclosure or
settlement of such loan transactions, pursuant to which Controlling Stockholders
Transfer less than twenty five percent (25%) of their aggregate Shares as of the
date of this Agreement.
6. Reasonable Restraint. Each Controlling Stockholder acknowledges and
--------------------
agrees that to the extent that their respective covenants hereunder could be
interpreted as a restraint upon alienation or transfer of their Shares, that
such restraint is reasonable and was specifically bargained for by the Investor
in making its decision to invest in the Company. The Company acknowledges the
covenants herein and agrees that it shall not recognize any transfer of any
interest in the Shares of either Controlling Stockholder that is not in strict
compliance with the terms of conditions of this Agreement.
7. Legend. Each Stockholder acknowledges that any certificate
------
representing Shares shall bear a legend as follows:
The shares of stock represented by this certificate are subject to certain
restrictions upon transfer pursuant to a Stockholder's Agreement dated
April 3, 1998, and any holder hereof holds such shares subject to the
rights of the issuing corporation and other stockholders thereof. A copy of
the agreement is on file with the secretary of the corporation.
8. Representations and Warranties by Stockholders. Each Stockholder for
----------------------------------------------
itself and not for any other party, hereby represents and warrants to the
Company the following:
(a) Each Stockholder has the full legal right, power, and authority to
execute and deliver this Agreement and to consummate the transactions
contemplated herein.
(b) The execution, delivery, and performance of this Agreement and
transactions contemplated hereby will not, with or without the giving of notice
or the passage of time, conflict with, result in a default or loss of rights
under, or result in the creation of any lien, charge, or encumbrance pursuant to
(i) any mortgage, deed of trust, license, agreement, indenture, order, judgment,
or decree to which such Stockholder is a party or by which, to the best of such
Stockholder's knowledge, such Stockholder or the Shares owned by such
Stockholder may be bound, or (ii) to the best of such Stockholder's knowledge,
any law, rule, or regulation applicable to such Stockholder.
(c) This Agreement constitutes the legal, valid, and binding obligation
of such Stockholder enforceable in accordance with its terms except as limited
by laws affecting the enforcement of creditors' rights generally and general
principles of equity.
9. Representations and Warranties of Company.
-----------------------------------------
(a) The Company has the full legal right, power, and authority to
execute and deliver this Agreement and to consummate the transactions
contemplated herein.
(b) The execution, delivery, and performance of this Agreement and
transactions contemplated hereby will not, with or without the giving of notice
or the passage of time, conflict with, result in a default or loss of rights
under, or result in the creation of any lien, charge, or encumbrance pursuant to
(i) any mortgage, deed of trust, license, agreement, indenture, order, judgment,
or decree to which the Company is a party or by which, to the best of the
Company's knowledge, the Company or the Shares may be bound, or (ii) to the
best of the Company's knowledge any
-2-
<PAGE>
law, rule, or regulation applicable to the Company.
(c) This Agreement constitutes the legal, valid, and binding obligation
of the Company enforceable in accordance with its terms except as limited by
laws affecting the enforcement of creditors' rights generally and general
principles of equity.
10. Miscellaneous.
-------------
(a) No Third-Party Beneficiaries. This Agreement shall not confer any
----------------------------
rights or remedies upon any person other than the parties and their respective
successors and permitted assigns.
(b) Entire Agreement. This Agreement (including the documents referred
----------------
to herein) constitutes the entire agreement among the parties and supersedes any
prior understandings, agreements, or representations by or among the parties,
written or oral, to the extent they related in any way to the subject matter
hereof.
(c) Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
(d) Headings. The section headings contained in this agreement are
--------
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
(e) Notices. All notices, requests, demands, claims, and other
-------
communications hereunder will be in writing. Any notice, request, demand,
claim, or communication hereunder shall be deemed duly given if (and then two
business days after) it is sent by registered or certified mail, return receipt
requested, postage prepaid, and addressed to the intended recipient as set forth
below:
If to the Company: Pinnacle Oil International, Inc.
----------------- Attn.: R. Dirk Stinson
840 7th Avenue, S.W., Suite 750
Calgary, Alberta, Canada
T2P 3G2
Copy to: Andrew Pollet
------- Pollet & Woodbury
10900 Wilshire Boulevard, Suite 500
Los Angeles, CA 90024-6525
If to any Controlling Stockholder: Pinnacle Oil International, Inc.
--------------------------------- Attn.: R. Dirk Stinson
840 7th Avenue, S.W., Suite 750
Calgary, Alberta, Canada
T2P 3G2
If to the Investor: SFD Investment LLC
------------------ 111 Center Street
Suite 2500
Little Rock, AR 72201
Copy to: Jackson Farrow Jr.
-------
-3-
<PAGE>
111 Center Street
Suite 2500
Little Rock, AR 72201
Any party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail), but no such notice,
request, demand, claim, or other communication shall be deemed to have been duly
given unless and until it actually is received by the intended recipient. Any
party may change the address to which notices, requests, demands, claims, and
other communications hereunder are to be delivered by giving the other parties
notice in the manner herein set forth.
(f) Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the domestic laws of the State of Nevada without giving effect
to any choice or conflict of law provision or rule (whether of the State of
Nevada or any other jurisdiction) that would cause the application of the laws
of any jurisdiction other than the State of Nevada.
(g) Amendments and Waivers. No amendment of any provision of this
----------------------
Agreement shall be valid unless the same shall be in writing and signed by the
Company and the Stockholder against whom such amendment is sought to be
enforced. No waiver by any party or any default, misrepresentation, or breach
of warranty or covenant hereunder, whether intentional or not, shall be deemed
to extend to any prior of subsequent default, misrepresentation, or breach of
warranty or covenant hereunder or affect in any way any rights arising by virtue
of any prior or subsequent such occurrence.
(h) Severability. Any term or provision of this Agreement that is
------------
invalid or unenforceable in any situation in any jurisdiction shall not affect
the validity or enforceability of the remaining terms and provisions hereof or
the validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction.
(i) Construction. The parties have participated jointly in the
------------
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the parties and no presumption or burden of proof shall
arise favoring or disfavoring any party by virtue of the authorship of any of
the prevision of the Agreement. Any reference to any federal, state, local, or
foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context requires otherwise. The
word "including" shall mean including without limitation. The parties intend
that each representation, warranty, and covenant contained herein shall have
independent significance. If any party has breached any representation,
warranty, or covenant relating to the same subject matter (regardless of the
relative levels of specificity) which the party has not breached shall not
detract from or mitigate the fact that the party is in breach of the first
representation, warranty, or covenant.
(j) Incorporation of Exhibits and Schedules. The Exhibits identified in
---------------------------------------
this Agreement are incorporated herein by reference and made a part hereof.
(k) Specific Performance. Each of the parties acknowledges and agrees
--------------------
that the other parties would be damaged irreparably in the event any of the
provisions of this Agreement are not performed in accordance with their specific
terms or otherwise are breached. Accordingly, each of the parties agrees that
the other parties shall be entitled to an injunction or injunctions to prevent
breaches of the provisions of this Agreement and to enforce specifically this
Agreement and the terms and provisions hereof in any action instituted in any
court of the United States or any state thereof having jurisdiction over the
parties and the matter, in addition to any remedy to which they may be entitled,
at law or in equity.
-4-
<PAGE>
*****
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on [as
of] the date first above written.
COMPANY: PINNACLE OIL INTERNATIONAL, INC.,
A Nevada corporation
By: /s/ R. Dirk Stinson
----------------------------------
Title:
-------------------------------
CONTROLLING STOCKHOLDERS:
/s/ R. Dirk Stinson
-------------------------------------
R. DIRK STINSON
_____________________________________
GEORGE LISZICASZ
INVESTOR : SFD INVESTMENT LLC,
an Arkansas limited liability company
By: /s/ K. Rick Turner
----------------------------------
Title:
-------------------------------
-5-
<PAGE>
APPENDIX A
"Capital Stock" shall have mean any shares of capital stock issued by the
Company.
"Offer" shall have the meaning set forth in Section 3.
"Offer Notice" shall have the meaning set forth in Section 3.
"Offered Shares" shall have the meaning set forth in Section 3.
"Selling Stockholder" shall have the meaning set forth in Section 3.
"Shares" shall mean any issued and outstanding shares of Capital Stock.
"Stockholder" and "Stockholders" shall have the meaning set forth in the
preface.
"Stockholder Consent" shall mean the consent to the Transfer by a
Stockholder of any shares of Capital Stock other than is strict conformance with
the terms of this Agreement, such consent to be effected by the holders of a
majority of each class of Capital Stock, excluding any Shares held by the
Stockholder seeking the consent.
"Transfer" shall mean the transfer, assignment, conveyance, sale,
encumbrance, or alienation in any way of shares of Capital Stock of the Company,
whether or not for value and whether or not made to another party to this
Agreement.
-6-
<PAGE>
EXHIBIT 10.1
Partnership Agreement
THIS PARTNERSHIP AGREEMENT is made as of September 1, 1995
BETWEEN:
GEORGE LISZICASZ
3390 St. George Street
Vancouver, B.C.
V5V 5A6
("Liszicasz")
OF THE FIRST PART
AND:
R. DIRK STINSON of
1956 Bow Drive
Coquitlam B.C.
V3E 1T2
("Stinson")
OF THE SECOND PART
In this Agreement Liszicasz and Stinson are together referred to as the
"Partners".
NOW THIS AGREEMENT WITNESSES that in consideration of the premises the parties
covenant and agree as follows:
1. The Partners hereby form a Partnership, effective on September 1, 1995, for
the purposes set out in paragraph 4.
2. Each of the Partners has an equal interest in the Partnership, and an equal
vote on all matters in connection with the Partnership.
3. The respective contributions of the Partners to the Partnership are as
follows:
. Liszicasz has agreed to contribute a device owned by him and known as
a stress field detector, which Liszicasz has enhanced and refined
during the three years preceding the formation of this Partnership,
together with Liszicasz's know-how in locating hydrocarbons, water and
other mineralization deposits using this enhanced stress field
detector. In addition the device, with Liszicasz's know-how, has the
ability to forecast earthquakes and volcanic eruptions; (the device,
<PAGE>
-2-
enhancements, and Liszicasz's know-how are together referred to
hereafter as the "SFD Technology"). Until such time as the corporate
structures described in the following paragraph have been established,
Liszicasz will retain legal title to the SFD Technology, but he hereby
acknowledges that any agreements with respect to the SFD Technology
will be made on behalf of the Partnership, and Liszicasz will be a
trustee for the Partnership of all benefits under such agreements.
. Stinson has agreed to contribute his experience and expertise in
bringing products such as the SFD Technology to market.
4. The purpose of the Partnership is to develop the potential of the SFD
Technology by means of the establishment of the following structures:
. A US corporate entity, the shares of which will in due course be
capable of being publicly traded, to which the hydrocarbon deposit
data produced by the SFD Technology will be made available on an
exclusive and confidential basis. The Partners intend to take such
entity public by listing it on a stock exchange, or over-the-counter
on Nasdaq, or NASD Electronic Bulletin Board, or Pink Sheets, or by
merger or reorganization with another such publicly held company.
. An offshore corporate entity, the purpose of which is to further
develop the SFD Technology, and to produce data for the resource
industry, initially in the field of hydrocarbons, but after further
development, in other resource fields as well. The Partners have
chosen an offshore corporate entity, specifically in the jurisdiction
of the Bahamas, for its central location, its secrecy laws, and its
resistance to frivolous litigation, in order to maximize the
protection of confidentiality. In due course the Partners intend to
transfer the SFD Technology to such corporate entity, together with
any agreements with respect to the SFD Technology which Liszicasz, on
behalf of the Partnership, will have entered into before such
transfer.
5. In consideration for transferring the SFD Technology to the Bahamas
corporate entity referred to in the previous paragraph, and causing that
corporation to make available its hydrocarbon deposit data to the US
corporate entity referred to in the previous paragraph, it is intended that
the Partners will receive shares in the US corporate entity in the
following proportions as between them:
Initially Liszicasz will receive twice as many shares as Stinson. However,
upon the US corporate entity becoming a publicly traded company and
completing an initial financing of a minimum of US $750,000, the Partners
will adjust their proportions as follows:
<PAGE>
-3-
Liszicasz 60%
Stinson 40%
6. The Partners will commit their full time to the development and carrying
out of the Partnership's purpose set out in paragraph 4.
7. Either Partner may call a meeting of the Partners by giving written notice
of such a meeting and the general purpose for calling it. Partner meetings
will be held at the offices of the Partnership unless otherwise agreed.
8. This Agreement is not assignable, but will enure to the benefit and be
binding upon the Partners and their respective heirs, executors,
administrators, and personal representatives.
9. This Agreement will be governed by, and construed in accordance with the
law of the Province of British Columbia, Canada. Any dispute must be dealt
with in the Courts of British Columbia and both of the Partners will, for
such purpose, attorn to the jurisdiction of those Courts.
IN WITNESS WHEREOF the parties have duly executed this Agreement as of the date
appearing on the top of the first page.
Executed by George Liszicasz )
in the presence of: )
)
) /s/ George Liszicasz
- ------------------------------ ) ---------------------------
Witness ) George Liszicasz
Executed by R. Dirk Stinson )
in the presence of: )
)
) /s/ R. Dirk Stinson
- ------------------------------ ) ---------------------------
Witness ) R. Dirk Stinson
<PAGE>
EXHIBIT 10.2
THIS AGREEMENT made as of 1 January 1996
BETWEEN:
PINNACLE OIL INC.
-----------------
a corporation incorporated under
the laws of the State of Nevada
1820 - 1095 West Pender Street
Vancouver, B.C.
V6E 2M6
("Company")
OF THE FIRST PART
AND:
GEORGE LISZICASZ
----------------
3390 St. George Street
Vancouver, B. C.
V5V 5A6
("Liszicasz")
OF THE SECOND PART
WHEREAS:
A. Liszicasz has a device, referred to herein as the "SFD Device". Among
other things, the SFD Device can locate underground geological formations which
indicate the presence of Hydrocarbons.
B. Liszicasz has been instrumental in establishing the Company with the
intention that the Company will be a vehicle through which the SFD Device's
potential to locate promising drilling sites may be exploited.
NOW THIS AGREEMENT WITNESSES that in consideration of the premises the parties
covenant and agree as follows:
1. IDENTIFYING & EXPLOITING PROSPECTS
1.1 Identifying Prospects
Using the SFD Device, Liszicasz will identify areas respecting which he
determines there is a good likelihood that Hydrocarbons will be found
thereunder. From time to time Liszicasz will give the Company evaluation
reports setting out particulars of such areas ("Prospects").
<PAGE>
-2-
1.2 Dealing with Prospects
(1) Within 180 days of Liszicasz identifying a Prospect to the Company,
the Company will conduct a three-dimensional seismic survey over the
Prospect. Such surveys will be conducted according to Liszicasz's
instructions and, generally, in accordance with normal standards in
the oil and gas industry.
(2) The Company will acquire a leasehold or similar interest respecting
each Prospect unless it is not commercially reasonable to make such an
acquisition. The Company will diligently pursue such acquisitions
until the Company decides it is not commercially reasonable to
complete the acquisition and that the Prospect should be abandoned.
(3) If the Company decides to abandon a Prospect, it will so inform
Liszicasz promptly and deliver up to Liszicasz all SFD Data and
Secondary Data relating to the abandoned Prospect. Liszicasz will be
free thereafter to acquire a leasehold or other interest in the
abandoned Prospect or to sell or otherwise deal with such SFD Data and
Secondary Data. Prospects abandoned by the Company will not be counted
in calculating identified reserves for the purpose of subsection
1.4(1).
(4) At the time the Company acquires a leasehold or other interest in a
Prospect, it will transfer, or cause to be transferred, to Liszicasz
an overriding royalty interest of one percent (1%) in the leasehold or
other interest, will cause such interest to be duly registered in
Liszicasz's name and will provide evidence of such registration to
Liszicasz.
(5) The Company will not sell, assign, transfer or otherwise dispose of
any interest in a Prospect unless:
(a) the purchaser, assignee, transferee or other recipient ("Joint
Venture Co-Owner") gives to Liszicasz a deed acknowledging that
Liszicasz owns an overriding royalty interest of one percent (1%)
in the Prospect, acknowledging that any interest in the Prospect
which the Joint Venture Co-Owner acquires is subject to
Liszicasz's said royalty interest and agreeing to observe
Liszicasz's rights in respect of Liszicasz's said royalty
interest and Liszicasz's rights under this agreement; and
(b) as consideration for such sale, assignment, transfer or other
disposition, the Joint Venture Co-Owner gives the Company
covenants and agreements to the effect that the Prospect will be
exploited and the Company will be entitled to a portion of the
revenue generated by the Prospect.
<PAGE>
-3-
1.3 PERFORMANCE CRITERIA
As of the end of any Year, Liszicasz will have satisfied at least one of
the following two tests:
(1) Over the term elapsed to that time, Liszicasz will have identified
Prospects in respect of which the reserves verified by engineers'
reports will be not less than 10 million barrels of oil or
Hydrocarbons which have a value equivalent to 10 million barrels of
oil in total, per Year of the term then elapsed. For example, this
test will have been met at the end of the third Year if the total
value of reserves verified at that time exceeds the value of 30
million barrels of oil.
(2) Liszicasz will have devoted 90 full days of work under this agreement
per Year of the term then elapsed. For example, this test will have
been met at the end of the third Year if Liszicasz has worked 270 full
days in providing services hereunder.
1.4 COMPANY'S RIGHT TO EXCLUSIVITY
Liszicasz will not, during the term of this agreement, use the SFD Device
for the purpose of locating Hydrocarbons except to provide data generated
by the SFD Device to the Company. That is, the Company will, during the
term of the agreement, have the exclusive right to data about Hydrocarbons
generated by the SFD Device.
1.5 COMPANY'S OBLIGATION AS TO EXCLUSIVITY
Except with the express approval of Liszicasz, the Company will not become
involved in any business except acquiring and exploiting Prospects in
accordance with this agreement.
1.6 COMPANY HAS NO INTEREST IN THE SFD DEVICE
Liszicasz is not transferring any interest in the SFD Device to the
Company. Subject only to his obligations hereunder, Liszicasz will remain
free to deal with his property in the SFD Device and with the data produced
by the SFD Device without interference from the Company. The Company will
at no time claim any interest in the SFD Device. Whenever requested by
Liszicasz, the Company will promptly provide to Liszicasz a certificate in
writing and in such form as Liszicasz, acting reasonably, will require
confirming that the Company makes no claim to any interest in the SFD
Device.
<PAGE>
-4-
1.7 CONFIDENTIALITY
The Company acknowledges that the value of the SFD Device depends upon
secrecy. If others learn how it works, its value will be lost or
significantly diminished. The Company will not disclose to any person any
information about the SFD Device. Whenever the Company uses or releases any
SFD Data or Secondary Data, the Company will observe all reasonable
requests made by Liszicasz for the purpose of frustrating others' attempts
to determine how the SFD Device works.
2. LISZICASZ'S RENUMERATION
2.1 ROYALTY
In consideration for Liszicasz's services hereunder, the Company will
ensure that Liszicasz receives an overriding royalty interest of one
percent (1%) in all Prospects. It is intended that Liszicasz will receive
one percent (1%) of the gross revenue generated by any Prospect.
2.2 ADDITIONAL TO RENUMERATION FOR OTHER SERVICES
It is expected that the Company will engage Liszicasz's services in other
capacities from time to time, whether as an officer, a director, an
employee, an independent contractor or otherwise. The Company will pay
Liszicasz for such other services separately. The royalty to be received by
Liszicasz hereunder will be treated as consideration only for the services
expressly provided for in this agreement.
3. TERM
3.1 INITIAL TERM
Subject to any extension under section 3.2, the term of this agreement will
be five (5) Years commencing 1 January 1996 and ending 31 December 2000.
3.2 EXTENSION
Approximately 90 days before expiry of the term of this agreement
(including the expiry of an extension under this section 3.2), the parties
will negotiate in good faith for the extension of the term of this
agreement. If an agreement to extend the term is reached:
(1) where the extension is for one Year (or, in the case of a second or
subsequent extension, a further one Year) and no other term or
condition of the agreement is altered, such agreement to renew may be
oral or written; but
<PAGE>
(2) where the extension is for any period other than one Year or any
material term or condition of this agreement is varied, the renewal
agreement will be made in writing and signed by both parties.
4. INTERPRETATION/GENERAL
4.1 GOOD FAITH
The Company will exercise the utmost good faith in its dealings with
Liszicasz hereunder. Without limitation:
(1) The Company will faithfully observe its obligation to keep all
information about the SFD Device confidential.
(2) The Company will faithfully report to Liszicasz, fully and accurately,
all information which relates to or which may affect any Prospect or
Liszicasz's royalties arising hereunder.
(3) The Company will not, by any means, attempt to circumvent the parties'
intentions herein. For example, the Company will not give to any
Person any SFD Data or any Secondary Data except with Liszicasz's
written consent.
4.2 LIBERAL INTERPRETATION
This agreement will be construed so as to give effect to the parties'
intention that Liszicasz should receive one percent (1%) of all revenues
which may result, in the widest sense, from the services he provides to the
Company under this agreement.
4.3 DEFINITIONS
In this agreement, where the context permits:
(1) "Hydrocarbons" means all petroleum, natural gas and related
hydrocarbons and includes any other substances of value, whether
gases, fluids or solids and whether hydrocarbons or not, rights to
which are customarily included in oil and gas leases.
(2) "Person" includes an individual, partnership, corporation,
unincorporated association, society, government or any agency or
department thereof, trust, and the successors, assigns, personal
representatives or other legal representatives of such person or other
entity to which, according to the context, the provision in question
should reasonably apply.
<PAGE>
(3) "Secondary Data" means any information acquired by the Company about
the location of Hydrocarbons where the Company uses SFD Data in
acquiring such information including, without limitation, results of
seismic surveys and evaluations, geological/geophysical reports, well
logs, etc.
(4) "SFD Data" means information which Liszicasz gives to the Company
under this Agreement.
(5) "SFD Device" means a device, invented by Liszicasz, known as a `stress
field detector'.
(6) "Year" means a calendar year.
4.4 LAW OF B.C.
This agreement will be governed by and construed in accordance with the
laws of British Columbia. Any dispute hereunder will be resolved in the
Courts of the Province of British Columbia and the parties will, for such
purposes, attorn to the jurisdiction of those Courts.
4.5 LAYOUT OF THIS AGREEMENT
The division of this agreement into separate parts, sections, subsections,
paragraphs, and schedules, and the insertion of headings are for
convenience only and will not affect the interpretation of this agreement.
4.6 SEVERABILITY
If any provision of this agreement or the application to any Person or
circumstances to any extent is held to be invalid or unenforceable, the
remainder of this agreement or the application of such provision or portion
thereof to any other Person or circumstances will not be affected thereby.
Each provision of this agreement will be valid and enforceable to the
fullest extent permitted by law.
4.7 NO IMPLIED WAIVERS
This agreement may be amended or modified from time to time only by written
agreement of the Company and Liszicasz. For greater certainty, because of
the close connection between them, the parties may not always insist on
strict observance of the terms of this agreement. Either party may, at any
time, insist upon the other strictly performing that other party's
obligations hereunder notwithstanding any such pattern of relaxation in
previous dealings between them.
<PAGE>
4.8 Enurement
This Agreement will enure to the benefit of and be binding on the parties
hereto and their respective heirs, executors, administrators, personal
representatives, successors and assigns.
IN WITNESS WHEREOF the parties hereto have duly executed this Agreement as of
the time and date first above written.
The CORPORATE SEAL of )
PINNACLE OIL INC. )
hereunto affixed in the )
presence of: )
)
) c/s
[SIGNATURE ILLEGIBLE] )
- --------------------------- )
authorized signatory )
)
___________________________ )
authorized signatory )
SIGNED, SEALED and DELIVERED )
by GEORGE LISZICASZ )
in the presence of: )
)
/s/ K. Williams )
- --------------------------- )
witness )
KIM WILLIAMS/OFFICE MANAGER ) /s/ George Liszicasz
- --------------------------- ) -----------------------------
print name/occupation ) George Liszicasz
2 - 388 W. 10TH AVE )
- --------------------------- )
address )
VANCOUVER, BC VSY 153 )
- --------------------------- )
address )
<PAGE>
EXHIBIT 10.3
Momentum Transfer Agreement
THIS TRANSFER AGREEMENT is made as of June 18, 1996
BETWEEN:
GEORGE LISZICASZ and R. DIRK STINSON
1956 Bow Drive
Coquitlam, B.C.
V3E 1T2
("Partners")
OF THE FIRST PART
AND:
MOMENTUM RESOURCES CORPORATION
Ansbacher (Bahamas)Limited
P.O. Box N-7768, Bank Lane
Nassau, Bahamas
("Momentum")
OF THE SECOND PART
WHEREAS:
1. The Partners formed a partnership (the "Partnership") effective on
September 1, 1995, evidenced by the Partnership Agreement attached as
Schedule A to this Agreement (the "Partnership Agreement")
2. The Partnership is the beneficial owner of certain technology more
completely described in the Partnership Agreement, and referred to in
this Agreement and the Partnership Agreement as the "SFD Technology".
Pursuant to the Partnership Agreement, one of the Partners, George
Liszicasz ("Liszicasz"), was to remain the legal owner of the SFD
Technology, but for the benefit of the Partnership, until the
technology could be transferred to Momentum under this Agreement;
3. Liszicasz, on behalf of, and for the benefit of the Partners, entered
into an agreement with Pinnacle Oil Inc. on January 1, 1996, a copy of
which is
<PAGE>
-2-
attached as Schedule B, (the "Pinnacle Technology Agreement") pursuant
to which Liszicasz agreed to make available to Pinnacle Oil Inc. the
data it generates using the SFD Technology, enabling Pinnacle Oil Inc.
to exploit hydrocarbon deposit prospects upon having the data
interpreted;
4. In February of 1996, Pinnacle Oil Inc. was reorganized into a public
company, Pinnacle Oil International Inc., ("Pinnacle International")
and under that reorganization;
5. The Partners have now agreed that Liszicasz will, on behalf of the
Partnership, transfer the SFD Technology and the Pinnacle Technology
Agreement to Momentum.
NOW THIS AGREEMENT WITNESSES that in consideration of the premises the parties
covenant and agree as follows:
1. Liszicasz and the Partners hereby transfer to Momentum, and Momentum hereby
accepts from Liszicasz and the Partners, to the legal and beneficial
ownership in the SFD Technology and the Pinnacle Technology Agreement.
2. The Partners will cause Momentum immediately enter into restated technology
agreement with Pinnacle International to commence making available the data
it generates using the SFD Technology, on substantially the same terms as
Liszicasz and the Partners have until now been making such data available
to Pinnacle Oil Inc. under the Pinnacle Technology Agreement.
3. As consideration for the transfer of the SFD Technology and the Pinnacle
Technology Agreement to Momentum, the Partners have received equal shares
in Momentum, plus the following shares in Pinnacle International:
Liszicasz : 5,761,782 shares;
Stinson: 3,067,571 shares.
As provided in the Partnership Agreement, the proportion share interest in
Pinnacle International will, at the appropriate time, be adjusted to 60%
Liszicasz and 40% Stinson by Liszicasz transferring 464,170 shares to
Stinson.
4. The Partners acknowledge that the value of the SFD Technology depends upon
its continuing secrecy. Accordingly, the Partners agree with Momentum that
they will not disclose to any person any information about the SFD
Technology, and they will at all times use their best efforts to ensure
that when any third party, whether Pinnacle, a joint venturer with
Pinnacle, or any other party, enters into any agreement with Momentum
involving the use of data produced by the SFD Technology, such third
<PAGE>
-3-
party will covenant with Momentum to observe all reasonable requests made
by Momentum for the purpose of frustrating any attempts to determine how
the SFD Technology works.
5. This Agreement will be governed by, and in construed in accordance with,
the law of the Bahamas. Any dispute must be dealt with in the Courts of the
Bahamas and the parties will, for such purposes, attorn to the jurisdiction
of those Courts.
6. If at any time Momentum contemplates assigning, transferring, or otherwise
disposing of the SFD Technology it has acquired under this Agreement to any
third party, Momentum must first give the Partners (or one Partner if the
other is either unwilling or unable to participate) a written right of
first refusal to re-acquire the SFD Technology on terms no less favourable
than those offered to or by the third party. The Partner or Partners will
have 60 days in which to exercise this right, and a further 60 days to
close if they do exercise.
7. This Agreement will enure to the benefit of, and be binding on, the parties
to this Agreement and their heirs, executors, administrators, personal
representatives, successors and assigns.
IN WITNESS WHEREOF the parties hereto have duly executed this Agreement as of
the date appearing on the top of the first page.
Executed by the Partners )
in the presence of: )
)
)
- -------------------------------------- ----------------------------
-
Witness ) George Liszicasz
)
)
- -------------------------------------- ----------------------------
-
Witness ) R. Dirk Stinson
Executed by Momentum Resources Corporation )
by its authorized officers: )
)
)
- --------------------------------------
Goerge Liszicasz )
)
)
- --------------------------------------
R. Dirk Stinson )
<PAGE>
American SFD Data Licence Agreement
THIS AGREEMENT made as of April 1, 1997
BETWEEN:
PINNACLE OIL INTERNATIONAL INC.
a Nevada corporation whose principal executive
office is located at 380 - 1090 West Georgia Street
Vancouver, B.C., Canada, V6E 3V7
(the "Grantor")
OF THE FIRST PART
AND:
PINNACLE OIL INC.
a Nevada corporation whose principal executive
office is located at #380 - 1090 West Georgia Street,
Vancouver, B.C. V6E 3V7
(the "Grantee")
OF THE SECOND PART
WHEREAS:
1. The Grantor has the worldwide right to the use of certain data known
as SFD Data (hereinafter defined) as it relates to the identification
and exploitation of Hydrocarbons (as hereinafter defined) pursuant to
an agreement dated as of August 1, 1996, and made between (among
others) Momentum Resources Corporation ("Momentum") as the owner of
the technology which generates the SFD Data, and the Grantor (the
"Restated Technology Agreement"), a copy of which is attached to this
Agreement as a Schedule;
2. Pursuant to the Restated Technology Agreement, Momentum has agreed
with the Grantor that it will use its best efforts to survey, using
the Stress Field Detector (as hereinafter defined), certain geographic
areas throughout the world which will have been preselected by both
Momentum and the Grantor from time to time during the term of the
Restated Technology Agreement, and to provide all raw SFD Data
resulting from such surveys to the Grantor for its exclusive use for
the identification and exploitation of Hydrocarbons in accordance with
the terms of the Restated Technology Agreement;
<PAGE>
2
3. The Restated Technology Agreement further provides that the surveys
are to be conducted by George Liszicasz (the original inventor of the
technology) or, under the general supervision of George Liszicasz, by
such personnel of Momentum as have appropriate levels of training to
enable them to conduct such surveys. Under the Restated Technology
Agreement, Momentum has agreed with the Grantor that it will provide
not less than 500 hours per year of trained manpower to generate the
SFD Data with respect to the pre-selected geographic areas to be
surveyed;
4. The Restated Technology Agreement further provides, (as does the
employment agreement dated as of April 1, 1997, and between the
Grantor and Liszicasz (the "Liszicasz Employment Agreement") that
Liszicasz will be available to provide the required manpower until at
least December 31, 2005, unless Liszicasz is unable to render such
services by reason of death or disability (as that term is defined in
the Liszicasz Employment Agreement);
5. The Restated Technology Agreement also provides that Liszicasz shall
initially interpret all raw SFD Data provided to the Grantor by
Momentum to ascertain whether there is a reasonable likelihood that
there are commercially extractable amounts of Hydrocarbons in any
given surveyed area. Further, Liszicasz and the Grantor have agreed
that they will both use their best efforts to train mutually
acceptable personnel of the Grantor to conduct such interpretation
under the general supervision of Liszicasz as soon as is reasonably
practical;
6. The Restated Technology Agreement also provides that the Grantor may
fulfil its obligation to Momentum to use its best efforts to exploit
a commercially viable area by means of a wholly-owned subsidiary, and
that the Grantor may license any or all of its rights to a wholly-
owned subsidiary;
7. The Grantee is a wholly-owned subsidiary of the Grantor, and the
parties wish to enter into this Licence Agreement with respect to
both the generation and the interpretation of raw American SFD Data
(as hereinafter defined), and to the exploitation of Hydrocarbons
identified by such interpretation.
NOW THIS AGREEMENT WITNESSES that in consideration of the premises the parties
covenant and agree as follows:
1. DEFINITIONS
In this Agreement:
(a) The terms "Hydrocarbons", "SFD Data", "SFD Technology" and "Stress
Field Detector" shall have the meanings ascribed to them in paragraph
1 of the Restated Technology Agreement;
<PAGE>
3
(b) "American SFD Data" means all SFD Data relating to the sovereign
territory of the United States of America.
(c) "American Prospect" means an area in the sovereign territory of the
United States of America which has been identified, following
interpretation of American SFD Data, as one in which there is a
reasonable likelihood of commercially extractible amounts of
Hydrocarbons.
(d) "Subsidiaries" means any subsidiary of a party (or subsidiary of a
subsidiary of a party) regardless of form of entity, such as a
corporation, partnership, limited partnership, or limited liability
company, with the exception of joint ventures and third party
arrangements described in this Agreement.
2. GRANT OF LICENCE FOR AMERICAN SFD DATA
2.1 In consideration of the licence fee set out in paragraph 4, the Grantor
hereby grants to the Grantee an exclusive licence, for the periods set out
in paragraph 6, to use and exploit the American SFD Data generated by
Momentum for the Grantor under the Restated Technology Agreement.
2.2 By way of fulfilling its obligation under this Licence Agreement to supply
an amount of American SFD Data sufficient for the Grantee to commercially
exploit the Hydrocarbons identified using such data, the Grantor covenants
with the Grantee that, when pre-selecting Designated Search Areas together
with Momentum under the provisions of paragraph 2 of the Restated
Technology Agreement, the Grantor will at all times during the term of this
Licence Agreement use its best efforts to select sufficient surveys in
American territory to ensure to the Grantee a supply of American SFD Data
sufficient to enable the Grantee to carry on a commercially viable
business, and to fulfil its obligations under all agreements with third
parties respecting the use of American SFD Data.
2.3 The Grantor will also use its best efforts to ensure the availability to
the Grantee of the services of Liszicasz to interpret or cause to be
interpreted, for the benefit of the Grantee, the American SFD Data supplied
under this Licence Agreement. To better secure the availability of
Liszicasz or other trained personnel for such purposes, the Grantee may
itself enter into appropriate employment contracts with Liszicasz and/or
such other trained personnel. In determining the amount of time which
Liszicasz and/or other trained personnel must devote to the interpretation
of the American SFD Data, as a proportion of world-wide SFD Data, the
parties will act reasonably, basing the determination on, among other
things:
(a) the obligations of the Grantee under third party agreements, to the
extent that the Grantor has been made aware of such obligations; and
(b) an estimate of the value of commercially extractable Hydrocarbons
identified in the
<PAGE>
4
United States of America as a proportion of the total value of the
commercially extractible Hydrocarbons identified world-wide.
3. COMMERCIAL EXPLOITATION OF AMERICAN SFD DATA
Within 180 days after the Grantee has interpreted, or obtained the
interpretation of, the American SFD Data, and has identified an American
Prospect, the Grantee will, either directly or indirectly through joint
ventures and/or other third parties, use its best efforts to commercially
and economically exploit the American Prospect. Such exploitation may
occur through one or a combination of the following, as selected by the
Grantee in its reasonable discretion:
(i) the direct acquisition by the Grantee and/or a wholly owned
Subsidiary of the legal rights for the further exploitation,
development and production of Hydrocarbons with respect to the
American Prospect;
(ii) the indirect acquisition of such rights through joint ventures
or other arrangements with third parties; and/or
(iii) the sale by the Grantee and/or its joint venture partners of
such rights.
The Grantee will use its best efforts to commercially exploit the American
Prospect through one or more of the foregoing methods, and will diligently
pursue such efforts unless it is not, in the opinion of either the Grantee
or the Grantor, commercially reasonable to make any such acquisition and/or
pursue such exploration development and/or production and/or enter into any
such agreement with a joint venture partner and/or other third parties.
4. LICENCE FEE
4.1 AMOUNT OF FEE
In consideration of this grant of the licence with respect to the American
SFD Data, the Grantee shall pay to the Grantor a fee (the "Licence Fee")
equal to 50% of the "Gross Revenues" (as such term is defined below)
actually received by the Grantee and/or its Subsidiaries with respect to
the commercial exploitation of the Hydrocarbons identified in each American
Prospect.
<PAGE>
5
4.2 GROSS REVENUES DEFINED
The term "Gross Revenues" generally means the aggregate of all gross
revenues received by the Grantee and/or its Subsidiaries from the
commercial exploitation of Hydrocarbons calculated by way of example and
not limitation as follows:
(i) If the Grantee and/or its Subsidiaries indirectly acquire
the legal rights for the further exploration, development
and production of Hydrocarbons with respect to an American
Prospect through joint ventures and/or other arrangements
with third parties, then the Gross Revenues will mean the
cash flows received by the Grantee and/or its Subsidiaries
from such joint venture and/or third party, whether from
the sale of Hydrocarbons or the sale by the joint venture
and/or third party of its interest in such legal rights.
(ii) If the Grantee and/or its Subsidiaries sell or transfer
the legal rights for (or "leads" relating to) an American
Prospect, then the Gross Revenues from such American
Prospect will be the gross consideration received by the
Grantee and/or its Subsidiaries as a result of such sale
or transfer.
(iii) If the Grantee and/or its Subsidiaries directly acquire
the legal rights for the further exploration, development
and productions of Hydrocarbons with respect to an
American Prospect, and independently extract and sell
Hydrocarbons from such American Prospect, then the Gross
Revenues from such an American Prospect will be the gross
cash flows received by the Grantee and/or its Subsidiaries
from the sale of such Hydrocarbons.
The Grantee and/or its Subsidiaries acknowledge and agree that they
shall not be entitled to deduct any expenses, costs, capital or equity
investment and/or loans against any calculation of Gross Revenues when
determining the Licence Fee owing to the Grantor (such as acquisition,
development, extraction, marketing and/or distribution costs which
would be incurred should the Grantee and/or its Subsidiaries directly
exploit the Prospect without joint venture partners), it being
understood that the Grantor has an interest in Gross Revenues
generated from the Hydrocarbons identified in an American Prospect
without offset or deduction. Notwithstanding the foregoing, the
Grantor understands and agrees that Gross Revenues arising from
distributions from joint ventures and/or third party arrangements
may, based upon the terms and conditions of such arrangements, be made
after the joint venture has deducted costs, expenses and reserves, or
repaid capital provided by the joint venture and/or other third party,
and the Grantor further agrees that it shall have no right to "gross
up" the Gross Revenues to reflect the pre-distribution deduction by
the joint
<PAGE>
6
venture or other third party of such costs, expenses and
reserves and/or repayment of capital.
The parties further acknowledge that the foregoing examples are merely
examples, and do not fully reflect many methods by which the Grantee
may commercially and economically exploit an American Prospect, with
and without the participation of joint venture and/or other third
parties. Accordingly, the parties agree that the Licence Fee shall be
liberally interpreted to apply to each and every transaction by which
the Grantee and/or any of its Subsidiaries exploit the American
Prospect to ensure that the Grantor receives such equitable portion of
the total return received by the Grantee and/or its Subsidiaries as to
enable the Grantor to receive the benefit of its bargain, subject to
avoidance of duplicative payments by the Grantee and its Subsidiaries.
In order to avoid any disputes or misunderstandings, the parties agree
to use their best efforts, while the Grantee is formulating its
proposed method to exploit a Prospect, to outline in writing, prior to
committing to such method, the economics of the proposed method of
exploitation consistent with the terms of this Agreement. Should the
parties be unable to agree upon such economics, they agree that such
issue shall be resolved by arbitration (an "Arbitration Proceeding")
before the American Arbitration Association (the "Arbitration
Authority") located in Carson City, Nevada, according to the rules and
practices of the Arbitration Authority from time-to-time in force,
unless the parties mutually agree upon a different Arbitration
Authority and/or different location for such Arbitration Proceeding.
4.3 TERMS OF PAYMENT OF LICENCE FEE
The Licence Fee shall be paid to the Grantor within 15 days of the end of
each quarter in which the Grantee and/or any of its Subsidiaries collect
Gross Revenues with respect to any American Prospect. The obligation to
pay the Licence Fee shall continue following the termination of this
Agreement with respect to any American Prospect for which the Licence Fee
was provided by the Grantor to the Grantee on or before the effective date
of such termination.
4.4 REPORTS
Within 15 days after the end of each quarter, irrespective of whether any
Gross Revenues have been collected by the Grantee and/or any of its
Subsidiaries or whether any sum is then due to the Grantor, the Grantee
shall deliver to the Grantor a complete and accurate written statement
setting forth;
(i) total Gross Revenues earned or accrued from each American
Prospect in such quarter;
(ii) total Gross Revenues collected from each American Prospect
in such quarter;
<PAGE>
7
(iii) the Licence Fee earned from each American Prospect in such
quarter;
(iv) the Grantee's calculation of the amount of the Licence Fee
then due the Grantor for the period covered by such
report; and
(v) such other information reasonably requested by the Grantor
with respect to each American Prospect, in specific detail
so as to allow an audit of underlying documents.
4.5 BOOKS AND RECORDS
During the period that the Grantee shall be obligated to pay to the Grantor
a Licence Fee, the Grantee shall keep or cause to be kept accurate,
complete and up-to-date books of accounts separately stating records of all
revenues earned, accrued and/or collected with respect to each American
Prospect, and all costs, expenses, and investments in such American
Prospect.
4.6 INSPECTION
During the period that the Grantee and/or its Subsidiaries shall be
obligated to pay to the Grantor the Licence Fee, the Grantor or its
authorized representatives shall have the right to inspect all records of
the Grantee and/or its Subsidiaries with respect to the American Prospect,
and to make copies of said records utilizing the facilities the Grantee
and/or its Subsidiaries without charge, and shall have free and full access
thereto on reasonable notice during the normal business hours of the
Grantee and/or its Subsidiaries. If such inspection or audit reveals an
underpayment by the Grantee and/or its Subsidiaries of the Licence Fee
and/or any other amounts then due to the Grantor under this Agreement, the
Grantee and/or its Subsidiaries shall upon written notice pay to the
Grantor the balance of all such amounts found to be due pursuant to such
audit inspection, together with interest thereon at the "best commercial
customer" rate of the largest bank in terms of assets in the eleventh
district of the Federal Reserve, plus 4% per annum from the date such
amounts first became due to the Grantor, until all such amounts have been
paid in full. If such inspection or audit discloses that, for the annual
period reviewed or audited, the Grantee has underpaid or understated its
Licence Fee obligation under this Agreement by 5% or more, then the Grantee
shall also pay the reasonable professional fees of the independent
representatives engaged to conduct or review such inspection or audit.
4.7 SECURITY INTEREST GRANTED TO THE GRANTOR
As security for the Grantee's obligation to pay the Licence Fee to the
Grantor, the Grantee agrees to execute a Security Agreement in a form
reasonably acceptable to the Grantor with respect to any interest in any
American Prospect acquired by the Grantee and/or its Subsidiaries, which
will grant to the Grantor a security interest in any Gross Revenues
generated by the Grantee and/or its Subsidiaries in such American Prospect.
The grant of the security interest shall not exceed the anticipated
aggregate Licence Fee payable to the Grantor with respect to such American
Prospects.
<PAGE>
8
5. TERM OF LICENCE
The term of the licence granted under this Agreement will correspond in all
respects, including provisions for extension and for early termination,
with the term of the Restated Technology Agreement.
6. REPRESENTATIONS AND WARRANTIES OF PARTIES
Each of the parties to this Agreement hereby represents and warrants to
each of the other parties of this Agreement, each of which is deemed to be
a separate representation and warranty, as follows:
(a) ORGANIZATION, POWER AND AUTHORITY
Such party, if an entity, is duly organized, validly existing and
in good standing under the laws of its state, territory or
province of incorporation or organization, and has all requisite
corporate or other power and authority to enter into this
Agreement.
(b) AUTHORIZATION AND VALIDITY OF AGREEMENT
The execution and delivery of this Agreement by such party, and
the performance by such party of the transactions herein
contemplated, have, if such party is an entity, been duly
authorized by its governing organizational documents, and are not
prohibited by its governing organization documents, and no
further corporate or other action on the part of such party is
necessary to authorize this Agreement, or the performance of such
transactions. This Agreement has been duly executed and
delivered by such party and, assuming due authorization,
execution and delivery by all of the other parties hereto, is
valid and binding upon such party in execution and delivery by
all of the other parties hereto, is valid and binding upon such
party in accordance with its terms, except as limited by:
(i) bankruptcy, insolvency, reorganization, moratorium or
other similar laws now or hereafter in effect
relating to creditor rights generally; and
(ii) general principles of equity (regardless of whether
such enforcement is considered in a proceeding in
equity or at law).
(c) NO BREACH OR CONFLICT
<PAGE>
9
Neither the execution nor delivery of this Agreement, nor the
performance by such party of the transactions contemplated
herein:
(i) if such party is an entity, will breach or conflict
with any of the provisions of such party's governing
organizational documents; nor
(ii) to the best of such party's knowledge and belief,
will violate or constitute an event of default under
any agreement or other instrument to which such party
is a party.
7. INDEMNIFICATION; DEFENSE OF THIRD-PARTY CLAIMS
The provisions of paragraph 12 of the Restated Technology Agreement
entitled "Indemnification; Defense of Third-Party Claims" apply to this
Agreement.
8. MISCELLANEOUS
(a) COOPERATION
Each party agrees, without further consideration, to cooperate and
diligently perform any further acts, deeds and things, and to execute
and deliver any documents that may be reasonably necessary or
otherwise reasonably required to consummate, evidence, confirm and/or
carry out the intent and provisions of this Agreement, all without
undue delay or expense.
(b) INTERPRETATION
(i) SURVIVAL
All representations and warranties made by any party in
connection with any transaction contemplated by this
Agreement shall, irrespective of any investigation made by
or on behalf of any other party hereto, survive the
execution and delivery of this Agreement, and the
performance or consummation of any transaction described
in this Agreement.
(ii) ENTIRE AGREEMENT/NO COLLATERAL REPRESENTATIONS
Each party expressly acknowledges and agrees that this
Agreement, and the agreements and documents referenced
herein;
(i) is the final, complete and exclusive statement of
the agreement
<PAGE>
10
of the parties with respect to the subject matter
hereof;
(ii) supersedes any prior or contemporaneous agreements,
memorandums, proposals, commitments, guaranties,
assurances, communications, discussions, promises,
representations, understandings, conduct, acts,
courses of dealing, warranties, interpretations or
terms of any kind, whether oral or written, and
that may such prior agreements are of no force or
effect except as expressly set forth herein; and
(iii) may not be varied, supplemented or contradicted by
evidence of prior agreements, or by evidence of
subsequent oral agreements.
No prior drafts of this Agreement, and no words or phrases
from any prior drafts, shall be admissible into evidence
in any action or suit involving this Agreement.
(iii) AMENDMENT; WAIVER; FORBEARANCE
Except as expressly provided otherwise herein, neither
this Agreement nor any of the terms, provisions,
obligations or rights contained herein, may be amended,
modified, supplemented, augmented, rescinded, discharged
or terminated (other than by performance), except by a
written instrument or instruments signed by all of the
parties to this Agreement. No waiver of any breach of any
term, provision or agreement contained herein, or of the
performance of any act or obligation under this Agreement,
or of any extension of time for performance of any such
act or obligation, or of any right granted under this
Agreement, shall be effective and binding unless such
waiver shall be in a written instrument or instruments
signed by each party claimed to have given or consented to
such waiver and each party affected by such waiver. Except
to the extent that the party or parties claimed to have
given or consented to a waiver may have otherwise agreed
in writing, no such waiver shall be deemed a waiver or
relinquishment of any other term, provision, agreement,
act, obligation or right granted under this Agreement, or
any preceding or subsequent breach thereof. No forbearance
by a party to seek a remedy for any noncompliance or
breach by another party hereto shall be deemed to be a
waiver by such forbearing party of its rights and remedies
with respect to such noncompliance or breach, unless such
waiver shall be in a written instrument or instruments
signed by the forbearing party.
(iv) REMEDIES CUMULATIVE
<PAGE>
11
The remedies of each party under this Agreement are
cumulative and shall not exclude any other remedies to
which such party may be lawfully entitled.
(v) SEVERABILITY
If any term or provision of this Agreement or the
application thereof to any person or circumstance shall,
to any extent, be determined to be invalid, illegal or
unenforceable under present or future laws, then, and in
that event:
(i) The performance of the offending term or provision
(but only to the extent its application is invalid,
illegal or unenforceable) shall be excused as if it
had never been incorporated into this Agreement,
and in lieu of such excused provision, there shall
be added a provision as similar in terms and amount
to such excused provisions as may be possible and
be legal, valid and enforceable; and
(ii) The remaining part of this Agreement (including the
application of the offending term or provision to
persons or circumstances other than those as to
which it is held invalid, illegal or unenforceable)
shall not be affected thereby, and shall continue
in full force and effect to the fullest extent
provided by law.
(vi) PARTIES IN INTEREST
Notwithstanding anything else to the contrary herein,
nothing in this Agreement shall confer any rights or
remedies under or by reason of this Agreement on any
persons other than the parties hereto and their respective
successors and assigns, if any, as may be permitted
hereunder, nor shall anything in this Agreement relieve or
discharge the obligation or liability of any third party
to any party to this Agreement, nor shall any provision
give any third person any right of subrogation or action
over or against any party to this Agreement.
Notwithstanding the prior sentence, the parties
acknowledge that the subsidiaries of the Grantee and the
Grantor and their respective successors and assigns are a
third party beneficiary of this Agreement.
(c) ENFORCEMENT
(i) APPLICABLE LAW
<PAGE>
12
This Agreement and the rights and remedies of each party
arising out of or relating to this Agreement (including,
without limitation, equitable remedies) shall (with the
exception of the applicable securities laws) be solely
governed by, interpreted under, and construed and enforced
in accordance with the laws (without regard to the
conflicts of law principles) of the State of Nevada, as if
this Agreement were made, and as if its obligations are to
be performed, wholly with in the State of Nevada.
(ii) CONSENT TO JURISDICTION: SERVICE PROCESS
Any "action or proceeding" (as such term is defined below)
arising out of or relating to this Agreement shall be
filed in and heard and litigated solely before the state
courts of Nevada. Each party generally and unconditionally
accepts the exclusive jurisdiction of such courts and
venue therein; consents to the service of process in any
such action or proceeding by certified or registered
mailing of the summons and complaint in accordance with
the notice provisions of this Agreement; and waives any
defense or right to object to venue in said courts based
upon the doctrine of "forum non conveniens" the Term
"action or proceeding" is defined as any and all claims,
suits, actions, hearings, arbitrations or other similar
proceedings, including appeals and petitions therefrom,
whether formal or informal, governmental or non-
governmental, or civil or criminal.
(iii) WAIVER OF RIGHTS TO JURY TRIAL
Each party hereby waives such party's respective right to
a jury trial of any claim or cause of action based upon or
arising out of this Agreement. Each party acknowledges
that this waiver is a material inducement to each other
party hereto to enter into the transaction contemplated
hereby; that each other party has already relied upon this
waiver in entering into this Agreement; and that each
other party will continue to rely on this waiver in their
future dealings. Each party warrants and represents that
such party has reviewed this waiver with such party's
legal counsel, and that such party has knowingly and
voluntarily waived its jury trial rights following
consultation with such legal counsel.
(d) ASSIGNMENT
Provided in this Agreement the Grantee may not sell, license, transfer
or assign (whether direct or indirect, merger, consolidations,
conversion, sale of assets, sale or exchange of securities, or by
operation of law, or otherwise) any of its rights or interests or
delegate its duties or obligations under this Agreement, in whole or
in
<PAGE>
13
part, including to any Subsidiary or any Affiliate, without the prior
written consent of the Grantee which consent may be withheld in such
other party's sole discretion.
(e) COUNTERPARTS; ELECTRONICALLY TRANSMITTED DOCUMENTS
This Agreement may be executed in counterparts, each of which shall be
deemed an original, and all of which together shall constitute one and
the same instrument, binding on all parties hereto. Any signature
page of its Agreement may be detached from any counterpart of this
Agreement and reattached to any other counterpart of this Agreement
identical in form hereto by having attached to it one or more
additional signature pages. If a copy or counterpart of this
Agreement is originally executed and such copy or counterpart is
thereafter transmitted electronically by facsimile or similar device,
such facsimiled document shall for all purposes be treated as if
manually signed by the party whose facsimile signature appears.
WHEREFORE, the parties hereto have, for purposes of this Agreement,
executed this Agreement in Vancouver, British Columbia, Canada, as of the date
first herinabove set forth.
THE GRANTOR PINNACLE OIL INTERNATIONAL INC.,
a Nevada corporation
By: /s/ R. Dirk Stinson
---------------------------
R. Dirk Stinson, President
THE GRANTEE PINNACLE OIL INC.
By: /s/ R. Dirk Stinson
---------------------------
R. Dirk Stinson, President
<PAGE>
EXHIBIT 10.4
RESTATED TECHNOLOGY AGREEMENT
This Restated Technology Agreement (the "Agreement"), dated as of August 1,
1996, is entered into by and between PINNACLE OIL, INC., a Nevada corporation
("Pinnacle Oil"), whose principal executive office is located at 380-1090 West
Georgia Street, Vancouver, British Columbia, Canada V6E 3V7; PINNACLE OIL
INTERNATIONAL, INC., a Nevada corporation ("Pinnacle International"), whose
principal executive office is located at 380-1090 West Georgia Street,
Vancouver, British Columbia, Canada V6E 3V7; MOMENTUM RESOURCES CORPORATION, a
Bahamas corporation ("Momentum"), whose principal executive office is located
c/o Ansbacher (Bahamas) Limited, P.O. Box N-7768, Bank Lane, Nassau, Bahamas;
GEORGE LISZICASZ ("Liszicasz"), an individual whose principal office is located
at 380-1090 West Georgia Street, Vancouver, British Columbia, Canada V6E 3V7;
and R. DIRK STINSON ("Stinson"), an individual whose principal office is located
at 380-1090 West Georgia Street, Vancouver, British Columbia, Canada V6E 3V7,
with reference to the following facts:
RECITALS:
--------
WHEREAS, Liszicasz is the inventor, developer and owner of a certain
device, defined in this Restated Technology Agreement as the "Stress Field
Detector," and is the inventor, developer and owner of certain technology upon
which the Stress Field Detector is based, defined in this Restated Technology
Agreement as the "SFD Technology," which generate certain data, defined in this
Restated Technology Agreement as the "SFD Data," which can, when interpreted,
identify underground geological formations which indicate, among other things,
the presence of petroleum, natural gas, water deposits and minerals;
WHEREAS, Pinnacle International, through its subsidiaries, including
Pinnacle Oil and Pinnacle Oil Canada, Inc., a federal Canadian corporation, is
engaged in the business of exploring for and commercially exploiting petroleum
and natural gas deposits;
WHEREAS, on September 1, 1995, Liszicasz and Stinson entered into an
agreement (the "Liszicasz-Stinson Agreement") relating to the ownership, use and
exploitation of the Stress Field Detector and the SFD Technology wherein, among
other things, they agreed: (i) that the Stress Field Detector and the SFD
Technology would be owned by Liszicasz for a period and, upon the occurrence of
certain events, would subsequently be owned and exploited by a corporation to be
formed ("Newco 1") which would be owned jointly by Liszicasz and Stinson; and
(ii) that Liszicasz, and eventually Newco 1, would provide raw SFD Data to third
parties in return for the payment of a fee, and that such third parties would
include a second corporation to be formed ("Newco 2") which would be organized
for the specific business purpose of identifying and commercially exploiting
petroleum and natural gas deposits, and which would be managed, and owned in
part, by Liszicasz and Stinson;
WHEREAS, in satisfaction of the terms of the Liszicasz-Stinson Agreement
relating to the formation of Newco 2, Liszicasz and Stinson caused Pinnacle Oil
to be organized on October 20, 1995;
WHEREAS, in satisfaction of the terms of the Liszicasz-Stinson Agreement,
Liszicasz entered into an agreement with Pinnacle Oil on January 1, 1996 (the
"Original Technology Agreement") wherein Liszicasz agreed, that from the date
of the Original Technology Agreement through the period ended December 31, 2000,
to survey selected properties using the Stress Field Detector and the SFD
Technology, and to provide raw SFD Data generated from such activities to
Pinnacle Oil for its exclusive use to identify petroleum and natural gas
deposits on such properties, and to commercially exploit such prospects;
1
<PAGE>
WHEREAS, in satisfaction of the terms of the Liszicasz-Stinson Agreement
relating to the formation of Newco 1, Liszicasz and Stinson caused Momentum to
be organized on June 17, 1996;
WHEREAS, in satisfaction of the terms of the Liszicasz-Stinson Agreement,
Liszicasz desires to transfer his rights and obligations under the Original
Technology Agreement to Momentum as of June 18, 1996, and to obtain the consent
of Pinnacle Oil and Pinnacle International to such transfer;
WHEREAS, after entering into the Original Technology Agreement, Pinnacle
Oil was acquired in February, 1996, by Pinnacle International (then known as
"Auric Mining Corporation"), and Pinnacle Oil now desires to transfer its rights
under the Original Technology Agreement to Pinnacle International, and to obtain
the consent of Liszicasz, Stinson and Momentum to such transfer;
WHEREAS, the parties also desire to enter into this Restated Technology
Agreement to reflect and restate the new relationships amongst the parties, and
the new rights and obligations of the parties arising from such new
relationships;
WHEREAS, the parties further desire that this Restated Technology Agreement
also fully address and/or clarify certain matters not fully addressed or
clarified in the Original Technology Agreement, in order to avoid any
ambiguities or potential misunderstandings;
WHEREAS, in view of the mutual satisfaction to date of the parties with the
results of the Stress Field Detector, the SFD Technology and the SFD Data, and
the desire of the parties in view of such satisfaction to extend the term of the
Original Technology Agreement beyond December 31, 2000, and in order to provide
Pinnacle International with the exclusive worldwide use of the SFD Data as it
relates to the identification and exploitation of hydrocarbons for so long as
Pinnacle International performs its obligations, the parties further desire to
extend the term of the Original Technology Agreement on the terms set forth
herein;
WHEREAS, it is the intent of the parties that this Restated Technology
Agreement restate and supersede the Original Technology Agreement in its
entirety;
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein, and for valuable consideration, the receipt and sufficiency of
which are hereby mutually acknowledged, the parties to this Restated Technology
Agreement (collectively "parties" and individually a "party") agree as follows:
AGREEMENT:
---------
1. DEFINITIONS
Set forth below are definitions of capitalized terms which are
generally used throughout this Restated Technology Agreement, or references to
provisions containing such definitions (capitalized terms used only in a
specific section of this Restated Technology Agreement are defined in such
section):
(A) "AFFILIATE" means any Person controlling, controlled by, or under
common control with a party.
(B) "AGREEMENT" shall mean this Restated Technology Agreement, as
originally executed and as amended or restated from time to time.
(C) "CHANGE IN CONTROL" shall mean, subject to subparagraphs (iv) and
(v) below, the occurrence of any of the following events:
2
<PAGE>
(i) An acquisition of control by an "Acquiring Person" where,
immediately after the subject acquisition, such "Person" holds "Beneficial
Ownership" of more than fifty percent (50%) of the "Total Combined Voting Power"
of the Company's then outstanding "Voting Securities". The terms in quotations
in the immediately preceding sentence shall, for purposes of this Agreement,
have the following meanings :
(A) "Acquiring Person" shall mean any "Person" which
acquires the defined percentage of securities, with the exception of:
(A) any Employee Benefit Plan (or a trust forming a part thereof)
maintained by the Company, or any corporation or entity in which the
Company holds fifty percent (50%) or more of the "Voting Securities"
(each, a "Controlled Subsidiary"); (B) the Company or any Controlled
Subsidiary; or (C) any "Person" which acquires the threshold
percentage of "Voting Securities" through a "Non-Control Transaction"
(as defined below).
(B) "Non-Control Transaction" shall mean any transaction
in which the stockholders of the Company immediately before such
transaction, directly or indirectly own immediately following such
transaction at least a majority of the "Total Combined Voting Power"
of the outstanding "Voting Securities" of the surviving corporation
(or other entity) resulting from such transaction, in substantially
the same proportion as such stockholders' ownership of the Company's
"Voting Securities" immediately before such transaction.
(C) "Person," "Beneficial Ownership," "Total Combined
Voting Power" and "Voting Securities" shall have the meanings ascribed
to such terms in Sections 13(d) and 14(d) of the Securities Exchange
Act and Rule 13d-3 promulgated thereunder; or
(ii) During any period of three (3) consecutive years after the
date of this Agreement, the individuals who constituted the Board at the
beginning of such period (the "Incumbent Board") cease to constitute a majority
of the Board, for any reason(s) other than (A) the voluntary resignation of one
or more Board members; (B) the refusal by one or more Board members to stand for
election to the Board; and/or (C) the removal of one or more Board members for
good cause; provided, however, (1) that if the nomination or election of any new
director of the Company was approved by a vote of at least a majority of the
Incumbent Board, such new director shall be deemed a member of the Incumbent
Board; and (2) that no individual shall be considered a member of the Incumbent
Board if such individual initially assumed office as a result of either an
actual or threatened "Election Contest" (as described in Rule 14a-11 promulgated
under the Securities Exchange Act of 1934), or as a result of a solicitation of
proxies or consents by or on behalf of an Acquiring Person, other than a member
of the Board (a "Proxy Contest"), or as a result of any agreement intended to
avoid or settle any Election Contest or Proxy Contest; or
(iii) The Board or the stockholders of the Company approve:
(A) A merger or consolidation or reorganization of the
Company reorganization with:
(1) any Controlled Subsidiary, and such transaction
is not a Non-Control Transaction; or
(2) any other corporation or other entity, and such
transaction is not a Non-Control Transaction; or
3
<PAGE>
(B) A complete liquidation or dissolution of the Company,
and such transaction is not a Non-Control Transaction; or
(C) An agreement for the sale or other disposition of all
or substantially all of the assets of the Company to (1) any Controlled
Subsidiary, and such transaction is not a Non-Control Transaction or (2) to any
other Person, and such transaction is not a Non-Control Transaction.
(iv) Notwithstanding clauses (i) through (iii) above, a Change
-------------------------
In Control shall not be deemed to have occurred solely because any Person
acquired Beneficial Ownership of more than the threshold percentage of the
outstanding Voting Securities as a result of an acquisition of Voting Securities
by the Company (each, a "Redemption") which, by reducing the number of Voting
Securities outstanding, increased the percentage of outstanding Voting
Securities Beneficially Owned by such Person; provided, however, that if (A) a
Change In Control would occur as a result of a Redemption but for the operation
of this sentence, and (B) after such Redemption, such Person becomes the
Beneficial Owner of any additional Voting Securities, which increase the
percentage of the then outstanding Voting Securities Beneficially Owned by such
Person over the percentage owned as a result of the Redemption, then a Change In
Control be deemed to occur.
(v) Notwithstanding any other provision of this subsection
(c), if either Messrs. Stinson or Liszicasz or an Affiliate of Messrs. Stinson
or Liszicasz who is then a stockholder or director of the Company, either: (i)
expressly voted in favor of the transaction constituting the Change In Control
in such Person's capacity as either a stockholder or as a director of the
Company; or (ii) expressly abstained from voting (other than by reason of an
"interest" in a matter or transaction, as defined in the Nevada Revised
Statutes); and/or (iii) failed or refused to vote, then the transaction shall
not constitute a Change in Control.
(D) "DESIGNATED SEARCH AREAS" is defined in section 2(a).
-------------
(E) "HYDROCARBONS" means all petroleum, natural gas and related
hydrocarbons and includes any other substances of value, whether gases, fluids
or solids and whether hydrocarbons or not, rights to which are customarily
included in oil and gas leases.
(F) "PROSPECTS" is defined in section 3.
----------
(G) "PERSON" (other than for purposes of determining a Change in
Control) means, in its broadest sense, any individual, entity or fiduciary who
has legal standing to enter into this Agreement such as, by way of example and
not limitation, individual or natural persons, corporations, partnerships
(limited or general), joint-ventures, associations, business trusts, limited
liability companies/partnerships, business trusts, trusts (whether revocable or
irrevocable), pension or profit sharing plans, individual retirement accounts,
or fiduciary or custodial arrangements.
(H) "SFD DATA" shall mean all information generated by the Stress
Field Detector and the SFD Technology which, when interpreted, can be used to
identify deposits of Hydrocarbons.
(I) "SFD DATA FEE" is defined in section 5(a).
-------------
(J) "SFD TECHNOLOGY" shall mean the technologies and scientific
theories upon which the Stress Field Detector is based.
(K) "STRESS FIELD DETECTOR" shall mean that certain device owned by
Momentum, together with all enhancements and know-how relating thereto, which
device uses the SFD Technology to identify, among other things, deposits of
Hydrocarbons.
4
<PAGE>
(L) "SUBSIDIARY" means any subsidiary of a party (or subsidiary of a
subsidiary of a party), regardless of form of entity, such as a corporation,
partnership, limited partnership or limited liability company, but with the
exception of joint ventures or third party arrangements described in section
-------
4(ii).
- ------
2. PROVISION OF SFD DATA
(A) OBLIGATIONS OF MOMENTUM AND LISZICASZ. Momentum agrees that it
-------------------------------------
will use its best efforts to survey, with the Stress Field Detector, certain
geographic areas throughout the world which have been mutually pre-selected by
both Momentum and Pinnacle International from time-to-time during the term of
this Agreement (the "Designated Search Areas"), and to provide all raw SFD Data
resulting from such surveys to Pinnacle International for its exclusive use for
the identification and exploitation of Hydrocarbons in accordance with the terms
of this Agreement. The surveys shall be conducted by vehicle, airplane or such
other method of transportation as mutually agreed upon by Momentum and Pinnacle
International, and the surveys shall be conducted by Liszicasz or, under the
general supervision of Liszicasz, by such personnel of Momentum as have
appropriate levels of training as to conduct such surveys. Momentum agrees that
it shall provide not less than five hundred (500) hours per year of trained
manpower to generate the SFD Data with respect to the Designated Search Areas.
Momentum and Liszicasz each further agree that Liszicasz shall (subject to his
obligations as an employee of Pinnacle International) be available to perform
such obligations for Momentum on behalf of Pinnacle International until at least
December 31, 2005, unless Liszicasz is unable to render such services by reason
of death or disability (as such term is defined in section 3).
----------
(B) CAPITAL COSTS. Pinnacle International agrees to provide, at its
-------------
own cost and expense, such customized vehicles, with such customized equipment
(other than the Stress Field Detector and enhancements thereto), as are
reasonably requested by Momentum to conduct its survey work and to generate the
SFD Data for Pinnacle International. Pinnacle International shall reserve
title to all such vehicles and equipment. Momentum shall retain title to the
Stress Field Detector and all enhancements thereto.
(C) OTHER SURVEY COSTS. Pinnacle International shall pay for
------------------
directly, or reimburse Momentum for, all direct costs and expenses incurred by
Momentum in conducting all survey work relating to a Designated Search Area
including, without limitation, all equipment or vehicle rentals, gas, meals,
lodging, and a per diem to Momentum's employees, consultants and/or agents based
upon their hourly compensation; provided, however, in no event shall Pinnacle
International be responsible for paying any per diem to Liszicasz or Stinson,
nor shall Pinnacle International be responsible for any corporate overhead of
Momentum.
3. INTERPRETATION OF SFD DATA; IDENTIFICATION OF PROSPECTS
Liszicasz, in his capacity as an employee and/or agent of Pinnacle
International, shall initially interpret all raw SFD Data provided to Pinnacle
International by Momentum, to ascertain whether there is a reasonable likelihood
that there are commercially extractable amounts of Hydrocarbons in any given
Designated Search Area. Each such identified area is hereinafter referred to as
a "Prospect." Liszicasz and Pinnacle International shall use their best efforts
to train mutually acceptable personnel of Pinnacle International to conduct such
identification under the general supervision of Liszicasz as soon as it is
reasonably practicable. Subject to his obligations under section 2(a),
------------
Liszicasz agrees that he shall, as an employee and agent of Pinnacle
International, and subject to the terms of a mutually acceptable employment
agreement with Pinnacle International to be executed after this Agreement, be
available to perform such obligations until at least December 31, 2005, unless
Liszicasz is unable to render such services by reason of death or disability (as
defined in such employment agreement). Pinnacle International and Liszicasz
agree to use their best efforts to interpret any SFD Data provided to them by
Momentum as soon as reasonably practicable following the provision thereof by
Momentum.
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<PAGE>
4. COMMERCIAL EXPLOITATION OF PROSPECTS
Within one hundred eighty (180) days after designation by Pinnacle
International of any given Designated Search Area as a Prospect, Pinnacle
International agrees that it shall, either directly or through its wholly-owned
Subsidiaries, or indirectly through joint ventures and/or other third parties,
use its best efforts to commercially and economically exploit the Prospect for
its Hydrocarbon potential. Such exploitation may occur through one or a
combination of the following, as selected by Pinnacle International in its
reasonable discretion, and/or such other method of exploitation as shall be
determined to be reasonable by Pinnacle International: (i) the direct
acquisition by Pinnacle International and/or its wholly-owned Subsidiaries of
the legal rights for the further exploration, development and production of
Hydrocarbons with respect to the Prospect; (ii) subject to the obligations of
Pinnacle International and its Subsidiaries under section 8, the indirect
---------
acquisition by Pinnacle International and/or its wholly-owned Subsidiaries of
the legal rights for the further exploration, development and production of
Hydrocarbons with respect to the Prospect through joint-ventures or other
arrangements with third parties; and/or (iii) the sale by Pinnacle International
and/or its wholly-owned Subsidiaries and/or its joint venture partners of the
legal rights for the further exploration, development and production of
Hydrocarbons with respect to the Prospect, or (subject to the obligations of
Pinnacle International and its wholly-owned Subsidiaries under section 8) of a
---------
"lead" for the Prospect to a third party.
Pinnacle International will use its best efforts to commercially
exploit the Prospects through one or more of the foregoing methods, and will
diligently pursue such efforts, unless it is not, in Pinnacle International's
opinion, commercially reasonable to make any such acquisition and/or to pursue
such exploration, development and/or production, and/or enter into any such
agreement with a joint venture partner and/or other third party. Momentum
understands that Pinnacle International's present preference and intent is to
commercially exploit the Prospects through joint-venture arrangements wherein
the joint venture (or Pinnacle International's joint venture partner(s) in the
joint venture) will pursue the acquisition of the legal rights for the further
exploration, development and production of Hydrocarbons with respect to the
Prospect, and will provide all or part of the financing required to do so, and
assume the financial risk attendant to such acquisition or development.
Momentum agrees that it will cooperate in collecting raw SFD Data pursuant to
the terms of this Agreement in connection with any such joint ventures and/or
third party arrangements.
5. PAYMENT OF SFD DATA FEE TO MOMENTUM RESULTING FROM
COMMERCIAL EXPLOITATION OF PROSPECTS
(A) PAYMENT OF FEE TO MOMENTUM FOR PROVISION OF SFD DATA. In
----------------------------------------------------
consideration of Momentum providing SFD Data to Pinnacle International for its
exclusive worldwide use for the identification and exploitation of Hydrocarbons
in accordance with the terms of this Agreement, Pinnacle International shall pay
to Momentum a fee (the "SFD Data Fee") equal to: (i) one percent (1%) of the
"Prospect Revenues" (as such term is defined below) actually received by
Pinnacle International and/or its Subsidiaries with respect to the commercial
exploitation of each Prospect for which SFD Data is provided by Momentum to
Pinnacle International on or before December 31, 2000, and (ii) five percent
------------
(5%) of the Prospect Revenues actually received by Pinnacle International and/or
its Subsidiaries with respect to the commercial exploitation of each Prospect
for which SFD Data is provided by Momentum to Pinnacle International after
-----
December 31, 2000. The term "Prospect Revenues" generally means the aggregate
of all gross revenues received by Pinnacle International and/or its Subsidiaries
with respect to the commercial exploitation of all Prospects calculated, by way
of example and not limitation, as follows:
(i) If Pinnacle International and/or its Subsidiaries
indirectly acquire the legal rights for the further exploration, development and
production of Hydrocarbons with respect to a Prospect through joint-ventures
and/or other arrangements with third parties, then the Prospect Revenues from
such Prospect will be the cash flows received by Pinnacle International and/or
its Subsidiaries from such joint venture and/or third party, whether from the
sale of Hydrocarbons or the sale by the joint venture and/or third party of its
6
<PAGE>
interest in such Prospect.
(ii) If Pinnacle International and/or its Subsidiaries sell or
transfer the legal rights for (or "leads" relating to) a Prospect, then the
Prospect Revenues from such Prospect will be the gross consideration received by
Pinnacle International and/or its Subsidiaries as a result of such sale or
transfer.
(iii) If Pinnacle International and/or its Subsidiaries directly
acquire the legal rights for the further exploration, development and production
of Hydrocarbons with respect to a Prospect, and independently extract and sell
Hydrocarbons from such Prospect, then the Prospect Revenues from such Prospect
will be the gross cash flows received by Pinnacle International and/or its
Subsidiaries from the sale of such Hydrocarbons.
Pinnacle International and/or its Subsidiaries acknowledge and
agree that they shall not be entitled to deduct any expenses, costs, capital or
equity investment and/or loans against payments of any Prospect Revenues to
Momentum (such as acquisition, development, extraction, marketing and/or
distribution costs which would be incurred should Pinnacle International and/or
its Subsidiaries directly exploit the Prospect without joint venture partners),
it being understood that Momentum has an interest in gross revenues generated by
a Prospect without offset or deduction. Notwithstanding the foregoing, Momentum
understands and agrees that Prospect Revenues arising from distributions from
joint ventures and/or third party arrangements may, based upon the terms and
conditions of such joint venture, be made after the joint venture has deducted
costs, expenses and reserves, or repaid capital provided by the joint venture
and/or other third party, and Momentum further agrees that it shall have no
right to "gross up" the Prospect Revenues to reflect the pre-distribution
deduction by the joint venture or other third party of such costs, expenses and
reserves and/or repayment of capital.
The parties further acknowledge that the foregoing examples set
forth in clauses (i) through (iii) above are merely examples, and do not fully
----------- -----
reflect many methods by which Pinnacle International may commercially and
economically exploit a Prospect, with and without the participation of joint
venture and/or other third parties. Accordingly, the parties agree that the SFD
Data Fee shall be liberally interpreted to apply to each and every transaction
by which Pinnacle International and/or any of its Subsidiaries exploit the
Prospect to ensure that Momentum receives such equitable portion of the total
return received by Pinnacle International and/or its Subsidiaries as to enable
Momentum to receive the benefit of its bargain, subject to avoidance of
duplicative payments by Pinnacle International and its Subsidiaries. In order to
avoid any disputes or misunderstandings, Pinnacle International and Momentum
agree to use their best efforts, while Pinnacle International is formulating its
proposed method to exploit a Prospect, to outline in writing, prior to
committing to such method, the economics of the proposed method of exploitation
consistent with the terms of this Agreement. Should the parties be unable to
agree upon such economics, they agree that such issue shall be resolved by
arbitration (an "Arbitration Proceeding") before the American Arbitration
Association (the "Arbitration Authority") located in Carson City, Nevada,
according to the rules and practices of the Arbitration Authority from time-to-
time in force, unless the parties mutually agree upon a different Arbitration
Authority and/or different location for such Arbitration Proceeding.
(B) TERMS OF PAYMENT OF SFD FEE. The SFD Data Fee shall be paid to
---------------------------
Momentum within fifteen (15) days of the end of each calendar quarter in which
Pinnacle International and/or any of its Subsidiaries collect Prospect Revenues
with respect to any Prospect. The obligation to pay the SFD Data Fee shall
continue following the termination of this Agreement with respect to any
Prospect for which SFD Data was provided by Momentum to Pinnacle International
on or before the effective date of such termination. The parties acknowledge
that the SFD Data Fee is separate from any salary, compensation or other
benefits payable by Momentum to Liszicasz and/or Stinson attributable to their
capacities as officers, directors, employees or stockholders of Pinnacle
International and/or of any of its Subsidiaries.
7
<PAGE>
(C) REPORTS. Within fifteen (15) days after the end of each
-------
quarter, irrespective of whether any Prospect Revenues have been collected by
Pinnacle International and/or any of its Subsidiaries or whether any sum is then
due to Momentum, Pinnacle International shall deliver to Momentum a complete and
accurate written statement setting forth: (i) total Prospect Revenues earned or
accrued with respect to each Prospect in such quarter; (ii) total Prospect
Revenues collected with respect to each Prospect in such quarter; (iii) the SFD
Data Fee earned with respect to each Prospect in such quarter; (iv) Pinnacle
International's calculation of the amount of the SFD Data Fees then due Momentum
for the period covered by such report; ;and (v) such other information
reasonably requested by Momentum with respect to each Prospect, in specific
detail so as to allow an audit of underlying documents.
(D) BOOKS AND RECORDS. During the period that Pinnacle International
-----------------
shall be obligated to pay to Momentum a SFD Data Fee, Pinnacle International
shall keep or cause to be kept accurate, complete and up-to-date books of
accounts separately stating records of all revenues earned, accrued and/or
collected with respect to each Prospect, and all costs, expenses, and
investments in such Prospect.
(E) INSPECTION. During the period that Pinnacle International and/or
----------
its Subsidiaries shall be obligated to pay to Momentum the SFD Data Fee,
Momentum or its authorized representatives shall have the right to inspect all
records of Pinnacle International and/or its Subsidiaries with respect to the
Prospects, and to make copies of said records utilizing the facilities Pinnacle
International and/or its Subsidiaries without charge, and shall have free and
full access thereto on reasonable notice during the normal business hours of
Pinnacle International and/or its Subsidiaries. In the event that such
inspection or audit reveals an underpayment by Pinnacle International and/or its
Subsidiaries of SFD Data Fees and/or any other amounts then due to Momentum
under this Agreement, Pinnacle International and/or its Subsidiaries shall upon
written notice pay to Momentum the balance of all such amounts found to be due
pursuant to such audit inspection, together with interest thereon at the "best
commercial customer" rate of the largest bank in terms of assets in the eleventh
district of the Federal Reserve, plus four percent (4%) per annum from the date
such amounts first became due to Momentum, until all such amounts have been paid
in full. If such inspection or audit discloses that, for the annual period
reviewed or audited, Pinnacle International has underpaid or understated its SFD
Data Fee obligation under this Agreement by five percent (5%) or more, then
Pinnacle International shall also pay the reasonable professional fees of the
independent representatives engaged to conduct or review such inspection or
audit.
6. SECURITY INTERESTS GRANTED TO MOMENTUM
As security for Pinnacle International's obligation to pay the SFD
Data Fee, it agrees that it shall execute a Security Agreement in form
reasonably acceptable to Momentum with respect to any interest in any Prospect
acquired by Pinnacle International and/or its Subsidiaries, which will grant to
Momentum a security interest in any Prospect Revenues generated by Pinnacle
International and/or its Subsidiaries in such Prospect. The grant of the
security interest shall not exceed the anticipated aggregate SFD Data Fee
payable to Momentum with respect to such Prospect
7. PROVISION OF PERFORMANCE OPTIONS TO MOMENTUM
(A) GRANT OF PERFORMANCE OPTIONS. Commencing January 1, 2001, and
----------------------------
thereafter during the term of this Agreement as it may be renewed, and subject
to any restrictions imposed by any federal, state or provincial securities or
corporate law, and/or the rules of any stock exchange as may be applicable,
Pinnacle International shall grant to Momentum, on a quarterly basis based upon
the aggregate production of Hydrocarbons by Prospects during each month, or
portion thereof, in such quarters, options (the "Performance Options") to
purchase such number of shares of its Common Stock (the "Option Shares") as
determined in accordance with subsection (b) below. The obligation to grant
--------------
options shall terminate upon the termination of this Agreement. Each
Performance Option shall be exercisable in whole or in part during its
applicable term.
8
<PAGE>
Pinnacle International shall, as soon as possible following each quarter in
which the Performance Options are earned, deliver a written stock option
certificate to Momentum to evidence the grant of the Performance Option, and
containing such reasonable terms as are usual or customary in stock option
certificates. Notwithstanding the foregoing, the Performance Options shall not
be subject to any vesting conditions.
(B) NUMBER OF OPTION SHARES. For each month in which the Prospects
-----------------------
or any of them produce Hydrocarbons, Momentum shall be granted Performance
Options to purchase sixteen thousand (16,000) Option Shares if and only if the
number of barrels of Hydrocarbons produced in the aggregate by such Prospects
during such month exceeds twenty thousand (20,000) barrels (rounded up or down).
Notwithstanding the foregoing, the number of shares to be subject to Performance
Options under the prospective grant shall not exceed the difference between (i)
eight percent (8%) of the total number of shares of Common Stock outstanding as
of the last day of such month, and (ii) the total number of unexpired and
unexercised Option Shares as of the last day of such month, including those to
be granted with respect to production of Hydrocarbons in such month.
For purposes of calculation: (i) production of Hydrocarbons with
respect to any Prospects not then owned by Pinnacle International and/or its
Subsidiaries and/or indirectly owned by Pinnacle International and/or its
Subsidiaries through any joint venture and/or third party arrangement shall be
disregarded; and (ii) production of Hydrocarbons with respect to any Prospects
indirectly owned by Pinnacle International and/or its Subsidiaries through any
joint venture and/or third party arrangement shall be multiplied by a fraction,
the numerator of which shall be the participation percentage of Pinnacle
International and/or its Subsidiaries in such joint venture or third party
arrangement, and the denominator of which shall be the participation percentages
of all parties to such joint venture or third party arrangement.
(C) PRICE OF PERFORMANCE OPTIONS. The exercise price for the
----------------------------
Performance Options (the "Option Price") shall be in United States dollars, and
shall be equal to the "Fair Market Value" of Pinnacle International's Common
Stock on the last business day of the quarter of calculation, determined in
accordance with the following principles:
(i) If the Common Stock is traded on a stock exchange on the
date in question, the Fair Market Value of the Option Shares will be equal to
the closing bid price of Common Stock on the principal exchange on which the
Common Stock is then trading as reported by such exchange, or if the Common
Stock is not traded on such date, on the next preceding trading day during which
a sale occurred;
(ii) If the Common Stock is traded over-the-counter on the
NASDAQ National Market on the date in question, the Fair Market Value of the
Option Shares will be equal to the last sales price of the Common Stock as
reported by NASDAQ, or if the Common Stock is not traded on such date, on the
next preceding trading day;
(iii) If the Common Stock is traded over-the-counter on the
NASDAQ SmallCap Market, or on the NASD Electronic Bulletin Board or Pink Sheets
on the date in question, the Fair Market Value of the Option Shares will equal
the mean between the closing representative bid and asked price for the Common
Stock on such date as reported by NASDAQ or the NASD (as the case may be), or if
the Common Stock is not traded on such date, on the next preceding trading day;
(iv) If the Common Stock is not publicly traded on an exchange
and is not traded over-the-counter on NASDAQ or the NASD Electronic Bulletin
Board or the NASD Pink Sheets, the Fair Market Value of the Option Shares shall
be determined by the Board of Directors of Pinnacle International acting in good
faith on such basis as it deems appropriate; and
(v) Anything in subsections (i) through (iv) above to the
--------------- ----
contrary notwithstanding, under no circumstances shall the Fair Market Value of
the Option Shares be less than their par
9
<PAGE>
value.
Notwithstanding the foregoing, the Option Price shall not be less than
(i) that allowed under the exemption from registration or qualification under
the applicable federal, state or provincial securities laws as selected pursuant
to subsection 7(g) below; and (ii) if the Common Stock is traded on a stock
exchange or over-the-counter on NASDAQ, the Option Price may not be less than
the minimum price permitted by such stock exchange or by NASDAQ.
(D) TERM OF PERFORMANCE OPTIONS. The effective date of the grant of
---------------------------
the Performance Options shall be the first day of the first month following the
date of calculation, and such Performance Options shall terminate to the extent
not fully exercised within three (3) years from the effective date of grant.
(E) PAYMENT FOR OPTION SHARES. Full payment for the Option Shares to
-------------------------
be purchased by exercise of the associated Performance Option shall be made by
Momentum as follows (or any combination of the following):
(i) In immediately available funds, in United States dollars;
and/or
(ii) The surrender or relinquishment of options, warrants or
other rights to acquire Common Stock held by Momentum and/or its Affiliates,
with a Fair Market Value on the date of such surrender or relinquishment equal
to the aggregate Option Price of the Option Shares with respect to which the
Performance Option or portion is thereby exercised; and/or
(iii) If expressly consented to by Pinnacle International:
(1) The surrender or relinquishment of options, warrants
or other rights to acquire Common Stock held Momentum and/or its
Affiliates, with a Fair Market Value on the date of such surrender or
relinquishment equal to the aggregate Option Price of the Option
Shares with respect to which the Performance Option or portion is
thereby exercised; or
(2) A full recourse promissory note bearing interest at a
rate as shall then preclude the imputation of interest under the
Internal Revenue Code of 1986, as amended, and payable upon such terms
as may be prescribed by Pinnacle International. Pinnacle International
shall prescribe the form of such note and the security to be given for
such note. Notwithstanding the foregoing, no Performance Option may be
exercised by delivery of a promissory note or by a loan from Pinnacle
International if such loan or other extension of credit is prohibited
by law at the time of exercise of this Performance Option or does not
comply with the provisions of Regulation G promulgated by the Federal
Reserve Board with respect to "margin stock" if Pinnacle International
and Momentum are then subject to such Regulation.
(F) ASSIGNABILITY. Except as provided below, the Performance Options
-------------
may not be exercised by any Person other than Momentum, nor Transferred (as such
term is defined below) by Momentum. Any exercise or Transfer of a Performance
Option in violation of the foregoing shall be null and void ab initio and of no
further force and effect. Notwithstanding the foregoing, in the case of
Performance Options other than (A) those granted or awarded pursuant the
exemption from registration or qualification afforded under Rule 701 of the
Securities Act of 1933, as amended (the "Securities Act"), or (B) Options
registered with the United States Securities and Exchange Commission on Form S-
8, Pinnacle International shall permit a Transfer with respect to an Affiliate
of Momentum, and may, in its sole discretion and without any obligation to do
so, permit a Transfer with respect to any other proposed transferee, provided
the exemption from registration or qualification to be relied upon under
applicable federal, state and/or territorial securities laws permits such
action. Upon the
10
<PAGE>
death of any natural Person holding a Performance Option, such Options may be
Transferred to such deceased Person's successors pursuant to will or the laws of
descent or distribution by reason of the death of such Person, and may
thereafter be exercised by such Person's successors. The term "Transfer" means
any transfer or alienation of a Performance Option which would directly or
indirectly change the legal or beneficial ownership thereof, whether voluntary
or by operation of law, regardless of payment or provision of consideration,
including, by way of example and not limitation: (i) the sale, assignment,
bequest or gift of the Performance Option; (ii) any transaction that creates or
grants an option, warrant, or right to obtain an interest in the Performance
Option; (iii) any transaction that creates a form of joint ownership in the
Performance Option between Momentum and one or more other Persons; and/or (iv)
any Transfer of the Performance Option to a creditor of Momentum, including the
hypothecation, encumbrance or pledge of the Performance Option or any interest
therein, or the attachment or imposition of a lien by a creditor of Momentum on
the Performance Option or any interest therein which is not released within
thirty (30) days after the imposition thereof.
(G) REGISTRATION OR EXEMPTION FROM REGISTRATION. In no event shall
-------------------------------------------
Pinnacle International be required at any time to register the Performance
Options and/or the Option Shares under the Securities Act (including, without
limitation, as part of any primary or secondary offering, or pursuant to Form S-
8) or under any applicable state or territorial securities laws (the "Blue Sky
Laws"). In the event Pinnacle International does not register or qualify the
Performance Options and/or the Option Shares, such securities shall be issued in
reliance upon such safe harbors and/or exemptions from registration or
qualification under the Securities Act (such as Regulation S, Regulation D
and/or Rule 701) and any applicable Blue Sky Laws that Pinnacle International
and its legal counsel, in their reasonable discretion, shall determine to be
appropriate and necessary with respect to any particular offer or sale of such
securities. Anything in this section to the contrary notwithstanding, the
Performance Options and/or the Option Shares shall be subject to such holding
periods as may be mandated by any safe harbors or exemptions from registration
relied upon under the Securities Act and/or any applicable Blue Sky Laws.
(H) LEGEND. In the event Pinnacle International does not register
------
the Performance Options and/or the Option Shares under the Securities Act,
Pinnacle International reserves the right to place such legend on the
certificate representing such securities as it deems necessary to comply with
the Securities Act and such applicable Blue Sky Laws being relied upon by
Pinnacle International.
8. COMPETITIVE PRACTICES
(A) BY MOMENTUM AND AFFILIATES. During the term of this Agreement,
--------------------------
Momentum and its Subsidiaries shall not, without the prior written consent of
Pinnacle International, which consent it may withhold in its sole discretion:
(i) except for the account of Pinnacle International under the terms of this
Agreement, engage in the business of identifying or exploiting deposits of
Hydrocarbons for itself and/or its Subsidiaries and/or for any other party; (ii)
except as provided below in this subsection, license or sublicense and/or
provide the Stress Field Detector, the SFD Technology and/or the SFD Data to any
party for any purpose, or in any way create a de facto license or sublicense;
(iii) disclose confidential and/or proprietary information relating to the
Stress Field Detector, the SFD Technology and/or the SFD Data to any party other
than Pinnacle International and/or its Subsidiaries; or (iv) except as provided
in this subsection and in section 14(e), sell, assign or transfer (whether
-------------
directly or indirectly through a merger, consolidation, conversion, sale of
assets, sale or exchange of securities, or otherwise) its business, or license
or sublicense the Stress Field Detector, the SFD Technology an/or the SFD Data,
to any party (other than Pinnacle International and/or its Subsidiaries).
Notwithstanding clause (i) above, Momentum and its Subsidiaries may, without the
----------
consent of Pinnacle International, use the Stress Field Detector, the SFD
Technology and/or the SFD Data (including all SFD Data generated on behalf of
Pinnacle International under this Agreement), for any business other than the
identification and/or exploitation of Hydrocarbons. Notwithstanding clause (ii)
-----------
and (iv) above, Pinnacle International shall consent to the provision of raw SFD
- --------
Data (including all SFD Data generated on behalf of Pinnacle International under
this Agreement) by Momentum to its joint-venture partners and/or third parties
for
11
<PAGE>
interpretation so long as: (1) the use and interpretation of such raw SFD Data
by such joint-venture partners and/or third parties is limited to purposes other
than the identification and/or exploitation of Hydrocarbons; and (2) such joint
venture partners and/or third parties do not have access to the Stress Field
Detector and the SFD Technology. In order to facilitate the foregoing covenant,
Momentum and each of its Subsidiaries and Affiliates will execute a Competitive
Practices Agreement in form reasonably satisfactory to Pinnacle International
following execution of this Agreement.
(B) BY PINNACLE INTERNATIONAL AND AFFILIATES. During the term of
----------------------------------------
this Agreement, Pinnacle International and its Affiliates shall not, without the
prior written consent of Momentum, which consent it may withhold in its sole
discretion: (i) except for the account of Momentum and/or its Subsidiaries,
engage in the business of identifying or exploiting deposits other than
----------
Hydrocarbons which have been identified using the Stress Field Detector, (ii)
license or sublicense and/or provide the SFD Data or interpretations thereof to
any party (other than to the Subsidiaries and/or joint venture and/or other
third party arrangement pursuant to the terms of this Agreement) for any
purpose, or in any way create a de facto license or sublicense; (iii) disclose
confidential and/or proprietary information relating to the Stress Field
Detector, the SFD Technology and/or the SFD Data to any party (other than
Momentum and/or its Subsidiaries); or (iv) except as provided in section 14(e),
-------------
sell, assign or transfer (whether directly or indirectly through merger,
consolidation, conversion, sale of assets, sale or exchange of securities, or
otherwise) its business or rights to the SFD Data. In order to facilitate the
foregoing covenant, Pinnacle International and each of its Subsidiaries and
Affiliates will execute a Competitive Practices Agreement in form reasonably
satisfactory to Momentum following execution of this Agreement.
9. TERM
(A) INITIAL TERM. This Agreement shall be deemed effective as of
------------
January 1, 1996 and, unless previously terminated as provided in this Agreement,
shall remain in effect until December 31, 2005.
(B) AUTOMATIC RENEWAL; TERMINATION BY PINNACLE INTERNATIONAL. Unless
--------------------------------------------------------
this Agreement is previously terminated by either party as provided below, this
Agreement will be automatically renewed for additional one (1) year terms (each
a "Renewal Term") following the expiration of the Initial Term, or, if
applicable, the expiration of a Renewal Term (collectively and severally, each a
"Term"), unless Pinnacle International gives written notice to Momentum, no
------
later than sixty (60) days prior to the expiration of such pending Term, of its
election not to automatically renew this Agreement for an additional year.
---
(C) TERMINATION BY MOMENTUM. In addition to any other rights of
-----------------------
termination that Momentum may have hereunder, Momentum shall have the right to
terminate this Agreement upon written notice to Pinnacle International at any
time if one or more of the following shall occur (subject to the cure provisions
set forth below):
(i) Pinnacle International shall fail to make any payment of
the SFD Data Fee, or any other amount due hereunder;
(ii) Pinnacle International and its Subsidiaries shall have
collectively abandoned or discontinued the conduct of its oil and gas
exploration and/or exploitation business;
(iii) Pinnacle International shall dissolve or liquidate (except
into a wholly-owned Subsidiary and/or pursuant to a transaction which satisfies
the provisions of section 14(e)(i));
----------------
(iv) Pinnacle International shall make any assignment for the
benefit of creditors, or shall file or have filed against it any petition under
any federal, state or provincial bankruptcy or statute, which petition under any
federal, state or provincial bankruptcy or similar statute is not vacated within
ninety
12
<PAGE>
(90) days, or Pinnacle International takes advantage of any insolvency or
similar law, or if any receiver is appointed for Pinnacle International's
business or property; and/or
(v) Pinnacle International shall fail to perform any other
material covenant, agreement or term of this Agreement.
In the event any of the events described above in this subsection
----------
9(c) occurs, Momentum shall give notice of termination in writing to Pinnacle
- ----
International in accordance with the notice provisions herewith and, should such
event be reasonably susceptible of being cured, Pinnacle International shall be
entitled to a grace period of ninety (90) days following receipt of written
notice of such event (or such longer period of time as is reasonable should such
event be of a character which cannot be cured within a period of ninety (90)
days), to cure such event to the reasonable satisfaction of Momentum, provided
that Pinnacle International promptly commences to cure such event and uses
reasonable diligence thereafter in curing such event.
(D) CHANGE IN CONTROL. Anything herein to the contrary
-----------------
notwithstanding, the Initial Term or the Renewal Term, as applicable, shall, at
the election of Momentum delivered by written notice to Pinnacle International,
terminate effective upon a Change In Control.
10. PROTECTION OF INTELLECTUAL PROPERTY RIGHTS
(A) INTELLECTUAL PROPERTY RIGHTS. The parties agree that, for
----------------------------
purposes of maintaining secrecy and confidentiality, Momentum shall have no
obligation to obtain patent, trademark and/or copyright protection in the United
States and/or any other country with respect to the Stress Field Detector and/or
SFD Technology. Should Momentum seek patent, trademark and/or copyright
protection, it shall do so at its own cost; provided, however, that Pinnacle
International shall, if requested by Momentum, furnish necessary specimens or
facsimiles for the purpose of patent, trademark, and/or copyright applications,
free of cost. Pinnacle International agrees that it will not apply for nor seek
to obtain patent, trademark, copyright or any other property rights in or with
respect to the Stress Field Detector, the SFD Technology and/or the SFD Data
without the prior written consent of Momentum, which consent it may withhold in
its sole discretion.
(B) PROSECUTION OF INTELLECTUAL PROPERTY ACTIONS RESERVED TO
--------------------------------------------------------
MOMENTUM. Momentum shall, at its sole cost and expense, be responsible for the
- --------
prosecution and/or defense of any action in the nature of unfair competition,
patent infringement, copyright infringement, trademark infringement, or other
proprietary right infringement relating to the Stress Field Detector, the SFD
Technology and/or the SFD Data. Pinnacle International agrees that it shall
cooperate and assist Momentum in the prosecution and/or defense of any such
action. Pinnacle International further agrees that it shall not prosecute any
action against third parties in the nature of unfair competition, patent
infringement, copyright infringement, trademark infringement, or other
proprietary right infringement relating to the Stress Field Detector, the SFD
Technology and/or the SFD Data without the prior written consent of Momentum,
which it may withhold in its sole discretion.
11. REPRESENTATIONS AND WARRANTIES OF PARTIES
(A) BY ALL PARTIES. Each of the parties to this Agreement hereby
--------------
represents and warrants to each of the other parties to this Agreement, each of
which is deemed to be a separate representation and warranty, as follows:
(i) Organization, Power and Authority. Such party, if an
---------------------------------
entity, is duly organized, validly existing and in good standing under the laws
of its state, territory or province of incorporation or organization, and has
all requisite corporate or other power and authority to enter into this
Agreement.
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(ii) Authorization and Validity of Agreement. The execution
---------------------------------------
and delivery of this Agreement by such party, and the performance by such party
of the transactions herein contemplated, have, if such party is an entity, been
duly authorized by its governing organizational documents, and are not
prohibited by its governing organization documents, and no further corporate or
other action on the part of such party is necessary to authorize this Agreement,
or the performance of such transactions. This Agreement has been duly executed
and delivered by such party and, assuming due authorization, execution and
delivery by all of the other parties hereto, is valid and binding upon such
party in accordance with its terms, except as limited by: (1) bankruptcy,
insolvency, reorganization, moratorium or other similar laws now or hereafter in
effect relating to creditor rights generally; and (2) general principles of
equity (regardless of whether such enforcement is considered in a proceeding in
equity or at law).
(iii) No Breach or Conflict. Neither the execution or delivery
---------------------
of this Agreement, nor the performance by such party of the transactions
contemplated herein: (i) if such party is an entity, will breach or conflict
with any of the provisions of such party's governing organizational documents;
or (ii) to the best of such party's knowledge and belief, will such actions
violate or constitute an event of default under any agreement or other
instrument to which such party is a party.
(B) BY MOMENTUM AND LISZICASZ. Momentum and Liszicasz each hereby
-------------------------
represent and warrant to Pinnacle International, each of which is deemed to be a
separate representation and warranty, as follows:
(i) No Previous Grants. Momentum and Liszicasz have not sold,
------------------
assigned, transferred, conveyed or encumbered any rights with respect to the use
of the Stress Field Detector and/or SFD Technology which are inconsistent with
the rights granted to Pinnacle International hereunder.
(ii) No Infringement. The granting of exclusive rights to
Pinnacle International for the use of the SFD Data to identify and exploit
Hydrocarbons, and the use of the Stress Field Detector and the SFD Technology by
Momentum in generating and providing such SFD Data to Pinnacle International,
will not infringe upon or violate any intellectual property right of any other
Person including, without limitation, any patent, tradename, trademark,
copyright or other proprietary right of any other Person.
(C) BY PINNACLE INTERNATIONAL. Pinnacle International hereby
-------------------------
represents and warrants to Momentum, each of which is deemed to be a separate
representation and warranty, as follows:
(i) No Challenge of Title. Neither Pinnacle International
---------------------
nor any of its Subsidiaries will challenge the validity of Momentum's ownership
and title in and to the Stress Field Detector, the SFD Technology and/or the SFD
Data (except with respect to Pinnacle International's rights under this
Agreement), or any patent, trademark, copyright or other intellectual property
right pertaining thereto.
(ii) No Harm. Neither Pinnacle International nor any of its
-------
Subsidiaries will harm, misuse or bring into dispute the Stress Field Detector,
the SFD Technology and/or the SFD Data or their reputation.
12. INDEMNIFICATION; DEFENSE OF THIRD-PARTY CLAIMS
(A) INDEMNIFICATION. Each party hereto (an "Indemnitor" for
---------------
purposes of this subsection 12(a)) agrees to indemnify and hold each other party
----------------
and each of the other party's respective successors, assigns, heirs, agents,
affiliates, parents, subsidiaries, divisions, partners, joint venturers,
officers, employees, directors, shareholders, insurers and representatives
(collectively and severally, "Indemnitee(s)") harmless from and against any and
all "Losses" (as such term is defined below) directly or indirectly asserted
against, imposed upon, or incurred or suffered or sustained by such Indemnitee,
whether foreseeable or unforeseeable, and
14
<PAGE>
whether meritorious or not meritorious, based upon or related to or arising from
any of the following (collectively and severally, "Indemnifiable Claim(s)"):
(i) The breach or threatened breach by the Indemnitor of any
of the warranties, obligations, covenants or agreements of such party under this
Agreement, or the material inaccuracy of the representations of such party under
this Agreement.
(ii) Any infringement or violation of any patent, trademark,
copyright or common law or statutory rights, or proprietary rights by or on
account of the Stress Field Detector, the SFD Technology and/or the SFD Data, in
which case Momentum shall be deemed the "Indemnitor."
The Indemnitor shall promptly pay to the Indemnitee his, her or
its Losses as such Losses are incurred or, to the extent already paid by the
Indemnitor, reimburse such Losses to the Indemnitee promptly upon demand by the
Indemnitee.
(B) THIRD-PARTY CLAIMS.
------------------
(i) Notice to Indemnitor. In the event a third party files or
--------------------
brings or threatens to file or bring any action or proceeding based upon or
related to or arising from, whether directly or indirectly, an Indemnifiable
Claim (collectively and severally, "Third-Party Action(s)"), the Indemnitee
agrees that he, she or it shall, as a condition to obtaining indemnification
from the Indemnitor under this section 12, with reasonable promptness, give the
----------
Indemnitor written notice of such Third-Party Action (the "Notice"), together
with relevant written documents pertaining to the Third-Party Action. The Notice
shall state, with respect to each Indemnifiable Claim set forth in such Third-
Party Action (collectively and severally, "Third Party Claim(s)"): (1) the
amount of the Indemnitee's Losses, if known, and the method of computation
thereof, all with reasonable particularity based upon the facts and other
information reasonable available to the Indemnitee as of the date of such
Notice, and containing a reference to the provisions of this Agreement with
respect of which such Indemnifiable Claim arises; (2) the Indemnitee's specific
intent to seek such indemnification under this section; and (3) whether the
Indemnitee elects to assume and control the defense of the Third-Party Claims.
(1) In the event the Notice specifies that the Indemnitee
elects to assume and control the defense of the Third-Party Claim, then the
Indemnitor may nevertheless assume and control such defense [subject to an
insurer's right to control the defense of any litigation] at his, her or
its sole cost, expense and ultimate liability, regardless of outcome, and
through counsel of his, her or its choice (which counsel shall be
reasonably satisfactory to the Indemnitee); provided, however: (A) the
Indemnitor first acknowledges in writing his, her or its obligation to
unconditionally indemnify the Indemnitee with respect to all Indemnitee
Damages that may arise with respect to all such Third-Party Claims, and (2)
the Indemnitor gives prompt written notice of his, her or its intention to
assume and control the defense to the Indemnitee.
(2) If the Indemnitor does not elect to assume and
control the defense of the Third-Party Claim as set forth above in clause
------
(1), or makes such election but then fails to timely undertake such
---
assumption and control of the defense, then the Indemnitee may assume and
control such defense [subject to an insurer's right to control the defense
of any litigation], through counsel of his, her or its choice, in which
case the indemnities of section 12(a) shall govern. In such event the
-------------
Indemnitee shall be entitled to file a cross-complaint against the
Indemnitor in the Third-Party Action where the Indemnitee determines such
action to be appropriate, in which case the Indemnitor waives any defense
to such cross-claim on the grounds that this Agreement bars such action.
(3) In the event the Notice specifies that the Indemnitee
does not elect to assume and control the defense of the Third-Party Claim,
then the Indemnitor may assume and control
15
<PAGE>
such defense at his, her or its sole cost and expense, and through counsel
of his, her or its choice; provided, however (A) in these circumstances the
Indemnitor shall not be required to acknowledge his, her or its obligation
to unconditionally indemnify the Indemnitee with respect to any such Third-
Party Claims; and (B) the indemnity obligation of the Indemnitor as set
forth in section 12(a) shall nevertheless continue to govern.
-------------
(4) Each party who assumes and control the defense of a
Third-Party Claim as provided above shall permit the other party to
participate in the defense of such Third-Party Claim by counsel of his, her
or its own choosing, and at his, her or its own expense.
(ii) Advisement; Cooperation. Counsel handling the Third Party
-----------------------
Action on behalf of any party or parties shall diligently defend the matter and
shall keep the other parties fully informed of the status of the Third-Party
Action, and of any Third-Party Claims, including all relevant facts and
information pertaining to the action, claims and strategy to be followed. Each
party shall cooperate with each other party and their respective counsel in
connection with the defense, compromise, settlement or other resolution of the
Third-Party Claims; shall assert the "joint-counsel" privilege or its equivalent
where reasonably possible and appropriate; shall make available his, her or its
personnel, and provide such testimony and access to books, records, materials
and information in their possession or control relating thereto as is reasonably
required by the party handling the defense of such action or claims; all at the
sole cost and expense of the party defending such Third-Party Claims (unless
such defending party is entitled to indemnification as provided herein).
(iii) Compromise Or Settlement by Indemnitor. No Third-Party
--------------------------------------
Claim shall be compromised or settled by the Indemnitor without the written
consent of the applicable Indemnitee except where: (1) such compromise or
settlement involves all Third-Party Claims for which the Indemnitor is liable to
the Indemnitee under this section; (2) as a condition of such compromise or
settlement, the claimant or plaintiff unconditionally releases the Indemnitee
from any liability for all Third-Party Claims; (3) such compromise or settlement
will not have any material, non-monetary affect on the Indemnitee, other than as
a result of money damages or payment of monies, none of which shall be paid by
the Indemnitee; and (4) the Indemnitee is totally indemnified, directly or
indirectly, by the Indemnitor for any money damages or payment of monies.
(iv) Compromise Or Settlement by Indemnitee. No Third-Party
--------------------------------------
Claim shall be compromised or settled by the Indemnitee without the written
consent of the Indemnitor except where: (1) such compromise or settlement
involves all Third-Party Claims for which the Indemnitor is liable to the
Indemnitee under this section; (2) if the Indemnitor is named as a party to the
Third-Party Action, as a condition of such compromise or settlement the claimant
or plaintiff unconditionally releases the Indemnitee from any liability for all
Third-Party Claims; (3) the Indemnitee releases the Indemnitor from any
liability to the Indemnitor under this section 12 with respect to the released
----------
Third-Party Claims; (4) if the Indemnitor is named as a party to the Third-Party
Action, such compromise or settlement will not materially or adversely affect
the Indemnitor other than as a result of money damages or payment of monies,
none of which shall be paid by the Indemnitor; and (5) if the Indemnitor is
named as a party to such action, the Indemnitor is totally indemnified, directly
or indirectly, by the Indemnitee for any money damages or payment of monies.
(v) Failure of Indemnities. The obligation of the Indemnitor
----------------------
as set forth in section 12(a) shall not apply if the Indemnitee: (1) fails to
-------------
give the Notice to the Indemnitor in a reasonably prompt manner and such failure
materially prejudices the Indemnitor; (2) if the Indemnitee is not given the
opportunity to assume and control the defense of the Third-Party Claims in
accordance with subsections (b)(ii)(1) or (b)(ii)(2) above; or (3) the
---------------------- ----------
Indemnitee compromises or settles the Third-Party Claims without obtaining the
Indemnitor's consent in accordance with subsection (b)(v) above.
-----------------
(C) INDEMNITEE'S LOSSES. The term "Losses" means any losses,
-------------------
liabilities, damages
16
<PAGE>
(including direct, indirect, consequential, incidental, special and punitive
damages of any nature whatsoever), judgements, deficiencies, assessments,
penalties, settlements, and legal and other costs and/or expenses of any kind or
nature whatsoever, including, without limitation, (i) "fees and costs"
associated with any "action or proceeding," and (ii) subject to the limitations
set forth above in section 12(b), "fees and costs" incurred in investigating,
-------------
preparing and defending any Third-Party Claim and/or incurred with respect to
any dispute between the Indemnitee and the Indemnitor, including any cross-claim
filed in any Third-Party Action. The term "action or proceeding" shall have the
same definition as set forth in section 14(d)(ii) below, and the term "fees and
-----------------
costs" shall refer to those items described in section 14(d)(v) below.
----------------
(D) TAX BENEFITS; INSURANCE PROCEEDS. For purposes of this section
-------------------------------- -------
12, all Indemnifiable Claims shall be computed net of: (1) any actual income tax
- --
benefit resulting therefrom to the Indemnitee; and (2) any insurance coverage
with respect thereto which reduces the amount of the Indemnitee's Losses that
would otherwise be sustained; provided, however, that, in all cases, the timing
of the receipt or realization of income tax benefits or insurance proceeds shall
be taken into account in determining the amount of reduction of the Indemnitee's
Losses.
13. RELATIONSHIP OF PARTIES
Notwithstanding any other provision of this Agreement to the contrary,
this Agreement and the transactions contemplated herein do not and will not
establish or constitute a partnership, joint venture, association, agency or
other relationship between the parties except as that of Momentum and Pinnacle
International. Neither party, nor such party's officers, employees, directors,
shareholders and/or representatives, shall be deemed an employee or agent of the
other party, or have any right or authority to act for and/or bind the other
party in any way, or represent that the other party is in any way responsible
for acts of the other. Momentum shall in no way be responsible for the
exploitation and/or development of any Prospect identified with the SFD Data.
Each party shall have exclusive liability for the payment of all taxes imposed
on such party or its employees or agents which arise in connection with the
performance of this Agreement including, without limitation, the payment and/or
withholding, as the case may be, of income taxes, property taxes, sales or use
taxes, social security and other payroll taxes, workmen's compensation
insurance, disability benefits and the like which are measured by the wages,
salaries or other remuneration to the extent applicable to the personnel
involved, and neither party shall be liable for any such payments which may be
assessed against the other party. No right, express or implied, is granted by
this Agreement to either party to use in any manner the name of the other or any
other trade name or trademark of the other in connection with the performance of
this Agreement.
14. MISCELLANEOUS
(A) PREPARATION OF AGREEMENT; COSTS AND EXPENSES. This Agreement
--------------------------------------------
was prepared by Pinnacle International solely on behalf of such party. Each
party acknowledges that: (i) he, she or it had the advice of, or sufficient
opportunity to obtain the advice of, legal counsel separate and independent of
legal counsel for any other party hereto; (ii) the terms of the transaction
contemplated by this Agreement are fair and reasonable to such party; and (iii)
such party has voluntarily entered into the transaction contemplated by this
Agreement without duress or coercion. Each party further acknowledges that such
party was not represented by the legal counsel of any other party hereto in
connection with the transaction contemplated by this Agreement, nor was it under
any belief or understanding that such legal counsel was representing his, her or
its interests. Except as expressly set forth in this Agreement, each party shall
pay all legal and other costs and expenses incurred or to be incurred by such
party in negotiating and preparing this Agreement; in performing due diligence
or retaining professional advisors; in performing any transactions contemplated
by this Agreement; or in complying with such party's covenants, agreements and
conditions contained herein. Each party agrees that no conflict, omission or
ambiguity in this Agreement, or the interpretation thereof, shall be presumed,
implied or otherwise construed against any other party to this Agreement on the
basis that such party was responsible for drafting this Agreement.
17
<PAGE>
(B) COOPERATION. Each party agrees, without further consideration,
-----------
to cooperate and diligently perform any further acts, deeds and things, and to
execute and deliver any documents that may be reasonably necessary or otherwise
reasonably required to consummate, evidence, confirm and/or carry out the intent
and provisions of this Agreement, all without undue delay or expense.
(C) INTERPRETATION.
--------------
(i) Survival. All representations and warranties made by any
--------
party in connection with any transaction contemplated by this Agreement shall,
irrespective of any investigation made by or on behalf of any other party
hereto, survive the execution and delivery of this Agreement, and the
performance or consummation of any transaction described in this Agreement.
(ii) Entire Agreement/No Collateral Representations. Each
----------------------------------------------
party expressly acknowledges and agrees that this Agreement, and the agreements
and documents referenced herein: (1) is the final, complete and exclusive
statement of the agreement of the parties with respect to the subject matter
hereof; (2) supersedes any prior or contemporaneous agreements, memorandums,
proposals, commitments, guaranties, assurances, communications, discussions,
promises, representations, understandings, conduct, acts, courses of dealing,
warranties, interpretations or terms of any kind, whether oral or written,
including the Original Technology Agreement (collectively and severally, the
"prior agreements"), and that any such prior agreements are of no force or
effect except as expressly set forth herein; and (3) may not be varied,
supplemented or contradicted by evidence of prior agreements, or by evidence of
subsequent oral agreements. No prior drafts of this Agreement, and no words or
phrases from any prior drafts, shall be admissible into evidence in any action
or suit involving this Agreement.
(iii) Amendment; Waiver; Forbearance. Except as expressly
------------------------------
provided otherwise herein, neither this Agreement nor any of the terms,
provisions, obligations or rights contained herein, may be amended, modified,
supplemented, augmented, rescinded, discharged or terminated (other than by
performance), except by a written instrument or instruments signed by all of the
parties to this Agreement. No waiver of any breach of any term, provision or
agreement contained herein, or of the performance of any act or obligation under
this Agreement, or of any extension of time for performance of any such act or
obligation, or of any right granted under this Agreement, shall be effective and
binding unless such waiver shall be in a written instrument or instruments
signed by each party claimed to have given or consented to such waiver and each
party affected by such waiver. Except to the extent that the party or parties
claimed to have given or consented to a waiver may have otherwise agreed in
writing, no such waiver shall be deemed a waiver or relinquishment of any other
term, provision, agreement, act, obligation or right granted under this
Agreement, or any preceding or subsequent breach thereof. No forbearance by a
party to seek a remedy for any noncompliance or breach by another party hereto
shall be deemed to be a waiver by such forbearing party of its rights and
remedies with respect to such noncompliance or breach, unless such waiver shall
be in a written instrument or instruments signed by the forbearing party.
(iv) Remedies Cumulative. The remedies of each party under
-------------------
this Agreement are cumulative and shall not exclude any other remedies to which
such party may be lawfully entitled.
(v) Severability. If any term or provision of this Agreement
------------
or the application thereof to any person or circumstance shall, to any extent,
be determined to be invalid, illegal or unenforceable under present or future
laws, then, and in that event: (1) the performance of the offending term or
provision (but only to the extent its application is invalid, illegal or
unenforceable) shall be excused as if it had never been incorporated into this
Agreement, and, in lieu of such excused provision, there shall be added a
provision as similar in terms and amount to such excused provision as may be
possible and be legal, valid and enforceable; and (2) the remaining part of this
Agreement (including the application of the offending term or provision to
18
<PAGE>
persons or circumstances other than those as to which it is held invalid,
illegal or unenforceable) shall not be affected thereby, and shall continue in
full force and effect to the fullest extent provided by law.
(vi) Parties in Interest. Notwithstanding anything else to
-------------------
the contrary herein, nothing in this Agreement shall confer any rights or
remedies under or by reason of this Agreement on any persons other than the
parties hereto and their respective successors and assigns, if any, as may be
permitted hereunder, nor shall anything in this Agreement relieve or discharge
the obligation or liability of any third person to any party to this Agreement,
nor shall any provision give any third person any right of subrogation or action
over or against any party to this Agreement. Notwithstanding the prior sentence,
the parties acknowledge that the subsidiaries of Pinnacle International and
Momentum and their respective successors and assigns are a third-party
beneficiary of this Agreement.
(vii) No Reliance Upon Prior Representation. Each party
-------------------------------------
acknowledges that: (1) no other party has made any oral representation or
promise which would induce them prior to executing this Agreement to change
their position to their detriment, to partially perform, or to part with value
in reliance upon such representation or promise; and (2) such party has not so
changed its position, performed or parted with value prior to the time of the
execution of this Agreement, or such party has taken such action at its own
risk.
(viii) Headings; References; Incorporation; "Person;" Gender;
------------------------------------------------------
Statutory References. The headings used in this Agreement are for convenience
- --------------------
and reference purposes only, and shall not be used in construing or interpreting
the scope or intent of this Agreement or any provision hereof. References to
this Agreement shall include all amendments or renewals thereof. All cross-
references in this Agreement, unless specifically directed to another agreement
or document, shall be construed only to refer to provisions within this
Agreement, and shall not be construed to be referenced to the overall
transaction or to any other agreement or document. Any Exhibit referenced in
this Agreement shall be construed to be incorporated in this Agreement by such
reference. As used in this Agreement, the term "person" is defined in its
broadest sense as any individual, entity or fiduciary who has legal standing to
enter into this Agreement such as, by way of example and not limitation,
individual or natural persons and trusts. As used in this Agreement, each gender
shall be deemed to include the other gender, including neutral genders
appropriate for entities, if applicable, and the singular shall be deemed to
include the plural, and vice versa, as the context requires. Any reference to
statutes or laws will include all amendments, modifications, or replacements of
the specific sections and provisions concerned.
(D) ENFORCEMENT.
-----------
(i) Applicable Law. This Agreement and the rights and
--------------
remedies of each party arising out of or relating to this Agreement (including,
without limitation, equitable remedies) shall (with the exception of the
applicable securities laws) be solely governed by, interpreted under, and
construed and enforced in accordance with the laws (without regard to the
conflicts of law principles) of the State of Nevada, as if this Agreement were
made, and as if its obligations are to be performed, wholly within the State of
Nevada.
(ii) Consent to Jurisdiction; Service of Process. Any "action
-------------------------------------------
or proceeding" (as such term is defined below) arising out of or relating to
this Agreement shall be filed in and heard and litigated solely before the state
courts of Nevada. Each party generally and unconditionally accepts the exclusive
jurisdiction of such courts and venue therein; consents to the service of
process in any such action or proceeding by certified or registered mailing of
the summons and complaint in accordance with the notice provisions of this
Agreement; and waives any defense or right to object to venue in said courts
based upon the doctrine of "forum non conveniens." The term "action or
proceeding" is defined as any and all claims, suits, actions, hearings,
arbitrations or other similar proceedings, including appeals and petitions
therefrom, whether formal or informal, governmental or non-governmental, or
civil or criminal.
19
<PAGE>
(iii) Waiver of Right to Jury Trial. Each party hereby waives
-----------------------------
such party's respective right to a jury trial of any claim or cause of action
based upon or arising out of this Agreement. Each party acknowledges that this
waiver is a material inducement to each other party hereto to enter into the
transaction contemplated hereby; that each other party has already relied upon
this waiver in entering into this Agreement; and that each other party will
continue to rely on this waiver in their future dealings. Each party warrants
and represents that such party has reviewed this waiver with such party's legal
counsel, and that such party has knowingly and voluntarily waived its jury trial
rights following consultation with such legal counsel.
(iv) Consent to Specific Performance and Injunctive Relief and
---------------------------------------------------------
Waiver of Bond or Security. Each party acknowledges that the other party(s)
- --------------------------
hereto may, as a result of such party's breach of its covenants and obligations
under this Agreement, sustain immediate and long-term substantial and
irreparable injury and damage which cannot be reasonably or adequately
compensated by damages at law. Consequently, each party agrees that in the event
of such party's breach or threatened breach of its covenants and obligations
hereunder, the other non-breaching party(s) shall be entitled to obtain from a
court of competent equitable relief including, without limitation, enforcement
of all of the provisions of this Agreement by specific performance and/or
temporary, preliminary and/or permanent injunctions enforcing any of the rights
of such non-breaching party(s), requiring performance by the breaching party, or
enjoining any breach by the breaching party, all without proof of any actual
damages that have been or may be caused to such non-breaching party(s) by such
breach or threatened breach and without the posting of bond or other security in
connection therewith. The party against whom such action or proceeding is
brought waives the claim or defense therein that the party bringing the action
or proceeding has an adequate remedy at law and such party shall not allege or
otherwise assert the legal position that any such remedy at law exists. Each
party agrees and acknowledges: (i) that the terms of this subsection_are fair,
reasonable and necessary to protect the legitimate interests of the other
party(s); (ii) that this waiver is a material inducement to the other party(s)
to enter into the transaction contemplated hereby; (iii) that the other party(s)
has already relied upon this waiver in entering into this Agreement; and (iv)
that each party will continue to rely on this waiver in their future dealings.
Each party warrants and represents that such party has reviewed this provision
with such party's legal counsel, and that such party has knowingly and
voluntarily waived its rights following consultation with legal counsel.
(v) Recovery of Fees and Costs. If any party institutes or
--------------------------
should the parties otherwise become a party to any action or proceeding based
upon or arising out of this Agreement including, without limitation, to enforce
or interpret this Agreement or any provision hereof, or for damages by reason of
any alleged breach of this Agreement or any provision hereof, or for a
declaration of rights in connection herewith, or for any other relief, including
equitable relief, in connection herewith, the "prevailing party" (as such term
is defined below) in any such action or proceeding, whether or not such action
or proceeding proceeds to final judgment or determination, shall be entitled to
receive from the non-prevailing party as a cost of suit, and not as damages, all
fees, costs and expenses of enforcing any right of the prevailing party
(collectively, "fees and costs"), including without limitation, (1) reasonable
attorneys' fees and costs and expenses, (2) witness fees (including experts
engaged by the parties, but excluding shareholders, officers, employees or
partners of the parties), (3) accountants' fees, (4) fees of other
professionals, and (5) any and all other similar fees incurred in the
prosecution or defense of the action or proceeding; including, without
limitation, fees incurred in the following: (A) postjudgment motions; (B)
contempt proceedings; (C) garnishment, levy, and debtor and third party
examinations; (D) discovery; and (E) bankruptcy litigation. All of the aforesaid
fees and costs shall be deemed to have accrued upon the commencement of such
action and shall be paid whether or not such action is prosecuted to judgment.
Any judgment or order entered in such action shall contain a specific provision
providing for the recovery of attorney the aforesaid fees, costs and expenses
incurred in enforcing such judgment and an award of prejudgment interest from
the date of the breach at the maximum rate of interest allowed by law. The term
"prevailing party" is defined as the party who is determined to prevail by the
court after its consideration of all damages and equities in the action or
proceeding, whether or not the action or proceeding proceeds to final judgment
(the court shall retain the discretion to determine that no party is the
prevailing party
20
<PAGE>
in which case no party shall be entitled to recover its costs and expenses under
this subsection).
(vi) Certain Exceptions Relating to Intellectual Property
----------------------------------------------------
Rights. Any provision in this Agreement (including this section 14(d)) to the
- ------ -------------
contrary notwithstanding, the parties agree that any matters relating to the
validity of Momentum's ownership and title in and to the Stress Field Detector,
the SFD Technology and/or the SFD Data (except with respect to Pinnacle
International's rights under this Agreement to receive raw SFD Data for use in
identifying and exploiting Hydrocarbons), or any patent, trademark, copyright,
or other intellectual property right pertaining thereto, are matters outside the
scope of this Agreement which (1) will be governed exclusively under the laws of
the Bahamas, and (2) shall be filed in and heard and litigated solely before the
courts of the Bahamas.
(E) ASSIGNMENT AND DELEGATION; SUCCESSORS AND ASSIGNS.
-------------------------------------------------
(i) Prohibition Against Assignment or Delegation. Except as
--------------------------------------------
specifically provided in this Agreement, neither party may sell, license,
transfer or assign (whether direct or indirect, merger, consolidation,
conversion, sale of assets, sale or exchange of securities, or by operation of
law, or otherwise) any of such party's rights or interests or delegate such
party's duties or obligations under this Agreement, in whole or in part,
including to any Subsidiary or any Affiliate, without the prior written consent
of the other party, which consent may be withheld in such other party's sole
discretion, provided, however:
(1) Subject to clauses (4) and (5) below, Pinnacle
----------- ---
International and/ or Momentum may assign or license any or all of its rights
and delegate any or all of its obligations under this Agreement to any wholly-
owned Subsidiary, so long as such wholly-owned Subsidiary shall expressly assume
such obligations of Momentum.
(2) Subject to clauses (4) and (5) below, Pinnacle
----------- ---
International may, with the prior written consent of Momentum, which consent
Momentum shall not unreasonably withhold, assign all of the rights and delegate
all of the obligations of Pinnacle International and its Subsidiaries under this
Agreement to any other Person in connection with the transfer or sale of the
entire business of Pinnacle International and its Subsidiaries as it relates to
the exploitation of petroleum and natural gas deposits to any Person, or the
merger or consolidation of Pinnacle International with or into any other Person,
so long as such transferee, purchaser or surviving Person shall expressly assume
such obligations of Pinnacle International and its Subsidiaries; and
(3) Subject to clauses (4) and (5) below, Momentum may,
----------- ---
with the prior written consent of Pinnacle International, which consent Pinnacle
International shall not unreasonably withhold, assign all of the rights and
delegate all of the obligations of Momentum and its Subsidiaries under this
Agreement to any other Person in connection with the transfer or sale of the
entire business of Momentum and its Subsidiaries as it relates to use of the
Stress Field Detector, the SFD Technology and the generation of SFD Data to any
other Person, or the merger or consolidation of Momentum with or into any other
Person, so long as such transferee, purchaser or surviving Person shall
expressly assume such obligations of Momentum.
(4) Notwithstanding anything in clauses (1) through (3)
----------- ---
above to the contrary, no assignment or transfer under any of clauses (1)
-----------
through (3) may be effectuated unless the proposed transferee or assignee first
---
executes such agreements (including a restated technology agreement and/or new
competitive practices agreements) in such form as the non-assigning or
transferring parties and each of them may deem reasonably satisfactory to (A)
evidence the assumption by the proposed transferee or assignee of the
obligations of the transferring or assigning party; and (B) to ensure that the
non-assigning or transferring parties and each of them continue to receive such
rights, benefits and protections (both legal and economic) as contemplated by
the non-assigning or transferring parties and each of them when entering into
this Agreement.
21
<PAGE>
(5) Notwithstanding anything in clauses (1) through (3)
----------- ---
above to the contrary: (A) any assignment, license and/or delegation under
clause (1) above shall not release the assigning or licensing party from any of
- ----------
its obligations or liabilities under this Agreement; (B) any assumption by a
successor or assign under clauses (2) or (3) above shall in no way release the
----------- ---
transferring or assigning party from any of its obligations or liabilities while
a party to this Agreement; and (C) and any merger, consolidation,
reorganization, sale or conveyance under clauses (2) or (3) above shall not be
----------- ---
deemed to abrogate the rights of the non-assigning or transferring parties and
each of them elsewhere contained in this Agreement including, without
limitation, those resulting from a Change In Control.
Any purported assignment or transfer in violation of the
terms of this subsection (e)(i) shall be null and void ab initio and of no force
-----------------
and effect, and shall vest no rights or interests in the purported assignee or
transferee.
(ii) Successors and Assigns. Subject to subsection (e)(i)
---------------------- -----------------
above, each and every representation, warranty, covenant, condition and
provision of this Agreement as it relates to each party hereto shall be binding
upon and shall inure to the benefit of such party and his, her or its respective
successors and permitted assigns, spouses, heirs, executors, administrators, and
personal and legal representatives including, without limitation, in the case of
Pinnacle International and Momentum, any successor (whether direct or indirect,
merger, consolidation, conversion, purchase of assets, purchase of securities,
or otherwise) to all or substantially all of such corporation's business or
assets or both.
(F) COUNTERPARTS; ELECTRONICALLY TRANSMITTED DOCUMENTS. This
--------------------------------------------------
Agreement may be executed in counterparts, each of which shall be deemed an
original, and all of which together shall constitute one and the same
instrument, binding on all parties hereto. Any signature page of this Agreement
may be detached from any counterpart of this Agreement and reattached to any
other counterpart of this Agreement identical in form hereto by having attached
to it one or more additional signature pages. If a copy or counterpart of this
Agreement is originally executed and such copy or counterpart is thereafter
transmitted electronically by facsimile or similar device, such facsimiled
document shall for all purposes be treated as if manually signed by the party
whose facsimile signature appears.
(G) NOTICES. Unless otherwise specifically provided in this
-------
Agreement, all notices, demands, requests, consents, approvals or other
communications (collectively and severally called "notices") required or
permitted to be given hereunder, or which are given with respect to this
Agreement, shall be in writing, and shall be given by: (i) personal delivery
(which form of notice shall be deemed to have been given upon delivery), (ii) by
telegraph or by private airborne/overnight delivery service (which forms of
notice shall be deemed to have been given upon confirmed delivery by the
delivery agency), (iii) by electronic or facsimile or telephonic transmission,
provided the receiving party has a compatible device or confirms receipt thereof
(which forms of notice shall be deemed delivered upon confirmed transmission or
confirmation of receipt), or (iv) by mailing in the United States mail by
registered or certified mail, return receipt requested, postage prepaid (which
forms of notice shall be deemed to have been given upon the fifth {5th} business
day following the date mailed.
Notices shall be addressed at the addresses first set forth above, or to such
other address as the party shall have specified in a writing delivered to the
other parties in accordance with this paragraph. Any notice given to the estate
of a party shall be sufficient if addressed to the party as provided in this
section.
22
<PAGE>
WHEREFORE, the parties hereto have, for purposes of this Agreement, executed
this Agreement in the City of Vancouver, Province of British Columbia, Canada,
as of the date first hereinabove set forth.
PINNACLE OIL: PINNACLE OIL, INC.,
a Nevada corporation
By: /s/ R. Dirk Stinson
-----------------------------
R. Dirk Stinson, President
PINNACLE INTERNATIONAL: PINNACLE OIL INTERNATIONAL, INC.,
a Nevada corporation
By: /s/ R. Dirk Stinson
-----------------------------
R. Dirk Stinson, President
MOMENTUM: MOMENTUM RESOURCES
CORPORATION,
a Bahamas corporation
By: /s/ R. Dirk Stinson
-----------------------------
R. Dirk Stinson, President
LISZICASZ: GEORGE LISZICASZ
an individual
/s/ George Liszicasz
---------------------------------
STINSON: R. DIRK STINSON
an individual
/s/ R. Dirk Stinson
---------------------------------
23
<PAGE>
EXHIBIT 10.5
AMENDMENT TO RESTATED TECHNOLOGY AGREEMENT
This Amendment to Restated Technology Agreement (the "Agreement"), dated as
of April 3, 1998, is entered into by and between Pinnacle Oil Inc., a Nevada
corporation ("Pinnacle Oil"), whose principal executive office is located at
Suite 750 Phoenix Place, 840 7th Avenue, S.W., Calgary, Alberta Canada T2P 3G2;
Pinnacle Oil International, Inc., a Nevada corporation ("Pinnacle
International"), whose principal executive office is located at Suite 750
Phoenix Place, 840 7th Avenue, S.W., Calgary, Alberta Canada T2P 3G2; Momentum
Resources Corporation, a Bahamas corporation ("Momentum"), whose principal
executive office is located c/o Ansbacher (Bahamas) Limited, P.O. Box N-7768,
Bank Lane, Nassau, Bahamas; George Liszicasz ("Liszicasz"), an individual whose
principal office is located at Suite 750 Phoenix Place, 840 7th Avenue, S.W.,
Calgary, Alberta Canada T2P 3G2; and R. Dirk Stinson ("Stinson"), an individual
whose principal office is located at Suite 750 Phoenix Place, 840 7th Avenue,
S.W., Calgary, Alberta Canada T2P 3G2; with reference to the following facts:
RECITALS:
--------
WHEREAS, the parties previously entered into a Restated Technology
Agreement dated as of August 1, 1996 (the "Prior Agreement"), in order to (i)
restate the relationships among the parties, and (ii) clarify certain matters
not fully addressed or clarified in the prior agreements between the parties
relating to the Stress Field Detector, the SFD Technology and the SFD Data (each
as defined in the Prior Agreement); and
WHEREAS, the parties wish to amend and supersede section 5(a) of the Prior
Agreement with regard to the provisions regarding the SFD Data Fee as set forth
below; and
WHEREAS, it is the intent of the parties that this Agreement amend and
supersede the Prior Agreement to the extent provided for herein, but that the
remainder of the Prior Agreement remain in full force and effect;
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein, and for valuable consideration, the receipt and sufficiency of
which are hereby mutually acknowledged, the parties to this Restated Technology
Agreement (collectively "parties" and individually a "party") agree as follows:
AGREEMENT:
---------
1. DEFINITIONS
Except for capitalized terms specifically defined in this Agreement,
capitalized terms shall have the meanings ascribed to them in the Prior
Agreement.
2. AMENDMENT REGARDING PAYMENT OF SFD DATA FEE TO MOMENTUM
In furtherance of the recitals set forth above, the parties agree that
the following provisions shall replace and supersede section 5(a) of the Prior
Agreement in its entirety:
" (a) Payment of Fee to Momentum for Provision of SFD Data. In
----------------------------------------------------
consideration of Momentum providing SFD Data to Pinnacle International for its
exclusive worldwide use for the identification and exploitation of Hydrocarbons
in accordance with the terms of this Agreement, Pinnacle International shall pay
to Momentum a fee (the "SFD Data Fee") equal to: (i) one percent (1%) of the
"Prospect Profits" (as such term is defined below) earned by Pinnacle
International and/or
1
<PAGE>
its Subsidiaries with respect to the commercial exploitation of each Prospect
for which SFD Data is provided by Momentum to Pinnacle International
on or before December 31, 2000, and (ii) five percent (5%) of the Prospect
- ------------
Profits earned by Pinnacle International and/or its Subsidiaries with respect to
the commercial exploitation of each Prospect for which SFD Data is provided by
Momentum to Pinnacle International after December 31, 2000.
-----
The term "Prospect Profits" means "Prospect Revenues" (as
such term is defined below), less all project expenses actually paid by Pinnacle
International and/or its Subsidiaries with respect to the commercial
exploitation of all Prospects ("Prospect Expenses").
The term "Prospect Revenues" means the aggregate of all
gross revenues actually received by Pinnacle International and/or its
Subsidiaries with respect to the commercial exploitation of all Prospects
calculated, by way of example and not limitation, as follows:
(i) If Pinnacle International and/or its Subsidiaries
indirectly acquire the legal rights for the further exploration, development and
production of Hydrocarbons with respect to a Prospect through joint-ventures
and/or other arrangements with third parties, then the Prospect Revenues from
such Prospect will be the cash flows received by Pinnacle International and/or
its Subsidiaries from such joint venture and/or third party, whether from the
sale of Hydrocarbons or the sale by the joint venture and/or third party of its
interest in such Prospect.
(ii) If Pinnacle International and/or its Subsidiaries
sell or transfer the legal rights for (or "leads" relating to) a Prospect, then
the Prospect Revenues from such Prospect will be the gross consideration
received by Pinnacle International and/or its Subsidiaries as a result of such
sale or transfer.
(iii) If Pinnacle International and/or its Subsidiaries
directly acquire the legal rights for the further exploration, development and
production of Hydrocarbons with respect to a Prospect, and independently extract
and sell Hydrocarbons from such Prospect, then the Prospect Revenues from such
Prospect will be the gross cash flows received by Pinnacle International and/or
its Subsidiaries from the sale of such Hydrocarbons.
Momentum acknowledges and agrees that the foregoing
definition will permit Pinnacle International and/or its Subsidiaries to deduct
expenses, costs, capital or equity investment and/or loan costs paid in
connection with the generation of Prospect Revenues prior to payments to
Momentum (such as acquisition, development, extraction, marketing and/or
distribution costs which would be incurred should Pinnacle International and/or
its Subsidiaries directly exploit the Prospect without joint venture partners).
In addition, Momentum understands and agrees that Prospect Revenues arising from
distributions from joint ventures and/or third party arrangements may, based
upon the terms and conditions of such joint venture, be made after the joint
venture has deducted costs, expenses and reserves, or repaid capital provided by
the joint venture and/or other third party, and Momentum further agrees that it
shall have no right to "gross up" the Prospect Revenues to reflect the pre-
distribution deduction by the joint venture or other third party of such costs,
expenses and reserves and/or repayment of capital.
The parties further acknowledge that the foregoing
examples set forth in clauses (i) through (iii) above are merely examples, and
----------- -----
do not fully reflect many methods by which Pinnacle International may
commercially and economically exploit a Prospect, with and without the
participation of joint venture and/or other third parties. Accordingly, the
parties agree that the SFD Data Fee shall be liberally interpreted to apply to
each and every transaction by which Pinnacle International and/or any of its
Subsidiaries exploit the Prospect to ensure that Momentum receives such
2
<PAGE>
equitable portion of the total Prospect Profits earned by Pinnacle
International and/or its Subsidiaries as to enable Momentum to receive
the benefit of its bargain, subject to avoidance of duplicative payments
by Pinnacle International and its Subsidiaries. In order to avoid any
disputes or misunderstandings, Pinnacle International and Momentum agree
to use their best efforts, while Pinnacle International is formulating
its proposed method to exploit a Prospect, to outline in writing, prior
to committing to such method, the economics of the proposed method of
exploitation consistent with the terms of this Agreement. Should the
parties be unable to agree upon such economics, they agree that such
issue shall be resolved by arbitration (an "Arbitration Proceeding")
before the American Arbitration Association (the "Arbitration Authority")
located in Carson City, Nevada, according to the rules and practices of
the Arbitration Authority from time-to-time in force, unless the parties
mutually agree upon a different Arbitration Authority and/or different
location for such Arbitration Proceeding."
3. MISCELLANEOUS
(a) Cooperation. Each party agrees, without further consideration,
-----------
to cooperate and diligently perform any further acts, deeds and things, and to
execute and deliver any documents that may be reasonably necessary or otherwise
reasonably required to consummate, evidence, confirm and/or carry out the intent
and provisions of this Agreement, all without undue delay or expense.
(b) Interpretation.
--------------
(i) Survival. All representations and warranties made by any
--------
party in connection with any transaction contemplated by this Agreement shall,
irrespective of any investigation made by or on behalf of any other party
hereto, survive the execution and delivery of this Agreement, and the
performance or consummation of any transaction described in this Agreement.
(ii) Entire Agreement/No Collateral Representations. Each
----------------------------------------------
party expressly acknowledges and agrees that this Agreement and the Prior
Agreement, and the agreements and documents referenced herein and therein (1)
are the final, complete and exclusive statement of the agreement of the parties
with respect to the subject matter hereof; (2) supersede any prior or
contemporaneous agreements, memorandums, proposals, commitments, guaranties,
assurances, communications, discussions, promises, representations,
understandings, conduct, acts, courses of dealing, warranties, interpretations
or terms of any kind, whether oral or written, and that any such prior
agreements are of no force or effect except as expressly set forth herein; and
(3) may not be varied, supplemented or contradicted by evidence of prior
agreements, or by evidence of subsequent oral agreements. No prior drafts of
this Agreement, and no words or phrases from any prior drafts, shall be
admissible into evidence in any action or suit involving this Agreement.
(iii) Counterparts; Electronically Transmitted Documents. This
--------------------------------------------------
Agreement may be executed in counterparts, each of which shall be deemed an
original, and all of which together shall constitute one and the same
instrument, binding on all parties hereto. Any signature page of this Agreement
may be detached from any counterpart of this Agreement and reattached to any
other counterpart of this Agreement identical in form hereto by having attached
to it one or more additional signature pages. If a copy or counterpart of this
Agreement is originally executed and such copy or counterpart is thereafter
transmitted electronically by facsimile or similar device, such facsimiled
document shall for all purposes be treated as if manually signed by the party
whose facsimile signature appears.
3
<PAGE>
WHEREFORE, the parties hereto have, for purposes of this Agreement, executed
this Agreement in the City of Calgary, Province of Alberta, Canada, as of the
date first hereinabove set forth.
PINNACLE OIL: PINNACLE OIL INC.,
a Nevada corporation
By: /s/ R. Dirk Stinson
-----------------------------
R. Dirk Stinson, President
PINNACLE INTERNATIONAL: PINNACLE OIL INTERNATIONAL, INC.,
a Nevada corporation
By: /s/ R. Dirk Stinson
-----------------------------
R. Dirk Stinson, President
MOMENTUM: MOMENTUM RESOURCES
CORPORATION,
a Bahamas corporation
By: /s/ R. Dirk Stinson
-----------------------------
R. Dirk Stinson, President
LISZICASZ: GEORGE LISZICASZ
an individual
/s/ George Liszicasz
----------------------------------
STINSON: R. DIRK STINSON
an individual
/s/ R. Dirk Stinson
----------------------------------
4
<PAGE>
EXHIBIT 10.6
[LETTERHEAD OF ENCAL ENERGY LTD. APPEARS HERE]
December 13, 1996
Pinnacle Oil International Inc.
380 - 1090 West Georgia St.
Vancouver, British Columbia
V6E 3V7
Attention: Mr. R. Dirk Stinson
Dear Sir:
Re: JOINT VENTURE PROPOSAL
EAST CENTRAL ALBERTA, CANADA
- --------------------------------------------------------------------------------
Further to our recent meeting on the captioned subject, please accept this
letter of understanding as a term sheet from which Encal Energy Ltd. ("Encal")
and Pinnacle Oil International Inc. ("Pinnacle Oil") may pursue a joint venture
proposal.
The general terms of the joint venture are as follows:
1. OBJECTIVES
. to provide a field test of the Stress Field Detector ("SFD")
technology by Pinnacle for Encal which may be further tested through
the drilling of oil and gas test wells by Encal.
. to utilize Pinnacle Oil's expertise and proprietary SFD technology
within the Acme/Swalwell area, as set forth on the attached Schedule
"A", for the purpose of identifying and further enhancing drilling
opportunities for Encal and the joint venture as, herein described
(such area shall be hereinafter called "the Area").
2. PINNACLE'S WORK COMMITMENT AND TIMING
. Pinnacle will carry out and interpret SFD surveys within the Area and
more specifically over Encal's undeveloped lands in the Area prior to
January 30, 1997. Encal's undeveloped lands to be evaluated by
Pinnacle will be lands in which Encal holds a working interest, or may
be entitled to hold an interest, of not less than 50%. Specified
<PAGE>
Pinnacle Oil International Inc.
Joint Venture Proposal
12/16/96
Page 2
exclusions from the Schedule "A" Acme/Swalwell Lands will be any lands
and rights not owned by Encal and in addition, shall exclude any well
spacing units of Encal's Acme/Swalwell Lands which are shown as
excluded portions through cross hatching on Schedule "A".
. Upon completion of the survey, Pinnacle will present an interpreted
SFD survey to Encal which shall highlight prospects and anomalies that
have been identified by Pinnacle in a ranked order from most
prospective to least prospective. Undeveloped prospects identified by
Pinnacle and presented for acceptance to Encal at this stage will be
the prospects in which Pinnacle shall have the right to participate as
hereafter referenced.
3. ENCAL'S COMMITMENT
Encal will provide seismic geophysical evaluation on a minimum of the three
most prospective anomalies identified by Pinnacle as soon as possible.
Pending incorporation of the seismic data, Encal will proceed to test
through test well drilling, none, some or all of the identified anomalies.
Upon Encal having drilled a test well to test a prospect, Pinnacle will
receive a casing point election to participate in such well as to 5% of
Encal's interest on each of the first three test wells. In the event
Pinnacle elects to participate beyond casing point in a test well, Pinnacle
shall thereafter be entitled to a working interest equal to 5% of Encal's
interest in the test well and the test well spacing unit, with such
interest earned by Pinnacle to be subject to all existing royalties and
other burdens on Encal's interest ("Earned Interest"). Costs incurred after
the casing election point would be paid at election to Encal by Pinnacle
and Pinnacle would participate as to the Earned Interest share in costs
(including casing costs) from that point on. Subject to the further terms
of this agreement, Pinnacle will have the right to participate with Encal
as to 5% of Encal's interest in subsequent option wells and development
wells after the third test well on any prospects identified in Clause 2
hereof, during the term of this agreement as set forth in Clause 5.
4. INFORMATION TO BE KEPT CONFIDENTIAL
. All data, interpretation and future rights from the SFD survey will
remain the sole property of Pinnacle. All data interpretation and
future rights from any seismic geophysical data will remain the sole
property of Encal. It is understood that Pinnacle may use SFD surveys
conducted and subsequently tested through drilling under this
<PAGE>
Pinnacle Oil International Inc.
Joint Venture Proposal
12/16/96
Page 3
agreement as templates to encourage further applications of SFD
technology. Notwithstanding the foregoing, it is understood by both
parties that any dissemination of SFD survey, drilling or other
confidential information for a period of one year from rig release of
each well must be with mutual consent. Press releases regarding the
status, progress and results of operations involving both Encal and
Pinnacle must also be jointly agreed upon.
5. TERM
. Subject to Clause 6 hereof, Pinnacle's right to participate in the
drilling of either option or development wells on Encal's
Acme/Swalwell Lands as referred to in Clause 3 hereof will terminate
on the later of August 31, 1997, or 120 days after notice by Encal to
Pinnacle that Encal has no further intent of drilling test wells, or
option wells, or development wells under this agreement.
6. PINNACLE RIGHT TO FARMIN
. Until July 8, 1997, the parties shall consult as to the potential to
drill further wells on Encal's Acme/Swalwell Lands. In the event that
Encal proposes not to drill any further wells on any portion of the
Acme/Swalwell Lands prior to the expiration of the term referenced in
Clause 5, Pinnacle shall have the right to commit to drill, on a
farmin basis, any number of additional wells on the remaining unearned
Acme/Swalwell Lands. It is agreed and understood that in the event
that Pinnacle commits to drill any additional wells, the parties will
negotiate in good faith towards the execution of a formal farmout
agreement. Such agreement shall contain the terms and conditions
normally untilized by Canadian oil and gas companies for such
transactions. The basic terms would provide for Pinnacle to drill to a
depth sufficient enough to evaluate the Nisku formation, complete, and
equip or abandon each well at its sole cost, risk, and expense each
well. Upon Pinnacle having fulfilled its obligations pursuant to the
Farmout Agreement, Pinnacle shall have earned from Encal:
a) an undivided 100% of Encal's pre-farmout working interest in each
additional well spacing unit in all zones that Encal holds an
interest down to the base of the Nisku formation. Such interest
earned by Pinnacle would be subject to a convertible sliding
scale gross overriding royalty to Encal of 1/150 (5%-15%) of
monthly oil production and 15% of natural gas and all other
products based
<PAGE>
Pinnacle Oil International Inc.
Joint Venture Proposal
12/16/96
Page 4
on Encal's original pre-farmout working interest. This royalty
would be convertible at payout to an undivided 50% interest; and
b) in each additional well spacing unit Pinnacle shall have earned
an undivided 50% of Encal's pre-farmout working interest in all
zones that Encal holds an interest down to the base of the Nisku
formation in the balance of a pre-selected one (1) section block.
7. RIGHT-OF-FIRST REFUSAL
. Pinnacle and Encal hereby acknowledge that the opportunity to
participate in the enhancement of drilling opportunities utilizing SFD
technology will be limited to three joint venture partners.
. Encal, as one of the prospective partners, hereby requests and
Pinnacle agrees to provide Encal with a shared right-of-first refusal
(to be shared equally and independently between Encal and Pinnacle's
other joint venture partners) to participate in further exploration
projects utilizing SFD technology in British Columbia, Alberta and
Saskatchewan. The term of this right-of-first refusal will commence on
the date of this letter and terminate on August 31, 1997, but subject
to extension with the mutual agreement of the parties.
8. MISCELLANEOUS
. This Agreement shall not be construed as a partnership.
. Pinnacle warrants to Encal that Pinnacle has full right and authority
to utilize SFD technology.
. Pinnacle, by entering into this agreement, does not violate or
conflict with any term or provision of or constitute a default under
any agreement of whatever nature.
. Each of Pinnacle and Encal shall indemnify the other against all
actions, suits, demands, claims, losses, expenses and damages which
may be brought against, incurred by or suffered by the other or which
may sustain, pay or incur by reason of or in any way attributable to
the operations contemplated by this agreement carried out by the
other, its agents, servants, employees or contractors.
<PAGE>
Pinnacle Oil International Inc.
Joint Venture Proposal
12/16/96
Page 5
If this summarizes your understanding of our discussions and you are prepared to
move forward on this basis, please execute and return one copy to the
undersigned. We are prepared to sit down and layout the most effective traverses
and identify template locations as soon as possible.
Yours very truly
ENCAL ENERGY LTD.
/s/ Peter A. Carwardine
Peter A. Carwardine
V.P Land & Corporate Development
/cdi
Attachment
ACCEPTED AND AGREED TO THIS 14 day of December, 1996
[SIGNATURE ILLEGIBLE]
_______________________________
PINNACLE OIL INTERNATIONAL INC.
<PAGE>
This is Schedule "A" attached to and forming part of an Joint Venture Proposal
dated December 13, 1996 between Encal Energy Ltd. and Pinnacle Oil International
Inc.
[GRAPH OF JOINT VENTURE PROPOSAL APPEARS HERE]
<PAGE>
EXHIBIT 10.7
EXPLORATION JOINT VENTURE AGREEMENT
THIS AGREEMENT made as of the 19th day of February, 1997,
AMONG
ENCAL ENERGY LTD., a corporation incorporated under
the laws of the Province of Alberta ("Encal")
THE PARTY OF THE FIRST PART
-and-
PINNACLE OIL INTERNATIONAL INC., a corporation
incorporated under the laws of the State of Nevada
("PINNACLE")
THE PARTY OF THE SECOND PART
-and-
THE AFFILIATES, being the individuals or
corporations identified in Schedule "A" hereto,
having an affiliation to Pinnacle or the SFD
Technology (the "AFFILIATES")
THE PARTY OF THE THIRD PART
WHEREAS the parties have agreed to enter into this Exploration Joint
Venture Agreement (the "EJV") for the exploration, development and production of
oil and gas in Western Canada; and
WHEREAS the Parties have agreed that the EJV shall be carried out pursuant
to the provisions of this Agreement;
-1-
<PAGE>
NOW THEREFORE THIS AGREEMENT WITNESS THAT, in consideration of the premises
and the mutual covenants of the Parties herein contained, the Parties hereto
agree as follows:
1. Definitions and Schedules
a) In this Agreement, unless the context otherwise requires, the
definitions set forth in Clause 101 of the Operating Procedure, shall
apply and in addition, the following shall have the following
meanings;
i) "Accounting Procedure" means Schedule "D" attached to and made
part of this Agreement;
ii) "Assignment Procedure" means the CAPL 1993 Assignment Procedure
attached as Schedule "E" hereto which supersedes any conflicting
clause in the Operating Procedure;
iii) "Action" means the court proceedings described in an action
filed in the British Columbia Supreme Court, Vancouver Registry,
in File No. C944272, between George Liszicasz, as plaintiff; and
Alexander Shereshevsky, G.D.M Grand Development Corp., Samuel
Higgins, also known as Sam Higgins, and Sam J. Higgins, Manon L.
Walters and Keith Morey, as defendants, and Pinnacle Oil Inc.,
Pinnacle Oil International Inc. and Manon L. Walters Inc., as
defendants by counterclaim;
iv) "Basis Geophysical Data" means any non-interpreted seismic data,
processed record sections, seismic tapes, monitor records and
associated data;
v) "Earning Well" means a well drilled, completed or abandoned
pursuant to Clauses 12(b) or 13(b) as the context requires and
where such well is drilled pursuant to a Farmin Agreement or and
Additional Farmin Agreement and where such well earns from a
third party an interest in Petroleum and Natural Gas Rights;
vi) "Exploration Area" means any contiguous area covering up to nine
(9) township (or NTS survey equivalent) in size, as identified
by Encal pursuant to Clause 6 hereof with the three Initial
Exploration Areas identified in Schedule "B" hereto and as
identified by Encal pursuant to Clauses 7 and 9;
-2-
<PAGE>
vii) "Exploratory Prospect" means the geographic area and
appropriate spacing units (including entire spacing
units in the case of partial spacing units) covering an
SFD Anomaly identified utilizing SFD Technology and
qualified in accordance with the provisions of this
Agreement;
viii) "Facility" means:
a) production facility; or
b) any gas processing plant, gas compressor station,
battery, gathering system or production storage
facility used in the production of petroleum
substances which facility in accordance with
industry practice, would be constructed and/or
operated pursuant to a separate agreement:
ix) "Joint Lands" means joint lands and lands where the
Parties have acquired and interest pursuant to the
terms of a Farmin Agreement and/or an Additional Farmin
Agreement as set forth in Clause 12(b) or 13(b);
x) "Losses" means, in respect of any matter, all claims,
demands, proceedings, losses, damages, liabilities,
deficiencies, costs and expenses (including, without
limitation, all legal and other professional fees and
disbursements, interest, penalties and amounts paid in
settlement) arising directly or indirectly as a
consequence of such matter;
xi) "New Lands" means joint lands acquired pursuant to this
Agreement excepting those lands acquired pursuant to
Clauses 12(b) and 13(b);
xii) "Operating Procedure" means the 1990 amended CAPL
Operating Procedure attached hereto as Schedule "C" and
made part of this Agreement;
xiii) "party' or "Parties" means a party to this Agreement;
xiv) "Petroleum and Natural Gas Rights" means any documents,
issued or which may be issued, by virtue of which a
Party is entitled to drill for, win, take or remove
petroleum substances underlying lands and all renewals
or extensions thereof or documents of title issued
thereunder;
xv) "Royalty Procedure" means the royalty procedure
attached as schedule "F" and made part of this
Agreement.
xvi) "Seismic Costs" means, with respect to Basic
Geophysical Data, all moneys expended in respect of an
Exploratory Prospect for the purchase
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of seismic data, the shooting and processing or reprocessing
of seismic data and collection of information and any other
costs associated therewith;
xvii) "SFD Anomaly, means an anomalous geological or geophysical
feature prospective of containing petroleum substances,
initially identified by Pinnacle using SFD Technology and
SFD Data:
xviii) "SFD Data" means primary signal data derived form SFD
Technology;
xix) "SFD Information" means Ground Based SFD Information and
Airborne SFD Information collectively or individually as the
context requires;
xx) "SFD Technology" means stress field detector technology;
xxi) "Territory" means Alberta, British Columbia and
Saskatchewan;
xxii) "Wells" means, collectively, Earning Wells, Test Wells,
Additional Wells and Subsequent Wells as hereinafter
defined.
b) Appended hereto are the following schedules:
A - Affiliates
B - Initial Exploratory Areas
C - Operating Procedure
D - Accounting Procedure
E - Assignment Procedure
F - Royalty Procedure
G - Confidentiality Agreement
2. Term
a) The term of this Agreement ("Term") shall commence as of February 19,
1997, ("Effective Date") and shall extend for a period of three (3)
years therefrom which Term may be subsequently extended by the mutual
agreement of the Parties.
b) Provided that this Agreement has not been previously terminated
pursuant to Clause 19, the Term of this Agreement shall be restarted
and recommence for a three (3) year period following Pinnacle advising
Encal that it has the ability to commence and conduct airborne surveys
utilizing the SFD Technology unless such date is more than four (4)
years from the Effective Date hereof.
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3. No Warranty of Title
In the event any Party, subsequent to the date of this Agreement, encumbers
any interest it now holds or may obtain under this Agreement, the Party
which encumbers its interest shall be solely responsible for that
encumbrance, and agrees to indemnify the other Parties to this Agreement
form any Losses caused by the encumbrance.
4. Warranty Of Technology
a) Pinnacle and each of the Affiliates, jointly and severally, represent,
warrant and covenant to Encal that the beneficial owner of the SFD
Technology is Momentum Resources Ltd. ("Momentum") and Momentum has
granted Pinnacle an exclusive licence for the use of SFD Technology
for the purpose of generating SFD Data for the exploration of
petroleum substances.
b) Pinnacle and each of the Affiliates, jointly and severally, hereby
represent, warrant and covenant to Encal that, as of the Effective
Date and through the Term of this Agreement and any extensions
thereof, that Pinnacle is and will be the beneficial owner of the SFD
Data, free and clear of any and all claims, suits, proceedings,
encumbrances and obligations which may limit or impair its ability to
utilize the SFD Technology in the manner contemplated hereunder.
c) Pinnacle and each of the Affiliates, jointly and severally, hereby
represent, warrant and covenant with Encal that the conduct of any SFD
survey and joint operation contemplated by this Agreement does not
infringe upon the industrial or intellectual property rights, domestic
or foreign, of any other person and except for the Action, neither
Pinnacle nor the Affiliates are aware of any claim of any
infringement or breach of any industrial or intellectual property
rights of any other person nor have Pinnacle or any the Affiliates,
received any notice that the conduct of the SFD survey and joint
operations contemplated in this Agreement, including the use of the
SFD Technology, infringes upon or breaches any industrial or
intellectual property rights of any other person.
d) Except for the Action, Pinnacle and each of the Affiliates, jointly
and severally, represent, warrant and covenant with Encal that there
are no claims, actions, suits or proceedings (whether or not purported
on behalf of Pinnacle or the Affiliates) pending or to the best of the
knowledge of Pinnacle or each of the Affiliates, threatened against or
affecting Pinnacle, the Affiliates or the SFD
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Technology, at law or in equity or before or by any federal,
provincial, municipal or other governmental department, court,
commission, board, bureau, agency or instrumentally, domestic or
foreign, or before or by any arbitrator or arbitration board.
e) Pinnacle and each of the Affiliates, jointly and severally, warrant
and covenant with Encal that the entering into, consummation and
performance by Pinnacle of this Agreement will not constitute a breach
of any agreement, contract or licence by which Pinnacle or any
Affiliate is bound or an infringement upon any intellectual property
or technology right of any person.
5. USE OF TECHNOLOGY
a) Pinnacle shall provide to Encal a first priority to have Pinnacle
generate SFD Data on Encal's behalf during the Term of this Agreement
within the Territory, on the condition that Pinnacle may be entitled
to enter into up to a maximum of two (2) current joint ventures with
other parties within the Territory, to generate SFD Data on their
behalf, which joint ventures may utilize data obtained from the SFD
Technology in the Territory in areas other than the current
Exploration Areas; provided however that, in British Columbia, the SFD
Technology shall be utilized by Pinnacle solely and exclusively for
generating SFD Data for the benefit of Encal during the Term.
b) Encal's first priority to have Pinnacle generate SFD Data on Encal's
behalf as provide in Clause 5(a) shall mean a first dedication by
Pinnacle to Encal hereunder of a minimum of 50% of Pinnacle's world
wide SFD Data generating capacity to be dedicated to the Territory and
of which a minimum of 75% of Pinnacle's SFD Data generating capacity
within the Territory is to be first dedicated to Encal. Such first
dedication shall apply only at the times that Pinnacle has not
generated the Minimum Prospect Inventory, as hereinafter defined.
c) If during the Term of this Agreement, Pinnacle generates SFD Data in
the Territory that pertains to lands that are not within a current
Exploration Area or over an area permitted under another joint
venture, as allowed hereunder, Pinnacle shall present to Encal all SFD
Anomalies identified by Pinnacle from such data within thirty (30)
days and the terms and conditions of Clauses 6 or 7
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shall apply and Exploration Prospects resulting therefrom shall form
part of the Minimum Prospect Inventory referenced in Clause 9 (b).
Provided, however, Pinnacle shall not be required to present such SFD
Anomalies or features on any lands that would qualify as Excluded
Lands pursuant to Clause 8. This Clause 4(b) shall be in effect until
October 31, 1998.
6. SFD SURVEY PROGRAM - GROUND SURVEYS
a) Encal shall initially select three (3) Exploration Areas within the
Territory upon which ground based survey work will be conducted by
Pinnacle, utilizing the SFD Technology ("Ground Based Survey,).
Pinnacle shall perform the Ground Based Survey on each of these
Exploration Areas selected by Encal, in the order determined by Encal,
Pinnacle shall, within thirty (30) days, advise Encal of:
i) any safety concerns; or,
ii) conflicts with an area forming part of another joint venture as
provided in Clause 5(a) hereof; or to the knowledge of Pinnacle,
conflicts with lands held by Pinnacle's partner in such other
current joint venture, or,
iii) any concerns Pinnacle has arising in acquiring SFD Information of
a technical nature as a result of Excluded Lands or any other
bona fide reason,
if any, that pertain to the Exploration Areas that Encal selects for
such Ground Based Surveys. In the event that any of the above
conflicts or concerns arise, Encal and Pinnacle shall either jointly
modify the subject Exploration Area or Encal shall select another
Exploration Area as a substitute.
b) On or before September 25, 1997, Pinnacle shall:
i) present to Encal visual SFD Data and written interpretations
thereof collected while conducting the Ground Based Survey,
provided however, Pinnacle shall not be required to provide to
Encal copies, in any form, of the SFD Data;
ii) provide, at no cost to Encal, copies of all maps, information,
written reports, interpretations and assessments of Pinnacle
identifying, in Pinnacle's opinion, all SFD Anomalies, and
possible Exploratory Prospects; and,
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iii) provide recommendations in respect to all SFD Anomalies
identified, (i, ii, and iii above are collectively referred to as the
"Ground Based SFD Information").
(c) Upon presentation of the Ground Based SFD Information provided by
Pinnacle, Encal shall have ninety (90) days to review the Ground
Based SFD Information and individually accept or reject in writing any
or all SFD Anomalies or features ("Evaluation Period"). Pinnacle
agrees during the Evaluation Period to assist Encal in assessing,
confirming, and the further evaluation of any of the SFD Anomalies.
Any SFD Anomaly accepted by Encal shall be hereinafter called an
Exploratory Prospect.
There is no maximum to the number of SFD Anomalies that Pinnacle may
provide Ground Based SFD information on and which may be accepted by
Encal as Exploratory Prospects.
In the event that such SFD Anomalies are rejected by Encal, or deemed
rejected, such SFD Anomalies shall not be subject to this Agreement
and Pinnacle shall be free to deal with these rejected SFD Anomalies
as it wishes.
Encal and Pinnacle shall attempt to jointly prioritize the Exploratory
Prospects. Encal, as Operator and on behalf of the Parties, shall,
utilizing conventional oil and gas industry methods use it's best
efforts to cause further evaluation work to be done on each
Exploratory Prospect, as prioritized above. Such work shall be for the
purpose of confirming whether or not a Test Well location should be
selected and whether or not the drilling of such Test Well is
warranted (which work may include, but not restricted to further
qualification and analysis using Basic Geophysical Data available to
either Encal or Pinnacle).
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<PAGE>
Seismic Costs shall be borne jointly, subject to Clause 10(c)(ii), by
each party, in accordance with the nature of the Test Well being
drilled under Clause 12 of this Agreement.
d) In the event that Encal fails to elect to accept or reject an SFD
Anomaly within the prescribed time, it shall be conclusively be deemed
to be a rejection of such SFD Anomaly and as such shall not become an
Exploratory Prospect.
e) In the event that an Exploratory Prospect is subsequently rejected for
technical reasons by Encal upon its review including any Basic
Geophysical Data, then the lands with respect to such Exploratory
Prospect, excepting any Joint Lands, shall not be subject to the terms
and conditions of this Agreement and Pinnacle shall be free to deal
with such Exploratory Prospects as it wishes and the Operating
Procedure shall continue to apply to any Joint Lands within such
Exploratory Prospect.
f) Should Encal, after reasonable effort, be unable to secure, pursuant
to Clauses 12(b), 12(c), or 21, the Petroleum and Natural Gas Rights
to any portion of an Exploratory Prospect (which portion represents,
in Encal's reasonable opinion, the key tracts to drill a Test Well
such Petroleum and Natural Gas Rights shall be called "the Key
Tracts"), then Encal shall provide written notice to Pinnacle of such
event occurring and for the purposes of Clause 9 such Exploratory
Prospect shall not be considered in calculating the Minimum Prospect
Inventory as defined in Clause 9 hereof.
The Parties may continue to attempt to secure the Key Tracts and the
provisions of Clauses 12(b), 12(c), or 21 shall continue for two (2)
years from the date of the above mentioned written notice. In
addition, the specific term set forth in Clause 21(b) with respect to
the specific Exploratory Prospect shall be deemed to be amended to two
(2) years from the date of the notice pertaining to the Key Tracts. In
the event that a Party is unable to secure the Key Tracts for such
Exploratory Prospect within such two (2) year period, then such
Exploratory Prospect shall be deemed a rejected Exploratory Prospect
except for any Joint Lands acquired thereon. In the event that such
Key Tracts are secured, then
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such Exploratory Prospect shall, for the purposes of Clause 9, be
considered in calculating the Minimum Prospect Inventory.
g) Should Pinnacle advise Encal, in writing, that it does not wish to
pursue an Exploratory Prospect, and provided Encal wishes to drill a
Test Well on such Exploratory Prospect, Encal shall pay Pinnacle an
amount of twenty thousand ($20,000.00) dollars and the lands in
respect to the Exploratory Prospect, excepting any Joint Lands, shall
not be subject to the terms and conditions of this Agreement and Encal
shall be free to pursue the Exploratory Prospect free and clear of any
further obligations to Pinnacle or the Affiliates.
h) In addition to the foregoing, Pinnacle agrees to provide, exclusively
to Encal, all leads and/or SFD Anomalies identified by Pinnacle and
the Affiliates utilizing SFD Technology in the Province of Alberta as
of the date hereof ("Existing Exploratory Prospects"), which Existing
Exploratory Prospects shall not be part of the Exploratory Prospects
required to be provided under Clause 5(c) hereof.
Encal shall have ninety (90) days from the date upon which this Ground
Based SFD Information is presented by Pinnacle to Encal in writing to
determine whether to accept or reject each Existing Exploratory
Prospect. Each Existing Exploratory Prospect shall, subsequent to
Encal's acceptance of same, be governed by the provisions of this
Agreement. In the event that Encal fails to elect to accept or reject
an SFD Anomaly within the prescribed time, it shall be conclusively be
deemed to be a rejection of such SFD Anomaly. Upon rejection, or
deemed rejection, by Encal of an Existing Exploratory Prospect free
and clear of any further obligations to Encal.
i) All information acquired by the Parties as a result of any operations
on the Exploration Areas shall be considered confidential and for
their sole and exclusive use and benefit. The Ground Based SFD
Information shall not be divulged to any party unless the Parties
first agree in writing to the dissemination thereof. Pinnacle shall
not, without the written consent of Encal which consent shall not be
unreasonably withheld, trade, sell or swap the Ground Based SFD
Information acquired under the terms of this Agreement pertaining to
an Exploratory Prospect and or an Existing Prospect unless it pertains
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to an Existing Exploratory Prospect and or an Exploratory Prospect
which has been rejected or deemed to be rejected by Encal.
j) The Parties hereto acknowledge that the SFD Technology and all SFD
Data shall continue to be the sole property of Pinnacle and the
Affiliates, and shall remain confidential and within the possession of
Pinnacle and/or the Affiliates.
k) Encal agrees that Pinnacle may require each employee of Encal and
Encal's professional advisors who come into contact with SFD
Technology to execute a Confidentiality Agreement in the form as
Schedule "G" attached hereto.
l) The Parties hereto acknowledge that any trading rights to Basic
Seismic Data acquired hereunder shall be owned in the same interests
as to participation in the initial acquisition of such Basic Seismic
Data.
7. SFD SURVEY PROGRAM - AIRBORNE SURVEYS
a) Upon Pinnacle advising Encal that Pinnacle is capable of conducting
airborne surveys utilizing SFD Technology, Encal may initially select
two (2) additional Exploration Areas within the Territory upon which
airborne survey work will be conducted by Pinnacle, utilizing SFD
Technology ("Airborne Survey"). Pinnacle shall perform such survey
work on each of these additional Exploration Areas selected by Encal,
in the order determined by Encal. Pinnacle shall, within thirty (30)
days, advise Encal of:
i) any safety concerns; or,
ii) conflicts with an area forming part of another joint venture as
provided in Clause 4(a) hereof; or to the knowledge of Pinnacle,
conflicts with lands held by Pinnacle's partner in such other
current joint venture, or,
iii) any concerns Pinnacle has arising in acquiring SFD Information of
a technical nature as a result of Excluded Lands or any other
bona fide reason,
if any, that pertain to either of the Exploration Areas that Encal
selects for such Airborne Surveys. In the event that any of the above
conflicts or concerns arise, Encal and Pinnacle shall either jointly
modify the subject Exploration Area or Encal shall select another
Exploration Area as a substitute.
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(b) On or before the expiration of one hundred and fifty (150) days from
the date that Encal has selected the Exploratory Areas for the
Airbourne Survey, Pinnacle shall:
i) present to Encal all visual SFD Data and written interpretations
thereof collected while conducting the Airbourne Survey, provided
however, Pinnacle shall not be required to provide to Encal
copies, in any form, of the SFD Data;
ii) provide, at no cost to Encal, copies of all maps, information,
written reports, interpretations and assessments of Pinnacle
identifying, in Pinnacle's opinion, all SFD Anomalies, and
possible Exploratory Prospects; and,
iii) provide recommendations in respect to all SFD Anomalies
identified, (i, ii, and iii above are collectively referred to as the
"Airbourne SFD Information").
c) Upon presentation of the Airbourne SFD Information provided by
Pinnacle, Encal shall have ninety (90) days to review the Airbourne
SFD Information and individually accept or reject in writing any or
all SFD Anomalies ("Airbourne Evaluation Period"). Pinnacle agrees
during the Airbourne Evaluation Period to assist Encal in assessing,
confirming, and the further evaluation of any of the SFD Anomalies.
There is no maximum to the number of SFD Anomalies that Pinnacle is
required to provide Airbourne SFD Information on and which may be
accepted by Encal as Exploratory Prospects.
d) All of the provisions of this Agreement shall apply mutatis mutandis,
to such Exploratory Prospects derived from the Airbourne SFD
Information and the Airbourne Survey as those provisions which apply
to the Exploratory Prospects set forth in Clause 6 of this Agreement.
e) Notwithstanding Clause 7(b) above, Encal and Pinnacle shall share in
the cost, on a 50/50 basis, of the daily rate for the airplane used
for the survey work performed pursuant to this Clause. The current
estimated gross cost of the daily rate is $3,000.00.
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8. Excluded Lands
Upon Encal having selected any Exploratory Area, Encal shall advise
Pinnacle in advance of Pinnacle conducting any survey utilizing SFD
Technology of any lands within the Exploration Area in which Encal holds or
is entitled to hold or is negotiating to acquire an interest in Petroleum
and Natural Gas Rights ("Excluded Lands"). Unless otherwise agreed,
Pinnacle during the Term:
a) shall not be entitled to acquire, farmin, option to farmin, or
purchase from Encal, or any third party an interest in the Excluded
Lands; and
b) shall not conduct any Ground Based Survey or Airborne SFD Survey upon
the Excluded Lands.
9. Additional Exploration Areas
During the Term of this Agreement and as a result of the SFD information
and associated Exploratory Prospects, it is a requirement of this Agreement
that at any time after January 1, 1998, either:
a) each Exploration Area yield no fewer than three (3) Exploratory
Prospects; or
b) all Exploration Area yield a total of twenty-five (25) Exploratory
Prospects (provided Pinnacle is capable of generating Airborne SFD
information, a minimum of ten (10) of the required twenty five (25)
Exploratory Prospects must be as a result of Airborne SFD information)
(such number of Exploratory Prospects, as set forth in Sub-clauses (a) or
(b) above, is hereinafter referred to as "the Minimum Prospect Inventory").
In the event that the sum of the Exploratory Prospects is less than the
Minimum Prospect Inventory, Pinnacle shall commence further Ground Based
Surveys or Airborne Surveys, as designated by Encal, on an additional
Exploration Area(s) under the same terms and conditions outlined in this
Agreement until at least the Minimum Prospect Inventory is achieved, with
such additional Exploration Areas to be provided on such a "rolling basis"
as may be required.
The provisions of Clauses 6 and/or 7, as the context requires, shall apply
to the above mentioned additional Exploration Areas created as a result of
this Clause.
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10. INTERIM TERM PROVISIONS
a) The Parties agree that an interim period (the "Interim Period") shall
apply from the date hereof until the earlier of:
i) such time as either:
a) a minimum of three Test Wells have been drilled, completed
and producing or capable of producing petroleum substances
of at least one hundred (100) barrels of oil (or an
equivalent) per day per each Test Well located on
Exploratory Prospects; or
b) five (5) Test Well have been drilled on Exploratory
Prospectus; or
ii) one (1) year from the Effective Date
b) Subject to any third party Farmin Agreements or Additional Farmin
Agreements, the Parties agree that Pinnacle shall be entitled to
release to the public through press releases the results of the
drilling of Wells on any Exploratory Prospects to comply with
securities laws, confirm and validate the SFD Technology and to
assist Pinnacle in raising financing. Pinnacle may disclose in such
news releases the expected reserves and expected production rates from
the Wells provided confirmation thereof has been given by independent
engineers, but will not (without the approval of Encal) release the
location of such Wells or other matters of a confidential nature which
might reasonability be expected to affect Encal's ability to conduct
operations competitively. Pinnacle will not disclose Encal's name in
any press release without Encal's prior approval.
c) Notwithstanding anything herein contained, during the Interim Period:
i) Encal shall not, in respect of any Exploratory Prospects,
propose the drilling of any Test Wells, make any commitments to
third parties, post any lands for sale at Crown sales, initiate
any freehold mineral leases, or acquire any lands under
agreements for purchase and sale, without the agreement of
Pinnacle;
ii) Pinnacle shall have the right not to participate in the
acquisition of Basic Geophysical Data in respect of an
Exploratory Prospect, in which case, Encal shall be entitled to
acquire such Basic Geophysical Data and recover Pinnacle's share
of Seismic Costs from Pinnacle's share of production from any
Wells; and
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iii) Pinnacle shall be given the opportunity during a period of ninety (90)
days from the end of the Interim Period to initiate and complete a
financing ("Financing Period"). Encal shall endeavour not, without the
approval of Pinnacle, to initiate any new operations, incur new
obligations for capital (including AFE's or issue cash calls), or new
commitments after the end of the Interim Period until the end of the
Financing Period. In the event Encal for any reason does initiate new
operations, incur new obligations for capital (including AFE's or
issue cash calls) during the Financing Period then it is agreed that
Pinnacle may withhold payment for same until the end of the Financing
Period.
iv) Encal shall use its reasonable efforts to negotiate in third party
Farmin Agreements, and Additional Farmin Agreements no more onerous
confidentiality provisions than those provided in Article XVIII of the
Operating Procedure.
11. CONVENTIONAL EVALUATION
Notwithstanding the use of the SFD Information in evaluating the
Exploration Areas, the Parties hereto agree and acknowledge that any
Exploratory Prospect (including Existing Exploratory Prospects) evaluated
under this Agreement shall have been evaluated using such geological,
geophysical, engineering, mapping, seismic and technological data or
information, including without limitation the Basic Geophysical Data,
available to either Encal or Pinnacle in addition to the SFD Information
such that any successes or failures in drilling on an Exploratory Prospect
shall be attributed to all of the information and data utilized evaluating
and determining the Exploratory Prospect.
12. DRILLING OF WELLS
During the Term of this Agreement:
a) Upon Encal having completed the evaluation work as described in Clause
6(c), Encal may select a location for the drilling of a well on an
Exploratory Prospect and if such well is the first well to be drilled
on an Exploratory Prospect pursuant to this Agreement it shall be
referred to as the "Test Well". In the event that Encal wishes to
drill a Test Well, Encal shall serve written notice to Pinnacle ("Test
Well Notice") including a reasonable estimate of Test Well costs and
an
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estimate of the timing of the advance of funds. Pinnacle shall then elect
by written notice to Encal on or before the expiration of fifteen (15) days
from receipt of the Test Well Notice to either:
i) elect to participate in the drilling of the Test Well; or
ii) elect not to participate in the drilling of the Test Well.
Should Pinnacle elect to participate in the drilling of a Test Well, Encal
shall commence, or cause to be commenced, the drilling of such Test Well on
the Exploratory Prospect as provided herein or pursuant to any agreement
entered into with third parties by Encal, on behalf of Encal and Pinnacle.
Should Pinnacle elect not to participate in the drilling of the Test Well
the provisions of Clause 6(g) shall come into effect.
During that period of time prior to Pinnacle's election to participate
Encal shall assist Pinnacle in the review of the proposed Test Well
location.
In the event that Pinnacle fails to elect to participate in the drilling of
a Test Well within the prescribed time, it shall be conclusively be deemed
to be an election not to participate.
b) In the event that Petroleum and Natural Gas Rights within an Exploratory
Prospect are held by third parties to this Agreement ("Third Party Lands")
and Encal is required to commit to conduct certain obligations, including
but not restricted to seismic programs, purchases of seismic, or the
drilling of Earning Wells (such obligations are collectively referred to as
"Obligations") which may be required to earn an interest or the right to
earn an interest in the Third Party Lands, Encal may negotiate and enter
into agreements with third parties ("Farmin Agreements"). In the event that
Encal enters into a Farmin Agreement, Encal shall serve written notice to
Pinnacle of Encal entering into such Farmin Agreement ("Farmin Notice")
including a reasonable estimate of Obligations and an estimate of the
timing of the advance of funds. Such notice shall include such
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information necessary to evaluate such Obligations. Pinnacle shall
then elect by written notice to Encal on or before the expiration of
fifteen (15) days from receipt of the Farmin Notice to either:
i) elect to participate in the Obligations; or
ii) elect not to participate in the Obligations.
Should Pinnacle elect to participate in the Obligations, the cost,
risk and expense of the Obligations and the interest earned in the
Third Party Lands subject to the Farmin Agreements shall be shared by
the Parties in the following proportions:
Encal 75%
Pinnacle 25%
Should Pinnacle elect not to participate in the Obligations, the Third
Party Lands and the relevant Exploratory Prospect with the exception
of any Joint Lands shall not be subject to the terms and conditions of
this Agreement. The cost, risk, expense, any Petroleum and Natural Gas
Rights earned, or benefit derived therefrom shall be for Encal's own
account.
During that period of time prior to Pinnacle's election to participate
Encal shall assist Pinnacle in the review of the Obligations.
In the event that Pinnacle fails to elect to participate in
Obligations within the prescribed time, it shall be conclusively be
deemed to be an election not to participate.
c) Provided Pinnacle elects to participate in a Test Well, the cost risk and
expense associated with each Test Well shall be borne by the Parties in
accordance with their interest in the Test Well Spacing Unit unless
otherwise provided herein. For clarity sake the interests of the Parties
shall be generally shared in the following proportions:
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ii) if lands acquired pursuant to Clause 21 c(ii) then:
Encal 70%
Pinnacle 30%
ii) if lands acquired pursuant to Clauses 12(b) and 13(b) or 21 (c)
(i), then:
Encal 75%
Pinnacle 25%
d) For the purposes of Clause 9 inter alia, upon an Exploratory Prospect
having been evaluated by the drilling of a Test Well such Exploratory
Prospect shall be considered proven ("Proven Prospect") and shall no
longer be considered an Exploratory Prospect.
13. DEVELOPMENT OF PROVEN PROSPECTS
a) During the Term of this Agreement and for one (1) year thereafter,
where further wells are proposed in order to fully develop the
potential of a Proven Prospect which wells are located on Joint Lands
earned as a result of a Farmin Agreement ("Additional Well"). Encal
shall serve written notice to Pinnacle of the Additional Well
("Additional Well Notice"). Such Additional Well Notice shall include
such information necessary to evaluate such Additional Well including
a reasonable estimate of Additional Well costs and an estimate of the
timing of the advance of funds. At Pinnacle's option and exercisable
by written notice to Encal on or before the expiration of fifteen (15)
days from the date such Additional Well is proposed, Pinnacle may
elect to:
i) participate in the drilling of such Additional Well; or
ii) not to participate in such Additional Well.
In the event that Pinnacle elects to participate in the drilling of
such Additional Well, then the operating provisions of the Farmin
Agreement or the Operating Procedure, whichever agreement governs the
relationship of the Parties hereto, shall apply to such Additional
Well.
In the event Pinnacle elects not to participate in such Additional
Well, then for the purposes of such Additional Well and as between the
Parties hereto, the
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provisions of Clauses 1007, 1009, 1013, 1017, and 1020 of the
Operating Procedure shall apply to such Additional Well with the
percentages set forth in Clause 1007 (iv) of the Operating Procedure
to be 150% and with the statement provided in Clause 1013 (a) of the
Operating Procedure to be provided annually.
b) Where further wells may be required to earn Third Party Lands
comprising a portion of a Proven Prospect pursuant to a Farmin
Agreement or should Encal negotiate and enter into new agreements with
third parties ("Additional Farmin Agreement") to drill further wells
to earn Third Party Lands (such well shall be referred to as the
"Additional Earning Well"), Encal shall serve written notice to
Pinnacle of the Additional Earning Well ("Earning Well Notice"). Such
Earning Well Notice shall include such information necessary to
evaluate such Additional Earning Well including a reasonable estimate
of Additional Earning Well costs and an estimate of the timing of the
advance of funds. Pinnacle shall then elect by written notice to Encal
on or before the expiration of fifteen (15) days from receipt of the
Earning Well Notice to either:
i) elect to participate in the Additional Earning Well; or
ii) elect not to participate in the Additional Earning Well.
Should Pinnacle elect to participate in the Additional Earning Well,
the cost, risk and expense of the Additional Earning Well and the
interest earned in the Third Party Lands subject to the Farmin
Agreement or the Additional Farmin Agreement shall be shared by the
Parties in the following proportions:
Encal 75%
Pinnacle 25%
Should Pinnacle elect not to participate in the Additional Earning
Well; such Third Party Lands shall not be subject to the terms and
conditions of this Agreement. The cost, risk, expense, any Petroleum
and Natural Gas Rights earned, or benefit derived therefrom shall be
for Encal's own account.
During that period of time prior to Pinnacle's election to participate
Encal shall assist Pinnacle in the review of the Additional Earning
Well.
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<PAGE>
In the event that Pinnacle fails to elect to participate in the
Additional Earning Well within the prescribed time, it shall be
conclusively be deemed to be an election not to participate in such
Additional Earning Well.
c) During the Term of this Agreement and for one (1) year thereafter and
where the drilling of a Test Well leads to the drilling of subsequent
wells ("Subsequent Wells") on previously acquired New Lands within a
Proven Prospect, and Encal wishes to drill a Subsequent Well, Encal
shall serve written notice to Pinnacle ("Subsequent Well Notice")
including a reasonable estimate of Subsequent Well costs and an
estimate of the timing of the advance of funds. Pinnacle shall then
elect by written notice to Encal on or before the expiration of
fifteen (15) days from receipt of the Subsequent Well Notice to
either:
i) elect to participate in the drilling of the Subsequent Well; or
ii) elect not to participate in the drilling of the Subsequent Well.
Should Pinnacle elect to participate in the drilling of a Subsequent
Well, all operations pertaining to such Subsequent Well shall be
governed pursuant to the provisions of the Operating Procedure.
Should Pinnacle elect not to participate in the drilling of a
Subsequent Well, Encal shall pay Pinnacle's share of the drilling
costs, completion costs, equipping costs, lessor royalties,
encumbrances which would normally be borne by the Joint Account, and
operating costs associated with such Subsequent Well.
During that period of time prior to Pinnacle's election to participate
Encal shall assist Pinnacle in the review of the proposed Subsequent
Well.
In the event that Pinnacle fails to elect to participate in the
drilling of a Test Well within the prescribed time, it shall be
conclusively be deemed to be an election not to participate.
d) In the event Pinnacle has elected not to participate in a Subsequent
Well, the Parties acknowledge that Encal is not entitled to, nor is
Pinnacle obligated to
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<PAGE>
assign, the interest of Pinnacle in that portion of the New Lands comprising
such Subsequent Well Spacing Unit. The provisions of this Sub-clause are in lieu
of Article X of the Operating Procedure.
Prior to Payout, as hereinafter defined, Encal shall, however, be entitled to
all of Pinnacle's share of production from the Subsequent Well or allocated to
the Subsequent Well Spacing Unit until that point in time where the Subsequent
Well is abandoned or when the gross proceeds of the sale of petroleum substances
produced and sold from the Subsequent Well or allocated to the Subsequent Well
Spacing Unit equals, without duplication, the sum of:
i) drilling costs;
ii) completion costs;
iii) equipping costs;
iv) operating costs;
v) gathering, processing and marketing fees;
vi) lessor's royalties;
vii) encumbrances which would normally be borne by the joint Account; and
viii) the Overriding Royalty
(hereinafter referred to as "Payout).
During the period prior to Payout, Encal agrees to calculate and pay to Pinnacle
the Overriding Royalty in accordance with Schedule "F" which schedule shall be
deemed separately executed by the Parties. The aforementioned Overriding Royalty
shall be calculated and payable on the combined interest of Pinnacle and Encal
in the Subsequent Well Spacing Unit.
Encal shall give written notice as soon as reasonably possible to Pinnacle, for
each subsequent Well drilled and completed, setting forth the costs set out in
items (i) to (viii) inclusive above.
At Payout on a well by well basis, Encal shall serve written notice to Pinnacle
that each such Subsequent Well has reached Payout whereupon the Overriding
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<PAGE>
Royalty shall be terminated. Thereafter such Subsequent Well shall be
held for the Joint Account as if Pinnacle participated in such
Subsequent Well..
e) Until Payout, Encal shall supply Pinnacle, annually with a statement
showing the status of Payout of the appropriate Subsequent Well.
f) The termination of the Overriding Royalty shall be deemed effective as
and from the first day of the month following the date of Payout.
g) In the event that Pinnacle elects not to participate in the drilling
of any Subsequent Well, Encal agrees to afford to Pinnacle the same
rights and privileges reserved to a participating party including the
right to take over a Subsequent Well if abandonment is proposed.
14. Operator
a) Encal is hereby appointed Operator of the EJV and agrees that it shall
not delegate or assign any of its duties during the Term of this
Agreement without the prior consent of Pinnacle, which consent shall
not be unreasonably or arbitrarily withheld.
b) Encal, as Operator of the EJV, shall make all decisions relating to
the management and control of the EJV subject to the terms of this
Agreement and the agreement of Pinnacle where expressly required
hereunder with Encal's reasonable discretion, which shall be exercised
in good faith in a workmanlike manner in accordance with good oil and
gas field practice, and which shall be final and binding on the
Parties, except as otherwise provided in this Agreement. Subject to
the foregoing, the Operator shall:
i) explore, develop, manage and operate oil and gas properties;
ii) conduct preparatory exploration on behalf of the Parties, which
shall include (but not be limited to subsurface mapping, prospect
/play purchases, geophysical field surveys, the collection of
Basic Geophysical Data together with the necessary
interpretations as may from time to time be necessary);
iii) select drill sites and arrange for the drilling of the Wells
thereon and produce and sell petroleum substances from the
respective accounts of the Parties; it being understood that
Encal is not warranting that
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<PAGE>
petroleum substances will be sold, only that it shall use its
best efforts to market such petroleum substances on the same
terms and conditions as it markets its own share;
iv) enter into agreements on behalf of the Parties to the EJV for
the drilling, participation, development, pooling, farmin,
farmout, unitization, joint venture and production of petroleum
substances and for the gathering, processing, transportation and
sale of same;
v) carry insurance, as specified in Clause 311(B) of the Operating
Procedure on behalf of the Parties as a charge to the joint
account;
vi) vote as one on behalf of both Encal and Pinnacle in all matters
arising from EJV activities;
vii) give receipts, releases and discharges on behalf of the Parties
hereto;
viii) prior to commencing the drilling of any Well, to review the
title of the appropriate holder of the Title Document in
accordance with industry standards; and
ix) charge overhead and such other costs recoveries to the Parties
as are provided in the Accounting Procedure attached to the
Operating Procedure, without duplication.
15. FACILITIES AND MARKETING
a) Provided a Well is capable of production of petroleum substances in
paying quantities, Encal shall use its best efforts to promptly cause
each of the Wells that have been drilled, completed and equipped under
this Agreement, to be connected to Encal's or third party's
Facilities. Encal agrees to produce and market Pinnacle's share of
petroleum substances produced from the Wells and, in addition to the
provisions of this Clause, the provisions of Article VI of the
Operating Procedure shall apply thereto. Encal shall not, except for
lack of market, shut-in the Wells or reduce production rates as will
result in such Wells producing less than their fair and equitable
share of recoverable reserves from any reservoir from which Encal's
other wells are producing, to the disadvantage or detriment of
Pinnacle.
b) With respect to those Facilities in which Encal does not have any
ownership interest, Pinnacle shall be charged the actual cost for
storage gathering,
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<PAGE>
processing, transporting, treating, compressing, absorption or other
plant extraction or stabilization of Pinnacle's share of petroleum
substances.
c) With respect to those Facilities in which Encal does have an ownership
interest and subject to any agreements with third parties, Pinnacle
shall be charged a reasonable fee sufficient to cover the costs for
the storage, gathering, processing, transporting, treating,
compression, absorption or other plant extraction or stabilization of
Pinnacle's share of Petroleum substances which fee shall also include
a reasonable rate of return on capital investment.
d) Notwithstanding the provisions of Article VI, Clause 601 of the
Operating Procedure, Pinnacle hereby agrees to dedicate Pinnacle's
share of production of Petroleum Substances from the Lands to Encal
who shall undertake to market Pinnacle's share of production on the
same terms as Encal markets its own share of production, subject to
the provisions of Article VI, Clause 604, election "A".
e) If at any time during the Term of this Agreement a party (in this
Clause called "the Proposing Party") wishes to construct new
Facilities for the treating, processing, or transportation of
petroleum substances from the New Lands and/or any other lands which
lands subject to this Agreement, it shall afford to the other party an
opportunity to participate in such project on an equitable basis. The
Proposing Party shall provide to the other party the background
information the Proposing Party deems reasonably necessary for the
other parties to evaluate the project and make a decision. The Parties
recognize that until a proposal is made it is not possible to
determine the terms of such participation, however, each party agrees
that it will act in good faith in carrying out the terms of this
Clause.
16. Meetings and Reporting
Upon completion of the SFD survey and the acceptance and evaluation of the
Exploratory Prospects, Encal shall provide Pinnacle with an outline of the
Wells to be drilled and new Facilities to be constructed. It is
acknowledged that such outline shall not be binding and may be subject to
revision from time to time. At two (2) month intervals thereafter, Encal
shall provide outlines for the EJV Wells scheduled to be drilled in each
successive calendar quarter during the Term. Beyond the Term, the
-24-
<PAGE>
Parties shall consult to determine the most efficient and reasonable method
of scheduling further operations.
17. INCORPORATION OF THE OPERATING AGREEMENT
a) Provided Pinnacle has elected not to participate in the drilling of a
Subsequent Wells pursuant to Clauses 13(a) and 13(c) of this
Agreement, then the following clauses of Schedule "C" ("Operating
Procedure") shall apply, mutatis mutandis, to this Agreement and to
all operations of Encal as between Encal and Pinnacle for such wells
drilled thereunder. Where the terms of this Agreement and the
Operating Procedure conflict, the terms of this Agreement shall
prevail. Where the Operating Procedure makes reference to "Operator"
the word "Encal" is substituted and similarly, "Joint Operator" is
substituted by "Pinnacle" and "this Operating Procedure" is
substituted by "this Agreement".
304 Proper Practices in Operations
305 Books, Records and Accounts
306 Protection from Liens
307 Joint-Operator's Right of Access
308 Surface Rights
309(a)Maintenance of Title Documents
311 Insurance
501 Accounting Procedure
701 Pre-Commencement Information (excluding 701 (a))
702 Drilling Information and Privileges of Joint-Operators
703 Logging and Testing Information to Joint-Operators
704 Completion and Production Information to Joint-Operators
705 Well Information Subsequent to Completion
706 Data Supplied in Accordance with Industry Standards
801 Velocity Surveys and Other Geophysical Tests
ARTICLE 11 Quit Claims
1601 Definition of Force Majeure
1602 Suspension of Obligation Due to Force Majeure
1603 Obligation to Remedy
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<PAGE>
1604 Exception for Lack of Finances
1801 Information to be Kept Confidential
b) Subject to the terms of this Agreement, the Operating Procedure shall
apply to operations conducted in respect of the exploration,
development and maintenance of any Joint Lands, between and among the
Parties hereto.
c) In the event that the Parties are parties to an existing agreement
involving third parties ("Third Party Agreement") and where the Third
Party Agreement conflicts with the Operating Procedure, the Third
Party Agreement shall prevail.
18. Indemnification
a) The Parties hereto shall, in proportion to their respective
participating interests in the EJV, hereby indemnify and hold harmless
the Operator from and against any and all actions, suits, claims and
demands made by any person or persons whomsoever, other than the
Parties hereto, in respect of any loss, injury, damage or obligation
to compensate arising out of or in any way connected with the carrying
out by the Operator of its duties and obligations in accordance with
the provisions of this Agreement, except when the Operator is found to
be grossly negligent.
b) Pinnacle indemnifies Encal against any and all Losses which may be
incurred or suffered by Encal or which may be sustained, paid or
incurred by reason of or in any way attributable to the operations
carried on in respect of the SFD survey by Pinnacle, its servants,
agents or employees under this Agreement.
c) Pinnacle and each of the Affiliates jointly and severally indemnifies
Encal against any and all Losses which may be incurred or suffered by
Encal or which may be sustained, paid or incurred by reason of or in
any way attributable to the breach of one or more of the
representations, warranties or covenants made by Pinnacle and each of
the Affiliates under Clause 4 hereof, whether such a breach occurs
prior to or during the Term of this Agreement, such an indemnity to
continue for a period of five (5) years following the termination of
this Agreement.
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<PAGE>
19. Default and Termination.
a) If either Party fails to perform any obligation required to be
performed hereunder, the non-defaulting Party may give the defaulting
party notice to remedy the default, and if the defaulting Party does
not commence to remedy the default within thirty (30) days after
receiving the notice and proceed diligently and continuously to remedy
it, the non-defaulting Party may by notice to defaulting Party in
writing terminate this Agreement.
b) If, as a result of the Action or any breach of the representations,
warranties and covenants contained in Clause 4 hereof, whether such a
breach is the result of the actions of Pinnacle or any of the
Affiliates, or if Pinnacle or any of the Affiliates is no longer
entitled to the SFD Technology and the right to utilize the SFD
Technology is granted to any other third party, Encal may terminate
this Agreement by providing written notice of same to Pinnacle.
c) In the event that Encal fails to drill twenty-five (25) Wells within
the Term, which Wells shall (subject to reasonable extensions for
delays due to drill rig availability and surface access or the
failure of Pinnacle to agree to operations or acquisitions proposed by
Encal during the Interim Period) be drilled as follows:
1st Year 5 Wells
2nd Year 8 Wells
3rd Year 12 Wells
Pinnacle may terminate this Agreement by providing written notice of
same to Encal.
d) In the event that this Agreement is terminated as provided in this
Clause, any Joint Lands shall continue to be governed by the Operating
Procedure or applicable third party agreement.
20. Transfer
Each Party shall not transfer this Agreement or any interest, right or
obligation under this Agreement, except in accordance with the provisions
of Clause 2401 (B) of the Operating Procedure, provided that for the
purpose of Clause 2401 (B) of the Operating Procedure, Affiliates may
include a limited partnership where Pinnacle or Pinnacle Oil
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<PAGE>
Canada Ltd. is the general partner of such partnership. Any assignment of
interest shall be in accordance with the Assignment Procedure attached as
Schedule "E" hereto.
Notwithstanding any assignment made by Pinnacle to an Affiliate, during the
Term of this Agreement, Encal need only look to Pinnacle for performance of
the duties and obligations of Pinnacle pursuant to this Agreement.
21. AREA OF MUTUAL INTEREST
a) In this Clause the expression "AMI Lands" means any Petroleum And
Natural Gas Rights, or either of them, which are laterally and/or
diagonally within one (1) mile of the lands encompassing any
Exploratory Prospect, other then lands acquired pursuant to Clauses
12(b) and 13(b).
b) On an Exploratory Prospect by Exploratory Prospect basis, the
provisions of this Clause relating to the acquisition of any AMI Lands
shall:
i) for AMI Lands not encompassing the Exploratory Prospect, be
effective for that period commencing on the date of acceptance,
in writing, by Encal of an Exploratory Prospect and terminating
one (1) year thereafter, and;
ii) for AMI Lands encompassing the Exploratory Prospect, be effective
for the Term of the Agreement or the period in b (i) above
whichever is longer.
c) If any AMI Lands become available for acquisition by Crown sale (the
"New Crown Lands") and if one of the Parties desires to acquire an
interest in the New Crown Lands, the Parties shall consult at least
forty-eight (48) hours prior to the final hour at which bids are
accepted for the sale of the New Crown Lands for the purpose of
attempting to reach an agreeable bid price. If, after consultation
between the Parties, agreement is reached, Encal shall submit the bid
on behalf of the Parties and if the New Crown lands are acquired, they
shall be paid for, owned and held by the acquiring Parties in the
following interests ("Participating Interests"):
i) if a Test Well has been drilled or is being drilled pursuant to
Clause 12(b), subject to any third party participation:
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<PAGE>
Encal 75%
Pinnacle 25%; or
ii) in all other cases, subject to any third party participation:
Encal 70%
Pinnacle 30%
d) Subject to Sub-clause (e), if agreement is not reached as to a bid
price, then the New Crown Lands so acquired shall be paid for, owned
and held by the party acquiring the New Crown Lands.
e) If, after any consultation at which an agreed bid price is not reached
by all Parties, any party acquires the New Crown Lands at a price
which differs by more than five percent [5%] from the price it was
prepared to agree to for acquisition, or if a party acquires the New
Crown lands without consulting with the other party or without
disclosing the price it was prepared to pay for the acquisition, the
acquiring party shall immediately give notice to the other party
setting forth the consideration paid. Any party receiving the notice
shall have the right for a period expiring ten (10) days from the
receipt of the notice to elect to acquire its Participating Interest
in the New Crown Lands acquired by paying to the acquiring party its
proportionate share of the acquisition costs. If this right is
exercised, the New Crown Lands shall be held and owned by the Parties
acquiring and the parties electing to acquire their proportionate
interest in the proportion that their respective Participating
Interests bear one to the other as set forth in Sub-clause (b)(i) or
(b)(ii), whichever is applicable. The interest acquired shall be held
by the acquiring party on behalf of all Parties until the expiry of
the ten (10) day period.
f) On acquisition of AMI Lands more than one Party, if the AMI Lands are
not already subject to an agreement that provides for their joint
operation, an agreement in the form of the Operating Procedure shall
be deemed immediately to become effective to govern the relationship
among the Parties and to provide for the maintenance and operation of
the AMI Lands. Encal shall be the Operator unless Encal does not
acquire an interest in the AMI Lands, in which event the Parties who
have acquired an interest shall appoint an operator in the
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<PAGE>
manner provided for the appointment of a new operator in the Operating
Procedure.
g) Provided that both Encal and Pinnacle acquire their Participating
interests in the AMI Lands, any Wells drilled on the AMI Lands, except
any Test Well, shall be deemed Additional Wells under this Agreement
and, as such, the provisions of Clause 13(a) shall apply mutandis
mutatis to such an Additional Well.
h) A Party submitting a bid under the provisions of this Clause shall
comply with all combines and anti-competition laws and shall make
known to the person calling for or requesting the bids or tenders at
or before their time when any bid or tender is made, the names of all
Parties who have agreed to submit a bid or tender.
i) If any Party acquires an interest (or the right to acquire an
interest) in any lands other than New Crown Lands as provided in Sub-
clause (c) above or Petroleum and Natural Gas Rights as set forth in
Clauses 12(b) or 13(b) and fifty percent (50%) or more (by surface
area and title document) of the lands so acquired are situated within
the Area of Mutual Interest, the acquiring Party shall notify the
other Party thereof within fifteen (15) days of the acquisition,
detailing the consideration paid or payable therefor and the
obligations undertaken by the acquiring party with respect to the said
acquisition. The other Party shall have ten (10) days from receipt of
the notice of acquisition within which to elect to participate in the
said acquisition to the extent of the percentage interest set forth
opposite its name in Sub-clause (c)(i) or (c)(ii) above, which ever is
applicable, by paying to the acquiring party pursuant to the said
acquisition.
22. Exclusions to the EJV
Notwithstanding anything contained herein, the following are specifically
excluded from this Agreement:
a) the acquisition of any interest in corporations, partnerships,
affiliates or other legal entities as such by the purchase of an
equity interest therein or merger therewith and any duties,
obligations or acquisitions resulting therefrom where the AMI Lands
are not the primary purpose of the acquisition;
b) any interests held by Encal and its joint operators as Excluded lands;
or
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<PAGE>
c) the purchase of any oil and gas reserves (whether proven or probable
reserves) unless subsequently deemed included by mutual agreement of
the Parties.
23. NOTICES
a) The addresses for service and the fax numbers of the Parties shall be
as follows:
Encal - Encal Energy Ltd.
1800, 421 - 7th Avenue S.W.
Calgary, Alberta
T2P 4K9
Attention: Manager, Land
------------------------
Fax: (403)266-6648
Pinnacle - Pinnacle Oil International Inc.
1090 West Georgia Street
Vancouver, B.C.
V6E 3V7
Attention: President
--------------------
Fax: (604)893-8644
b) All notices, communications and statements required, permitted or
contemplated hereunder shall be in writing, and shall be delivered as
follows:
i) by personal service on a party at the address of such party set
out above, in which case the item so served shall be deemed to
have been received by that party when personally served;
ii) by fascimile transmission to a party to the fax number of such
party set out above, in which case the item so transmitted shall
be deemed to have been received by that party when transmitted
with answer back received; or
iii) except in the event of an actual or threatened postal strike or
other labour disruption that may affect mail service, by mailing
first class registered post, postage prepaid, to a party at the
address of such party set out above, in which case the item so
mailed shall be deemed to have been received by that party on the
fifth (5) business day following the date of mailing.
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<PAGE>
c) A Party may from time to time change its address for service or its
fax number or both by giving written notice of such change to the
other Party.
24. Miscellaneous
a) Each Party shall perform the acts and execute and deliver the deeds
and documents and give the assurances as shall be reasonably required
in order fully to perform and carry out and give effect to the terms
of this Agreement.
b) A waiver of any breach of a provision of this Agreement shall not be
binding on any Party unless the waiver is in writing and the waiver
shall not affect the Party's rights with respect to any other or
future breach.
c) All terms and provisions of this Agreement shall run with and be
binding on the lands referred to during the Term of this Agreement.
d) Time is of the essence in this Agreement.
e) This Agreement shall enure to the benefit of and be binding on the
Parties and their respective heirs, executors, administrators,
successors and assigns.
f) The terms of this Agreement express and constitute the entire
agreement between the Parties and no implied covenant or liability of
any kind is created or shall arise by reason of these presents or
anything in this Agreement contained.
g) This Agreement supersedes and replaces all previous agreements,
whether written or oral, memoranda or correspondence between the
Parties with respect to the subject matter of this Agreement.
h) Wherever in this Agreement the singular number or masculine gender
occurs, the same shall be respectively construed as the plural or
neutral, and vice versa, as the context or reference may require.
i) All schedules attached to this Agreement are incorporated by reference
as though contained in the body of it. Wherever any term or
conditions, expressed or implied, of any schedule conflicts or is at a
variance with any term or condition of this Agreement, the term or
condition of this Agreement shall prevail.
j) The headings of all Clauses in this Agreement are inserted for
convenience of reference only and shall not affect the construction of
it.
k) The terms of this Agreement shall be governed exclusively by the law
in force from time to time in the Province of Alberta and the Parties
hereto agree to
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<PAGE>
submit to the jurisdiction of the Courts of the Province of Alberta in
respect of any claims, actions or proceedings resulting from this
Agreement.
1) This Agreement may be executed in counterpart and the executed
counterparts shall constitute one agreement.
IN WITNESS WHEREOF the Parties have executed this Agreement as of the day and
year first written above.
ENCAL ENERGY LTD. PINNACLE OIL INTERNATIONAL INC.
Per: /s/ D.D. Johnson Per:_______________________________
----------------------------
D.D JOHNSON, PRESIDENT
Per: /s/ P.A. CARWARDINE Per: [SIGNATURE ILLEGIBLE]
---------------------------- -------------------------------
P.A. CARWARDINE
V.P. LAND & CORPORATE DEVELOPMENT
PINNACLE OIL INC.
Per:_______________________________
Per: [SIGNATURE ILLEGIBLE]
-------------------------------
/s/ George Liszicasz
_________________________________ -----------------------------------
Witness GEORGE LISZICASZ
/s/ Dirk R. Stinson
_________________________________ -----------------------------------
Witness DIRK R. STINSON
MOMENTUM RESOURCES LTD. PINNACLE OIL CANADA LTD.
Per: ____________________________ Per: ______________________________
Per: [SIGNATURE ILLEGIBLE] Per: [SIGNATURE ILLEGIBLE]
----------------------------- -------------------------------
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<PAGE>
EXHIBIT 10.8
- 1 -
EXPLORATION JOINT VENTURE AGREEMENT
THIS AGREEMENT made as of the 15th day of September, 1997,
AMONG:
ENCAL ENERGY LTD., a corporation incorporated under the laws of the
Province of Alberta ("Encal")
THE PARTY OF THE FIRST PART
- and -
PINNACLE OIL INTERNATIONAL INC., a corporation incorporated under the
laws of the State of Nevada ("Pinnacle")
THE PARTY OF THE SECOND PART
- and -
PINNACLE OIL INC., GEORGE LISZICASZ, DIRK R. STINSON, PINNACLE OIL
CANADA LTD. and MOMENTUM RESOURCES LTD., being the individuals or
corporations having an affiliation to Pinnacle or the SFD Technology
(the "Affiliates")
THE PARTY OF THE THIRD PART
WHEREAS the Parties have entered into an Exploration Joint Venture
Agreement dated February 19, 1997 for the exploration, development and
production of Petroleum Substances in Western Canada and wish to replace and
supersede the subject Agreement with a new Exploration and Joint Venture
Agreement; and
WHEREAS the Parties have agreed to enter into this Exploration Joint
Venture Agreement (the "EJV" or "Agreement") to supersede the February 19, 1997
Exploration Joint
<PAGE>
- 2 -
Venture Agreement, which EJV will govern the exploration, development and
production of Petroleum Substances worldwide with a focus on Western Canada as
further set out hereunder; and
WHEREAS the Parties have agreed that the EJV shall be carried out
pursuant to the provisions of this Agreement;
NOW THEREFORE THIS AGREEMENT WITNESSES THAT, in consideration of the
premises and the mutual covenants of the Parties herein contained, the Parties
hereto agree as follows:
1. Definitions and Schedules
-------------------------
(1) In this Agreement including the recitals herein, unless the context
otherwise requires or to the extent defined below, the definitions set
forth in Clause 101 of the Operating Procedure, shall apply and in
addition, the following shall have the following meanings:
(1) "Accounting Procedure" means Schedule "B" attached to and made
----------------------
part of this Agreement;
(2) "Assignment Procedure" means the CAPL 1993 Assignment Procedure
----------------------
attached as Schedule "C" hereto which supersedes any conflicting
clause in the Operating Procedure;
(3) "Action" means the court proceedings described in an action filed
--------
in the British Columbia Supreme Court, Vancouver Registry, in
File No. C944272, between George Liszicasz, as plaintiff; and
Alexander Shereshevsky, G.D.M. Grand Development Corp., Samuel
Higgins, also known as Sam Higgins, and Sam J. Higgins, Manon L.
Walters and Keith Morey, as defendants, and Pinnacle Oil Inc.,
Pinnacle Oil International Inc. and Manon L. Walters Inc., as
defendants by counterclaim;
<PAGE>
- 3 -
(4) "Basic Geophysical Data" means any non-interpreted seismic data,
------------------------
processed record sections, seismic tapes, monitor records and
associated data;
(5) "Excluded Lands" means those Petroleum and Natural Gas Rights and
----------------
lands in which Encal has an interest or a right to acquire an
interest including any such Petroleum and Natural Gas Rights or
lands which have been posted (or a posting request has been
submitted) at Crown land sales and for which Encal or Encal and
any Third Parties are jointly in the process of evaluating with a
view to making a bid, to the extent that such interest or right
to an interest is in no way acquired by Encal or any Third Party
acting jointly with Encal, as a result of any SFD Survey, SFD
Anomaly, SFD Data or SFD Information hereunder and includes those
Petroleum and Natural Gas Rights and lands defined in clause 22
hereunder;
(6) "Exclusive Area" means all lands and Petroleum and Natural Gas
----------------
Rights located in the Province of British Columbia and any
Petroleum and Natural Gas Rights which are from time to time made
a part of the Exclusive Area by virtue of the terms and
conditions of this Agreement;
(7) "Existing Exploration Areas" means those Exploration Areas which
----------------------------
have been selected by Encal prior to the Effective Date and upon
which Pinnacle has conducted exploration work using SFD
Technology and which comprise the Carbon, Fort Macleod, Sturgeon
and Edson, areas of Alberta and certain N.E. British Columbia
lands and Exploration Areas which are all further detailed and
outlined on the maps attached to this Agreement as Schedule "F"
and which are dealt with in clause 7 of this Agreement;
(8) "Exploration Area" means any contiguous area of land covering a
------------------
geographic area in size up to a maximum of 2,400 square miles, as
identified by Encal
<PAGE>
- 4 -
pursuant to clause 6 hereof and which area shall initially
include a boundary of additional lands surrounding such area
equal to one township (or NTS equivalent) in width and length
throughout (the "Buffer Zone");
(9) "Exploratory Prospect" means the geographic area and appropriate
----------------------
spacing units (including the entire spacing unit in the case the
Exploratory Prospect only partially covers a spacing unit)
covering an SFD Anomaly including any AMI lands as defined in
clause 21 hereunder, identified by Pinnacle utilizing SFD
Technology and accepted by Encal in accordance with the
provisions of this Agreement;
(10) "Losses" means, in respect of any matter, all claims, demands,
--------
proceedings, losses, damages, liabilities, deficiencies, costs
and expenses (including, without limitation, all legal and other
professional fees and disbursements, interest, penalties and
amounts paid in settlement) arising directly or indirectly as a
consequence of such matter;
(11) "Minimum Prospect Inventory" shall have the meaning set out in
----------------------------
clause 9 hereunder;
(12) "Operating Procedure" means the 1990 amended CAPL Operating
---------------------
Procedure attached hereto as Schedule "A" and made part of this
Agreement;
(13) "Operator" means a Party selected as an operator under the
----------
Operating Procedure or this Agreement which shall initially be
Encal;
(14) "Party" or "Parties" means a party to this Agreement;
------- ---------
(15) "Petroleum and Natural Gas Rights" means all rights to and in
----------------------------------
respect of Petroleum Substances arising by virtue of any leases,
title agreements or other
<PAGE>
- 5 -
similar documents, granting, reserving or otherwise conferring
rights to explore for, drill for, produce and take Petroleum
Substances, and share in the production of Petroleum Substances,
and any rights to acquire any of the rights described herein;
(16) "Petroleum Substances" means any of crude oil, crude bitumen and
----------------------
products derived therefrom, synthetic crude oil, petroleum,
natural gas, natural gas liquids, and any and all other
substances related to any of the foregoing, whether liquid, solid
or gaseous, and whether hydrocarbons or not, including without
limitation sulphur to the extent such substances are granted by
the title document pertaining thereto;
(17) "Royalty Procedure" means the royalty procedure attached as
-------------------
Schedule "D" and made part of this Agreement;
(18) "Seismic Costs" means, with respect to Basic Geophysical Data,
---------------
all moneys expended by Encal in respect of an Exploratory
Prospect for the purchase of seismic data, the shooting and
processing or reprocessing of seismic data and collection of
geophysical information and any other costs associated therewith;
(19) "SFD Anomaly" means an anomalous geological or geophysical
------------
feature prospective of containing Petroleum Substances,
identified by Pinnacle using SFD Technology and SFD Data in
accordance with Pinnacle's practices and procedures;
(20) "SFD Data" means primary signal data derived from the use of the
----------
SFD Technology;
<PAGE>
- 6 -
(21) "SFD Information" means that information obtained during the
-----------------
conduct of the SFD work as further outlined and defined in clause
6(b);
(22) "SFD Survey" means the conduct of exploratory surveying by
------------
Pinnacle for the purpose of locating SFD Anomalies and utilizing
SFD technology; the collection of SFD Data; the interpretation
and analysis of SFD Data and the processing, analysis and
interpretation of SFD Data by Pinnacle and the presentation and
evaluation of SFD Anomalies to Encal. The Parties acknowledge
that the collection of SFD Data will be done by Pinnacle using an
aircraft but may include any other means which is either
necessary or desirable under the particular circumstances with
the mutual agreement of Encal and Pinnacle;
(23) "SFD Technology" means the stress field detector technology to be
----------------
used by Pinnacle in conducting the SFD Survey;
(24) "Third Party" means a person, partnership, trust or other entity
-------------
who is not a Party hereunder; and
(25) "Third Party Lands" means lands where the Parties have acquired
-------------------
an interest pursuant to the terms of a Farmin Agreement or an
Additional Farmin Agreement as set forth in clause 12 or 13 and
which are owned in part by other Third Parties;
(2) Appended hereto are the following schedules:
A - Operating Procedure
B - Accounting Procedure
C - Assignment Procedure
D - Royalty Procedure
<PAGE>
- 7 -
E - Confidentiality Agreement
F - Existing Exploration Areas
2. Term
----
The term of this Agreement ("Term") shall commence as of September 15,
1997, ("Effective Date") and shall extend for a period of three (3) years
therefrom which Term may be subsequently extended by the mutual agreement of
Encal and Pinnacle.
3. No Warranty of Title
--------------------
In the event any Party, subsequent to the date of this Agreement, encumbers
any interest it now holds or may obtain under this Agreement, the Party which
encumbers its interest shall be solely responsible for that encumbrance, and
agrees to indemnify the other Parties to this Agreement from any Losses caused
by the encumbrance.
4. Warranty of Technology
----------------------
Notwithstanding clause 2, Pinnacle and each of the Affiliates provides the
representations, covenants and warranties in this Agreement and effective from
February 19, 1997 (but only to the extent this Agreement supersedes the February
19, 1997 Exploration Joint Venture Agreement):
(1) Pinnacle and each of the Affiliates, jointly and severally, represent,
warrant and covenant to Encal that the beneficial owner of the SFD
Technology is Momentum Resources Ltd. ("Momentum") and Momentum has
granted Pinnacle an exclusive licence for the use of SFD Technology
for the purpose of generating SFD Data for the exploration of
Petroleum Substances. Momentum Resources Ltd. agrees that it will not
hinder or terminate the exclusive licence for the Term other than as
Momentum Resources Ltd. may be permitted under the express terms of
the exclusive licence.
<PAGE>
- 8 -
(2) Pinnacle and each of the Affiliates, jointly and severally, hereby
represent, warrant and covenant to Encal that, as of February 19, 1997
and to the Effective Date, and through the Term of this Agreement and
any extensions thereof, that Pinnacle was, is and will be the
beneficial owner of the SFD Data, free and clear of any and all
claims, suits, proceedings, encumbrances and obligations which may
limit or impair its ability to utilize the SFD Data and SFD Technology
in the manner contemplated hereunder. Pinnacle agrees to comply with
the express terms of the exclusive licence from Momentum Resources
Ltd., in order to keep the same in good standing.
(3) Pinnacle and each of the Affiliates, jointly and severally, hereby
represent, warrant and covenant with Encal that the conduct of any SFD
Survey and joint operation contemplated by this Agreement or any past
conduct under the February 19, 1997 Exploration Joint Venture
Agreement, does not infringe upon the industrial or intellectual
property rights, domestic or foreign, of any other person and except
for the Action, neither Pinnacle nor the Affiliates are aware of any
claim of any infringement or breach of any industrial or intellectual
property rights of any other person relative to the SFD Technology nor
have Pinnacle or any the Affiliates, received any notice that the
conduct of the SFD Survey and joint operations contemplated in this
Agreement, including the use of the SFD Technology, infringes upon or
breaches any industrial or intellectual property rights of any other
person.
(4) Except for the Action, Pinnacle and each of the Affiliates, jointly
and severally, represent, warrant and covenant with Encal that there
are no claims, actions, suits or proceedings (either against or by
Pinnacle or the Affiliates) pending or to the best of the knowledge of
Pinnacle or each of the Affiliates, threatened against or affecting
Pinnacle, the Affiliates or the SFD Technology, at law or in equity or
before or by any federal, provincial, municipal or other governmental
department, court, commission, board, bureau, agency or
instrumentally, domestic or foreign, or before or by any arbitrator or
arbitration board.
<PAGE>
- 9 -
(5) Pinnacle and each of the Affiliates, jointly and severally, warrant
and covenant with Encal that the entering into, consummation and
performance by Pinnacle of this Agreement will not constitute a breach
of any agreement, contract or licence by which Pinnacle or any
Affiliate is bound or an infringement upon any intellectual property
or technology right of any person relative to the SFD Technology.
(6) Pinnacle agrees to conduct the SFD Survey utilizing SFD Technology in
a professional and diligent manner, as set out hereunder, and agrees
to conduct the SFD Survey using individuals who have the capability
and expertise to conduct the SFD Survey and to provide Encal with the
SFD Anomalies set out hereunder according to the intent and meaning of
this Agreement. Additionally, Pinnacle agrees that any individuals or
persons conducting SFD Survey and presenting SFD Anomalies to Encal
will be bound by the same confidentiality provisions as Pinnacle is
bound to Encal under the terms of this Agreement. Pinnacle agrees to
use its reasonable commercial efforts and act in good faith while in
the performance of this Agreement, in the presentation of the SFD
Anomalies to Encal and in conducting the SFD Survey.
(7) Encal agrees to conduct and perform any of its work and covenants
under this Agreement in a professional and diligent manner, as set out
hereunder, and agrees to use individuals who have the capability and
expertise to perform its obligations under this Agreement. Encal
agrees to use its reasonable commercial efforts and to act in good
faith while in the performance of this Agreement.
5. Use of SFD Technology
---------------------
(1) Pinnacle shall provide to Encal a first priority to have Pinnacle
conduct SFD Survey for Encal during the Term and in accordance with
the terms and conditions of this Agreement. The Parties confirm that
Pinnacle is entitled to enter into a maximum of two (2) joint ventures
with two (2) other Third Parties in Canada at any given time (but not
in the Exclusive Area), and an unlimited number of such joint ventures
with
<PAGE>
- 10 -
an unlimited number of Third Parties outside of Canada to generate,
interpret, analyze and present SFD Data, which joint ventures may
utilize data obtained from the SFD Technology world-wide but not in
the Exclusive Area; provided however that, in the Exclusive Area,
Pinnacle shall conduct SFD Survey solely for Encal during the Term.
(2) Encal's first priority to have Pinnacle conduct SFD Survey for Encal
as provided in clause 5(a) shall mean a first dedication by Pinnacle
to Encal hereunder of a minimum of 50% of Pinnacle's world-wide SFD
Survey capacity at any given time. Such first dedication shall apply
only at the times that Pinnacle has not generated, the Minimum
Prospect Inventory.
(3) If during the Term of this Agreement, Pinnacle generates SFD Data that
pertains to lands in Canada that are outside of an Exploration Area
selected by Encal or are not over an area selected by a Third Party
under a Third Party joint venture, as allowed hereunder, Pinnacle
shall present to Encal all SFD Anomalies identified by Pinnacle from
such SFD Data within thirty (30 ) days of identifying such SFD
Anomalies. The terms and conditions of this Agreement shall apply
thereto, and any Exploratory Prospects resulting therefrom shall form
part of the Minimum Prospect Inventory. Provided, however, Pinnacle
shall not be required to present such SFD Anomalies on any lands that
are Excluded Lands. This clause 5(c) shall be in effect until October
31, 1998.
(4) Pinnacle will offer Encal a first opportunity to participate in a
transaction utilizing SFD Data to explore for Petroleum Substances
outside of Canada where in Pinnacle's sole judgment there is an
opportunity for Encal to participate as operator or a participant if
such role is available and Pinnacle believes it is appropriate for
Encal to perform such role.
(5) At the same time that Encal provides notice to Pinnacle of the
location of an Exploration Area pursuant to clause 6(a), it shall also
provide to Pinnacle one
<PAGE>
- 11 -
additional Exploration Area which shall be an option Exploration Area.
Encal will be able to terminate an option Exploration Area prior to
any SFD Survey being conducted thereupon and to select an alternate
option Exploration Area which shall become the new option Exploration
Area. Encal may choose any lands within an Existing Exploration Area
as an Exploration Area hereunder but only to the extent SFD Survey has
not been completed and provided to Encal on those locations within
such an Exploration Area.
(6) Once Pinnacle commences to perform a SFD Survey on an Exploration Area
selected by Encal, Encal shall have the right to select a new option
Exploration Area. Pinnacle shall advise Encal immediately prior to
the time they commence such a SFD Survey.
(7) Pinnacle and the Affiliates covenant and guarantee to Encal that they
will not enter into any agreement with any Third Party which will
purport to affect the Exploration Areas, option Exploration Area or
Existing Exploration Areas or which would allow such Third Party any
better rights then Encal has under this Agreement vis a vis the size
of an Exploration Area, and the number of Exploration Areas (in each
case, in Canada) a Third Party may select at any given time. In
addition, no Third Parties will be allowed to select as an Exploration
Area and Pinnacle will not conduct any work on any such areas for
Third Parties which fall within the Exclusive Area. Nothing in this
clause will affect the time commitment of Pinnacle to Encal set out in
this clause 5.
(8) In addition to clause 5(g), Pinnacle hereby covenants to ensure it
will not make commitments to Third Parties such that, during the Term
Encal will be entitled to and will be guaranteed, for the purposes of
conducting SFD Survey via selection of Exploration Areas, a minimum of
50% of the total land area falling between the 5th and 6th Meridians
(DLS Surveying) in the Province of Alberta, based on the total land
area contained therein. Once Encal has selected an Exploration Area
and Pinnacle has commenced SFD Survey then that area will
automatically be deemed to be an
<PAGE>
- 12 -
Exclusive Area hereunder and hence, Pinnacle and the Affiliates hereby
covenant and guarantee to Encal that no Third Party will be allowed
any rights to the conduct of SFD Survey by Pinnacle or any of them or
any rights to SFD Data derived therefrom.
(9) The Parties hereto agree that the Existing Exploration Areas are
excluded from the minimum number of Exploration Areas that Encal is
entitled to select under the terms of this Agreement and are dealt
with in clause 7 hereunder.
(10) The Parties hereto agree that at all times, Encal shall have selected
at least one (1) Exploration Area in the Province of British Columbia
for each four (4) Exploration Areas selected outside of the Province
of British Columbia.
6. SFD Survey Program - New Lands
------------------------------
(1) In accordance with the terms of this Agreement, Encal shall from time
to time select Exploration Areas upon which SFD Survey will be
conducted by Pinnacle. At the time of such selection, Encal shall
provide Pinnacle with information pertaining to any Excluded Lands in
the Exploration Area. Subject to the qualifications set out below,
Pinnacle shall perform the SFD Survey on the Exploration Areas
selected by Encal, in the order determined by Encal. Only one
Exploration Area will be the current Exploration Area for the SFD
Survey at any time, unless otherwise agreed to by Pinnacle. Encal
shall reimburse Pinnacle for 50% of all costs of a daily aircraft
rental or lease rate, pilot, accommodation and food for SFD Surveys
conducted hereunder. Pinnacle shall, within fifteen (15) days of such
selection by Encal, advise Encal of:
(1) any safety concerns;
(2) conflicts with an area forming part of a Third Party joint
venture or to the knowledge of Pinnacle, conflicts with lands
held by Pinnacle's Third Party partner in such other current
joint venture;
<PAGE>
- 13 -
(3) any concerns Pinnacle has arising in conducting SFD Survey of a
technical nature or any other bona fide reason; or
(4) location of Excluded Lands contained in the Exploration Area,
pertaining to the Exploration Area that Encal selects for such SFD Survey. In
the event that any of the above conflicts or concerns arise, Encal and Pinnacle
shall meet to discuss such concerns and, inter alia, either jointly modify the
subject Exploration Area or Encal shall select another Exploration Area as a
substitute.
(2) Pinnacle shall have 120 days from being advised of the location of the
Exploration Area by Encal in which to:
(1) present for Encal's review the visual SFD Data together with a
map of flight lines and locations of any anomalous SFD features
whether they comprise SFD Anomalies presented by Pinnacle to
Encal or not, provided that in respect of such SFD features that
are either presented by Pinnacle as SFD Anomalies of a major
nature or Pinnacle is of the good faith opinion that such
features warrant further evaluation as potential SFD Anomalies or
may be dealt with pursuant to clause 8. Pinnacle shall provide
written interpretations and recommendations on those anomalous
SFD features which Pinnacle presents to Encal as the major SDF
Anomalies on an Exploration Area. Pinnacle shall not be required
to provide to Encal copies, in any form, of the SFD Data,
however, such SFD Data shall be available for Encal's further
review at Pinnacle's offices upon reasonable notice to Pinnacle;
(2) provide, at no cost to Encal, copies of all maps, information,
written reports, interpretations and assessments of Pinnacle
identifying, in Pinnacle's opinion,
<PAGE>
- 14 -
all SFD Anomalies of a major nature, obtained during the conduct
of the SFD Survey; and,
(3) provide recommendations in respect to those SFD Anomalies
identified which, after consultation between the representatives
of Encal and Pinnacle are of a major nature,
(i, ii, and iii above are collectively referred to as the "SFD
Information").
The Parties confirm that Encal shall be represented by one designated
representative. Encal shall designate one alternate designate and may from time
to time upon reasonable notice in writing change the designates as necessary.
(3) Upon presentation of the SFD Information provided by Pinnacle
(including the right to review SFD Data at Pinnacle's offices), Encal
shall review the SFD Information and individually accept or reject in
writing any or all SFD Anomalies presented within ninety (90) days of
such SFD Information being presented to Encal ("Evaluation Period").
Pinnacle agrees during the Evaluation Period to assist Encal in
assessing and confirming any of the SFD Anomalies. After the expiry
of the ninety (90) day period set out herein, the Buffer Zone will no
longer form a part of the Exploration Area, except to the extent it
contains SFD Anomalies presented by Pinnacle and accepted by Encal,
and except to that extent it will no longer be an Exclusive Area.
(4) Any SFD Anomaly accepted by Encal shall be hereinafter called an
Exploratory Prospect.
(5) There is no maximum to the number of SFD Anomalies that Pinnacle may
provide SFD Information on and which may be accepted by Encal as
Exploratory Prospects.
(6) Any SFD Information obtained by Pinnacle in relation to an Exploration
Area which does not comprise an SFD Anomaly presented by Pinnacle to
Encal and which Encal
<PAGE>
- 15 -
has reviewed shall not be disclosed by Encal to any Third Party and
Encal agrees to keep it confidential for a period of two (2) years
from the expiry of the Term. Encal shall not disclose such SFD
Information to a Third Party or use the same in furtherance of oil and
gas exploration without the written consent of Pinnacle.
(7) In the event that such SFD Anomalies are rejected by Encal, or deemed
rejected, such SFD Anomalies shall be dealt with in accordance with
clause 8 of this Agreement. Encal may also reject an Exploratory
Prospect for technical and other reasons by written notice to
Pinnacle, and such rejected Exploratory Prospect and associated
Petroleum and Natural Gas Rights shall also be dealt with in
accordance with clause 8 of this Agreement.
(8) Encal and Pinnacle shall attempt to jointly prioritize the Exploratory
Prospects. Encal shall, at its sole discretion, utilizing
conventional oil and gas industry methods use it's best efforts to
cause further evaluation work to be done on each Exploratory Prospect,
as prioritized above. Such work shall be for the purpose of
confirming whether or not a test well location should be selected and
whether or not the drilling of such test well is warranted (which work
may include, but not restricted to further qualification and analysis
using Basic Geophysical Data available to Encal). Seismic Costs for
each Exploratory Prospect shall be borne solely by Encal for the Term.
(9) In the event that Encal fails to elect to accept or reject an SFD
Anomaly within the prescribed time, it shall be conclusively be deemed
to be a rejection of such SFD Anomaly and as such shall not become an
Exploratory Prospect and shall be dealt with in accordance with clause
8 of this Agreement.
(10) Pinnacle, pursuant to clauses 12 or 21, the Petroleum and Natural Gas
Rights to any portion of an Exploratory Prospect (which portion
represents, in Encal's sole reasonable opinion, the key tracts to
drill a test well, such Petroleum and Natural Gas Rights shall be
called "the Key Tracts"), then Encal shall provide written notice to
<PAGE>
- 16 -
Pinnacle of such event occurring and for the purposes of clause 9 such
Exploratory Prospect shall not further be considered as an Exploratory
Prospect, shall not be considered in calculating the Minimum Prospect
Inventory, and shall be dealt with in accordance with clauseE8 of this
Agreement.
The Parties may continue to attempt to secure the Key Tracts and the
provisions of clauses 12 or 21 shall continue for two (2) years from the date of
the above mentioned written notice. In addition, the specific term set forth in
clause 21(b) specific Exploratory Prospect shall be deemed to be amended to two
(2) years from the date of the notice pertaining to the Key Tracts. In the
event that a Party is unable to secure the Key Tracts for such Exploratory
Prospect within such two (2) year period, then such Exploratory Prospect shall
be deemed a rejected Exploratory Prospect except for any joint lands acquired
thereon. In the event that such Key Tracts are secured, then such Exploratory
Prospect shall, for the purposes of clause 9, be considered in calculating the
Minimum Prospect Inventory.
(11) Upon Encal having conducted any conventional oil and gas industry
evaluation and analysis as it sees fit on an Exploratory Prospect,
Pinnacle and Encal shall meet and consult at least forty-eight (48)
hours prior to the final hour at which bids are accepted for the sale
of any new Crown lands or 15 days prior to acquiring new freehold
leases to discuss the acquisition of any such Crown or Freehold
Petroleum and Natural Gas Rights. Prior to the bid date and time
Pinnacle shall elect in writing to Encal whether to acquire a working
interest in the lands comprising the Exploratory Prospect (as defined
in clause 6(q) below), or to elect to receive a gross overriding
royalty with respect to the Exploratory Prospect, calculated and
payable on the terms of the Royalty Procedure based on Encal's working
interest as further set out in the Royalty Procedure. Upon having
elected to receive a gross overriding royalty, Pinnacle and Encal
shall execute a Royalty Agreement in the same form as the Royalty
Procedure attached as Schedule "D" hereto. Should Pinnacle elect to
obtain a working interest as set out hereunder, the Parties agree that
the terms and conditions of the Operating Procedure will govern their
relationship with respect to
<PAGE>
- 17 -
the lands and Petroleum and Natural Gas Rights comprising the
Exploratory Prospect jointly acquired, however, at all times Encal
shall hold any registered and legal interests in trust for Pinnacle
subject to a transfer to Pinnacle of such interest at Pinnacle's
request and to the extent possible. In addition, Pinnacle shall not be
obligated for Seismic Costs or Basic Geophysical Data during such
time. Should Pinnacle elect to remain in a gross overriding royalty
position and execute the Royalty Agreement as set out hereunder, the
Parties hereto agree that the lands and Petroleum and Natural Gas
Rights subject to the Exploratory Prospect, and the Exploratory
Prospect in general shall be excluded from the terms and conditions of
this Agreement and the Exploratory Prospect will solely be governed by
the Royalty Agreement executed by Encal and Pinnacle.
With respect to the acquisition of new Crown or freehold lands as set out
and indicated in this subclause 6(k) above, Pinnacle agrees that until March 15,
1999 Pinnacle will pay its share acquisition costs of such new Crown or freehold
lands until it has expended 45% of a gross $5,000,000.00 land acquisition cost
($2,250,000.00) and in addition, should Encal not have drilled three (3) wells
whether exploratory or development in accordance with the terms of this
Agreement on Exploratory Prospects located on existing Exploration Areas or new
Exploration Areas by March 15, 1999 then Pinnacle will pay 50% of its share of
land costs (i.e. 22.5%) until three (3) such wells are drilled on Exploratory
Prospects. In addition, the Parties confirm that at the later of March 15, 1999
or the time when Encal shall have drilled the three (3) wells indicated under
this subclause, Pinnacle shall be responsible and pay forthwith any amounts
equal to the prior reduction in its full share of land acquisition costs under
this subclause 6(k) immediately above.
(12) All information including any test well information, SFD Data, SFD
Information and any conventional oil and gas industry evaluation and
analysis data acquired by the Parties as a result of any operations
within the Exploration Areas shall be considered confidential and for
their sole and exclusive use and benefit. Such test well information,
SFD Information, SFD Data and any conventional oil and gas industry
evaluation and analysis data shall not be divulged by Pinnacle or
Encal to any Third
<PAGE>
- 18 -
Party unless the Parties first agree in writing to the dissemination
thereof. The Parties agree that any SFD Data and SFD Information
pertaining to any rejected SFD Anomalies and Exploratory Prospects
shall remain the property of Pinnacle and in the case of test well
information and any conventional oil and gas industry evaluation and
analysis data including any Basic Geophysical Data, the property of
Encal.
(13) The Parties hereto acknowledge that the SFD Technology, SFD
Information and all SFD Data shall, continue to be the sole property
of Pinnacle and the Affiliates, and shall remain confidential and
within the possession of Pinnacle and the Affiliates.
(14) The Parties hereto acknowledge that any conventional oil and gas
industry evaluation and analysis work including Basic Geophysical Data
shall continue to be the sole property of Encal, and shall remain
confidential and within the possession of Encal.
(15) Encal agrees that Pinnacle may require each employee or consultant of
Encal and Encal's professional advisors who come into contact with SFD
Technology to execute a Confidentiality Agreement in the form as
Schedule "E" attached hereto. Pinnacle agrees that Encal may require
each employee or consultant of Pinnacle and Pinnacle's professional
advisors who come into contact with Basic Geophysical Data and
conventional oil and gas industry evaluation and analysis data to
execute a Confidentiality Agreement substantially in the form as
Schedule "E" attached hereto as necessarily modified.
(16) The Parties hereto acknowledge that ownership and any trading rights
to Basic Seismic Data acquired hereunder shall be solely owned by
Encal.
(17) Upon having selected an Exploratory Prospect, Encal shall determine
the optimum location of the first test well to be located and drilled
on the Exploratory Prospect. The Parties confirm that Petroleum and
Natural Gas Rights may have been acquired from the Crown in Right of
Alberta or the province or other territory where the
<PAGE>
- 19 -
Exploratory Prospect is located, or that the Parties will have to
arrange a farmin arrangement, lease or a sublease arrangement from the
existing holder of the Petroleum and Natural Gas Rights covering the
Exploratory Prospect or any combination of the above. The optimal
location of the first test well shall determine the earning
entitlement provisions applicable to Pinnacle as set out below and
notwithstanding that the remainder of the Exploratory Prospect may
have to be acquired by Encal and Pinnacle in some other manner, the
percentage participation of Pinnacle in and to the Exploratory
Prospect shall be the same throughout the Exploratory Prospect as
where the first test well is to be drilled, and the Parties will be
governed by the Operating Procedure if Pinnacle elects to remain in a
working interest position.
(18) If the test well is to be drilled on lands previously acquired at a
Crown sale or via freehold lease by both Encal and Pinnacle, Encal
will hold any such registered or legal interest of Pinnacle in trust
for Pinnacle with a right in favour of Pinnacle to a transfer of such
interest at Pinnacle's request and to the extent possible. When Encal
advises Pinnacle that it is ready and prepared to drill a test well on
the Petroleum and Natural Gas Rights, Pinnacle shall have fifteen (15)
days (however, if a drilling rig is located on the test well site,
Pinnacle shall have forty-eight (48) hours) to make an election to
either remain in a working interest position relative to the drilling
of the test well located on the subject lands, and Petroleum and
Natural Gas Rights or to elect to convert to an overriding royalty
interest upon the terms set out in the Royalty Procedure. If Pinnacle
elects to convert to an overriding royalty, Pinnacle shall immediately
convey and transfer its entire beneficial and legal working interest
in and to the lands and subject Petroleum and Natural Gas Rights
within the Exploratory Prospect to Encal prior to the spudding of the
test well for the consideration equal to Pinnacle's share of prior
land acquisition costs. In an instance of conversion, the Parties
shall execute a Royalty Procedure and Pinnacle shall remain in a
royalty position relative to the Exploratory Prospect. If Pinnacle
elects to remain in a working interest, Pinnacle shall immediately pay
any consideration and money for prior land acquisition costs to the
extent Pinnacle has not paid for its full
<PAGE>
- 20 -
proportionate working interest share of such land acquisition costs
pursuant to clause 6(k) (if applicable).
7. Existing Exploration Areas
--------------------------
(1) The Parties hereby confirm and agree that Encal has requested Pinnacle
to conduct SFD Surveys on Existing Exploration Areas. The Parties
agree that this clause 7 shall govern the terms and conditions of such
SFD Surveys.
(2) Encal has requested certain SFD Survey to be conducted on Existing
Exploration Areas and the Parties agree that Pinnacle shall conduct
the SFD Survey on the locations of any anomalous SFD features
identified by Pinnacle as potentially indicative of Petroleum
Substances located on the Existing Exploration Areas as time permits
and within the scope of the total time commitment Pinnacle has
covenanted to Encal in light of the conduct by Pinnacle of SFD Survey
on Exploration Areas selected by Encal under the other terms and
provisions of this Agreement. Encal may request Pinnacle to conduct
SFD Surveys on such specific locations within the Existing Exploration
Areas on the basis as set out in this clause herein. The Parties
hereby confirm that Encal is not prohibited from including an Existing
Exploration Area in an Exploration Area under the other terms and
provisions of this Agreement in which case, Pinnacle shall be governed
by the terms and provisions in this Agreement pertaining to
Exploration Areas. The Parties further agree that any such custom SFD
Surveys to be done by Pinnacle in relation to the Existing Exploration
Areas shall be governed by and conducted in accordance with the other
terms and provisions of this Agreement with respect to the generation
and presentation of SFD Anomalies, and the acquisition of lands and
Petroleum and Natural Gas Rights and further the elections by Pinnacle
in relation to a working interest share on any Exploratory Prospects
arising out of such custom Existing Exploration Area or any elections
by Pinnacle to be in an overriding royalty position as set out under
the other terms and conditions of this Agreement. Pinnacle has the
right to reject the conduct
<PAGE>
- 21 -
of any SFD Survey on Existing Exploration Areas, on the same basis as
set out with respect to SFD Surveys conducted by Pinnacle in relation
to Exploration Areas.
(3) Any SFD Data conducted by Pinnacle in relation to the Excluded Lands
selected by Encal and accepted by Pinnacle including any SFD
Information, and SFD Anomalies, identified by Pinnacle on Excluded
Lands shall not be disclosed by Pinnacle to any Third Party whether
during the Term or thereafter, and Pinnacle agrees to keep such SFD
Data and SFD Information in confidence for a period of two (2) years
from the expiry of the Term and shall not disclose such SFD Data and
SFD Information to a Third Party or use such SFD Data and SFD
Information in furtherance of oil and gas exploration without the
written consent of Encal. The immediately preceding clause will also
govern any SFD Anomalies rejected by Encal and existing over Excluded
Lands.
8. Rejected SFD Data
-----------------
(1) The Parties agree that with respect to any SFD Anomalies, or any
Exploratory Prospects which were rejected under any other clauses of
this Agreement including applicable SFD Information (the "Rejected SFD
Data"). Such Rejected SFD Data may, at both Parties' mutual election,
be conveyed by each of them into a separate entity (whether a
corporation or partnership to be decided by the Parties at a later
date) and with the intent that the Rejected SFD Data shall be held by
each of Pinnacle and Encal equally (i.e. 50/50) through the newly
established entity.
(2) The Parties further agree that they may at any time, at both Parties'
mutual election, (i.e. convey any further lands and Petroleum and
Natural Gas Rights into the subject partnership or corporation, as the
case may be, whether such lands and Petroleum and Natural Gas Rights
were subject to this Agreement or not. Lastly, the Parties agree that
should any of them convey their entire interest in any such lands and
Petroleum and Natural Gas Rights to the subject new entity as set out
herein, any existing
<PAGE>
- 22 -
overriding royalties payable to Pinnacle by Encal or to Encal by
Pinnacle (if any) and any AMI clauses arising out of this Agreement
will be extinguished such that as among the Parties hereto, only Third
Party encumbrances shall remain with respect to those Petroleum and
Natural Gas Rights or lands.
(3) The Parties agree that any rejected SFD Anomalies which are not
included in the terms and provisions of clause 8(a), are the exclusive
property of Pinnacle and may be dealt with by Pinnacle as it decides
subject only to subclause 7(c).
9. Minimum Prospect Inventory
--------------------------
During the Term of this Agreement, Pinnacle shall perform its obligations
to conduct SFD Surveys until all Exploration Areas or SFD Surveys yield a total
of eighteen (18) Exploratory Prospects (such number of Exploratory Prospects is
hereinafter referred to as "the Minimum Prospect Inventory").
In the event that the sum of the Exploratory Prospects is less than fifteen
(15), Pinnacle shall commence further SFD Survey, as designated by Encal, on the
current Exploration Area or, once it has been completed, on the option
Exploration Area until at least the Minimum Prospect Inventory is achieved, with
such additional Exploration Areas or SFD Survey to be provided on such a
"rolling basis" as may be required. Encal shall have the right to request
further SFD Survey even if the Minimum Prospect Inventory has been met and if,
in the reasonable opinion of Encal, it deems that eighteen (18) Exploratory
Prospects are not sufficient, the Parties may agree to increase such number in
order that Encal shall have a sufficient inventory of such Exploratory
Prospects.
Once the first test well is spudded on an Exploratory Prospect or an
Exploratory Prospect is rejected by Encal, such Exploratory Prospects shall no
longer be included in the Minimum Prospect Inventory.
<PAGE>
- 23 -
The provisions of clauses 6 and 12, as the context requires, shall apply to
the above mentioned additional Exploration Areas created as a result of this
clause.
10. Interim Term Provisions
-----------------------
(1) Notwithstanding any clauses relative to Pinnacle paying for its share
of any costs to acquire lands and Petroleum and Natural Gas Rights
located either in the Exploratory Prospect or comprising AMI Lands,
Encal agrees to pay and advance on behalf of Pinnacle any share of
Pinnacle's obligations to acquire such Petroleum and Natural Gas
Rights until the end of business on February 28, 1998 or the closing
of Pinnacle's financing, whichever is earlier. The Parties agree to
extend this period for a maximum of 30 days upon written notice by
Pinnacle to Encal. This clause shall also apply to any costs and
expenses relative to earning and drilling of wells under the terms of
this Agreement where Pinnacle has elected to obtain a working interest
thereunder. Therefore, any such land acquisition, drilling and
associated costs and other operational expenses relative to any wells
drilled under this subject Agreement, shall be advanced and paid for
(with respect to Pinnacle's portion) by Encal until the end of
business on February 28, 1998, or as extended hereunder.
(2) Any monies paid by Encal on behalf of Pinnacle under the terms of this
clause, shall be fully repaid with an annual interest rate equal to
the prime rate (defined as that rate charged by the Royal Bank of
Canada to its best customers as a reference rate for Canadian dollar
loans as listed in the main branch, City of Calgary for that
particular lending institution) by the end of business on February 28,
1998 or the period of time when Pinnacle has received funds from its
financing, whichever is earlier. Any amounts not paid by Pinnacle to
Encal under the terms of this clause shall, in addition to any other
rights available to it, entitle Encal to any of the rights under the
terms of this Agreement including set-off from any existing production
sold by Encal for Pinnacle (and any other Third Parties if applicable)
or any payments by Encal to
<PAGE>
- 24 -
Pinnacle pursuant to the Royalty Procedure and whether such set off
rights pertain to this Agreement or any other agreement.
(3) Encal shall have a lien on all production from joint lands pursuant to
the terms of the Operating Procedure against the interest of Pinnacle
in and thereto in respect of any amounts owing by Pinnacle to Encal
pursuant to this clause 10.
11. Conventional Evaluation
-----------------------
Notwithstanding the use of the SFD Information in evaluating the
Exploration Areas, the Parties hereto agree and acknowledge that any Exploratory
Prospect (including Existing Exploratory Prospects) evaluated under this
Agreement shall have been evaluated using such geological, geophysical,
engineering, mapping, seismic and technological data or information, including
without limitation the Basic Geophysical Data, available to either Encal or
Pinnacle in addition to the SFD Information such that any successes or failures
in drilling on an Exploratory Prospect shall be attributed to all of the
information and data utilized evaluating and determining the Exploratory
Prospect.
12. Farmin Agreements
-----------------
In the event that Petroleum and Natural Gas Rights within an Exploratory
Prospect where a first test well is to be drilled are held by Third Parties to
this Agreement ("Third Party Lands") and Encal is required to commit to conduct
certain obligations, including but not restricted to the drilling of earning
wells on the Exploratory Prospect, but excluding any collection of Basic
Geophysical Data, (such obligations are collectively referred to as
"Obligations") which may be required to earn an interest or the right to earn an
interest in the Third Party Lands, Encal may negotiate and enter into agreements
with Third Parties ("Farmin Agreements"). In the event that Encal enters into a
Farmin Agreement, Encal shall serve written notice to Pinnacle of Encal entering
into such Farmin Agreement ("Farmin Notice") including a reasonable estimate of
Obligations and an estimate of the timing of the advance of funds. Such notice
shall include such recommendations and assessments as Encal deems in its
reasonable opinion to be necessary for Pinnacle to evaluate such Obligations.
Pinnacle
<PAGE>
- 25 -
acknowledges that Encal provides no representations or warranties relative to
such information, recommendations, assessments, interpretations, or estimates
and that Pinnacle will make its own reasonable decision based on such
information and other factors. Pinnacle shall then elect by written notice to
Encal on or before the expiration of fifteen (15) days from receipt of the
Farmin Notice to either:
(1) elect to participate in the Obligations; or
(2) elect to acquire a gross overriding royalty as set out below.
Should Pinnacle elect to participate in the Obligations, and if the test
well to be drilled upon the Exploratory Prospect is to be drilled on such Third
Party Lands, the cost, risk and expense of the Obligations and the benefit and
interest earned in the Third Party Lands subject to the Farmin Agreements shall
be shared by the Parties in the following proportions:
Encal 60%
Pinnacle 40%
The provisions of clause 19(d) apply mutatis mutandis to the event of non-
payment by Pinnacle of the Obligations.
Should Pinnacle elect to acquire a gross overriding royalty and elect not
to participate in the Obligations, Pinnacle and Encal agree to enter into the
Royalty Procedure. Pinnacle shall convey to Encal any working interest in the
entire Exploratory Prospect and Encal shall re-imburse Pinnacle any land
acquisition costs previously paid by Pinnacle. The subject gross overriding
royalty will be calculated, based and payable on the resultant interest (if no
payout account is established) or the after payout interest (if applicable) of
Encal in the subject Farmin Agreement from time to time and with respect to any
Crown lands outside of the earning well spacing unit on the Third Party Lands,
the royalty as set out in the Royalty Procedure shall apply to such lands and
production from wells drilled
<PAGE>
- 26 -
thereon. For the sake of clarity, a gross overriding royalty will apply to the
entire Exploratory Prospect.
During that period of time prior to Pinnacle's election to participate,
Encal shall assist Pinnacle in the review of the Obligations.
In the event that Pinnacle fails to elect to participate in Obligations
within the prescribed time, it shall be conclusively be deemed to be an election
not to participate and to remain in an overriding royalty position on all lands
and future wells on the Exploratory Prospect.
13. Development of Proven Prospects
-------------------------------
(1) Where Pinnacle is in a working interest, and during the Term of this
Agreement, where further wells are proposed in order to fully develop
the potential of a drilled and proven Exploratory Prospect (a "Proven
Prospect") which wells are located on Joint Lands earned as a result
of a Farmin Agreement ("Additional Well") and in which Pinnacle has
participated for a working interest, Encal shall serve written notice
to Pinnacle in accordance with the terms of the governing operating
procedure.
(2) If Pinnacle participates for a working interest in the first well on
an Exploratory Prospect, where further wells may be required to earn
Third Party Lands comprising a portion of a Proven Prospect pursuant
to a Farmin Agreement or should Encal negotiate and enter into new
agreements with Third Parties ("Additional Farmin Agreement") to drill
further wells to earn Third Party Lands (such well shall be referred
to as the "Additional Earning Well"), Encal shall serve written notice
to Pinnacle of the Additional Earning Well ("Earning Well Notice").
Such Earning Well Notice shall include such recommendations and
assessments as Encal deems in its reasonable opinion to be necessary
for Pinnacle to evaluate such Additional Earning Well including a
reasonable estimate of Additional Earning Well costs and an estimate
of the timing of the advance of funds. Pinnacle acknowledges that
Encal provides no
<PAGE>
- 27 -
representations or warranties relative to such information,
recommendations, assessments, interpretations, or estimates and that
Pinnacle will make its own reasonable decision based on such
information and other factors. Pinnacle shall then elect by written
notice to Encal on or before the expiration of fifteen (15) days from
receipt of the Earning Well Notice to either:
(1) elect to participate in the Additional Earning Well; or
(2) elect not to participate in the Additional Earning Well.
Should Pinnacle elect to participate in the Additional Earning Well, the
cost, risk and expense of the Additional Earning Well and the interest earned in
the Third Party Lands subject to the Farmin Agreement or the Additional Farmin
Agreement shall be shared by the Parties in the following proportions:
Encal 60%
Pinnacle 40%
Should Pinnacle elect not to participate in the Additional Earning Well,
such Third Party Lands being earned by such Additional Earning Well in which
Pinnacle is not participating shall not be subject to the terms and conditions
of this Agreement and Pinnacle hereby forfeits its entire interest in such Third
Party Lands. The cost, risk, expense, any Petroleum and Natural Gas Rights
earned, information or benefit derived therefrom shall be for Encal's own
account and Pinnacle shall not earn any interest whatsoever whether working
interest or overriding royalty in such lands.
During that period of time prior to Pinnacle's election to participate
Encal shall assist Pinnacle in the review of the Additional Earning Well.
<PAGE>
- 28 -
In the event that Pinnacle fails to elect to participate in the Additional
Earning Well within the prescribed time, it shall be conclusively be deemed to
be an election not to participate in such Additional Earning Well.
14. Operator
--------
(1) Encal is hereby appointed Operator of the EJV and the attached
Operating Procedure and agrees that it shall not delegate or assign
any of its duties during the Term of this Agreement without the prior
consent of Pinnacle, which consent shall not be unreasonably or
arbitrarily withheld.
(2) Encal, as Operator of the EJV (but for sake of clarity, excluding any
Excluded Lands), shall make all decisions relating to the management
and control of the EJV subject to the terms of this Agreement and the
agreement of Pinnacle where expressly required hereunder with Encal's
reasonable discretion, which shall be exercised in good faith, in a
workmanlike manner, in accordance with good oil and gas field
practice, and which shall be final and binding on the Parties, except
as otherwise provided in this Agreement. Subject to the foregoing,
the Operator shall:
(1) explore, develop, manage and operate oil and gas properties;
(2) subject to the terms and conditions of this Agreement, conduct
preparatory exploration, which shall include (but not be limited
to subsurface mapping, prospect/play purchases, geophysical field
surveys, the collection of Basic Geophysical Data together with
the necessary interpretations as may from time to time be
necessary);
(3) select drill sites and arrange for the drilling of the wells
thereon and produce and sell Petroleum Substances from the
respective accounts of the Parties; it being understood that
Encal is not warranting that Petroleum Substances will
<PAGE>
- 29 -
be sold, only that it shall use its best efforts to market such
Petroleum Substances on the same terms and conditions as it
markets its own share;
(4) enter into agreements on behalf of the Parties to the EJV for the
drilling, participation, development, pooling, farmin, farmout,
unitization, joint venture and production of Petroleum Substances
and for the gathering, processing, treating, transportation and
sale of same;
(5) carry insurance, as specified in Clause 311(B) of the Operating
Procedure on behalf of the Parties as a charge to the joint
account;
(6) vote as one on behalf of both Encal and Pinnacle in all matters
arising from EJV activities;
(7) give receipts, releases and discharges on behalf of the Parties
hereto;
(8) prior to commencing the drilling of any well, to review the title
of the appropriate holder of the Title Document in accordance
with industry standards; and
(9) charge overhead and such other costs recoveries to the Parties as
are provided in the Accounting Procedure attached to the
Operating Procedure, without duplication.
(3) Notwithstanding any other clauses of this Agreement, should Pinnacle
acquire or shoot seismic for its own account, Pinnacle will be solely
responsible for any costs and expenses relative thereto.
15. Facilities and Marketing
------------------------
<PAGE>
- 30 -
(1) Provided a well is capable of production of Petroleum Substances in
paying quantities having regard to the costs of facilities and
marketing as set out below, Encal shall use its best efforts to
promptly cause each of the wells that have been drilled, completed and
equipped under this Agreement, to be connected to Encal's or Third
Party's facilities. Encal agrees to produce and market Pinnacle's
share of Petroleum Substances produced from the wells and, in addition
to the provisions of this clause, the provisions of Article VI of the
Operating Procedure shall apply thereto. Encal shall not, except for
lack of market, shut-in the wells or reduce production rates as will
result in such wells producing less than their fair and equitable
share of recoverable reserves from any reservoir from which Encal's
other wells are producing, to the disadvantage or detriment of
Pinnacle.
(2) With respect to those facilities in which Encal does not have any
ownership interest, Pinnacle shall be charged the actual cost for
storage, gathering, processing, transporting, treating, compression,
absorption or other plant extraction or stabilization of Pinnacle's
share of Petroleum Substances.
(3) With respect to those facilities in which Encal does have an ownership
interest and subject to any agreements with Third Parties, Pinnacle
shall be charged a reasonable fee sufficient to cover the costs for
the storage, gathering, processing, transporting, treating,
compression, absorption or other plant extraction or stabilization of
Pinnacle's share of Petroleum Substances which fee shall also include
a reasonable rate of return on capital investment.
(4) Notwithstanding the provisions of Article VI, Clause 601 of the
Operating Procedure, Pinnacle hereby agrees to dedicate Pinnacle's
share of production of Petroleum Substances from the joint lands
subject to the Operating Procedure to Encal who shall undertake to
market Pinnacle's share of production of Petroleum Substances on the
same terms as Encal markets its own share of production, subject to
the provisions of Article VI, Clause 604, election "A".
<PAGE>
- 31 -
(1) If at any time during the Term of this Agreement a Party (in this
clause called "the Proposing Party") wishes to construct new
facilities for the treating, processing, or transportation of
Petroleum Substances from the joint lands subject to the
Operating Procedure, it shall afford to the other Party an
opportunity to participate in such project on an equitable basis.
The Proposing Party shall provide to the other Party the
background information the Proposing Party deems reasonably
necessary for the other Party to evaluate the project and make a
decision. The Parties recognize that until a proposal is made it
is not possible to determine the terms of such participation,
however, each Party agrees that it will act in good faith in
carrying out the terms of this clause.
16. Meetings and Reporting
----------------------
Upon completion of the SFD Survey set out herein and the acceptance and
evaluation of the Exploratory Prospects, Encal shall provide Pinnacle with an
outline of the wells to be drilled and new facilities to be constructed. It is
acknowledged that such outline shall not be binding and may be subject to
revision from time to time. At two (2) month intervals thereafter, Encal shall
provide outlines for the wells scheduled to be drilled in each successive
calendar quarter during the Term. Beyond the Term, the Parties shall consult to
determine the most efficient and reasonable method of scheduling further
operations.
17. Incorporation of the Operating Agreement
----------------------------------------
(1) Provided Pinnacle has elected not to be in an overriding royalty
position, then the following clauses of Schedule "C" ("Operating
Procedure") shall apply, mutatis mutandis, to this Agreement and to
all operations as between Encal and Pinnacle for such wells drilled
thereunder. Where the terms of this Agreement and the Operating
Procedure conflict, the terms of this Agreement shall prevail. Where
the Operating
<PAGE>
- 32 -
Procedure makes reference to "Operator" the word "Encal" is
substituted and similarly, "Joint Operator" is substituted by
"Pinnacle" and "this Operating Procedure" is substituted by "this
Agreement".
304 Proper Practices in Operations
305 Books, Records and Accounts
306 Protection from Liens
307 Joint-Operator's Rights of Access
308 Surface Rights
309(a) Maintenance of Title Documents
311 Insurance
501 Accounting Procedure
701 Pre-Commencement Information (excluding 701(a))
702 Drilling Information and Privileges of Joint-Operators
703 Logging and Testing Information to Joint-Operators
704 Completion and Production Information to Joint-Operators
705 Well Information Subsequent to Completion
706 Data Supplied in Accordance with Industry Standards
801 Velocity Surveys and Other Geophysical Tests
ARTICLE 11 Quit Claim
1601 Definition of Force Majeure
1602 Suspension of Obligation Due to Force Majeure
1603 Obligation to Remedy
1604 Exception for Lack of Finances
1801 Information to be Kept Confidential
(2) Subject to the terms of this Agreement and to subclause (c) below, the
Operating Procedure shall apply to operations conducted in respect of
the exploration, development and maintenance of any lands, between and
among Pinnacle and Encal hereto.
<PAGE>
- 33 -
(3) In the event that Encal and Pinnacle are parties to an existing
agreement involving Third Parties ("Third Party Agreement") and to the
extent the Third Party Agreement conflicts with the Operating
Procedure, the Third Party Agreement terms and conditions shall
prevail as between Encal and Pinnacle.
18. Indemnification
---------------
(1) The Parties hereto shall, in proportion to their respective
participating interests in the EJV, hereby indemnify and hold harmless
the Operator from and against any and all actions, suits, claims and
demands made by any person or persons whomsoever, in respect of any
loss, injury, damage or obligation to compensate arising out of or in
any way connected with the carrying out by the Operator of its duties
and obligations in accordance with the provisions of this Agreement,
except when the Operator is found to be grossly negligent, and
excepting the collection of Basic Geophysical Data.
(2) Pinnacle indemnifies Encal against any and all Losses which may be
incurred or suffered by Encal or which may be sustained, paid or
incurred by reason of or in any way attributable to the operations
carried on in respect of the SFD Survey by Pinnacle, its servants,
agents or employees under this Agreement. However, notwithstanding
any other clauses of this Agreement, Pinnacle does not represent and
warrant the accuracy or reliability of the SFD Data and SFD
Information and Encal agrees that it is in part relying on the same
based upon its own evaluation of the same.
(3) Encal indemnifies Pinnacle against any and all Losses which may be
incurred or suffered by Pinnacle or which may be sustained, paid or
incurred by reason of or in any way attributable to the operations
carried on in respect of the Basic Geophysical Data by Encal, its
servants, agents or employees under this Agreement. However,
notwithstanding any other clauses of this Agreement, Encal does not
represent or warrant the accuracy or reliability of the conventional
oil and gas industry evaluation
<PAGE>
- 34 -
any analysis date including the Basic Geophysical Data and Pinnacle
agrees that it is in part relying on the same based upon its own
evaluation of the same.
(4) Pinnacle and each of the Affiliates jointly and severally indemnifies
Encal against any and all Losses which may be incurred or suffered by
Encal or which may be sustained, paid or incurred by reason of or in
any way attributable to the breach of one or more of the
representations, warranties or covenants made by Pinnacle and each of
the Affiliates under this Agreement, whether such a breach occurs
prior to or during the Term of this Agreement, or as a result of
Pinnacle or the Affiliates suffering an adverse loss to their rights
in and to the SFD Technology and SFD Data as a result of or arising
out of the Action, such an indemnity to continue for a period of five
(5) years following the Term of this Agreement.
19. Default and Termination
-----------------------
(1) If either Party fails to perform any obligation required to be
performed hereunder, the non-defaulting Party may give the defaulting
Party notice to remedy the default, and if the defaulting Party does
not commence to remedy the default within thirty (30) days after
receiving the notice and proceed diligently and continuously to remedy
it, the non-defaulting Party may by notice to defaulting Party in
writing terminate this Agreement.
(2) If, as a result of the Action or any breach of the representations,
warranties and covenants contained herein, whether such a breach is
the result of the actions of Pinnacle or any of the Affiliates, or if
Pinnacle or any of the Affiliates is no longer entitled to the
ownership of SFD Technology and the right to utilize the SFD
Technology is granted to any other person other than as provided in
clause 5(a), Encal may terminate this Agreement by providing written
notice of same to Pinnacle.
<PAGE>
- 35 -
(3) In the event that this Agreement is terminated as provided in this
clause, any lands owned jointly by the Parties hereto shall continue
to be governed by the Operating Procedure or applicable Third Party
Agreement.
(4) Subject to clause 10 hereof, should Pinnacle fail to pay its
proportionate share of any cash calls or authorities for expenditure
issued and delivered by Encal to Pinnacle in relation to a test well,
or any other operations on an Exploratory Prospect, then, at the
option of Encal, Encal may treat the non-payment as a lien on
production in favour of Encal pursuant to the applicable operating
procedure or may elect to treat the non-paid amount and any applicable
interest thereunder as a debt due and owing from Pinnacle to Encal
which may be collected by Encal in accordance with any provisions of
law or equity and, Encal shall have the right to set-off the subject
debt and any interest or penalty amounts owing against any other
amounts payable or paid by Pinnacle to Encal including any production
on any other lands under the terms of this Agreement or any amounts
payable under a Royalty Agreement, or under the terms of the Operating
Procedure applicable to any such lands.
(5) Should Encal fail to pay its proportionate share of any cash calls or
authorities for expenditure in relation to a test well, or any other
operations on any Exploratory Prospect, then, at the option of
Pinnacle, Pinnacle may treat the non-payment as a lien on production
in favour of Pinnacle pursuant to the applicable operating procedure
or may elect to treat the non-paid amount and any applicable interest
thereunder as a debt due and owing from Encal to Pinnacle which may be
collected by Pinnacle in accordance with any provisions of law or
equity and, Pinnacle shall have the right to set-off the subject debt
and any interest or penalty amounts owing against any other amounts
paid by Encal to Pinnacle including any production on any other lands
under the terms of this Agreement or any amounts payable under a
Royalty Agreement, or under the terms of the Operating Procedure
applicable to any such lands.
20. Transfer
--------
<PAGE>
- 36 -
Each Party shall not transfer this Agreement or any interest, right or
obligation under this Agreement, or any joint lands operated under the Operating
Procedure except in accordance with the provisions of Clause 2401 (B) of the
Operating Procedure, provided that for the purpose of Clause 2401 (B) of the
Operating Procedure, Affiliates may include a limited partnership where Pinnacle
or Pinnacle Oil Canada Ltd. or an Affiliate is the general partner of such
partnership. Any assignment of interest shall be in accordance with the
Assignment Procedure attached as Schedule "C" hereto.
Notwithstanding any assignment made by Pinnacle to an Affiliate, during the
Term of this Agreement, Encal need only look to Pinnacle for performance of the
duties and obligations of Pinnacle pursuant to this Agreement.
21. Area of Mutual Interest
-----------------------
(1) In this clause the expression "AMI Lands" means any Petroleum And
Natural Gas Rights, or either of them, which are laterally and/or
diagonally within one (1) mile of the lands encompassing any
Exploratory Prospect, other than Excluded Lands and lands acquired by
Encal alone (i.e. not subject to any obligation to provide an interest
to a Third Party) pursuant to clause 13(b).
(2) On an Exploratory Prospect by Exploratory Prospect basis, the
provisions of this clause relating to the acquisition of any AMI Lands
shall:
(1) for AMI Lands not encompassing the Exploratory Prospect, be
effective for that period commencing on the date of acceptance,
in writing, by Encal of an Exploratory Prospect and terminating
one (1) year thereafter, and;
(2) for AMI Lands encompassing the Exploratory Prospect, be effective
for the Term and one (1) year thereafter.
<PAGE>
- 37 -
(3) Crown Lands") and if one of the Parties desires to acquire an interest
in the New Crown Lands, the Parties shall consult at least forty-eight
(48) hours prior to the final hour at which bids are accepted for the
sale of the New Crown Lands for the purpose of attempting to reach an
agreeable bid price. If, after consultation between the Parties,
agreement is reached, to bid jointly on the New Crown Lands, Encal
shall submit the bid on behalf of the Parties and if the New Crown
lands are acquired, they shall be paid for, owned and held by the
acquiring Parties in the following interests ("Participating
Interests"):
(1) if an initial test well has been drilled on an Exploratory
Prospect or is being drilled pursuant to clause 12 and Pinnacle
participates, subject to any Third Party participation:
Encal 60%
Pinnacle 40%; or
(2) in all other cases where Pinnacle participates, subject to any
Third Party participation:
Encal 55%
Pinnacle 45%
(4) Subject to Sub-clause (e), if agreement is not reached as to a bid
price, then the New Crown Lands so acquired shall be paid for, owned
and held by the Party acquiring the New Crown Lands.
(5) If, after any consultation at which an agreed bid price is not reached
by all Parties, any Party acquires the New Crown Lands at a price
which differs by more than five percent [5%] from the price it was
prepared to agree to for acquisition, or if a Party acquires the New
Crown Lands without consulting with the other Party or without
<PAGE>
- 38 -
disclosing the price it was prepared to pay for the acquisition, the
acquiring Party shall immediately give notice to the other Party
setting forth the consideration paid. Any Party receiving the notice
shall have the right for a period expiring ten (10) days from the
receipt of the notice to elect to acquire its Participating Interest
in the New Crown Lands acquired by paying to the acquiring Party its
proportionate share of the acquisition costs. If this right is
exercised, the New Crown Lands shall be held and owned by the Parties
acquiring and the Parties electing to acquire their proportionate
interest in the proportion that their respective Participating
Interests bear one to the other as set forth in Sub-clause (b)(i) or
(b)(ii), whichever is applicable. The interest acquired shall be held
by the acquiring Party on behalf of all Parties until the expiry of
the ten (10) day period.
(6) On acquisition of AMI Lands by more than one Party, if the AMI Lands
are not already subject to an agreement that provides for their joint
operation, an agreement in the form of the Operating Procedure shall
be deemed immediately to become effective to govern the relationship
among the Parties and to provide for the maintenance and operation of
the AMI Lands. Encal shall be the Operator unless Encal does not
acquire an interest in the AMI Lands, in which event the Parties who
have acquired an interest shall appoint an operator in the manner
provided for the appointment of a new operator in the Operating
Procedure.
(7) Provided that both Encal and Pinnacle acquire their Participating
Interests in the AMI Lands, any wells drilled on the AMI Lands, except
any test well, shall be deemed Additional Wells under this Agreement
and, as such, the provisions of clause 13(a) shall apply mutandis
mutatis to such Additional Well.
(8) A Party submitting a bid under the provisions of this clause shall
comply with all combines and anti-competition laws and shall make
known to the person calling for or requesting the bids or tenders at
or before their time when any bid or tender is made, the names of all
Parties who have agreed to submit a bid or tender.
<PAGE>
- 39 -
(9) If any Party acquires an interest (or the right to acquire an
interest) in any lands other than New Crown Lands as provided in Sub-
clause (c) above or Petroleum and Natural Gas Rights as set forth in
clauses 12 or 13(b) and fifty percent (50%) or more (by surface area
and title document) of the lands so acquired are situated within the
Area of Mutual Interest, the acquiring Party shall notify the other
Party thereof within fifteen (15) days of the acquisition, detailing
the consideration paid or payable therefor and the obligations
undertaken by the acquiring Party with respect to the said
acquisition. The other Party shall have ten (10) days from receipt of
the notice of acquisition within which to elect to participate in the
said acquisition to the extent of the percentage interest set forth
opposite its name in Sub-clause (c)(i) or (c)(ii) above, which ever is
applicable, by paying to the acquiring Party pursuant to the said
acquisition.
22. Exclusions to the EJV
---------------------
Notwithstanding anything contained herein, the following Petroleum and
Natural Gas Rights, lands, tangibles and associated interests of Encal or any of
its Affiliates (as defined in the Business Corporations Act) or any trust or
-------------------------
partnerships where a Encal is a party (such affiliates being determined at the
time of a selection of a new Exploration Area) are specifically excluded from
this Agreement to the extent they are not acquired as a result of SFD Data, SFD
Information and SFD Anomalies reviewed by Encal (the "Excluded Lands"):
(1) the acquisition of any interest in lands, Petroleum Substances,
corporations, partnerships, affiliates or other legal entities as such
by the purchase of an equity interest therein or merger and
amalgamation therewith and any duties, obligations or acquisitions
resulting therefrom where the AMI Lands are not the primary purpose of
the acquisition;
<PAGE>
- 40 -
(2) any interests in any lands or Petroleum and Natural Gas Rights
presently held by Encal and its joint operators either having reserves
which have been proven, probable or capable of any production of
Petroleum Substances whatsoever including any lands or possible
Petroleum and Natural Gas Rights;
(3) the purchase of any oil and gas reserves (whether proven or probable
reserves) unless subsequently deemed included by mutual agreement of
the Parties;
(4) any lands and Petroleum and Natural Gas Rights where Encal has
conducted technical or analysis work and is pursuing the acquisition
of such lands and Petroleum and Natural Gas Rights without reliance
upon SFD Data;
(5) any other lands, Petroleum and Natural Gas Rights, tangibles and
associated interests in which Encal has an interest or has a right to
acquire an interest and which are not made a part of this Agreement in
accordance with the terms and conditions hereof.
23. Notices
-------
(1) The addresses for service and the fax numbers of the Parties shall be
as follows:
Encal - Encal Energy Ltd.
1800, 421 - 7th Avenue S.W.
Calgary, Alberta
T2P 4K9
Attention: Manager, Land
------------------------
Fax: (403) 266-6648
Pinnacle -
Pinnacle Oil International Inc.
54 Patterson Close S.W.
Calgary, Alberta
T3H 3K2
Attention: President
--------------------
<PAGE>
- 41 -
Fax: (403) 686-4199
Affiliates -
Pinnacle Oil Inc.
54 Patterson Close S.W.
Calgary, Alberta
T3H 3K2
Attention: President
--------------------
Fax: (403) 686-4199
Dirk R. Stinson
54 Patterson Close S.W.
Calgary, Alberta
T3H 3K2
Attention: President
--------------------
Fax: (403) 686-4199
Pinnacle Oil Canada Ltd.
54 Patterson Close S.W.
Calgary, Alberta
T3H 3K2
Attention: President
--------------------
Fax: (403) 686-4199
Momentum Resources Ltd.
54 Patterson Close S.W.
Calgary, Alberta
T3H 3K2
Attention: President
--------------------
Fax: (403) 686-4199
George Liszicasz
54 Patterson Close S.W.
Calgary, Alberta
T3H 3K2
Attention: President
--------------------
Fax: (403) 686-4199
(2) All notices, communications and statements required, permitted or
contemplated hereunder shall be in writing, and shall be delivered as
follows:
<PAGE>
- 42 -
(1) by personal service on a Party at the address of such Party set
out above, in which case the item so served shall be deemed to
have been received by that Party when personally served;
(2) by facsimile transmission to a Party to the fax number of such
Party set out above, in which case the item so transmitted shall
be deemed to have been received by that Party when transmitted
with answer back received; or
(3) except in the event of an actual or threatened postal strike or
other labour disruption that may affect mail service, by mailing
first class registered post, postage prepaid, to a Party at the
address of such Party set out above, in which case the item so
mailed shall be deemed to have been received by that Party on the
fifth (5) business day following the date of mailing.
(3) A Party may from time to time change its address for service or its
fax number or both by giving written notice of such change to the
other Party.
24. Miscellaneous
-------------
(1) Each Party shall perform the acts and execute and deliver the deeds
and documents and give the assurances as shall be reasonably required
in order fully to perform and carry out and give effect to the terms
of this Agreement.
(2) A waiver of any breach of a provision of this Agreement shall not be
binding on any Party unless the waiver is in writing and the waiver
shall not affect the Party's rights with respect to any other or
future breach.
(3) All terms and provisions of this Agreement shall run with and be
binding on the lands referred to during the Term of this Agreement.
<PAGE>
- 43 -
(4) Time is of the essence in this Agreement.
(5) This Agreement shall enure to the benefit of and be binding on the
Parties and their respective heirs, executors, administrators,
successors and assigns.
(6) The terms of this Agreement express and constitute the entire
agreement between the Parties and no implied covenant or liability of
any kind is created or shall arise by reason of these presents or
anything in this Agreement contained.
(7) This Agreement supersedes and replaces all previous agreements,
whether written or oral, memoranda or correspondence between the
Parties with respect to the subject matter of this Agreement.
(8) Wherever in this Agreement the singular number or masculine gender
occurs, the same shall be respectively construed as the plural or
neutral, and vice versa, as the context or reference may require.
(9) All schedules attached to this Agreement are incorporated by reference
as though contained in the body of it. Wherever any term or
conditions, expressed or implied, of any schedule conflicts or is at a
variance with any term or condition of this Agreement, the term or
condition of this Agreement shall prevail.
(10) During the Term, Pinnacle and the Affiliates agree not to actively
solicit the employment or consulting contracts of Encal's employees or
consultants.
(11) The headings of all clauses in this Agreement are inserted for
convenience of reference only and shall not affect the construction of
it.
(12) The terms of this Agreement shall be governed exclusively by the law
in force from time to time in the Province of Alberta and the Parties
hereto agree to submit to the
<PAGE>
- 44 -
jurisdiction of the Courts of the Province of Alberta in respect of
any claims, actions or proceedings resulting from this Agreement.
(13) Notwithstanding anything elsewhere herein contained, the right of a
Party to acquire any interest in any lands or Petroleum and Natural
Gas Rights from another Party shall not extend beyond twenty one (21)
years after the lifetime of the last survivor of the lawful
descendants now living of Her Majesty Queen Elizabeth II.
(14) This Agreement may be executed in counterpart and the executed
counterparts shall constitute one agreement.
(15) Any confidentiality terms and conditions provided by a Party hereunder
shall always be subject to the right of that Party to disclose
confidential information to the extent required by law including
securities laws applicable to such Party
IN WITNESS WHEREOF the Parties have executed this Agreement as of the day
and year first written above.
<PAGE>
- ---------------------------- -------------------------------
ENCAL ENERGY LTD. PINNACLE OIL INTERNATIONAL INC.
Per: /s/ James D. Reimer Per: /s/ R. Dirk Stinson
------------------- -------------------
Per: Per:
- ---------------------------- -------------------------------
PINNACLE OIL INC. MOMENTUM RESOURCES LTD.
Per: /s/ R. Dirk Stinson Per: /s/ R. Dirk Stinson
------------------- -------------------
Per: Per:
- ---------------------------- -------------------------------
PINNACLE OIL CANADA LTD. Witness
Per: /s/ R. Dirk Stinson GEORGE LISZICASZ
-------------------
Per: Witness
DIRK R. STINSON /s/ R. Dirk Stinson
----------------------------------------
<PAGE>
EXHIBIT 10.9
[LETTERHEAD OF RENAISSANCE ENERGY LTD APPEARS HERE]
April 16, 1997
VIA FAX
- -------
Pinnacle Oil International Inc.
380 - 1090 West Georgia Street
Vancouver, British Columbia
V6E 3V7
ATTENTION: MR. R. DIRK STINSON
- ------------------------------
Dear Sir:
Re: Prospect Generation Via SFD Tool
================================================================================
Further to our recent discussions, this letter sets forth our understanding that
Pinnacle Oil International Inc. ("Pinnacle") will undertake to generate for
Renaissance Energy Ltd. ("Renaissance"), 3 prospects in each of the Drumheller
Area, Alberta and the Dollard Area, Saskatchawan (collectively, the "Prospects")
using Pinnacle's SFD Tool in consideration of Renaissance entering into
discussions with Pinnacle respecting an ongoing prospect generation arrangement.
Renaissance shall have sole use and enjoyment of the Prospects and Pinnacle
shall not be entitled to any compensation of any kind in respect of the
Prospects whether or not such prospects are acted upon by Renaissance. Pinnacle
shall at all times keep confidential all information respecting the Prospects.
If the foregoing sets out our understanding please sign both copies of this
letter and return one to the undersigned at your earliest convenience. Thank
you.
Yours truly,
RENAISSANCE ENERGY LTD.
/s/ Jeff S. Lebbert
Jeff S. Lebbert
Vice President, Land & Contracts
Pinnacle Oil International Inc. hereby accepts and agrees to the foregoing this
________ day of _______________, 1997.
PINNACLE INTERNATIONAL OIL INC.
___________________________
<PAGE>
EXHIBIT 10.10
SFD SURVEY AGREEMENT
--------------------
THIS AGREEMENT made as of the 1st day of November, 1997.
BETWEEN:
PINNACLE OIL INTERNATIONAL, INC., a body corporate, having
an office in the City of Vancouver, in the Province of
British Columbia (hereinafter referred to as "Pinnacle")
- and -
RENAISSANCE ENERGY LTD., a body corporate, having an office
in the City of Calgary, in the Province of Alberta
(hereinafter referred to as "Renaissance")
1. DEFINITIONS
-----------
In this Agreement, unless the context otherwise requires:
(a) "Exploratory Drilling Prospects" means drilling locations on the
--------------------------------
Prospect Lands which Pinnacle reasonably is of the view that the
anticipated output of petroleum substances from the proposed well
warrants the drilling of the same;
(b) "Party" means a party to this Agreement;
-------
(c) "Program Period" means the period commencing on November 15, 1997 and
----------------
ending December 15, 1997;
(d) "Prospect Lands" means lands within Twps. 99-103 Rges. 6-12 W6M and in
----------------
which Renaissance now or hereafter acquires a 100% working interest
excluding Twp. 100 Rge. 6 W6M; Secs. 21-23, 26-28, 33-35; Twp. 101
Rge. 6 W6M: Secs. 2-4; Twp. 100 Rge. 7 W6M: Secs. 25-27 and 34-36;
Twp. 101 Rge. 7 W6M: Secs. 1-3; Twp. 100 Rge. 8 W6M: Secs. 14-16 and
21-23; Twp. 100 Rge, 10 W6M: Secs. 20-23, 26-29 and 32-35; Twp. 101
Rge. 10 W6M: Secs. 2-5 and 8-11; Twp. 101 Rge. 8 W6M: Secs. 27-29 and
32-34; Twp. 102 Rge. 8 W6M: Secs. 3-5; Twp. 102 Rge. 9 W6M: Secs. 6-8,
17-20, 29 and 30; Twp. 102 Rge 10 W6M; Secs 1-4, 8-17 and 21-25;
(e) "Royalty Agreement" means a royalty agreement substantially in the
-------------------
form attached hereto as Schedule "A", which Royalty Agreement will be
entered into by the Parties upon the conditions contained in clause
3(b) having been satisfied; and
<PAGE>
-2-
(f) "this Agreement", "herein", "hereto", "hereof" and similar expressions
----------------------------------------------
mean and refer to this SFD Survey Agreement.
2. SCHEDULE
--------
Schedule "A", pertaining to the Royalty Agreement, is appended to this
Agreement. Wherever any term or condition of Schedule "A" conflicts or is at
variance with any term or condition in the body of this Agreement, such term or
condition in the body of this Agreement shall prevail.
3. PROGRAM
-------
(a) Pinnacle covenants to:
(i) perform stressfield tool surveys over the Prospect Lands in
attempts to locate Exploratory Drilling Prospects during the
Program Period; and
(ii) submit to Renaissance as and when identified and before the
expiration of the Program Period, one or two Exploratory Drilling
Prospects identified during the Program Period.
(b) If Renaissance, acting on the Exploratory Drilling Prospect,
determines in its sole discretion to drill and subsequently drills a
well at a location identified in an Exploratory Drilling Prospect to a
depth deeper than below base Mississippian on or before March 31,
1998, Renaissance agrees, with respect to any wells so drilled on or
before March 31, 1998 under an Exploratory Drilling Prospect, up to a
maximum of 2 wells, to hereby reserve and grant to Pinnacle a 5%
royalty to be calculated and paid in accordance with the terms and
conditions set out in the Royalty Agreement (which Royalty Agreement
shall be entered into on a well by well basis).
4. PINNACLE'S INDEMNITIES
----------------------
Pinnacle shall be liable to Renaissance for and shall, in addition,
indemnify Renaissance from and against, all losses, costs, claims, damages,
expenses and liabilities suffered, sustained, paid or incurred by Renaissance
which arise out of any matter or thing occurring or arising from and after the
date hereof and which arise out of acts or omissions of Pinnacle, provided
however that Pinnacle shall not be liable to nor be required to indemnify
Renaissance in respect of any losses, costs, claims, damages, expenses and
liabilities suffered, sustained, paid or incurred by Renaissance which arise out
of acts or omissions of Renaissance.
5. CONFIDENTIALITY AND PUBLIC ANNOUNCEMENTS
----------------------------------------
Each Party shall keep confidential all information obtained from the
other Party in connection with this Agreement and shall not release any
information concerning this Agreement and the operations herein provided for,
without the prior written consent of the other Party, which consent shall not be
unreasonably withheld. Nothing contained herein shall prevent a Party at any
time from furnishing information to any governmental agency or regulatory
authority or to the public if required by applicable
<PAGE>
-3-
law, provided that the Parties shall advise each other and agree as to content
in advance of any public statement which they propose to make.
6. AIRPLANE COSTS
--------------
Renaissance shall reimburse Pinnacle for 50% of all charter airplane
costs and expenses actually incurred by Pinnacle hereunder during the Program
Period.
7. ENTIRE AGREEMENT
----------------
No amendments shall be made to this Agreement unless in writing,
executed by the Parties. This Agreement supersedes all other agreements,
documents, writings, and verbal understandings among the Parties relating to the
subject matter hereof and expresses the entire agreement of the Parties with
respect to the subject matter hereof.
8. GOVERNING LAW
-------------
This Agreement shall, in all respects, be subject to, interpreted,
construed and enforced in accordance with and under the laws of the Province of
Alberta and the laws of Canada applicable therein and shall, in every regard, be
treated as a contract made in the Province of Alberta. The Parties irrevocably
attorn and submit to the jurisdiction of the courts of the Province of Alberta
and courts of appeal therefrom in respect of all matters arising out of this
Agreement.
9. ENUREMENT
---------
This Agreement shall be binding upon and shall enure to the benefit of
the Parties and their respective administrators, trustees, receivers,
successors and assigns.
10. TIME OF ESSENCE
---------------
Time shall be of the essence in this Agreement.
11. TERM
----
This Agreement shall terminate on March 31, 1998.
<PAGE>
-4-
12. NO PARTNERSHIP
--------------
Nothing contained in this Agreement shall be construed as creating a
partnership, joint venture or association of any kind or as imposing upon any
Party, andy partnership duty, obligation or liability to any other Party.
IN WITNESS WHEREOF the parties have executed and delivered this
Agreement as of the date first above written.
PINNACLE OIL INTERNATIONAL, INC. RENAISSANCE ENERGY LTD.
Per: [SIGNATURE ILLEGIBLE] Per: [SIGNATURE ILLEGIBLE]
--------------------------- ----------------------------
Per: ___________________________ Per: ____________________________
<PAGE>
THE FOLLOWING 8 PAGES COMPRISE SCHEDULE "A" ATTACHED TO AND FORMING PART OF AN
SFD SURVEY AGREEMENT MADE AS OF THE 1ST DAY OF NOVEMBER, 1997 BETWEEN PINNACLE
OIL INTERNATIONAL, INC. AND RENAISSANCE ENERGY LTD.
- -------------------------------------------------------------------------------
<PAGE>
ROYALTY AGREEMENT
-----------------
THIS AGREEMENT made as of the . day of ., 199..
BETWEEN:
RENAISSANCE ENERGY LTD., a body corporate, having an office
in the City of Calgary, in the Province of Alberta
(hereinafter referred to as "Grantor")
-and-
PINNACLE OIL INTERNATIONAL, INC., a body corporate, having
an office in the City of Calgary, in the Province of Alberta
(hereinafter referred to as "Grantee")
WHEREAS:
(A) By virtue of an SFD Survey Agreement dated November 1, 1997 between
the parties hereto, Grantor has drilled a well at a location identified in an
Exploratory Drilling Prospect (as defined in the SFD Survey Agreement); and
(B) The parties hereto desire to provide that from and after the Effective
Time, the Royalty Lands shall be subject to the terms and provisions of this
Agreement;
NOW THEREFORE for good and valuable consideration, the parties hereto
covenant and agree as follows:
1. Interpretation
--------------
1.1 In this Agreement, including the premises hereto, this article and
Schedule "A" hereto, unless the context otherwise requires:
(a) "Condensate" means a mixture mainly of pentanes and heavier
hydrocarbons that may be contaminated with sulphur compounds, that is
recovered or is recoverable at a well from an underground reservoir
and that is gaseous in its virgin reservoir state but is liquid at the
conditions under which its volume is measured or estimated;
(b) "Crown" means the Crown in Right of the Province of Alberta;
(c) "Delivery Point" means the place where Petroleum Substances are
delivered to the purchase thereof, or as otherwise provided herein;
(d) "Effective Time" means the . day of . 199.;
<PAGE>
-2-
(e) "Natural Gas" means a mixture containing methane, other paraffinic
hydrocarbons, nitrogen, carbon dioxide, hydrogen sulphide, helium and
minor impurities, or some of them, which is recovered or is
recoverable at a well from an underground reservoir and which is
gaseous at the conditions under which its volume is measured or
estimated, inclusive of all other products (excluding Petroleum and
Condensate) necessarily produced in connection therewith:
(f) ("Overriding Royalty" means the royalty reserved to Grantee pursuant
to article 2 hereof:)
(g) "Petroleum" means a mixture mainly of pentanes and heavier
hydrocarbons that may be contaminated with sulphur compounds, that is
recovered or is recoverable at a well from an underground reservoir
and that is liquid at the conditions under which its volume is
measured or estimated, but does not include Condensate;
(h) "Petroleum Substances" means Petroleum, Natural Gas, Condensate and
every other mineral or substance, or any of them;
(i) "Royalty Lands" means the lands, zones and formations set forth and
described in Schedule "A" hereto and so much thereof as from time to
time remain subject to this Agreement, but only insofar as rights to
the same are granted by the Title Documents;
(j) "Title Documents" means the documents and leases by virtue of which
Grantor is entitled to drill for, win, take, or remove Petroleum
Substances and underlying all or any part of ., and includes any
amendments thereto, renewals or extensions thereof and any documents
of title issued therefrom or in substitution therefor.
1.2 Schedule "A" hereto is incorporated herein by reference as though
contained in the body hereof. Wherever any term or condition, expressed or
implied, in Schedule "A" hereto conflicts or is at variance with any term or
condition in the body hereof, such term or condition in the body hereof shall
prevail.
1.3 If any term or condition of this Agreement or Schedule "A" hereto,
whether express or implied, conflicts with or is at variance with a term or
condition in the Title Documents, then such term or condition in the Title
Documents shall prevail, and this Agreement shall be deemed to be amended to the
extent necessary to give effect to such term or condition in the Title
Documents.
2. Overriding Royalty
------------------
2.1 There is hereby reserved to and owned by Grantee, an overriding
royalty of five (5%) percent of the wellhead value on that portion of Petroleum
Substances attributable to the interest of Grantor in the Royalty Lands
(understood by Grantor to be set out in Schedule "A" hereto) produced, saved and
marketed from . (the "Well") each month during the term of the Title Documents.
2.2 Grantor shall sell the Overriding Royalty share of Grantee at the same
price and on the same terms as Grantor receives for its own share of such
Petroleum Substances, which shall not be less than the price at which a
reasonably prudent operator would dispose of such Petroleum Substances having
regard to current market prices, availability of markets and economic conditions
affecting the industry
<PAGE>
-3-
generally. In calculating the (Overriding Royalty, Grantor may deduct before
------
applying the percentages aforesaid all charges and costs incidental or
pertaining to gathering, storing, processing, treating and transporting
Petroleum Substances to the Delivery Point, in the same manner allowed by the
Crown when it is lessor, without regard to any royalty holidays, cash payments,
incentives, grants, waivers, exemptions, abatements and benefits of any nature
whatsoever received by or available to Grantor.
2.3 Notwithstanding any other provision of this Agreement, Grantor shall
be entitled to use, free from the obligation to deliver or pay the Overriding
Royalty, such part of the Petroleum Substances as is reasonably required for and
used by it in its operations upon ., including treating and preparing Petroleum
Substances for market but not including injection thereof in connection with any
secondary recovery operations. Any Petroleum Substances used by Grantor other
than as permitted in this clause 2.3 shall be deemed to have been marketed by
Grantor at the time of use for a price at which a reasonably prudent operator
would dispose of such Petroleum Substances having regard to current market
prices, availability of markets and economic conditions affecting the industry
generally. For greater certainty, any Petroleum Substances that are not
marketed or deemed to have been marketed due to shrinkage or loss shall not be
subject to the Overriding Royalty.
2.4 Notwithstanding any other provision of this Agreement, if pursuant to
any agreement governing operatorship of all or any part of the Royalty Lands,
whether such agreement presently exists or is subsequently entered into, Grantor
elects or is deemed to have elected not to participate in an operation on or in
respect of all or any part of the Royalty Lands, such that Grantor is thereafter
permanently or temporarily disentitled to all or any part of Grantor's working
interest share of the Petroleum Substances or any of them, then, in each such
instance, such Petroleum Substances shall not be subject to the Overriding
Royalty during such time of disentitlement.
2.5 Any cash payment required to be paid by Grantor to Grantee in
respect of the Overriding Royalty shall be made on the fortieth (40th) day
following the month in which the Petroleum Substances to which such amount
relates were produced and marketed from the Well, to Grantee at its address for
notices as hereinafter provided.
2.6 At the same time as the cash payment pursuant to clause 2.5 herein is
due, Grantor shall forward to Grantee a written statement of Grantee's
Overriding Royalty share due to it for the production in the month concerned
showing production, inventories and sales; and the said statement shall be
conclusive of the amount thereof unless Grantee objects thereto by notice in
writing specifying the particulars of any error or deficiency therein within
six (6) months after the end of the calendar year in which the said statement
was received.
2.7 Grantor shall keep and maintain in the Province of Alberta at all
times during the term hereof true and accurate books, statements, records, and
accounts evidencing the quantity of Petroleum Substances produced from the Well
and the disposition thereof. Grantor shall permit Grantee to inspect such
records during normal business hours and to make extracts or copies thereof and
at all times permit Grantee to ascertain the quantity, kind, and nature of the
Petroleum Substances produced or taken from the Well and the costs associated
with any such production.
2.8 Grantee may transfer or assign its Overriding Royalty in whole or
part, but Grantor shall not be required to make payments to more than one party.
<PAGE>
-4-
2.9 If Grantor transfers or assigns all or any part of its interest in the
Well, it shall continue to be bound by, observe, and perform all of the
covenants and terms of this Agreement as if there had been no transfer or
assignment until such time as the party acquiring such interest delivers to
Grantee notice of such transfer or assignment and a written undertaking to be
bound by, observe, and perform all of the covenants and terms of this Agreement
then binding on Grantor insofar as they relate to the interest transferred or
assigned and until Grantee consents to such transfer or assignment, which
consent shall not be unreasonably withheld. Upon the giving of such consent and
upon receipt by Grantee of such notice and undertaking, Grantor shall be
released and discharged from any and all liability and obligations thereafter
accruing under this Agreement, or the Title Documents relating to the Royalty
Lands, insofar as they relate to the interest so transferred or assigned.
2.10 Grantor shall be entitled to pool all or a part of the Royalty Lands
with any other lands for the purposes of creating a spacing unit for production
of the Petroleum Substances or to utilize all or a part of the Royalty Lands
with any other lands, if such pooling or unitization becomes necessary or
desirable in the opinion of Grantor. The basis and manner of such pooling or
unitization, the manner of allocating pooled and unitized lands, and the
contents of any agreement pertaining thereto shall be in the sole discretion and
determination of Grantor, and when so determined shall be binding upon Grantee.
Upon any such pooling and unitization the Overriding Royalty shall be paid on
the basis of production deemed to be produced from or allocated to Royalty Lands
under the plan of unitization or pooling and not upon the basis of actual
production from the Well.
3. RENTALS
-------
3.1 As of the Effective Time, Grantor shall be responsible for the payment
of all rentals, shut-in gas royalties, performance bonds, and other maintenance
costs falling due with respect to the Title Documents.
4. TAXES
-----
4.1 Each party hereto shall be liable for all taxes and other charges
levied or assessed against its interest as set out herein in the Petroleum
Substances, which shall be deemed to include freehold mineral tax in respect of
any Royalty Lands that are freehold, and in lieu of payment by Grantee of its
share thereof Grantor may make such payment and deduct the amount thereof from
any money payable by it to Grantee.
4.2 The payment on behalf of Grantee by Grantor of any tax or other charge
pursuant to the provisions of clause 4.1 herein shall not in any way relieve
Grantee from its obligation and responsibility to reimburse Grantor for its
share of such costs.
5. SURRENDER
---------
5.1 Grantor shall not surrender any of its interest in the Royalty Lands
or that portion of the Title Documents relating thereto, in whole or in part, at
any time that Grantee is receiving, or is entitled to receive, its Overriding
Royalty unless Grantee consents thereto in writing, such consent not to be
unreasonably withheld, provided that if Grantee does not consent as aforesaid
within three (3) days of notice of Grantor's intentions, it shall be bound to
accept an assignment of the entire right, title, estate, and interest of Grantor
in the Royalty Lands or the portion thereof surrendered, and thereupon Grantee
shall be deemed to have assumed all obligations of Grantor with respect to the
interest assigned.
<PAGE>
-5-
6. Other Encumbrances
------------------
6.1 If the interest of Grantor in the Royalty Lands now or hereafter shall
become encumbered by any royalty, production payment, or other charge of a
similar nature, other than the royalties as set forth under the terms of the
Title Documents covering such lands, such royalty, production payment, or other
charge shall be charged to and paid entirely by Grantor.
7. NOTICES
-------
7.1 The addresses for service and the fax numbers of the parties hereto
shall be as follows:
Grantor - Renaissance Energy Ltd.
P.O. Box 1120
Station "M"
Calgary, Alberta
T2P 2K9
Attention: Land Department
---------------------------
Fax: (403) 750-1892
Grantee - Pinnacle Oil International, Inc.
54 Patterson Close S.W.
Calgary, Alberta
T3H 3K2
Attention: President
---------------------
Fax: (403) 686-8020
All notices, communications and statements required, permitted or contemplated
hereunder shall be in writing, and shall be delivered as follows:
(a) by personal service on the other party hereto at the relevant address
set out above, in which case the item so served shall be deemed to
have been received by that party when personally served;
(b) by facsimile transmission to the other party hereto to the relevant
fax number set out above, in which case the item so transmitted shall
be deemed to have been received by that party when transmitted; or
(c) except in the event of an actual or threatened postal strike or other
labour disruption that may affect mail service, by mailing first class
registered post, postage prepaid, to the other party hereto at the
relevant address set out above, in which case the item so mailed shall
be deemed to have been received by that party on the fifth day
following the date of mailing.
<PAGE>
-6-
Grantor and Grantee may from time to time change their respective addresses for
service or their respective fax numbers or both by giving written notice to the
other.
8. Force Majeure
-------------
8.1 The obligations of the parties hereto shall be suspended; and there
shall be no liability for damages during the time and to the extent that any
party hereto is prevented from complying with its obligations under this
Agreement in part or in whole by strikes, lock-outs, acts of God or the Queen's
enemies, war, blockades, riots, laws, orders, or regulations of governmental
bodies or agencies, unavoidable accidents, delays in transportation, inability
to obtain necessary materials in the open market, or any other cause, except
financial, whether similar or dissimilar to those specifically enumerated,
beyond the reasonable control of the party hereto affected. The party hereto
whose obligations under this Agreement are suspended shall give notice,
including reasonably full particulars, of the cause of such suspension, to the
other party or parties hereto within a reasonable time after the occurrence
thereof. The performance of such obligations shall begin or be resumed within a
reasonable time after such cause has been removed. No party hereto shall be
required against its will to settle any labour dispute.
9. Miscellaneous
-------------
9.1 Subject to the terms contained herein, this Agreement shall continue
for the life of the Title Documents.
9.2 All terms, covenants, and conditions in this Agreement shall run with
and are binding upon the Title Documents, the Royalty Lands, and the estates
affected thereby for the duration of this Agreement.
9.3 This Agreement supersedes and replaces all previous agreements,
whether written or oral, memoranda, and correspondence among the parties hereto
with respect to the subject matter of this Agreement.
9.4 Should any clause, provision, or condition of this Agreement be or
become illegal or unenforceable, it shall be considered separate and severable
from this Agreement and the remaining provisions and conditions shall continue
in full force and be binding upon the parties hereto as though the said clause,
provision, or condition had never been included.
9.5 The parties hereto covenant, so long as this Agreement is in force and
effect, to comply with any and all regulations and other laws with respect to
anything done, or purported to be done, pursuant to this Agreement, and with
respect to the operations carried out hereunder.
9.6 No waiver by any party hereto of any term of this Agreement shall take
effect or be binding upon that party unless the same be expressed in writing and
any waiver so given shall extend only to the particular breach so waived and
shall not limit or affect any rights with respect to any other or future breach.
9.7 This Agreement shall be binding upon and shall enure to the benefit of
each of the parties hereto and their respective heirs, executors,
administrators, trustees, receivers, successors and assigns.
<PAGE>
-7-
9.8 This is of the essence of this Agreement.
9.9 This Agreement shall, in all respects, be subject to and interpreted,
construed and enforced in accordance with and under the laws of the Province of
Alberta and shall, in every regard, be treated as a contract made in the
Province of Alberta. The parties hereto irrevocably attorn and submit to the
jurisdiction of the courts of the Province of Alberta in respect of all matters
arising out of this Agreement.
9.10 This Agreement may be executed in counterpart, no one copy of which
need be executed by each of the parties hereto. When copies have been executed
by each of the parties hereto, all copies together shall constitute one
agreement and shall be a valid and binding contract among the parties as of the
date first above written.
IN WITNESS WHEREOF THE PARTIES hereto have duly executed this
Agreement as of the day and year first above written.
RENAISSANCE ENERGY LTD. PINNACLE OIL INTERNATIONAL, INC.
Per: ______________________________ Per: ________________________________
Per: ______________________________ Per: ________________________________
<PAGE>
SCHEDULE "A" ATTACHED TO AND FORMING PART OF A ROYALTY AGREEMENT MADE AS OF THE
. DAY OF ., 199. BETWEEN RENAISSANCE ENERGY LTD. AND PINNACLE OIL INTERNATIONAL.
INC.
- --------------------------------------------------------------------------------
Royalty Lands
- -------------
[to be inserted] (below base Mississippian)
Interest
- --------
[to be inserted]
Title Documents
- ---------------
[to be inserted]
<PAGE>
[LETTERHEAD OF RENAISSANCE ENERGY LTD. APPEARS HERE]
January 14, 1998
VIA FAX: 686-2080
- -----------------
Pinnacle Oil International, Inc.
54 Patterson Close S.W.
Calgary, Alberta
T3H 3K2
ATTENTION: MR. R. DIRK STINSON
- ------------------------------
Dear Sir:
RE: SFD Survey Agreement dated November 1, 1997
MANNING Area, Alberta
REL File: G-1475-0
- --------------------------------------------------------------------------------
This letter shall confirm that no Exploratory Drilling Prospects were identified
pursuant to the subject agreement.
Please acknowledge your agreement to the foregoing by signing and returning the
enclosed duplicate hereof.
Yours truly,
RENAISSANCE ENERGY LTD.
/s/ Jeff S. Lebbert
Jeff S. Lebbert
Vice President, Land and Contracts
ACKNOWLEDGED AND AGREED TO this 14 day of JANUARY 1998.
PINNACLE OIL INTERNATIONAL, INC.
Per: [SIGNATURE ILLEGIBLE]
----------------------
<PAGE>
EXHIBIT 10.11
SFD SURVEY AGREEMENT
--------------------
THIS AGREEMENT made as of the 1st day of February, 1998.
BETWEEN:
PINNACLE OIL CANADA INC., a body corporate, having an
office in the City of Calgary, in the Province of Alberta
(hereinafter referred to as "Pinnacle")
-and-
RENAISSANCE ENERGY LTD., a body corporate, having an
office in the City of Calgary, in the Province of Alberta
(hereinafter referred to as "Renaissance")
1. DEFINITIONS
-----------
In this Agreement, unless the context otherwise requires:
(a) "Exploratory Drilling Prospects" means the geographic area covering an
--------------------------------
SFD Anomaly (including entire well spacing units in the case of an
Exploratory Drilling Prospect which only partially covers a spacing
unit) but shall exclude all formations above the base of the
Mississippian;
(b) "Party" means a party to this Agreement;
-------
(c) "Program Period" means the period commencing on February 23, 1998 and
----------------
ending March 31, 1998;
(d) "Prospect Lands" means lands within Twps. 10-13, Rges. 10-17 W4M and
----------------
in which Renaissance now or hereafter acquires a working interest
excluding Twp. 10 Rge. 16 W4M and Twp. 10 Rge. 17 W4M;
(e) "Royalty Agreement" means a royalty agreement substantially in the
-------------------
form attached hereto as Schedule "A", which Royalty Agreement will be
entered into by the Parties upon the conditions contained in clause
3(b) having been satisfied;
(f) "SFD Anomaly" means an anomaious geological or geophysical feature
-------------
which Pinnacle reasonably is of the view that the anticipated output
of petroleum substances from such feature warrants the drilling of a
test well;
(g) "SFD Technology" means stress field detector technology; and
----------------
<PAGE>
-2-
(h) "this Agreement", "herein", "hereto", "hereof" and similar
---------------------------------------------
expressions mean and refer to this SFD Survey Agreement.
2. SCHEDULE
--------
Schedule "A", pertaining to the Royalty Agreement, is appended to this
Agreement. Wherever any term or condition of Schedule "A" conflicts or is at
variance with any term or condition in the body of this Agreement, such term or
condition in the body of this Agreement shall prevail.
3. PROGRAM
-------
(a) Pinnacle covenants to:
(i) perform surveys over the Prospect Lands using the SFD Technology;
and
(ii) submit SFD Anomalies to Renaissance as and when identified and
before the expiration of the Program Period.
(b) Renaissance shall promptly after receipt of the SFD Anomalies from
Pinnacle and their evaluation by Renaissance, advise Pinnacle of its
acceptance or rejection of each of the SFD Anomalies. If Renaissance
accepts an SFD Anomaly, Renaissance shall, in its sole discretion and
acting reasonably, establish the Exploratory Drilling Prospect in
respect of any such accepted SFD Anomaly.
(c) If Renaissance, acting on an accepted SFD Anomaly, determines in its
sole discretion to drill a test well at a location on an Exploratory
Drilling Prospect to a depth below the base of the Mississippian and
such test well is spudded on or before August 31, 1998 and if such
well is drilled to a depth below the base of the Mississippian,
Renaissance agrees to hereby reserve and grant to Pinnacle a 5%
royalty in respect of the Exploratory Drilling Prospect, which
royalty is to be calculated and paid in accordance with the terms and
conditions set out in the Royalty Agreement and the Parties shall
execute a Royalty Agreement in respect of such Exploratory Drilling
Prospect.
4. PINNACLE'S INDEMNITIES
----------------------
Pinnacle shall be liable to Renaissance for and shall, in addition,
indemnify Renaissance from and against, all losses, costs, claims, damages,
expenses and liabilities suffered, sustained, paid or incurred by Renaissance
which arise out of any matter or thing occurring or arising from and after the
date hereof and which arise out of acts or omissions of Pinnacle in connection
with the surveys by Pinnacle over the Prospect Lands using the SFD Technology,
provided however that Pinnacle shall not be liable to nor be required to
indemnify Renaissance in respect of any losses, costs, claims, damages,
expenses and liabilities suffered, sustained, paid or incurred by Renaissance
which arise out of acts or omissions of Renaissance.
<PAGE>
-3-
5. CONFIDENTIALITY AND PUBLIC ANNOUNCEMENTS
----------------------------------------
Each Party shall keep confidential all information obtained from the
other Party in connection with this Agreement and shall not release any
information concerning this Agreement and the operations herein provided for,
without the prior written consent of the other Party, which consent shall not be
unreasonably withheld. Nothing contained herein shall prevent a Party at any
time from furnishing information to any governmental agency or regulatory
authority or to the public if required by applicable law, provided that the
Parties shall advise each other and agree as to content in advance of any public
statement which they propose to make and provided further that unless required
by applicable law or agreed to by Renaissance, in no event shall Renaissance's
name be disclosed in any public statement. If Pinnacle is required by
applicable law to make a disclosure of Renassance's name it shall first and
prior to any such disclosure, inform Renaissance of the requirement and provide,
at Pinnacle's sole cost and expense, a reasonable opinion of Bennett Jones
Verchere (which may be based on an opinion of U.S. counsel with respect to
matters of U.S. law) confirming such requirement. Upon receipt of the referenced
opinion and again prior to any disclosure. Renaissance shall have the
opportunity and a reasonable period of time to make applications directly or as
Pinnacle may reasonably arrange to the applicable regulatory authority or stock
exchange to limit such disclosure. Without limiting the foregoing, if Pinnacle
is required by applicable law to make a disclosure of Renaissance's name, it
shall only be entitled to do so hereunder to the minimum number of times
required by applicable law.
6. AIRPLANE COSTS
--------------
Renaissance shall reimburse Pinnacle for 100% of all charter airplane
costs and expenses actually incurred by Pinnacle hereunder during the Program
Period to a maximum of $25,000.00 (Cdn).
7. ENTIRE AGREEMENT
----------------
No amendments shall be made to this Agreement unless in writing,
executed by the Parties. This Agreement supersedes all other agreements,
documents, writings and verbal understandings among the Parties relating to the
subject matter hereof and expresses the entire agreement of the Parties with
respect to the subject matter hereof.
8. GOVERNING LAW
-------------
This Agreement shall, in all respects, be subject to, interpreted,
construed and enforced in accordance with and under the laws of the Province of
Alberta and the laws of Canada applicable therein and shall, in every regard, be
treated as a contract made in the Province of Alberta. The Parties irrevocably
attorn and submit to the jurisdiction of the courts of the Province of Alberta
and courts of appeal therefrom in respect of all matters arising out of this
Agreement.
9. ENUREMENT
---------
This Agreement shall be binding upon and shall enure to the benefit of
the Parties and their respective administrators, trustees, receivers, successors
and assigns.
<PAGE>
-4-
10. TIME OF ESSENCE
---------------
Time shall be of the essence in this Agreement.
11. TERM
----
This Agreement shall terminate on the later of August 31, 1998 and the
day following the completion of drilling of any test well on an Exploratory
Drilling Prospect spudded on or before August 31, 1998.
12. NO PARTNERSHIP
--------------
Nothing contained in this Agreement shall be construed as creating a
partnership, joint venture or association of any kind or as imposing upon any
Party, any partnership duty, obligation or liability to any other Party.
13. TRANSFERS
---------
Each Party shall not transfer this Agreement or any interest, right or
obligation under this Agreement without the prior written consent of the other
Party.
IN WITNESS WHEREOF the Parties have executed and delivered this
Agreement as of the date first above written.
PINNACLE OIL CANADA INC. RENAISSANCE ENERGY LTD.
Per: /s/ R. Dirk Stinson Per: /s/Jeff S. Lebgert
------------------------------ -------------------------------
R. DIRK STINSON, PRESIDENT JEFF S. LEBGERT
Vice President Land & Contracts
Per:______________________________ Per:_______________________________
<PAGE>
THE FOLLOWING 8 PAGES COMPRISE SCHEDULE "A" ATTACHED TO AND FORMING PART OF AN
SFD SURVEY AGREEMENT MADE AS OF THE 1ST DAY OF FEBRUARY, 1998 BETWEEN PINNACLE
OIL CANADA INC. AND RENAISSANCE ENERGY LTD.
- --------------------------------------------------------------------------------
<PAGE>
ROYALTY AGREEMENT
-----------------
THIS AGREEMENT made as of the . day of ., 199.
BETWEEN:
RENAISSANCE ENERGY LTD., a body corporate, having an office in the
City of Calgary, in the Province of Alberta (hereinafter referred to
as "Grantor")
-and-
PINNACLE OIL CANADA INC., a body corporate, having an office in the
City of Calgary, in the Province of Alberta (hereinafter referred to
as "Grantee")
WHEREAS:
(A) By virtue of an SFD Survey Agreement dated February 1, 1998 between
the parties hereto, Grantor has drilled a well at a location identified in an
Exploratory Drilling Prospect (as defined in the SFD Survey Agreement); and
(B) The parties hereto desire to provide that from and after the Effective
Time, the Royalty Lands shall be subject to the terms and provisions of this
Agreement;
NOW THEREFORE for good and valuable consideration, the parties hereto
covenant and agree as follows:
1. Interpretation
--------------
1.1 In this Agreement, including the premises hereto, this article and
Schedule "A" hereto, unless the context otherwise requires:
(a) "Condensate" means a mixture mainly of pentanes and heavier
hydrocarbons that may be contaminated with sulphur compounds, that is
recovered or is recoverable at a well from an underground reservoir
and that is gaseous in its virgin reservoir state but is liquid at the
conditions under which its volume is measured or estimated;
(b) "Crown" means the Crown in Right of the Province of Alberta:
(c) "Delivery Point" means the place where Petroleum Substances are
delivered to the purchaser thereof, or as otherwise provided herein:
(d) "Effective Time" means the . day of ., 19.:
<PAGE>
-2-
(e) "Natural Gas" means a mixture containing methane, other paraffinic
hydrocarbons, nitrogen, carbon dioxide, hydrogen sulphide, helium and
minor impurities, or some of them, which is recovered or is
recoverable at a well from an underground reservoir and which is
gaseous at the conditions under which its volume is measured or
estimated, inclusive of all other products (excluding Petroleum and
Condensate) necessarily produced in connection therewith;
(f) "Overriding Royalty" means the royalty reserved to Grantee pursuant to
article 2 hereof;
(g) "Petroleum" means a mixture mainly of pentanes and heavier
hydrocarbons that may be contaminated with sulphur compounds, that is
recovered or is recoverable at a well from an underground reservoir
and that is liquid at the conditions under which its volume is
measured or estimated, but does not include Condensate;
(h) "Petroleum Substances" means Petroleum, Natural Gas, Condensate and
every other mineral or substance, or any of them;
(i) "Royalty Lands" means the lands, zones and formations set forth and
described in Schedule "A" hereto and so much thereof as from time to
time remain subject to this Agreement, but only insofar as rights to
the same are granted by the Title Documents;
(j) "Title Documents" means the documents and leases by virtue of which
Grantor is, now or hereafter, entitled to drill for, win, take, or
remove Petroleum Substances underlying all or any part of, and
includes any amendments thereto, renewals or extensions thereof and
any documents of title issued therefrom or in substitution therefor.
1.2 Schedule "A" hereto is incorporated herein by reference as though
contained in the body hereof. Wherever any term or condition, expressed or
implied, in Schedule "A" hereto conflicts or is at variance with any term or
condition in the body hereof, such term or condition in the body hereof shall
prevail.
1.3 If any term or condition of this Agreement or Schedule "A" hereto,
whether express or implied, conflicts with or is at variance with a term or
condition in the Title Documents, then such term or condition in the Title
Documents shall prevail, and this Agreement shall be deemed to be amended to the
extent necessary to give effect to such term or condition in the Title
Documents.
2. Overriding Royalty
------------------
2.1 There is hereby reserved to and owned by Grantee, an overriding
royalty of five (5%) percent of the wellhead value on that portion of Petroleum
Substances attributable to the interest of Grantor in the Royalty Lands
(understood by Grantor to be as set out in Schedule "A" hereto) produced, saved
and marketed from each well producing from the Royalty Lands each month during
the term of the Title Documents.
2.2 Grantor shall sell the Overriding Royalty share of Grantee at the same
price and on the same terms as Grantor receives for its own share of such
Petroleum Substances, which shall not be less than the price at which a
reasonably prudent operator would dispose of such Petroleum Substances having
<PAGE>
-3-
regard to current market prices, availability of markets and economic conditions
affecting the industry generally. In calculating the Overriding Royalty, Grantor
may deduct before applying the percentages aforesaid all charges and costs
incidental or pertaining to gathering, storing, processing, treating and
transporting Petroleum Substances to the Delivery Point, in the same manner
allowed by the Crown when it is lessor, without regard to any royalty holidays,
cash payments, incentives, grants, waivers, exemptions, abatements and benefits
of any nature whatsoever received by or available to Grantor provided that:
(a) with respect to Petroleum and Condensate, the deductions do not exceed
the actual costs incurred; and
(b) with respect to Natural Gas, the deductions do not exceed 60% of the
gross proceeds of sale of the Natural Gas.
2.3 Notwithstanding any other provision of this Agreement, Grantor shall
be entitled to use, free from the obligation to deliver or pay the Overriding
Royalty, such part of the Petroleum Substances as is reasonably required for and
used by it in its operations upon ., including treating and preparing Petroleum
Substances for market but not including injection thereof in connection with any
secondary recovery operations. Any Petroleum Substances used by Grantor other
than as permitted in this clause 2.3 shall be deemed to have been marketed by
Grantor at the time of use for a price at which a reasonably prudent operator
would dispose of such Petroleum Substances having regard to current market
prices, availability of markets and economic conditions affecting the industry
generally. For greater certainty, any Petroleum Substances that are not marketed
or deemed to have been marketed due to shrinkage or loss shall not be subject to
the Overriding Royalty.
2.4 Notwithstanding any other provision of this Agreement, if pursuant to
any agreement governing operatorship of all or any part of the Royalty Lands,
whether such agreement presently exists or is subsequently entered into, Grantor
elects or is deemed to have elected not to participate in an operation on or in
respect of all or any part of the Royalty Lands, such that Grantor is thereafter
permanently or temporarily disentitled to all or any part of Grantor's working
interest share of the Petroleum Substances or any of them, then, in each such
instance, such Petroleum Substances shall not be subject to the Overriding
Royalty during such time of disentitlement.
2.5 Any cash payment required to be paid by Grantor to Grantee in respect
of the Overriding Royalty shall be made on the fortieth (40th) day following the
month in which the Petroleum Substances to which such amount relates were
produced and marketed from the Royalty Lands, to Grantee at its address for
notices as hereinafter provided.
2.6 At the same time as the cash payment pursuant to clause 2.5 herein is
due, Grantor shall forward to Grantee a written statement of Grantee's
Overriding Royalty share due to it for the production in the month concerned
showing production, inventories and sales; and the said statement shall be
conclusive of the amount thereof unless Grantee objects thereto by notice in
writing specifying the particulars of any error or deficiency therein within six
(6) months after the end of the calendar year in which the said statement was
received.
2.7 Grantor shall keep and maintain in the Province of Alberta at all
times during the term hereof true and accurate books, statements, records, and
accounts evidencing the quantity of Petroleum Substances produced from the
Royalty Lands and the disposition thereof. Grantor shall permit Grantee to
<PAGE>
-4-
inspect such records during normal business hours and to make extracts or copies
thereof and at all times permit Grantee to ascertain the quantity, kind, and
nature of the Petroleum Substances produced or taken from the Well and the costs
associated with any such production.
2.8 Grantee may transfer or assign its Overriding Royalty in whole or
part, but Grantor shall not be required to make payments to more than one party.
2.9 If Grantor transfers or assigns all or any part of its interest in the
Royalty Lands, it shall continue to be bound by, observe, and perform all of the
covenants and terms of this Agreement as if there had been no transfer or
assignment until such time as the party acquiring such interest delivers to
Grantee notice of such transfer or assignment and a written undertaking to be
bound by, observe, and perform all of the covenants and terms of this Agreement
then binding on Grantor insofar as they relate to the interest transferred or
assigned and until Grantee consents to such transfer or assignment, which
consent shall not be unreasonably withheld. Upon the giving of such consent and
upon receipt by Grantee of such notice and undertaking, Grantor shall be
released and discharged from any and all liability and obligations thereafter
accruing under this Agreement or the Title Documents relating to the Royalty
Lands, insofar as they relate to the interest so transferred or assigned.
2.10 Grantor shall be entitled to pool all or a part of the Royalty Lands
with any other lands for the purposes of creating a spacing unit for production
of the Petroleum Substances or to unitize all or a part of the Royalty Lands
with any other lands, if such pooling or unitization becomes necessary or
desirable in the opinion of Grantor. The basis and manner of such pooling or
unitization, the manner of allocating pooled or unitized lands, and the contents
of any agreement pertaining thereto shall be in the sole discretion and
determination of Grantor, and when so determined shall be binding upon Grantee.
Upon any such pooling or unitization the Overriding Royalty shall be paid on the
basis of production deemed to be produced from or allocated to Royalty Lands
under the plan of unitization or pooling and not upon the basis of actual
production from the Royalty Lands.
3. Rentals
-------
3.1 As of the Effective Time, Grantor shall be responsible for the payment
of all rentals, shut-in gas royalties, performance bonds, and other maintenance
costs falling due with respect to the Title Documents.
4. Taxes
-----
4.1 Each party hereto shall be liable for all taxes and other charges
levied or assessed against its interest as set out herein in the Petroleum
Substances, which shall be deemed to include freehold mineral tax in respect of
any Royalty Lands that are freehold, and in lieu of payment by Grantee of its
share thereof Grantor may make such payment and deduct the amount thereof from
any money payable by it to Grantee.
4.2 The payment on behalf of Grantee by Grantor of any tax or other charge
pursuant to the provisions of clause 4.1 herein shall not in any way relieve
Grantee from its obligation and responsibility to reimburse Grantor for its
share of such costs.
<PAGE>
-5-
5. Surrender
---------
5.1 Grantor shall not surrender any of its interest in the Royalty Lands
or that portion of the Title Documents relating thereto, in whole or in part, at
any time that Grantee is receiving, or is entitled to receive, its Overriding
Royalty unless Grantee consents thereto in writing, such consent not to be
unreasonably withheld; provided that if Grantee does not consent as aforesaid
within three (3) days of notice of Grantor's intentions, it shall be bound to
accept an assignment of the entire right, title, estate, and interest of Grantor
in the Royalty Lands or the portion thereof surrendered, and thereupon Grantee
shall be deemed to have assumed all obligations of Grantor with respect to the
interest assigned.
6. Other Encumbrances
------------------
6.1 If the interest of Grantor in the Royalty Lands now or hereafter shall
become encumbered by any royalty, production payment, or other charge of a
similar nature, other than the royalties as set forth under the terms of the
Title Documents covering such lands, such royalty, production payment, or other
charge shall be charged to and paid entirely by Grantor.
7. Notices
-------
7.1 The addresses for service and the fax numbers of the parties hereto
shall be as follows:
Grantor - Renaissance Energy Ltd.
P.O. Box 1120
Station "M"
Calgary, Alberta
T2P 2K9
Attention: Land Department
--------------------------
Fax: (403) 750-1892
Grantee - Pinnacle Oil Canada Inc.
54 Patterson Close S.W.
Calgary, Alberta
T3H 3K2
Attention: President
--------------------
Fax: (403) 686-8020
All notices, communications and statements required, permitted or contemplated
hereunder shall be in writing, and shall be delivered as follows:
(a) by personal service on the other party hereto at the relevant address
set out above, in which case the item so served shall be deemed to
have been received by that party when personally served;
<PAGE>
-6-
(b) by facsimile transmission to the other party hereto to the relevant
fax number set out above, in which case the item so transmitted shall
be deemed to have been received by that party when transmitted; or
(c) except in the event of an actual or threatened postal strike or other
labour disruption that may affect mail service, by mailing first class
registered post, postage prepaid, to the other party hereto at the
relevant address set out above, in which case the item so mailed shall
be deemed to have been received by that party on that fifth day
following the date of mailing.
Grantor and Grantee may from time to time change their respective addresses for
service or their respective fax numbers or both by giving written notice to the
other.
8. Force Majeure
-------------
8.1 The obligations of the parties hereto shall be suspended; and there
shall be no liability for damages during the time and to the extent that any
party hereto is prevented from complying with its obligations under this
Agreement in part or in whole by strikes, lock-outs, acts of God or the Queen's
enemies, war, blockades, riots, laws, orders, or regulations of governmental
bodies or agencies, unavoidable accidents, delays in transportation, inability
to obtain necessary materials in the open market, or any other cause, except
financial, whether similar or dissimilar to those specifically enumerated,
beyond the reasonable control of the party hereto affected. The party hereto
whose obligations under this Agreement are suspended shall give notice,
including reasonably full particulars, of the cause of such suspension, to the
other party or parties hereto within a reasonable time after the occurrence
thereof. The performance of such obligations shall begin or be resumed within a
reasonable time after such cause has been removed. No party hereto shall be
required against its will to settle any labour dispute.
9. Miscellaneous
-------------
9.1 Subject to the terms contained herein, this Agreement shall continue
for the life of the Title Documents.
9.2 All terms, covenants, and conditions in this Agreement shall run with
and are binding upon the Title Documents, the Royalty Lands, and the estates
affected thereby until the date which is six months after the date upon which
the last well drilled for and on behalf of Grantor on the Royalty Lands to a
zone or formation below the base of the Mississippian is abandoned. Upon such
date and without further act or action required by either Party, this Agreement
shall terminate and Grantor shall be released from any and all obligations to
Grantee hereunder notwithstanding any further operations which may be conducted
by or on behalf of Grantor and in respect of the Royalty Lands from and after
the termination date hereof.
9.3 This Agreement supersedes and replaces all previous agreements,
whether written or oral, memoranda, and correspondence among the parties hereto
with respect to the subject matter of this Agreement.
9.4 Should any clause, provision, or condition of this Agreement be or
become illegal or unenforceable, it shall be considered separate and severable
from this Agreement and the remaining
<PAGE>
-7-
provisions and conditions shall continue in full force and be binding upon the
parties hereto as though the said clause, provision, or condition had never been
included.
9.5 The parties hereto covenant, so long as this Agreement is in force and
effect, to comply with any and all regulations and other laws with respect to
anything done, or purported to be done, pursuant to this Agreement, and with
respect to the operations carried out hereunder.
9.6 No waiver by any party hereto of any term of this Agreement shall take
effect or be binding upon that party unless the same be expressed in writing and
any waiver so given shall extend only to the particular breach so waived and
shall not limit or affect any rights with respect to any other or future breach.
9.7 This Agreement shall be binding upon and shall enure to the benefit of
each of the parties hereto and their respective heirs, executors,
administrators, trustees, receivers, successors and assigns.
9.8 Time is of the essence of this Agreement.
9.9 This Agreement shall, in all respects, be subject to and interpreted,
construed and enforced in accordance with and under the laws of the Province of
Alberta and shall, in every regard, be treated as a contract made in the
Province of Alberta. The parties hereto irrevocably attorn and submit to the
jurisdiction of the courts of the Province of Alberta in respect of all matters
arising out of this Agreement.
9.10 This Agreement may be executed in counterpart, no one copy of which
need be executed by each of the parties hereto. When copies have been executed
by each of the parties hereto, all copies together shall constitute one
agreement and shall be a valid and binding contract among the parties as of the
date first above written.
IN WITNESS WHEREOF THE PARTIES hereto have duly executed this
Agreement as of the day and year first above written.
RENAISSANCE ENERGY LTD. PINNACLE OIL CANADA INC.
Per:___________________________ Per:_____________________________
Per:___________________________ Per:_____________________________
<PAGE>
SCHEDULE "A" ATTACHED TO AND FORMING PART OF A ROYALTY AGREEMENT MADE AS OF THE
. DAY OF . 199. BETWEEN RENAISSANCE ENERGY LTD. AND PINNACLE OIL CANADA INC.
- --------------------------------------------------------------------------------
Royalty Lands
- -------------
[being the Exploratory Drilling Prospect] (below base Mississippian)
Interest
- --------
[to be inserted]
Title Documents
- ---------------
[to be inserted]
<PAGE>
EXHIBIT 10.12
SED SURVEY AGREEMENT
--------------------
THIS AGREEMENT made as of the 1st day of February, 1998.
BETWEEN:
PINNACLE OIL INTERNATIONAL, INC., a body corporate, having an
office in the City of Calgary, in the Province of Alberta
(hereinafter referred to as "Pinnacle")
- and -
RENAISSANCE ENERGY LTD., a body corporate, having an office
in the City of Calgary, in the Province of Alberta
(hereinafter referred to as "Renaissance")
1. DEFINITIONS
-----------
In this Agreement, unless the context otherwise requires:
(a) "Exploratory Drilling Prospects" means the geographic area covering
------------------------------
an SFD Anomaly (including entire well spacing units in the case of an
Exploratory Drilling Prospect which only partially covers a spacing
unit) but shall exclude all formations above the base of the
Mississippian;
(b) "Party" means a party to this Agreement;
-----
(c) "Program Period" means the period commencing on February 23, 1998 and
--------------
ending March 31, 1998;
(d) "Prospect Lands" means lands within Twps. 31-36, Rges. 19-23 W4M and
--------------
in which Renaissance now or hereafter acquires a working interest;
(e) "Royalty Agreement" means a royalty agreement substantially in the
-----------------
form attached hereto as Schedule "A", which Royalty Agreement will be
entered into by the Parties upon the conditions contained in clause
3(b) having been satisfied;
(f) "SFD Anomaly" means an anomalous geological or geophysical feature
-----------
which Pinnacle reasonably is of the view that the anticipated output
of petroleum substances from such feature warrants the drilling of a
test well;
(g) "SFD Technology" means stress field detector technology; and
--------------
<PAGE>
-2-
(h) "this Agreement", "herein", "hereto", "hereof" and similar expressions
----------------------------------------------
mean and refer to this SFD Survey Agreement.
2. SCHEDULE
--------
Schedule "A", pertaining to the Royalty Agreement, is appended to this
Agreement. Wherever any term or condition of Schedule "A" conflicts or is at
variance with any term or condition in the body of this Agreement, such term or
condition in the body of this Agreement shall prevail.
3. PROGRAM
-------
(a) Pinnacle covenants to:
(i) perform surveys over the Prospect Lands using the SFD
Technology; and
(ii) submit SFD Anomalies to Renaissance as and when identified and
before the expiration of the Program Period.
(b) Renaissance shall promptly after receipt of the SFD Anomalies from
Pinnacle and their evaluation by Renaissance, advise Pinnacle of its
acceptance or rejection of each of the SFD Anomalies. If Renaissance
accepts an SFD Anomaly, Renaissance shall, in its sole discretion and
acting reasonably, establish the Exploratory Drilling Prospect in
respect of any such accepted SFD Anomaly.
(c) If Renaissance, acting on an accepted SFD Anomaly, determines in its
sole discretion to drill a test well at a location on an Exploratory
Drilling Prospect to a depth below the base of the Mississippian and
such test well is spudded on or before August 31, 1998 and if such
well is drilled to a depth below the base of the Mississippian,
Renaissance agrees to hereby reserve and grant to Pinnacle a 5%
royalty in respect of the Exploratory Drilling Prospect, which royalty
is to be calculated and paid in accordance with the terms and
conditions set out in the Royalty Agreement and the Parties shall
execute a Royalty Agreement in respect of such Exploratory Drilling
Prospect.
4. PINNACLE'S INDEMNITIES
----------------------
Pinnacle shall be liable to Renaissance for and shall, in addition,
indemnify Renaissance from and against, all losses, costs, claims, damages,
expenses and liabilities suffered, sustained, paid or incurred by Renaissance
which arise out of any matter or thing occurring or arising from and after the
date hereof and which arise out of acts or omissions of Pinnacle in connection
with the surveys by Pinnacle over the Prospect Lands using the SFD Technology,
provided however that Pinnacle shall not be liable to nor be required to
indemnify Renaissance in respect of any losses, costs, claims, damages, expenses
and liabilities suffered, sustained, paid or incurred by Renaissance which arise
out of acts or omissions of Renaissance.
<PAGE>
-3-
5. CONFIDENTIALITY AND PUBLIC ANNOUNCEMENTS
----------------------------------------
Each Party shall keep confidential all information obtained from the
other Party in connection with this Agreement and shall not release any
information concerning this Agreement and the operations herein provided for,
without the prior written consent of the other Party, which consent shall not be
unreasonably withheld. Nothing contained herein shall prevent a Party at any
time from furnishing information to any governmental agency or regulatory
authority or to the public if required by applicable law, provided that the
Parties shall advise each other and agree as to content in advance of any public
statement which they propose to make and provided further that unless required
by applicable law or agreed to by Renaissance, in no event shall Renaissance's
name be disclosed in any public statement. If Pinnacle is required by applicable
law to make a disclosure of Renaissance's name it shall first and prior to any
such disclosure, inform Renaissance of the requirement and provide, at
Pinnacle's sole cost and expense, a reasonable opinion of Bennett Jones Verchere
(which may be based on an opinion of U.S. counsel with respect to matters of
U.S. law) confirming such requirement. Upon receipt of the referenced opinion
and again prior to any disclosure, Renaissance shall have the opportunity and a
reasonable period of time to make applications directly or as Pinnacle may
reasonably arrange to the applicable regulatory authority or stock exchange to
limit such disclosure. Without limiting the foregoing, if Pinnacle is required
by applicable law to make a disclosure of Renaissance's name, it shall only be
entitled to do so hereunder to the minimum number of times required by
applicable law.
6. AIRPLANE COSTS
--------------
Renaissance shall reimburse Pinnacle for 100% of all charter airplane
costs and expenses actually incurred by Pinnacle hereunder during the Program
Period to a maximum of $25,000.00 (Cdn).
7. ENTIRE AGREEMENT
-----------------
No amendments shall be made to this Agreement unless in writing,
executed by the Parties. This Agreement supersedes all other agreements,
documents, writings and verbal understandings among the Parties relating to the
subject matter hereof and expresses the entire agreement of the Parties with
respect to the subject matter hereof.
8. GOVERNING LAW
-------------
This Agreement shall, in all respects, be subject to, interpreted,
construed and enforced in accordance with and under the laws of the Province of
Alberta and the laws of Canada applicable therein and shall, in every regard, be
treated as a contract made in the Province of Alberta. The Parties irrevocably
attorn and submit to the jurisdiction of the courts of the Province of Alberta
and courts of appeal therefrom in respect of all matters arising out of this
Agreement.
9. ENUREMENT
---------
This Agreement shall be binding upon and shall enure to the benefit of
the Parties and their respective administrators, trustees, receivers, successors
and assigns.
<PAGE>
-4-
10. TIME OF ESSENCE
---------------
Time shall be of the essence on this Agreement.
11. TERM
----
This Agreement shall terminate on the later of August 31, 1998 and the day
following the completion of drilling of any test well on an Exploratory Drilling
Prospect spudded on or before August 31, 1998.
12. NO PARTNERSHIP
--------------
Nothing contained in this Agreement shall be construed as creating a
partnership, joint venture or association of any kind or as imposing upon any
Party, any partnership duty, obligation or liability to any other party.
13. TRANSFERS
---------
Each Party shall not transfer this Agreement or any interest, right or
obligation under this Agreement without the prior written consent of the other
Party, provided that Pinnacle shall be entitled to transfer its rights and
obligations under this Agreement to Pinnacle Oil Canada Ltd., its wholly owned
Canadian subsidiary, but notwithstanding such transfer, Renaissance need only
look to Pinnacle for performance of the duties and obligations of Pinnacle
pursuant to this Agreement.
IN WITNESS WHEREOF the Parties have executed and delivered this Agreement
as of the date first above written.
PINNACLE OIL INTERNATIONAL, INC RENAISSANCE ENERGY LTD.
Per: __________________________ Per: _____________________________
Per: __________________________ Per: _____________________________
<PAGE>
THE FOLLOWING 8 PAGES COMPRISE SCHEDULE "A" ATTACHED TO AND FORMING PART OF AN
SFD SURVEY AGREEMENT MADE AS OF THE 1ST DAY OF FEBRUARY, 1998 BETWEEN PINNACLE
OIL INTERNATIONAL, INC. AND RENAISSANCE ENERGY LTD.
- --------------------------------------------------------------------------------
<PAGE>
ROYALTY AGREEMENT
-----------------
THIS AGREEMENT made as of the . day of ., 199..
BETWEEN:
RENAISSANCE ENERGY LTD., a body corporate, having an office in the
City of Calgary, in the Province of Alberta (hereinafter referred to
as "Grantor")
-and-
PINNACLE OIL INTERNATIONAL, INC., a body corporate, having an office
in the City of Calgary, in the Province of Alberta (hereinafter
referred to as "Grantee")
WHEREAS:
(A) By virtue of an SFD Survey Agreement dated February 1, 1998 between
the parties hereto, Grantor has drilled a well at a location identified in an
Exploratory Drilling Prospect (as defined in the SFD Survey Agreement): and
(B) The parties hereto desire to provide that from and after the Effective
Time, the Royalty Lands shall be subject to the terms and provisions of this
Agreement;
NOW THEREFORE for good and valuable consideration, the parties hereto
covenant and agree as follows:
1. Interpretation
--------------
1.1 In this Agreement, including the premises hereto, this article and
Schedule "A" hereto, unless the context otherwise requires:
(a) "Condensate" means a mixture mainly of pentanes and heavier
hydrocarbons that may be contaminated with sulphur compounds, that is
recovered or is recoverable at a well from an underground reservoir
and that is gaseous in its virgin reservoir state but is liquid at the
conditions under which its volume is measured or estimated;
(b) "Crown" means the Crown in Right of the Province of Alberta;
(c) "Delivery Point" means the place where Petroleum Substances are
delivered to the purchaser thereof, or as otherwise provided herein;
(d) "Effective Time" means the . day of ., 199.;
<PAGE>
-2-
(e) "Natural Gas" means a mixture containing methane, other paraffinic
hydrocarbons, nitrogen, carbon dioxide, hydrogen sulphide, helium and
minor impurities, or some of them, which is recovered or is
recoverable at a well from an underground reservoir and which is
gaseous at the conditions under which its volume is measured or
estimated, inclusive of all other products (excluding Petroleum and
Condensate) necessarily produced in connection therewith;
(f) "Overriding Royalty" means the royalty reserved to Grantee pursuant to
article 2 hereof;
(g) "Petroleum" means a mixture mainly of pentanes and heavier
hydrocarbons that may be contaminated with sulphur compounds, that is
recovered or is recoverable at a well from an underground reservoir
and that is liquid at the conditions under which its volume is
measured or estimated, but does not include Condensate;
(h) "Petroleum Substances" means Petroleum, Natural Gas, Condensate and
every other mineral or substance, or any of them;
(i) "Royalty Lands" means the lands, zones and formations set forth and
described in Schedule "A" hereto and so much thereof as from time to
time remain subject to this Agreement, but only insofar as rights to
the same are granted by the Title Documents;
(j) "Title Documents" means the documents and leases by virtue of which
Grantor is, now or hereafter, entitled to drill for, win, take, or
remove Petroleum Substances underlying all or any part of ., and
includes any amendments thereto, renewals or extensions thereof and
any documents of title issued therefrom or in substitution therefor.
1.2 Schedule "A" hereto is incorporated herein by reference as though
contained in the body hereof. Wherever any term or condition, expressed or
implied, in Schedule "A" hereto conflicts or is at variance with any term or
condition in the body hereof, such term or condition in the body hereof shall
prevail.
1.3 If any term or condition of this Agreement or Schedule "A" hereto,
whether express or implied, conflicts with or is at variance with a term or
condition in the Title Documents, then such term or condition in the Title
Documents shall prevail, and this Agreement shall be deemed to be amended to the
extent necessary to give effect to such term or condition in the Title
Documents.
2. Overriding Royalty
------------------
2.1 There is hereby reserved to and owned by Grantee, an overriding
royalty of five (5%) percent of the wellhead value on that portion of Petroleum
Substances attributable to the interest of Grantor in the Royalty Lands
(understood by Grantor to be as set out in Schedule "A" hereto) produced, saved
and marketed from each well producing from the Royalty Lands each month during
the term of the Title Documents.
2.2 Grantor shall sell the Overriding Royalty share of Grantee at the same
price and on the same terms as Grantor receives for its own share of such
Petroleum Substances, which shall not be less than the price at which a
reasonably prudent operator would dispose of such Petroleum Substances having
<PAGE>
-3-
regard to current market prices, availability of markets and economic conditions
affecting the industry generally. In calculating the Overriding Royalty, Grantor
may deduct before applying the percentages aforesaid all charges and costs
incidental or pertaining to gathering, storing, processing, treating and
transporting Petroleum Substances to the Delivery Point, in the same manner
allowed by the Crown when it is lessor, without regard to any royalty holidays,
cash payments, incentives, grants, waivers, exemptions, abatements and benefits
of any nature whatsoever received by or available to Grantor provided that:
(a) with respect to Petroleum and Condensate, the deductions do not exceed
the actual costs incurred; and
(b) with respect to Natural Gas, the deductions do not exceed 60% of the
gross proceeds of sale of the Natural Gas.
2.3 Notwithstanding any other provision of this Agreement, Grantor shall
be entitled to use, free from the obligation to deliver or pay the Overriding
Royalty, such part of the Petroleum Substances as is reasonably required for and
used by it in its operations upon ., including treating and preparing Petroleum
Substances for market but not including injection thereof in connection with any
secondary recovery operations. Any Petroleum Substances used by Grantor other
than as permitted in this clause 2.3 shall be deemed to have been marketed by
Grantor at the time of use for a price at which a reasonably prudent operator
would dispose of such Petroleum Substances having regard to current market
prices, availability of markets and economic conditions affecting the industry
generally. For greater certainty, any Petroleum Substances that are not marketed
or deemed to have been marketed due to shrinkage or loss shall not be subject to
the Overriding Royalty.
2.4 Notwithstanding any other provision of this Agreement, if pursuant to
any agreement governing operatorship of all or any part of the Royalty Lands,
whether such agreement presently exists or is subsequently entered into, Grantor
elects or is deemed to have elected not to participate in an operation on or in
respect of all or any part of the Royalty Lands, such that Grantor is thereafter
permanently or temporarily disentitled to all or any part of Grantor's working
interest share of the Petroleum Substances or any of them, then, in each such
instance, such Petroleum Substances shall not be subject to the Overriding
Royalty during such time of disentitlement.
2.5 Any cash payment required to be paid by Grantor to Grantee in respect
of the Overriding Royalty shall be made on the fortieth (40th) day following the
month in which the Petroleum Substances to which such amount relates were
produced and marketed from the Royalty Lands, to Grantee at its address for
notices as hereinafter provided.
2.6 At the same time as the cash payment pursuant to clause 2.5 herein is
due, Grantor shall forward to Grantee a written statement of Grantee's
Overriding Royalty share due to it for the production in the month concerned
showing production, inventories and sales; and the said statement shall be
conclusive of the amount thereof unless Grantee objects thereto by notice in
writing specifying the particulars of any error or deficiency therein within six
(6) months after the end of the calendar year in which the said statement was
received.
2.7 Grantor shall keep and maintain in the Province of Alberta at all
times during the term hereof true and accurate books, statements, records, and
accounts evidencing the quantity of Petroleum Substances produced from the
Royalty Lands and the disposition thereof. Grantor shall permit Grantee to
<PAGE>
-4-
inspect such records during normal business hours and to make extracts or copies
thereof and at all times permit Grantee to ascertain the quantity, kind, and
nature of the Petroleum Substances produced or taken from the Well and the costs
associated with any such production.
2.8 Grantee may transfer or assign its Overriding Royalty in whole or
part, but Grantor shall not be required to make payments to more than one party.
2.9 If Grantor transfers or assigns all or any part of its interest in the
Royalty Lands, it shall continue to be bound by, observe, and perform all of
the covenants and terms of this Agreement as if there had been no transfer or
assignment until such time as the party acquiring such interest delivers to
Grantee notice of such transfer or assignment and a written undertaking to be
bound by, observe, and perform all of the covenants and terms of this Agreement
then binding on Grantor insofar as they relate to the interest transferred or
assigned and until Grantee consents to such transfer or assignment, which
consent shall not be unreasonably withheld. Upon the giving of such consent and
upon receipt by Grantee of such notice and undertaking, Grantor shall be
released and discharged from any and all liability and obligations thereafter
accruing under this Agreement, or the Title Documents relating to the Royalty
Lands, insofar as they relate to the interest so transferred or assigned.
2.10 Grantor shall be entitled to pool all or a part of the Royalty
Lands with any other lands for the purposes of creating a spacing unit for
production of the Petroleum Substances or to unitize all or a part of the
Royalty Lands with any other lands, if such pooling or unitization becomes
necessary or desirable in the opinion of Grantor. The basis and manner of such
pooling or unitization, the manner of allocating pooled or unitized lands, and
the contents of any agreement pertaining thereto shall be in the sole discretion
and determination of Grantor, and when so determined shall be binding upon
Grantee. Upon any such pooling or unitization the Overriding Royalty shall be
paid on the basis of production deemed to be produced from or allocated to
Royalty Lands under the plan of unitization or pooling and not upon the basis of
actual production from the Royalty Lands.
3. Rentals
-------
3.1 As of the Effective Time, Grantor shall be responsible for the payment
of all rentals, shut-in gas royalties, performance bonds, and other maintenance
costs falling due with respect to the Title Documents.
4. Taxes
-----
4.1 Each party hereto shall be liable for all taxes and other charges
levied or assessed against its interest as set out herein in the Petroleum
Substances, which shall be deemed to include freehold mineral tax in respect of
any Royalty Lands that are freehold, and in lieu of payment by Grantee of its
share thereof Grantor may make such payment and deduct the amount thereof from
any money payable by it to Grantee.
4.2 The payment on behalf of Grantee by Grantor of any tax or other charge
pursuant to the provisions of clause 4.1 herein shall not in any way relieve
Grantee from its obligation and responsibility to reimburse Grantor for its
share of such costs.
<PAGE>
-5-
5. Surrender
---------
5.1 Grantor shall not surrender any of its interest in the Royalty Lands
or that portion of the Title Documents relating thereto, in whole or in part, at
any time that Grantee is receiving, or is entitled to receive, its Overriding
Royalty unless Grantee consents thereto in writing, such consent not to be
unreasonably withheld; provided that if Grantee does not consent as aforesaid
within three (3) days of notice of Grantor's intentions, it shall be bound to
accept an assignment of the entire right, title, estate, and interest of Grantor
in the Royalty Lands or the portion thereof surrender, and thereupon Grantee
shall be deemed to have assumed all obligations of Grantor with respect to the
interest assigned.
6. Other Encumbrances
------------------
6.1 If the interest of Grantor in the Royalty Lands now or hereafter shall
become encumbered by any royalty, production payment, or other charge of a
similar nature, other than the royalties as set forth under the terms of the
Title Documents covering such lands, such royalty, production payment, or other
charge shall be charged to and paid entirely by Grantor.
7. Notices
-------
7.1 The addresses for service and the fax numbers of the parties hereto
shall be as follows:
Grantor - Renaissance Energy Ltd.
P.O. Box 1120
Station "M"
Calgary, Alberta
T2P 2K9
Attention: Land Department
---------------------------
Fax: (403) 750-1892
Grantee - Pinnacle Oil International, Inc.
54 Patterson Close S.W.
Calgary, Alberta
T3H 3K2
Attention: President
---------------------
Fax: (403) 686-8020
All notices, communications and statements required, permitted or contemplated
hereunder shall be in writing, and shall be delivered as follows:
(a) by personal service on the other party hereto at the relevant address
set out above, in which case the item so served shall be deemed to
have been received by that party when personally served;
<PAGE>
-6-
(b) by facsimile transmission to the other party hereto to the relevant
fax number set out above, in which case the item so transmitted shall
be deemed to have been received by that party when transmitted; or
(c) except in the event of an actual or threatened postal strike or other
labor disruption that may affect mail service, by mailing first class
registered post, postage prepaid, to the other party hereto at the
relevant address set out above, in which case the item so mailed shall
be deemed to have been received by that party on the fifth day
following the date of mailing.
Grantor and Grantee may from time to time change their respective addresses for
service or their respective fax numbers or both by giving written notice to the
other.
8. Force Majeure
-------------
8.1 The obligations of the parties hereto shall be suspended; and there
shall be no liability for damages during the time and to the extent that any
party hereto is prevented from complying with its obligations under this
Agreement in part or in whole by strikes, lock-outs, acts of God or the Queen's
enemies, war, blockades, riots, laws, orders, or regulations of governmental
bodies or agencies, unavoidable accidents, delays in transportation, inability
to obtain necessary materials in the open market, or any other cause, except
financial, whether similar or dissimilar to those specifically enumerated,
beyond the reasonable control of the party hereto affected. The party hereto
whose obligations under this Agreement are suspended shall give notice,
including reasonably full particulars, of the cause of such suspension, to the
other party or parties hereto within a reasonable time after the occurrence
thereof. The performance of such obligations shall begin or be resumed within a
reasonable time after such cause has been removed. No party hereto shall be
required against its will to settle any labour dispute.
9. Miscellaneous
-------------
9.1 Subject to the terms contained herein, this Agreement shall continue
for the life of the Title Documents.
9.2 All terms, covenants, and conditions in this Agreement shall run with
and are binding upon the Title Documents, the Royalty Lands, and the estates
affected thereby until the date which is six months after the date upon which
the last well drilled for and on behalf of Grantor on the Royalty Lands to a
zone or formation below the base of the Mississippian is abandoned. Upon such
date and without further act or action required by either Party, this Agreement
shall terminate and Grantor shall be released from any and all obligations to
Grantee hereunder notwithstanding any further operations which may be conducted
by or on behalf of Grantor and in respect of the Royalty Lands from and after
the termination date hereof.
9.3 This Agreement supersedes and replaces all previous agreements,
whether written or oral, memoranda, and correspondence among the parties hereto
with respect to the subject matter of this Agreement.
9.4 Should any clause, provision, or condition of this Agreement be or
become illegal or unenforceable, it shall be considered separate and severable
from this Agreement and the remaining
<PAGE>
-7-
provisions and conditions shall continue in full force and be binding upon the
parties hereto as though the said clause, provision, or condition had never been
included.
9.5 The parties hereto covenant, so long as this Agreement is in force and
effect, to comply with any and all regulations and other laws with respect to
anything done, or purported to be done, pursuant to this Agreement, and with
respect to the operations carried out hereunder.
9.6 No waiver by any party hereto of any term of this Agreement shall take
effect or be binding upon that party unless the same be expressed in writing and
any waiver so given shall extend only to the particular breach so waived and
shall not limit or affect any rights with respect to any other or future breach.
9.7 This Agreement shall be binding upon and shall enure to the benefit of
each of the parties hereto and their respective heirs, executors,
administrators, trustees, receivers, successors and assigns.
9.8 Time is of the essence of this Agreement.
9.9 This Agreement shall, in all respects, be subject to and interpreted,
construed and enforced in accordance with and under the laws of the Province of
Alberta and shall, in every regard, be treated as a contract made in the
Province of Alberta. The parties hereto irrevocably attorn and submit to the
jurisdiction of the courts of the Province of Alberta in respect of all matters
arising out of this Agreement.
9.10 This Agreement may be executed in counterpart, no one copy of which
need be executed by each of the parties hereto. When copies have been executed
by each of the parties hereto, all copies together shall constitute one
agreement and shall be a valid and binding contract among the parties as of the
date first above written.
IN WITNESS WHEREOF THE PARTIES hereto have duly executed this
Agreement as of the day and year first above written.
RENAISSANCE ENERGY LTD. PINNACLE OIL INTERNATIONAL, INC.
Per:_________________________ Per: /s/ R. Dirk Stinson
--------------------------
R. DIRK STINSON, PRESIDENT
Per:_________________________ Per:_________________________
<PAGE>
SCHEDULED "A" ATTACHED TO AND FORMING PART OF A ROYALTY AGREEMENT MADE AS OF THE
. DAY OF ., 199. BETWEEN RENAISSANCE ENERGY LTD. AND PINNACLE OIL INTERNATIONAL.
INC.
- --------------------------------------------------------------------------------
Royalty Lands
- -------------
[being the Exploratory Drilling Prospect] (below base Mississippian)
Interest
- --------
[to be inserted]
Title Documents
- ---------------
[to be inserted]
<PAGE>
EXHIBIT 10.13
JOINT EXPLORATION AND DEVELOPMENT AGREEMENT
THIS JOINT EXPLORATION AND DEVELOPMENT AGREEMENT (the "Agreement") is dated
as of April 3, 1998, by and among CamWest Limited Partnership, an Arkansas
limited partnership ("CamWest"), Pinnacle Oil International Inc., a Nevada
corporation ("POII"), and Pinnacle Oil Inc., a Nevada corporation ("POI"), and
Pinnacle Oil Canada Ltd. ("POC"), a corporation formed under the laws of Canada.
POII, POI and POC are referred to herein collectively as "Pinnacle." CamWest
and Pinnacle are sometimes referred to herein collectively as the "Parties" and
each individually as a "Party." Momentum Resources Ltd., a Bahamas corporation
("Momentum") joins this Agreement for the purposes of making certain
representations and covenants, as set forth in Section 4.3.
RECITALS
--------
A. Momentum has granted Pinnacle an exclusive license (the "License") to
use a certain stress field detector technology for the purpose of generating
certain signal data for the exploration of petroleum substances.
B. Pinnacle and CamWest desire to enter into this Agreement, whereby (i)
Pinnacle and CamWest will utilize the stress field detector technology on a
world-wide basis to explore for Petroleum Substances, and (ii) CamWest will
acquire interests in certain lands and will assign to Pinnacle a working or a
royalty interest in such lands.
AGREEMENT
---------
NOW, THEREFORE, in consideration of the mutual covenants exchanged herein
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the Parties hereby agree as follows:
1. DEFINITIONS. The following terms shall have the following meanings:
-----------
"AAA" shall have the meaning set forth in Section 8.
---
"Affiliate" shall mean any person or entity directly or indirectly
---------
controlling, controlled by or under common control with such person or
entity. A person or entity shall be deemed to control another person or
entity if such person or entity possesses, directly or indirectly, the
power to direct or cause the direction of the management and policies of
such person or entity, whether through ownership of voting securities, by
contract or otherwise and, for greater certainty includes a limited
partnership of which such person is the general partner.
"Applicable Percentage" shall mean 50% until such time as Pinnacle has
---------------------
entered into a joint venture or other agreement, in addition to, but
similar in type, to the Encal Agreement (as defined in Exhibit A), and
thereafter 25% regardless of how many other agreements into which Pinnacle
has entered.
Page 1 of 22
<PAGE>
"Buffer Zone" shall mean for each Exploration Area the area one
-----------
township (six miles) in width and length surrounding such Exploration Area.
"Confidential Information" shall have the meaning set forth in Section
------------------------
6.
"Evaluation Period" shall have the meaning set forth in Section 2.4.
-----------------
"Excluded Lands" shall have the meaning set forth in Section 12.
--------------
"Exclusive Areas" shall have the meaning set forth in Section 2.7.
---------------
"Expiration Date" shall have the meaning set forth in Section 5.
---------------
"Existing Agreements" shall mean those agreements between Pinnacle and
-------------------
Third Parties described on Exhibit A attached hereto and made a part
---------
hereof.
"Exploration Areas" shall mean the areas of land selected by CamWest
-----------------
pursuant to Section 2.1 and, initially, with respect to such areas the
corresponding Buffer Zone. No Exploration Area, excluding its
corresponding Buffer Zone, shall exceed 2400 square miles.
"Exploratory Prospect" shall mean the geographic area and appropriate
--------------------
spacing unit or units (including the entire spacing unit, in case that the
Exploratory Prospect only partially covers a spacing unit) covering an SFD
Anomaly identified by Pinnacle utilizing SFD Technology and accepted by
CamWest pursuant to this Agreement, including any area of mutual interest
lands as defined in Article XV of the Operating Agreement (as if the
Exploratory Prospect were considered Joint Lands under the Operating
Agreement).
"Key Tract" shall have the meaning set forth in Section 2.6.
---------
"License" shall have the meaning set forth in Recital A.
-------
"Minimum Project Inventory" shall have the meaning set forth in
-------------------------
Section 2.2.
"Newco" shall have the meaning set forth in Section 11.
-----
"Operating Agreement" shall have the meaning set forth in Section 3.5.
-------------------
"Petroleum and Natural Gas Rights" shall mean all rights to and in
--------------------------------
respect of Petroleum Substances arising by virtue of any leases, farmins,
joint venture agreements or other similar documents that (i) grant, reserve
or otherwise confer the rights to explore, drill, produce, or take
Petroleum Substances, or (ii) share in the production of Petroleum
Substances.
Page 2 of 22
<PAGE>
"Petroleum Substances" shall mean any crude oil, crude bitumen and
--------------------
products derived therefrom; synthetic crude oil; petroleum; natural gas;
coal gas; natural gas liquids; and any and all other substances related to
any of the foregoing, whether liquid, solid or gaseous, and whether
hydrocarbons or not, including sulphur, to the extent such substances are
granted by the title documents pertaining thereto.
"Rejected Anomaly" shall have the meanings set forth in Sections 2.4
----------------
and 2.5.
"Royalty Interest" shall have the meaning set forth in Section 3.4.
----------------
"SFD" shall mean stress field detector.
---
"SFD Anomaly" shall mean an anomalous geological or geophysical
-----------
feature prospective of containing Petroleum Substances, identified by
Pinnacle using the SFD Technology and SFD Data in accordance with
Pinnacle's practices and procedures.
"SFD Data" shall mean primary signal data derived from the use of the
--------
SFD Technology.
"SFD Information" shall have the meaning set forth in Section 2.3.
---------------
"SFD Profile" shall mean the processed SFD Data represented in graphic
-----------
form.
"SFD Survey" shall mean the act and result of exploratory surveying by
----------
Pinnacle for the purpose of locating SFD Anomalies and utilizing the SFD
Technology; the collection of SFD Data; the processing, interpretation and
analysis of SFD Data by Pinnacle; and the presentation and evaluation of
SFD Anomalies to CamWest. The Parties acknowledge that the collection of
SFD Data will be done by Pinnacle primarily using an aircraft but may
include any other means that are either necessary or desirable under the
particular circumstances following the mutual agreement of the Parties.
"SFD Technology" shall mean the stress field detector technology to be
--------------
used by Pinnacle in conducting the SFD Survey.
"Third Party" shall mean a person, corporation, partnership, trust, or
-----------
any other entity that is not a Party to this Agreement or an Affiliate of a
Party to this Agreement.
"Working Interest" shall have the meaning set forth in Section 3.3.
----------------
2. COVENANTS. Pinnacle and CamWest hereby agree as follows:
---------
2.1 SELECTION OF EXPLORATION AREAS. CamWest shall from time to time
(i) select Exploration Areas within which an SFD Survey will be conducted
by Pinnacle, and (ii) determine the order in which Pinnacle shall survey
each selected Exploration Area. CamWest shall provide Pinnacle with
information pertaining to any Excluded Lands in the Exploration Area.
Pinnacle shall within 15 days after such selection by CamWest, advise
Page 3 of 22
<PAGE>
CamWest of any of the following: (i) safety concerns; (ii) conflicts with
an area forming part of a Third Party joint venture with Pinnacle or an
Affiliate of Pinnacle; (iii) concerns arising in conducting the SFD Survey
of a technical nature; or (iv) any other reasonable concern arising in
conducting the SFD Survey. In the event that any of the above-mentioned
conflicts or concerns arise, Pinnacle and CamWest shall meet to discuss
such conflicts or concerns within 15 days after the above-mentioned notice
and either (A) jointly modify the Exploration Area, or (B) CamWest shall
select another Exploration Area pursuant to this Section 2.1. CamWest may
initially select only two Exploration Areas, but may select an additional
Exploration Area once Pinnacle has commenced performing a SFD Survey on an
Exploration Area, it being the intent that without the mutual consent of
the parties there shall be only two unsurveyed Exploration Areas at any one
time.
2.2 CONDUCTING THE SFD SURVEYS. Pinnacle shall conduct the SFD Survey
in the Exploration Areas in the order of priority that is established from
time to time by CamWest; provided, however, that Pinnacle shall not be
-------- -------
obligated to conduct actual surveying operations on more than one
Exploration Area at any given time. Camwest shall provide to Pinnacle any
base maps and nonproprietary data available to Camwest concerning each
Exploration Area. Pinnacle shall devote at least the Applicable Percentage
of its worldwide SFD Survey capacity for CamWest pursuant to this Section
2.2 until 36 Exploratory Prospects (the "Minimum Prospect Inventory") have
been accepted by CamWest. When the first test well is spudded on an
Exploratory Prospect, such Exploratory Prospect shall no longer be included
in the calculation of Minimum Prospect Inventory. Whenever the number of
remaining Exploratory Prospects falls to or below 30, Pinnacle shall
devote at least the Applicable Percentage of its worldwide SFD Survey
capacity for CamWest pursuant to this Section 2.2 until such time as the
Minimum Project Inventory is again achieved. Pinnacle shall conduct each
SFD Survey utilizing the SFD Technology in a professional and diligent
manner. Pinnacle shall use individuals who have the capability and
expertise to conduct each SFD Survey. The costs of each SFD Survey shall
be apportioned as follows:
(a) Pinnacle shall contribute 100% of the associated internal
costs, including data acquisition, data processing, data
interpretation, administrative, research and development, and salaries
of its and its Affiliates' employees; and
(b) CamWest shall pay 100% of Pinnacle's direct external data
acquisition costs for the SFD Surveys, including aircraft rental
payments, pilots' fees (or in the event the plane is owned or leased
by Pinnacle or the pilot is an employee of Pinnacle, then the actual
allocated cost of such plane and pilot but in no event greater than
the amount of money equal to the arms-length rental costs of a
comparable plane and/or pilot), and 100% of the reasonable travel
expenses of Pinnacle's and its Affiliates' employees incurred in
performing the SFD Survey; provided, however, that the costs described
-------- -------
in this Section 2.2(b) shall not include salaries of Pinnacle's or its
Affiliates' employees.
Page 4 of 22
<PAGE>
Upon the reasonable request of CamWest Pinnacle will resurvey any
portion of an Exploration Area provided that the parties will bear the
costs of such resurvey as set forth in this Section 2.2.
2.3 CONVEYANCE OF DATA. Provided that at no time shall Pinnacle be
obligated to spend more than the Applicable Percentage of its worldwide SFD
Survey capacity pursuant to this Agreement, Pinnacle agrees that within 120
days after CamWest informs Pinnacle of an Exploration Area pursuant to
Section 2.1 above (or if a joint meeting was called to modify the
Exploration Area, then within 120 days of the resolution achieved pursuant
to Section 2.1(A), or such longer period as may be required by Pinnacle,
provided that Pinnacle is making the Applicable Percentage of its world-
wide SFD Survey capacity available pursuant to this Agreement) with respect
to such Exploration Area Pinnacle shall at no cost to CamWest (except as
set forth in Section 3) allow Camwest to view the visual SFD Profiles and
deliver to Camwest a map of flight lines and locations of major anomalous
features, whether or not they comprise SFD Anomalies. Pinnacle shall
provide written interpretations and recommendations on those anomalous SFD
features that Pinnacle presents as the major SFD Anomalies in an
Exploration Area. The data and information specified in this Section 2.3
are collectively referred to as the "SFD Information".
2.4 REVIEW OF DATA. Within 90 days after Pinnacle presents CamWest
with the SFD Information pursuant to Section 2.3 (the "Evaluation Period"),
CamWest shall:
(a) review each Exploration Area to delineate and accept one or
more Exploratory Prospects within such Exploration Area. After the end
of the Evaluation Period for each Exploration Area, the corresponding
Buffer Zone will be a part of such Exploration Area only to the extent
that it overlaps with an Exploratory Prospect. Any SFD Anomaly
disclosed by the SFD Information but not included within an
Exploratory Prospect shall be deemed a "Rejected Anomaly" and be
thereafter governed by Section 11;
(b) use all reasonable efforts to perform an economic analysis
of each Exploratory Prospect utilizing conventional oil and gas
industry evaluation techniques, which analysis shall be conducted in a
professional manner using qualified personnel; and
(c) provide Pinnacle with the results of such economic analysis;
provided, however, that (i) CamWest makes no representations or
-------- -------
warranties with respect to the accuracy of the economic analysis, (ii)
Pinnacle shall perform its own independent analysis prior to making
its election under Section 3.2, and (iii) CamWest shall in no event be
liable to Pinnacle, its Affiliates, or any Third Party for the
accuracy of the economic analysis.
2.5 REVIEW OF EXPLORATORY PROSPECTS. CamWest may utilize conventional
oil and gas industry methods to perform further evaluation work with
respect to each Exploratory Prospect. CamWest may in its sole discretion
decide whether or not the
Page 5 of 22
<PAGE>
drilling of a test well on such Exploratory Prospect is warranted. If
CamWest provides written notice to Pinnacle of CamWest's election not to
drill a test well on an Exploratory Prospect, it shall include an
explanation for such election with reasonable particulars and then such
Exploratory Prospect shall (A) be deemed a "Rejected Anomaly," and (B) not
count toward the Minimum Project Inventory.
2.6 SECURING PETROLEUM AND NATURAL GAS RIGHTS. If after reviewing an
Exploratory Prospect pursuant to Section 2.5 CamWest decides in its sole
discretion to drill a test well, CamWest shall use prudent and reasonable
efforts to secure the Petroleum and Natural Gas Rights to all or any
portion of the Exploratory Prospect, such rights to be held pursuant to the
terms and conditions of this Agreement and the Operating Agreement. If
CamWest, after reasonable efforts, cannot secure satisfactory Petroleum and
Natural Gas Rights to an Exploratory Prospect then such Exploratory
Prospect shall be deemed a "Key Tract" as evidenced by a written
designation delivered by CamWest to Pinnacle. If CamWest cannot secure
satisfactory Petroleum and Natural Gas Rights to the Key Tract within two
years from the date the Exploratory Prospect is designated a Key Tract,
such Exploratory Prospect shall become a Rejected Anomaly, and the rights
with respect to such Rejected Anomaly shall be governed by Section 11 of
this Agreement. If the Parties secure the Petroleum and Natural Gas Rights
to the Key Tract within the two years from the date the Exploratory
Prospect is deemed to be a Key Tract, such Key Tract shall be subject to
the terms of this Agreement, including the payment provisions contained in
Section 3.
2.7 EXCLUSIVITY. Pinnacle agrees that without the prior written
consent of CamWest, Pinnacle will not conduct any SFD Surveys for any Third
Party on the areas (the "Exclusive Areas") described on Exhibit B, attached
---------
hereto and made a part hereof, which may be amended from time to time by
mutual agreement of the Parties but in no event shall the Exclusive Areas
ever (i) cover any areas in Canada, (ii) collectively exceed 1,000,000
square miles within the United States and an additional 1,000,000 square
miles elsewhere in the world or (iii) number more than 25 for the United
States and an additional 25 for the rest of the world. Similarly, after an
Exploration Area or Exploratory Prospect has been established pursuant to
this Agreement, Pinnacle may not conduct an SFD Survey within such area or
prospect for any Third Party.
3. PINNACLE'S INTEREST. Pinnacle shall be entitled to the following
interest:
3.1 INITIAL INTEREST. Unless and until Pinnacle elects to be a
Royalty Interest owner with respect to any Exploratory Prospect, it shall
be deemed to be a Working Interest owner and will pay its share of all
related costs (except seismic, geophysical and geological costs and other
costs described in Section 2.2(b)) pursuant to the invoicing and payment
procedures set forth in the Operating Agreement as if such agreement then
applied to such Exploratory Prospect.
3.2 ELECTION BY PINNACLE. At any time from the day on which an
Exploratory Prospect is accepted by CamWest until the 15th day (or if a
drilling rig is located on the test well site, then 48 hours) after the day
on which CamWest informs Pinnacle that
Page 6 of 22
<PAGE>
CamWest intends to drill a test well within the Exploratory Prospect, then
Pinnacle may elect to either (i) participate in the Exploratory Prospect as
a Royalty Interest owner as set forth in Section 3.4, (ii) or remain a
Working Interest owner as set forth in Section 3.3. If Pinnacle elects to
participate as a Royalty Interest owner in the Exploratory Prospect, then
(A) Pinnacle shall immediately convey and transfer its entire beneficial
and legal Working Interest in the Exploratory Prospect to CamWest prior to
the spudding of the test well in exchange for consideration equal to the
amount paid by Pinnacle with respect to acquisition costs for Petroleum and
Natural Gas Rights with respect to such Exploratory Prospect, and (B) the
Parties shall execute an assignment of the Royalty Interest.
3.3 WORKING INTEREST. Pinnacle's cost bearing interest (the "Working
Interest"), if any, for each Exploratory Prospect shall be subject to the
following terms:
(a) The interest shall be 45% proportionately reduced in the
event CamWest's working interest in the Exploratory Prospect (on a
property by property basis) is less than 100%, provided that if
Pinnacle desires to participate for less than a 45% Working Interest,
it may do so if it so notifies CamWest on or before the times set
forth in Section 3.2; and
(b) Pinnacle shall contribute directly its pro rata share of all
costs in developing the Exploratory Prospect including costs
associated with land acquisition, drilling, completion, surface
facilities, lease operations; provided, however, that Pinnacle shall
-------- -------
not be required to contribute any seismic, geological, or geophysical
costs or other costs described in Section 2.2(b).
3.4 ROYALTY INTEREST. Pinnacle's royalty interest (the "Royalty
Interest"), if any, for each Exploratory Prospect shall be subject to the
following terms:
(a) The interest shall be in the amount determined as set forth
in Exhibit F, attached hereto and made a part hereof; and
------- -
(b) The interest shall not be reduced by any costs associated
with developing the Exploratory Prospect, including costs associated
with land acquisition, seismic surveying, drilling, testing,
completing, surface facilities, lease operations; provided, however,
-------- --------
that Pinnacle shall not be reimbursed for any costs described in
Section 2.2(a) and such interest shall be subject to the deductions
described in Exhibit F.
------- -
3.5 OPERATING AGREEMENT; ASSIGNMENTS. Unless otherwise agreed by the
Parties and as between the Parties, all operations on an Exploratory
Prospect in which Pinnacle has a Working Interest (i) shall be done
pursuant to and (ii) the rights and obligations (to the extent not
inconsistent with the terms and conditions of this Agreement) of the
Parties shall be governed by the operating agreement, together with the
exhibits attached thereto, attached hereto as Exhibit D, (the "Operating
---------
Agreement"). Any assignment of a Working Interest shall be done by an
instrument substantially in the form of Exhibit E attached hereto and made
---------
a part hereof and any assignment of a Royalty
Page 7 of 22
<PAGE>
Interest shall be done by an instrument in the form of Exhibit F attached
---------
hereto and made a part hereof. CamWest shall make assignments to Pinnacle
on an Exploratory Prospect by Exploratory Prospect basis and with respect
to each Exploratory Prospect on or before the date when CamWest commences
drilling of the first test well. In the event of any conflict between the
terms of the Operating Agreement and the terms of this Agreement, the terms
of this Agreement shall prevail to the extent of conflict.
4. REPRESENTATIONS AND WARRANTIES.
------------------------------
4.1 PINNACLE'S REPRESENTATIONS AND WARRANTIES. POII and POI hereby
represent and warrant to CamWest as follows:
(a) Each of POII, POI, and POC is a corporation duly organized,
validly existing, and in good standing under the laws of the State or
Country of its incorporation and either is or will be qualified to do
business in each state, province, or country where the nature of its
business requires it to be qualified;
(b) POII, POI, and POC each have the full power and authority to
execute and deliver under this Agreement and to perform its
obligations hereunder. The execution and delivery of this Agreement do
not, and the consummation of the transactions contemplated hereby will
not, violate any of the provisions of any contract, lease, agreement,
instrument, order, judgment, or decree to which POII, POI, or POC is a
party or by which any of them may be bound;
(c) There are no claims, actions, suits or proceedings pending,
or to the best knowledge of POII, POI, or POC threatened, against
POII, POI, or POC or the SFD Technology before any court, governmental
authority, or arbitrator other than those set forth in Exhibit G;
---------
(d) Pinnacle has good and marketable title to, or a valid
leasehold interest in, the properties and assets (other than rights
licensed to Pinnacle and its Affiliates, including rights licensed
under the License) used by them, located on their premises, or shown
on their most recent balance sheet, or acquired after the date
thereof, free and clear of all security interests, except for
properties and assets disposed of in the ordinary course of business
since the date of the most recent balance sheet. With respect to
rights licensed to Pinnacle and its Affiliates, including rights
licensed under the License, Pinnacle and its Affiliates have good and
marketable title to such licensed rights (subject to the terms of the
applicable license agreement) used by them or shown on their most
recent financial statements or acquired after the date thereof.
(e) Pinnacle and its Affiliates own or have the right to use
pursuant to license, sublicense, agreement, or permission all
intellectual property necessary for the operation of the businesses of
Pinnacle and its Affiliates as presently conducted and as presently
proposed to be conducted. Each of Pinnacle and its Affiliates has
taken all necessary action to maintain and protect each item of
intellectual property
Page 8 of 22
<PAGE>
that it owns or uses. Notwithstanding the foregoing, CamWest
understands that neither Pinnacle and its Affiliates nor Momentum has
patent protection with respect to the SFD Technology, and nothing in
this representation or this Agreement shall be construed to require
Pinnacle and its Affiliates or Momentum to obtain such patent
protection.
(f) To the actual knowledge of Pinnacle, with no obligation to
investigate, none of Pinnacle or its Affiliates has interfered with,
infringed upon, misappropriated, or otherwise come into conflict with
any intellectual property rights of third parties, and none of
Pinnacle and the directors and officers (and employees with
responsibility for intellectual property matters) of Pinnacle or its
Affiliates has ever received any charge, complaint, claim, demand or
notice alleging any such interference, infringement, misappropriation
or violation (including any claim that any of Pinnacles or its
Affiliates must license or refrain from using any intellectual
property rights of any third party). Notwithstanding the foregoing,
CamWest understands that neither Pinnacle nor its Affiliates or
Momentum represent that the SFD Technology does not interfere with,
infringe upon, misappropriate or violate the intellectual property
rights of third parties (although none of Pinnacle, its Affiliates or
Momentum have any actual knowledge of any such infringement), and
nothing in this representation or this Agreement shall be construed to
mean that Pinnacle or its Affiliates or Momentum have made any such
representation.
4.2 CAMWEST'S REPRESENTATIONS AND WARRANTIES. CamWest hereby
represents and warrants to Pinnacle as follows:
(a) CamWest is a limited partnership duly organized, validly
existing, and in good standing under the laws of the State of Arkansas
and either is or will be qualified to do business in each state,
province, or country where the nature of its business requires it to
be qualified;
(b) CamWest has the full power and authority to execute and
deliver this Agreement. The execution and delivery of this Agreement
does not, and the consummation of the transactions contemplated hereby
will not, violate any of the provisions of any contract, lease,
agreement, instrument, order, judgment, or decree to which CamWest is
a party or by which CamWest may be bound;
(c) There are no claims, actions, suits or proceedings pending,
or to the best knowledge of CamWest threatened, against CamWest before
any court, governmental authority, or arbitrator;and
(d) CamWest Inc, the sole general partner of CamWest, has the
full power and authority to execute and deliver this agreement on
behalf of CamWest.
4.3 MOMENTUM'S REPRESENTATIONS AND WARRANTIES. Momentum hereby
represents and warrants to CamWest as follows:
Page 9 of 22
<PAGE>
(a) Momentum is a corporation duly organized, validly existing,
and in good standing under the laws of the Bahamas and either is or
will be qualified to do business in each state, province, or country
where the nature of its business requires it to be qualified;
(b) Momentum has the full power and authority to execute and
deliver under this Agreement. The execution and delivery of this
Agreement does not, and the consummation of the transactions
contemplated hereby will not, violate any of the provisions of any
contract, lease, agreement, instrument, order, judgment, or decree to
which Momentum is a party or by which Momentum may be bound;
(c) There are no claims, actions, suits or proceedings pending,
or to the best knowledge of Momentum, threatened, against Momentum or
the SFD Technology before any court, governmental authority, or
arbitrator except as set forth on Exhibit G;
(d) Momentum has good and marketable title to, or a valid
leasehold interest in, the properties and assets used by it, located
on its premises, or shown on their most recent balance sheet, or
acquired after the date thereof, free and clear of all security
interests, except for properties and assets disposed of in the
ordinary course of business since the date of the most recent balance
sheet.
5. TERM. This Agreement shall commence on the date of this Agreement and
----
shall terminate on the Expiration Date, unless terminated or extended according
to the provisions of this Agreement. The term "Expiration Date" shall mean the
date four years after the date that five or more Exploratory Prospects have been
designated and accepted by CamWest pursuant to the terms of this Agreement.
6. CONFIDENTIALITY. Each Party agrees not to disclose to any third
---------------
party any Confidential Information (defined below) of the other Party, except as
follows:
(a) to the extent that disclosure to a Third Party is required by
applicable law or regulation (including regulations of any applicable stock
exchange);
(b) to the extent disclosure is necessary or advisable, to its
employees, contractors, consultants or advisors, or to its Affiliates or their
employees, consultants or advisors, in each case for the purpose of carrying out
their duties hereunder;
(c) to banks or other financial institutions or agencies or any
independent accountants or legal counsel or investment advisors employed by the
Parties to the extent disclosure is necessary or advisable to seek or obtain
financing;
(d) to the extent reasonably necessary, disclosure to Third Parties
to enforce this Agreement; or
Page 10 of 22
<PAGE>
(e) as agreed between the Parties;
provided, however, that in each case of Third Party disclosure pursuant to (b),
- -------- -------
(c), or (d), the Party making the third-party disclosures shall first require
the Third Party to sign a written confidentiality agreement requiring
obligations of the Third Party of use and nondisclosure of the disclosed
Confidential Information commensurate in scope of the obligations of the Parties
under this Section 6. The obligation of each Party not to disclose Confidential
Information except as provided herein shall not be affected by the termination
of this Agreement or the replacement of either of the Parties. As used in this
paragraph, the term "Confidential Information" shall mean all information,
including any test well information, SFD Data, SFD Information and any
conventional oil and gas industry evaluation and analysis data, acquired by the
Parties as a result of any operation conducted pursuant hereto within an
Exploration Area.
7. PROPERTY. The Parties agree that any SFD Data and SFD Information
--------
shall be the property of Pinnacle. The Parties agree that any (i) test well
information and (ii) conventional oil and gas industry evaluation and analysis
data not assigned to Newco shall be the property of CamWest; provided, however,
-------- -------
that if Pinnacle elects to acquire a Working Interest in an Exploratory
Prospect, such information and data relating to such Exploratory Prospect shall
be jointly owned by the Parties.
8. ARBITRATION.
-----------
8.1 SUBMISSION TO ARBITRATION. The Parties hereby submit all
controversies, claims and matters of difference arising under this Agreement
(other than those, if any, relating to ownership of the SFD Technology or SFD
Data) to arbitration. Without limiting the generality of the foregoing, the
following shall be considered controversies for this purpose: (a) all questions
relating to the interpretation or breach of this Agreement, (b) all questions
relating to any representations, negotiations and other proceedings leading to
the execution hereof, and (c) all questions as to whether the right to arbitrate
any such question exists.
8.2 INITIATION OF ARBITRATION AND SELECTION OF ARBITRATORS. The Party
desiring arbitration shall so notify the other Party, identifying in reasonable
detail the matters to be arbitrated and the relief sought. Arbitration hereunder
shall be before a three-person panel of neutral arbitrators. The American
Arbitration Association (the "AAA") shall submit a list of potential arbitrators
and the Parties shall select three arbitrators in the manner established by the
AAA. In the event that any Party fails to select arbitrators as required above,
the AAA shall select such arbitrators. The arbitrators shall be entitled to a
fee commensurate with their fees for professional services requiring similar
time and effort. If the arbitrators so desire they shall have the authority to
retain the services of a neutral judge or attorney (whose fees shall be treated
as an arbitrator's fees) to assist them in administering the arbitration and
conducting any hearings and taking evidence at such hearings or otherwise.
8.3 ARBITRATION PROCEDURES. All matters arbitrated hereunder shall be
arbitrated in Denver, Colorado, pursuant to Colorado law, and shall be conducted
in accordance with the Commercial Arbitration Rules of the AAA, except to the
extent such rules conflict with
Page 11 of 22
<PAGE>
the express provisions of this Section 8 (which shall prevail in the event of
such conflict); provided, however, that all substantive law issues relating to
-------- -------
the rights and obligations of the parties under this Agreement shall be governed
by Section 13.15. The arbitrators shall conduct a hearing no later than 45 days
after submission of the matter to arbitration, and a decision shall be rendered
by the arbitrators within 10 days of the hearing. At the hearing, the Parties
shall present such evidence and witnesses as they may choose, with or without
counsel. Adherence to formal rules of evidence shall not be required but the
arbitration panel shall consider any evidence and testimony that it determines
to be relevant, in accordance with procedures that it determines to be
appropriate. Any award entered in an arbitration shall be made by a written
opinion stating the reasons for the award made.
8.4 ENFORCEMENT. This submission and agreement to arbitrate shall be
specifically enforceable. Arbitration may proceed in the absence of any Party if
notice of the proceedings has been given to such Party. The Parties agree to
abide by all awards rendered in such proceedings. Such awards shall be final and
binding on all Parties to the extent and in the manner provided by Colorado law.
All awards may be filed with the clerk of one or more courts, state, federal or
foreign having jurisdiction over the Party against whom such award is rendered
or its property, as a basis of judgment and of the issuance of execution for its
collection. No Party shall be considered in default hereunder during the
pendency of arbitration proceedings specifically relating to such default.
8.5 FEES AND COSTS. The arbitrators' fees and other costs of the
arbitration and the reasonable attorney fees, expert witness fees and costs of
the prevailing Party shall be borne by the non-prevailing Party. In its written
opinion, the arbitration panel shall, after comparing the respective positions
asserted in the arbitration claim and answer thereto, declare as the prevailing
Party the Party whose position was closest to the arbitration award (not
necessarily the Party in favor of which the award on the arbitration claim is
rendered) and declare the other Party to be the non-prevailing Party. The
arbitration award shall include an award of the fees and costs provided by this
Section 8.5 against the non-prevailing Party.
9. DISPOSITION OF REMAINING RIGHTS UPON TERMINATION. After the Expiration
------------------------------------------------
Date, Exploratory Prospects, interests in which have not previously been
assigned to Newco or Pinnacle pursuant to Section 3.5, shall be continue to be
governed by Sections 2.4, 2.5, 2.6, 3.1through 3.5, 6, 7, 8, 10, 11, 12 and 13.
10. OTHER OPPORTUNITIES. Pinnacle acknowledges that CamWest has no
-------------------
obligation to offer an opportunity to participate, negotiate with, provide
information to or accept any party to an Existing Agreement or any other
agreement as an operator or participant with respect to the Exclusive Area and
the Exploratory Prospects generated pursuant to this Agreement.
11. REJECTED ANOMALIES. The rights associated with all Rejected Anomalies,
------------------
including all applicable SFD Information, shall be contributed by the Parties to
a separate, Colorado limited liability company ("Newco") in which CamWest and
Pinnacle, or Affiliates thereof, each own a 50% membership interest. CamWest
shall be the manager of Newco. Newco shall be responsible for all marketing of
the property and rights contributed to or acquired by it. CamWest covenants that
it will use diligent efforts to market the assets of Newco and that any
Page 12 of 22
<PAGE>
sales made by Newco will be on arms length terms. Following the formation of
Newco, the Parties shall negotiate in good faith to settle the terms of and
execute an operating agreement relating to the governance of Newco. Any
Petroleum and Natural Gas rights assigned to or acquired by Newco will be free
and clear of any Royalty Interest or other burdens created pursuant to this
Agreement.
12. EXCLUDED LANDS. Notwithstanding anything contained in this Agreement
--------------
to the contrary, Excluded Lands are specifically excluded from the terms of this
Agreement. "Excluded Lands" shall mean the following Petroleum and Natural Gas
Rights, lands, tangibles, and associated interests of CamWest and its Affiliates
to the extent such property rights are not acquired as the result of SFD Data,
SFD Information, and SFD Anomalies (the "Excluded Lands"):
(a) the acquisition of any interest in lands, Petroleum and Natural
Gas Rights, corporations, partnerships, or other entities as such by
either (i) the purchase of an equity interest therein or by merger,
(ii) or other business combination therewith when the primary purpose
of such acquisition is not to obtain an interest in the Excluded
Lands;
(b) any interest in lands or Petroleum and Natural Gas Rights that is
held by CamWest or its Affiliates as of the date of this Agreement
that either have reserves that have been proven or are capable of
producing Petroleum Substances;
(c) the purchase of any oil and gas reserves (whether proven or
probable reserves) unless the Parties mutually agree to include such
purchase within this Agreement;
(d) any interest in lands or Petroleum or Natural Gas Rights with
respect to which CamWest or its Affiliates (i) have conducted
technical or analysis work, and (ii) are pursuing the acquisition of
such lands or Petroleum and Natural Gas Rights;
(e) any other interest in lands, Petroleum and Natural Gas Rights,
tangibles, and associated interests (i) in which CamWest has an
interest, has a right to acquire an interest, or acquires an interest,
and (ii) that is not made a part of this Agreement in accordance with
the terms and conditions hereof.
13. MISCELLANEOUS.
-------------
13.1 NOTICES. All notices and other required communications hereunder
shall be in writing, addressed as follows:
If to Pinnacle:
--------------
Pinnacle Oil International Inc.
Suite 750, Phoenix Place
840 - 7th Avenue S.W.
Calgary, Alberta T2P 3G2
Canada
Page 13 of 22
<PAGE>
Attention: President
Facsimile: (403) 246-6442
If to CamWest:
-------------
CamWest Limited Partnership
321 N. Central Expressway; Suite 350
McKinney, Texas 75070
Attention: Kim Eubanks
Facsimile: (972) 542-2170
Notices shall be given (a) by personal delivery to the other Party, (b) by
facsimile, with confirmation sent by registered or certified mail, return
receipt requested, or (c) by registered or certified mail, return receipt
requested. All notices shall be effective and deemed delivered (i) if by
personal delivery, on the date of delivery if during business hours, otherwise
the next business day, (ii) if by facsimile, on the date the facsimile is
received if received during business hours, otherwise the next business day and
(iii) if solely by mail, upon receipt by the addressee. A Party may change its
address by notice to the other Party.
13.2 COMPLIANCE WITH LAWS. Each Party shall comply in all material
respects with all applicable federal, state and local laws, regulations and
codes, and shall obtain all permits and licenses when needed in the performance
of its obligations under this Agreement.
13.3 DAMAGES. In the event of a default by either Party under this
Agreement, the other Party shall have all remedies available to it under this
Agreement at law and in equity, provided that in no event shall either party
ever be liable for special, punitive, or consequential damages.
13.4 DEFAULT AND TERMINATION.
(a) If any Party fails to perform any obligation required to be
performed hereunder, the non-defaulting Party may provide the
defaulting Party written notice to remedy the default. If the
defaulting Party (i) does not commence actions to remedy the default
within 30 days after receiving such notice, and (ii) proceed
diligently and continuously to remedy such default, then the non-
defaulting Party may terminate this Agreement by providing written
notice to the defaulting Party.
(b) CamWest may terminate this Agreement by providing written
notice to Pinnacle upon the occurrence of any of the following events:
(i) the breach of any representation, warranty or covenant contained
herein by Pinnacle or any of its Affiliates, to the extent that such
breach could have a material adverse effect on CamWest or (ii)
Pinnacle or any of its Affiliates are not the owners of or have a
license to use the SFD Technology.
Page 14 of 22
<PAGE>
(c) Pinnacle may terminate this Agreement by providing written
notice to CamWest upon the breach of any representation, warranty or
covenant contained herein by CamWest or any of its Affiliates, to the
extent that such breach could have a material adverse effect on Pinnacle.
13.5. INDEMNIFICATION. Each Party shall indemnify, hold harmless and
defend the other and the other's directors, trustees, agents, officers,
management, members, managers and employees against all claims, demands,
judgments and associated costs and expenses related to property damage,
environmental damage, bodily injury or death resulting from any breach of this
Agreement (including the representations and warranties herein), negligence or
willful misconduct by such Party. In the event such loss or damage is caused by
any joint or concurrent act or failure to act of Pinnacle and CamWest, such loss
or damage shall be borne by Pinnacle and CamWest in proportion to the degree of
negligence attributable to each Party. In addition, Pinnacle shall indemnify,
hold harmless, and defend CamWest from any and all liability or costs arising
from the action described on Exhibit G.
13.6. SUCCESSORS AND ASSIGNS. This Agreement shall inure to the
benefit of and be binding upon the successors and assigns of the respective
Parties; provided, however, that except with respect to transfers by a Party to
--------- --------
its Affiliates, no Party shall transfer its rights or obligations hereunder
without the prior written consent of the other Parties. Notwithstanding the
assignment by POII of any of its obligations hereunder to an Affiliate, CamWest
may still look to POII for the performance of Pinnacle's obligations hereunder.
13.7. AMENDMENTS. This Agreement shall not be amended except in
writing executed by all Parties.
13.8. WAIVER. A waiver by either Party of a default hereunder shall
not be deemed to be a waiver of any subsequent default, nor shall any delay in
asserting a right hereunder be deemed a waiver of such right. The preceding
sentence shall not be construed as a waiver of any applicable statute of
limitations. The failure of either Party to insist in any one or more instances
upon strict performance of any of the provisions of this Agreement or to take
advantage of any of its rights hereunder, shall not be construed as a waiver of
any provisions or relinquishment of any such rights, but the same shall continue
and remain in full force and effect. All remedies afforded under this Agreement
shall be taken and construed as cumulative and in addition to every other remedy
provided for herein and by law.
13.9. SECTION HEADINGS. The section headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
13.10. ENTIRE AGREEMENT. This Agreement contains the entire agreement
between the Parties with respect to the subject matter hereof and supersedes all
prior agreements and undertakings between the Parties relating to the subject
matter hereof.
Page 15 of 22
<PAGE>
13.11. SEVERABILITY. If any provision of this Agreement shall be
determined by any relevant authority having jurisdiction to be unlawful,
unenforceable, invalid, void or voidable, the legality, validity or
enforceability of the remainder of this Agreement shall not be affected or
impaired thereby and the unlawful, unenforceable, invalid, void or voidable term
or terms shall be deemed deleted from this Agreement to the same extent as if
never incorporated.
13.12. SURVIVAL. The indemnity and confidentiality provisions of this
Agreement shall survive the termination of this Agreement.
13.13. CONSTRUCTION OF AGREEMENT. In construing this Agreement:
(a) no consideration shall be given to the captions of the
articles, sections, subsections or clauses, which are inserted for convenience
in locating the provisions of this Agreement and not as an aid in its
construction;
(b) no consideration shall be given to the fact or presumption that
one Party had a greater or lesser hand in drafting this Agreement;
(c) examples shall not be construed to limit, expressly or by
implication, the matter they illustrate;
(d) the word "includes" and its derivatives means "includes, but is
not limited to" and corresponding derivative expressions;
(e) the plural shall be deemed to include the singular, and vice
versa; and
(f) each gender shall be deemed to include the other gender.
13.14. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original instrument, but all of
which together shall constitute but one and the same instrument.
13.15. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF COLORADO, WITHOUT
REFERENCE TO ITS CHOICE OF LAW RULES.
13.16. NO PARTNERSHIP. Neither this Agreement nor any provision herein
shall or be construed as constituting a partnership, agency, or joint venture or
similar relationship between CamWest and Pinnacle.
13.17. NO HYDROCARBON WARRANTY. Neither party makes any warranty or
representation to the other as to the presence or economic viability of any
hydrocarbons in any SFD Anomaly or Exploratory Prospect identified or developed
pursuant to this agreement.
13.18. FACILITIES. In the event any Petroleum Substances produced from
an Exploratory Prospect and owned by Pinnacle are processed by a facility in
which Pinnacle owns no interest, CamWest shall use all reasonable efforts to
ensure that Pinnacle receives no less
Page 16 of 22
<PAGE>
favorable terms for such processing than are received by CamWest.
[signature page to follow]
Page 17 of 22
<PAGE>
IN WITNESS WHEREOF, the Parties have caused this Agreement to be duly
executed as of the year and date first above written.
CAMWEST LIMITED PARTNERSHIP
By: CamWest, Inc., its general partner
By: /s/ Kim L. Eubanks
-------------------------------
Kim L. Eubanks, President
PINNACLE OIL INTERNATIONAL, INC.
By: /s/ George Liszicasz
-------------------------------
George Liszicasz, CEO and Chairman of the Board
By: /s/ Dirk Stinson
-------------------------------
Dirk Stinson, President and COO
PINNACLE OIL, INC.
By: /s/ George Liszicasz
-------------------------------
George Liszicasz, CEO and Chairman of the Board
By: /s/ Dirk Stinson
-------------------------------
Dirk Stinson, President and COO
PINNACLE OIL CANADA LTD.
By: /s/ George Liszicasz
-------------------------------
George Liszicasz, CEO and Chairman of the Board
MOMENTUM RESOURCES LTD.
By: /s/ R. Dirk Stinson
-------------------------------
Print Name:
-----------------------
Title:
----------------------------
Page 18 of 22
<PAGE>
EXHIBIT 10.14
Canadian SFD Data Licence Agreement
THIS AGREEMENT made as of April 1, 1997
BETWEEN:
PINNACLE OIL INTERNATIONAL INC.
a Nevada corporation whose principal executive
office is located at 380 - 1090 West Georgia Street
Vancouver, B.C., Canada, V6E 3V7
(the "Grantor")
OF THE FIRST PART
AND:
PINNACLE OIL CANADA INC.
a Canadian federal corporation whose principal
executive office is located at #380 - 1090 West
Georgia Street,Vancouver, B.C. V6E 3V7
(the "Grantee")
OF THE SECOND PART
WHEREAS:
1. The Grantor has the worldwide right to the use of certain data known
as SFD Data (hereinafter defined) as it relates to the identification
and exploitation of Hydrocarbons (as hereinafter defined) pursuant to
an agreement dated as of August 1, 1996, and made between (among
others) Momentum Resources Corporation ("Momentum") as the owner of
the technology which generates the SFD Data, and the Grantor (the
"Restated Technology Agreement"), a copy of which is attached to this
Agreement as a Schedule;
2. Pursuant to the Restated Technology Agreement, Momentum has agreed
with the Grantor that it will use its best efforts to survey, using
the Stress Field Detector (as hereinafter defined), certain geographic
areas throughout the world which will have been preselected by both
Momentum and the Grantor from time to time during the term of the
Restated Technology Agreement, and to provide all raw SFD Data
resulting from such surveys to the Grantor for its exclusive use for
the identification and exploitation of Hydrocarbons in accordance with
the terms of the Restated Technology Agreement;
<PAGE>
2
3. The Restated Technology Agreement further provides that the surveys
are to be conducted by George Liszicasz (the original inventor of the
technology) or, under the general supervision of George Liszicasz, by
such personnel of Momentum as have appropriate levels of training to
enable them to conduct such surveys. Under the Restated Technology
Agreement, Momentum has agreed with the Grantor that it will provide
not less than 500 hours per year of trained manpower to generate the
SFD Data with respect to the pre-selected geographic areas to be
surveyed;
4. The Restated Technology Agreement further provides, (as does the
employment agreement dated as of April 1, 1997, and between the
Grantor and Liszicasz (the "Liszicasz Employment Agreement") that
Liszicasz will be available to provide the required manpower until at
least December 31, 2005, unless Liszicasz is unable to render such
services by reason of death or disability (as that term is defined in
the Liszicasz Employment Agreement);
5. The Restated Technology Agreement also provides that Liszicasz shall
initially interpret all raw SFD Data provided to the Grantor by
Momentum to ascertain whether there is a reasonable likelihood that
there are commercially extractable amounts of Hydrocarbons in any
given surveyed area. Further, Liszicasz and the Grantor have agreed
that they will both use their best efforts to train mutually
acceptable personnel of the Grantor to conduct such interpretation
under the general supervision of Liszicasz as soon as is reasonably
practical;
6. The Restated Technology Agreement also provides that the Grantor may
fulfil its obligation to Momentum to use its best efforts to exploit a
commercially viable area by means of a wholly-owned subsidiary, and
that the Grantor may license any or all of its rights to a wholly-
owned subsidiary;
7. The Grantee is a wholly-owned subsidiary of the Grantor, and the
parties wish to enter into this Licence Agreement with respect to both
the generation and the interpretation of raw Canadian SFD Data (as
hereinafter defined), and to the exploitation of Hydrocarbons
identified by such interpretation.
NOW THIS AGREEMENT WITNESSES that in consideration of the premises the parties
covenant and agree as follows:
1. DEFINITIONS
In this Agreement:
(a) The terms "Hydrocarbons", "SFD Data", "SFD Technology" and "Stress
Field Detector" shall have the meanings ascribed to them in paragraph
1 of the Restated Technology Agreement;
<PAGE>
3
(b) "Canadian SFD Data" means all SFD Data relating to the sovereign
territory of Canada.
(c) "Canadian Prospect" means an area in the sovereign territory of Canada
which has been identified, following interpretation of Canadian SFD
Data, as one in which there is a reasonable likelihood of commercially
extractible amounts of Hydrocarbons.
(d) "Subsidiaries" means any subsidiary of a party (or subsidiary of a
subsidiary of a party) regardless of form of entity, such as a
corporation, partnership, limited partnership, or limited liability
company, with the exception of joint ventures and third party
arrangements described in this Agreement.
2. GRANT OF LICENCE FOR CANADIAN SFD DATA
2.1 In consideration of the licence fee set out in paragraph 4, the Grantor
hereby grants to the Grantee an exclusive licence, for the periods set out
in paragraph 6, to use and exploit the Canadian SFD Data generated by
Momentum for the Grantor under the Restated Technology Agreement.
2.2 By way of fulfilling its obligation under this Licence Agreement to
supply an amount of Canadian SFD Data sufficient for the Grantee to
commercially exploit the Hydrocarbons identified using such data, the
Grantor covenants with the Grantee that, when pre-selecting Designated
Search Areas together with Momentum under the provisions of paragraph 2 of
the Restated Technology Agreement, the Grantor will at all times during the
term of this Licence Agreement use its best efforts to select sufficient
surveys in Canadian territory to ensure to the Grantee a supply of Canadian
SFD Data sufficient to enable the Grantee to carry on a commercially viable
business, and to fulfil its obligations under all agreements with third
parties respecting the use of Canadian SFD Data.
2.3 The Grantor will also use its best efforts to ensure the availability
to the Grantee of the services of Liszicasz to interpret or cause to be
interpreted, for the benefit of the Grantee, the Canadian SFD Data supplied
under this Licence Agreement. To better secure the availability of
Liszicasz or other trained personnel for such purposes, the Grantee may
itself enter into appropriate employment contracts with Liszicasz and/or
such other trained personnel. In determining the amount of time which
Liszicasz and/or other trained personnel must devote to the interpretation
of the Canadian SFD Data, as a proportion of world-wide SFD Data, the
parties will act reasonably, basing the determination on, among other
things:
(a) the obligations of the Grantee under third party agreements, to the
extent that the Grantor has been made aware of such obligations; and
(b) an estimate of the value of commercially extractable Hydrocarbons
identified in Canada as a proportion of the total value of the
commercially extractible
<PAGE>
4
Hydrocarbons identified world-wide.
3. COMMERCIAL EXPLOITATION OF CANADIAN SFD DATA
Within 180 days after the Grantee has interpreted, or obtained the
interpretation of, the Canadian SFD Data, and has identified a Canadian
Prospect, the Grantee will, either directly or indirectly through joint
ventures and/or other third parties, use its best efforts to commercially
and economically exploit the Canadian Prospect. Such exploitation may
occur through one or a combination of the following, as selected by the
Grantee in its reasonable discretion:
(i) the direct acquisition by the Grantee and/or a wholly owned
Subsidiary of the legal rights for the further exploitation,
development and production of Hydrocarbons with respect to the
Canadian Prospect;
(ii) the indirect acquisition of such rights through joint ventures
or other arrangements with third parties; and/or
(iii) the sale by the Grantee and/or its joint venture partners of
such rights.
The Grantee will use its best efforts to commercially exploit the Canadian
Prospect through one or more of the foregoing methods, and will diligently
pursue such efforts unless it is not, in the opinion of either the Grantee
or the Grantor, commercially reasonable to make any such acquisition and/or
pursue such exploration development and/or production and/or enter into any
such agreement with a joint venture partner and/or other third parties.
4. LICENCE FEE
4.1 AMOUNT OF FEE
In consideration of this grant of the licence with respect to the Canadian
SFD Data, the Grantee shall pay to the Grantor a fee (the "Licence Fee")
equal to 50% of the "Gross Revenues" (as such term is defined below)
actually received by the Grantee and/or its Subsidiaries with respect to
the commercial exploitation of the Hydrocarbons identified in each Canadian
Prospect.
<PAGE>
5
4.2 GROSS REVENUES DEFINED
The term "Gross Revenues" generally means the aggregate of all gross
revenues received by the Grantee and/or its Subsidiaries from the
commercial exploitation of Hydrocarbons calculated by way of example and
not limitation as follows:
(i) If the Grantee and/or its Subsidiaries indirectly acquire
the legal rights for the further exploration, development
and production of Hydrocarbons with respect to a Canadian
Prospect through joint ventures and/or other arrangements
with third parties, then the Gross Revenues will mean the
cash flows received by the Grantee and/or its Subsidiaries
from such joint venture and/or third party, whether from
the sale of Hydrocarbons or the sale by the joint venture
and/or third party of its interest in such legal rights.
(ii) If the Grantee and/or its Subsidiaries sell or transfer
the legal rights for (or "leads" relating to) a Canadian
Prospect, then the Gross Revenues from such Canadian
Prospect will be the gross consideration received by the
Grantee and/or its Subsidiaries as a result of such sale
or transfer.
(iii) If the Grantee and/or its Subsidiaries directly acquire
the legal rights for the further exploration, development
and productions of Hydrocarbons with respect to a Canadian
Prospect, and independently extract and sell Hydrocarbons
from such Canadian Prospect, then the Gross Revenues from
such a Canadian Prospect will be the gross cash flows
received by the Grantee and/or its Subsidiaries from the
sale of such Hydrocarbons.
(iv) In the case of the agreement between Encal Energy Ltd. and
the Grantor, Gross Revenues means all payments of any kind
to which the Grantor (or through the Grantor, the Grantee)
is entitled under that agreement.
The Grantee and/or its Subsidiaries acknowledge and agree that they
shall not be entitled to deduct any expenses, costs, capital or equity
investment and/or loans against any calculation of Gross Revenues when
determining the Licence Fee owing to the Grantor (such as acquisition,
development, extraction, marketing and/or distribution costs which
would be incurred should the Grantee and/or its Subsidiaries directly
exploit the Prospect without joint venture partners), it being
understood that the Grantor has an interest in Gross Revenues
generated from the Hydrocarbons identified in a Canadian Prospect
without offset or deduction. Notwithstanding the foregoing, the
Grantor understands and agrees that Gross Revenues arising from
distributions from joint ventures and/or third party arrangements
may, based upon the
<PAGE>
6
terms and conditions of such arrangements, be made after the joint
venture has deducted costs, expenses and reserves, or repaid capital
provided by the joint venture and/or other third party, and the
Grantor further agrees that it shall have no right to "gross up" the
Gross Revenues to reflect the pre-distribution deduction by the joint
venture or other third party of such costs, expenses and reserves
and/or repayment of capital.
The parties further acknowledge that the foregoing examples are merely
examples, and do not fully reflect many methods by which the Grantee
may commercially and economically exploit a Canadian Prospect, with
and without the participation of joint venture and/or other third
parties. Accordingly, the parties agree that the Licence Fee shall be
liberally interpreted to apply to each and every transaction by which
the Grantee and/or any of its Subsidiaries exploit the Canadian
Prospect to ensure that the Grantor receives such equitable portion of
the total return received by the Grantee and/or its Subsidiaries as to
enable the Grantor to receive the benefit of its bargain, subject to
avoidance of duplicative payments by the Grantee and its Subsidiaries.
In order to avoid any disputes or misunderstandings, the parties agree
to use their best efforts, while the Grantee is formulating its
proposed method to exploit a Prospect, to outline in writing, prior to
committing to such method, the economics of the proposed method of
exploitation consistent with the terms of this Agreement. Should the
parties be unable to agree upon such economics, they agree that such
issue shall be resolved by arbitration (an "Arbitration Proceeding")
before the American Arbitration Association (the "Arbitration
Authority") located in Carson City, Nevada, according to the rules and
practices of the Arbitration Authority from time-to-time in force,
unless the parties mutually agree upon a different Arbitration
Authority and/or different location for such Arbitration Proceeding.
4.3 TERMS OF PAYMENT OF LICENCE FEE
The Licence Fee shall be paid to the Grantor within 15 days of the end of
each quarter in which the Grantee and/or any of its Subsidiaries collect
Gross Revenues with respect to any Canadian Prospect. The obligation to
pay the Licence Fee shall continue following the termination of this
Agreement with respect to any Canadian Prospect for which the Licence Fee
was provided by the Grantor to the Grantee on or before the effective date
of such termination.
4.4 REPORTS
Within 15 days after the end of each quarter, irrespective of whether any
Gross Revenues have been collected by the Grantee and/or any of its
Subsidiaries or whether any sum is then due to the Grantor, the Grantee
shall deliver to the Grantor a complete and accurate written statement
setting forth;
(i) total Gross Revenues earned or accrued from each Canadian
Prospect in such quarter;
<PAGE>
7
(ii) total Gross Revenues collected from each Canadian Prospect
in such quarter;
(iii) the Licence Fee earned from each Canadian Prospect in such
quarter;
(iv) the Grantee's calculation of the amount of the Licence Fee
then due the Grantor for the period covered by such
report; and
(v) such other information reasonably requested by the Grantor
with respect to each Canadian Prospect, in specific detail
so as to allow an audit of underlying documents.
4.5 BOOKS AND RECORDS
During the period that the Grantee shall be obligated to pay to the Grantor
a Licence Fee, the Grantee shall keep or cause to be kept accurate,
complete and up-to-date books of accounts separately stating records of all
revenues earned, accrued and/or collected with respect to each Canadian
Prospect, and all costs, expenses, and investments in such Canadian
Prospect.
4.6 INSPECTION
During the period that the Grantee and/or its Subsidiaries shall be
obligated to pay to the Grantor the Licence Fee, the Grantor or its
authorized representatives shall have the right to inspect all records of
the Grantee and/or its Subsidiaries with respect to the Canadian Prospect,
and to make copies of said records utilizing the facilities the Grantee
and/or its Subsidiaries without charge, and shall have free and full access
thereto on reasonable notice during the normal business hours of the
Grantee and/or its Subsidiaries. If such inspection or audit reveals an
underpayment by the Grantee and/or its Subsidiaries of the Licence Fee
and/or any other amounts then due to the Grantor under this Agreement, the
Grantee and/or its Subsidiaries shall upon written notice pay to the
Grantor the balance of all such amounts found to be due pursuant to such
audit inspection, together with interest thereon at the "best commercial
customer" rate of the largest bank in terms of assets in the eleventh
district of the Federal Reserve, plus 4% per annum from the date such
amounts first became due to the Grantor, until all such amounts have been
paid in full. If such inspection or audit discloses that, for the annual
period reviewed or audited, the Grantee has underpaid or understated its
Licence Fee obligation under this Agreement by 5% or more, then the Grantee
shall also pay the reasonable professional fees of the independent
representatives engaged to conduct or review such inspection or audit.
4.7 SECURITY INTEREST GRANTED TO THE GRANTOR
As security for the Grantee's obligation to pay the Licence Fee to the
Grantor, the Grantee agrees to execute a Security Agreement in a form
reasonably acceptable to the Grantor with respect to any interest in any
Canadian Prospect acquired by the Grantee and/or its
<PAGE>
8
Subsidiaries, which will grant to the Grantor a security interest in any
Gross Revenues generated by the Grantee and/or its Subsidiaries in such
Canadian Prospect. The grant of the security interest shall not exceed the
anticipated aggregate Licence Fee payable to the Grantor with respect to
such Canadian Prospects.
5. TERM OF LICENCE
The term of the licence granted under this Agreement will correspond in all
respects, including provisions for extension and for early termination,
with the term of the Restated Technology Agreement.
6. REPRESENTATIONS AND WARRANTIES OF PARTIES
Each of the parties to this Agreement hereby represents and warrants to
each of the other parties of this Agreement, each of which is deemed to be
a separate representation and warranty, as follows:
(a) ORGANIZATION, POWER AND AUTHORITY
Such party, if an entity, is duly organized, validly existing and
in good standing under the laws of its state, territory or
province of incorporation or organization, and has all requisite
corporate or other power and authority to enter into this
Agreement.
(b) AUTHORIZATION AND VALIDITY OF AGREEMENT
The execution and delivery of this Agreement by such party, and
the performance by such party of the transactions herein
contemplated, have, if such party is an entity, been duly
authorized by its governing organizational documents, and are not
prohibited by its governing organization documents, and no
further corporate or other action on the part of such party is
necessary to authorize this Agreement, or the performance of such
transactions. This Agreement has been duly executed and
delivered by such party and, assuming due authorization,
execution and delivery by all of the other parties hereto, is
valid and binding upon such party in execution and delivery by
all of the other parties hereto, is valid and binding upon such
party in accordance with its terms, except as limited by:
(i) bankruptcy, insolvency, reorganization, moratorium or
other similar laws now or hereafter in effect
relating to creditor rights generally; and
(ii) general principles of equity (regardless of whether
such
<PAGE>
9
enforcement is considered in a proceeding in equity
or at law).
(c) NO BREACH OR CONFLICT
Neither the execution nor delivery of this Agreement, nor the
performance by such party of the transactions contemplated
herein:
(i) if such party is an entity, will breach or conflict
with any of the provisions of such party's governing
organizational documents; nor
(ii) to the best of such party's knowledge and belief,
will violate or constitute an event of default under
any agreement or other instrument to which such party
is a party.
7. INDEMNIFICATION; DEFENSE OF THIRD-PARTY CLAIMS
The provisions of paragraph 12 of the Restated Technology Agreement
entitled "Indemnification; Defense of Third-Party Claims" apply to this
Agreement.
8. MISCELLANEOUS
(a) COOPERATION
Each party agrees, without further consideration, to cooperate and
diligently perform any further acts, deeds and things, and to execute
and deliver any documents that may be reasonably necessary or
otherwise reasonably required to consummate, evidence, confirm and/or
carry out the intent and provisions of this Agreement, all without
undue delay or expense.
(b) INTERPRETATION
(i) SURVIVAL
All representations and warranties made by any party in
connection with any transaction contemplated by this
Agreement shall, irrespective of any investigation made by
or on behalf of any other party hereto, survive the
execution and delivery of this Agreement, and the
performance or consummation of any transaction described
in this Agreement.
(ii) ENTIRE AGREEMENT/NO COLLATERAL REPRESENTATIONS
<PAGE>
10
Each party expressly acknowledges and agrees that this
Agreement, and the agreements and documents referenced
herein;
(i) is the final, complete and exclusive statement of
the agreement of the parties with respect to the
subject matter hereof;
(ii) supersedes any prior or contemporaneous agreements,
memorandums, proposals, commitments, guaranties,
assurances, communications, discussions, promises,
representations, understandings, conduct, acts,
courses of dealing, warranties, interpretations or
terms of any kind, whether oral or written, and
that may such prior agreements are of no force or
effect except as expressly set forth herein; and
(iii) may not be varied, supplemented or contradicted by
evidence of prior agreements, or by evidence of
subsequent oral agreements.
No prior drafts of this Agreement, and no words or phrases
from any prior drafts, shall be admissible into evidence
in any action or suit involving this Agreement.
(iii) AMENDMENT; WAIVER; FORBEARANCE
Except as expressly provided otherwise herein, neither
this Agreement nor any of the terms, provisions,
obligations or rights contained herein, may be amended,
modified, supplemented, augmented, rescinded, discharged
or terminated (other than by performance), except by a
written instrument or instruments signed by all of the
parties to this Agreement. No waiver of any breach of any
term, provision or agreement contained herein, or of the
performance of any act or obligation under this Agreement,
or of any extension of time for performance of any such
act or obligation, or of any right granted under this
Agreement, shall be effective and binding unless such
waiver shall be in a written instrument or instruments
signed by each party claimed to have given or consented to
such waiver and each party affected by such waiver. Except
to the extent that the party or parties claimed to have
given or consented to a waiver may have otherwise agreed
in writing, no such waiver shall be deemed a waiver or
relinquishment of any other term, provision, agreement,
act, obligation or right granted under this Agreement, or
any preceding or subsequent breach thereof. No forbearance
by a party to seek a remedy for any noncompliance or
breach by another party hereto shall be deemed to be a
waiver by such forbearing party of its rights and remedies
with
<PAGE>
11
respect to such noncompliance or breach, unless such
waiver shall be in a written instrument or instruments
signed by the forbearing party.
(iv) REMEDIES CUMULATIVE
The remedies of each party under this Agreement are
cumulative and shall not exclude any other remedies to
which such party may be lawfully entitled.
(v) SEVERABILITY
If any term or provision of this Agreement or the
application thereof to any person or circumstance shall,
to any extent, be determined to be invalid, illegal or
unenforceable under present or future laws, then, and in
that event:
(i) The performance of the offending term or provision
(but only to the extent its application is invalid,
illegal or unenforceable) shall be excused as if it
had never been incorporated into this Agreement,
and in lieu of such excused provision, there shall
be added a provision as similar in terms and amount
to such excused provisions as may be possible and
be legal, valid and enforceable; and
(ii) The remaining part of this Agreement (including the
application of the offending term or provision to
persons or circumstances other than those as to
which it is held invalid, illegal or unenforceable)
shall not be affected thereby, and shall continue
in full force and effect to the fullest extent
provided by law.
(vi) PARTIES IN INTEREST
Notwithstanding anything else to the contrary herein,
nothing in this Agreement shall confer any rights or
remedies under or by reason of this Agreement on any
persons other than the parties hereto and their respective
successors and assigns, if any, as may be permitted
hereunder, nor shall anything in this Agreement relieve or
discharge the obligation or liability of any third party
to any party to this Agreement, nor shall any provision
give any third person any right of subrogation or action
over or against any party to this Agreement.
Notwithstanding the prior sentence, the parties
acknowledge that the subsidiaries of the Grantee and the
Grantor and their respective successors and assigns are a
third party beneficiary of this Agreement.
<PAGE>
12
(c) ENFORCEMENT
(i) APPLICABLE LAW
This Agreement and the rights and remedies of each party
arising out of or relating to this Agreement (including,
without limitation, equitable remedies) shall (with the
exception of the applicable securities laws) be solely
governed by, interpreted under, and construed and enforced
in accordance with the laws (without regard to the
conflicts of law principles) of the State of Nevada, as if
this Agreement were made, and as if its obligations are to
be performed, wholly with in the State of Nevada.
(ii) CONSENT TO JURISDICTION: SERVICE PROCESS
Any "action or proceeding" (as such term is defined below)
arising out of or relating to this Agreement shall be
filed in and heard and litigated solely before the state
courts of Nevada. Each party generally and unconditionally
accepts the exclusive jurisdiction of such courts and
venue therein; consents to the service of process in any
such action or proceeding by certified or registered
mailing of the summons and complaint in accordance with
the notice provisions of this Agreement; and waives any
defense or right to object to venue in said courts based
upon the doctrine of "forum non conveniens" the Term
"action or proceeding" is defined as any and all claims,
suits, actions, hearings, arbitrations or other similar
proceedings, including appeals and petitions therefrom,
whether formal or informal, governmental or non-
governmental, or civil or criminal.
(iii) WAIVER OF RIGHTS TO JURY TRIAL
Each party hereby waives such party's respective right to
a jury trial of any claim or cause of action based upon or
arising out of this Agreement. Each party acknowledges
that this waiver is a material inducement to each other
party hereto to enter into the transaction contemplated
hereby; that each other party has already relied upon this
waiver in entering into this Agreement; and that each
other party will continue to rely on this waiver in their
future dealings. Each party warrants and represents that
such party has reviewed this waiver with such party's
legal counsel, and that such party has knowingly and
voluntarily waived its jury trial rights following
consultation with such legal counsel.
(d) ASSIGNMENT
<PAGE>
13
Provided in this Agreement the Grantee may not sell, license, transfer
or assign (whether direct or indirect, merger, consolidations,
conversion, sale of assets, sale or exchange of securities, or by
operation of law, or otherwise) any of its rights or interests or
delegate its duties or obligations under this Agreement, in whole or
in part, including to any Subsidiary or any Affiliate, without the
prior written consent of the Grantee which consent may be withheld in
such other party's sole discretion.
(e) COUNTERPARTS; ELECTRONICALLY TRANSMITTED DOCUMENTS
This Agreement may be executed in counterparts, each of which shall be
deemed an original, and all of which together shall constitute one and
the same instrument, binding on all parties hereto. Any signature
page of its Agreement may be detached from any counterpart of this
Agreement and reattached to any other counterpart of this Agreement
identical in form hereto by having attached to it one or more
additional signature pages. If a copy or counterpart of this
Agreement is originally executed and such copy or counterpart is
thereafter transmitted electronically by facsimile or similar device,
such facsimiled document shall for all purposes be treated as if
manually signed by the party whose facsimile signature appears.
WHEREFORE, the parties hereto have, for purposes of this Agreement,
executed this Agreement in Vancouver, British Columbia, Canada, as of the date
first herinabove set forth.
THE GRANTOR PINNACLE OIL INTERNATIONAL INC.,
a Nevada corporation
By: /s/ R. Dirk Stinson
--------------------------------
R. Dirk Stinson, President
THE GRANTEE PINNACLE OIL CANADA INC.
By: /s/ R. Dirk Stinson
-------------------------------
R. Dirk Stinson, President
<PAGE>
EXHIBIT 10.15
American SFD Data Licence Agreement
THIS AGREEMENT made as of April 1, 1997
BETWEEN:
PINNACLE OIL INTERNATIONAL INC.
a Nevada corporation whose principal executive
office is located at 380 - 1090 West Georgia Street
Vancouver, B.C., Canada, V6E 3V7
(the "Grantor")
OF THE FIRST PART
AND:
PINNACLE OIL INC.
a Nevada corporation whose principal executive
office is located at #380 - 1090 West Georgia Street,
Vancouver, B.C. V6E 3V7
(the "Grantee")
OF THE SECOND PART
WHEREAS:
1. The Grantor has the worldwide right to the use of certain data known as SFD
Data (hereinafter defined) as it relates to the identification and
exploitation of Hydrocarbons (as hereinafter defined) pursuant to an
agreement dated as of August 1, 1996, and made between (among others)
Momentum Resources Corporation ("Momentum") as the owner of the technology
which generates the SFD Data, and the Grantor (the "Restated Technology
Agreement"), a copy of which is attached to this Agreement as a Schedule;
2. Pursuant to the Restated Technology Agreement, Momentum has agreed with the
Grantor that it will use its best efforts to survey, using the Stress Field
Detector (as hereinafter defined), certain geographic areas throughout the
world which will have been preselected by both Momentum and the Grantor from
time to time during the term of the Restated Technology Agreement, and to
provide all raw SFD Data resulting from such surveys to the Grantor for its
exclusive use for the identification and exploitation of Hydrocarbons in
accordance with the terms of the Restated Technology Agreement;
<PAGE>
2
3. The Restated Technology Agreement further provides that the surveys are to
be conducted by George Liszicasz (the original inventor of the technology)
or, under the general supervision of George Liszicasz, by such personnel of
Momentum as have appropriate levels of training to enable them to conduct
such surveys. Under the Restated Technology Agreement, Momentum has agreed
with the Grantor that it will provide not less than 500 hours per year of
trained manpower to generate the SFD Data with respect to the pre-selected
geographic areas to be surveyed;
4. The Restated Technology Agreement further provides, (as does the employment
agreement dated as of April 1, 1997, and between the Grantor and Liszicasz
(the "Liszicasz Employment Agreement") that Liszicasz will be available to
provide the required manpower until at least December 31, 2005, unless
Liszicasz is unable to render such services by reason of death or
disability (as that term is defined in the Liszicasz Employment Agreement);
5. The Restated Technology Agreement also provides that Liszicasz shall
initially interpret all raw SFD Data provided to the Grantor by Momentum to
ascertain whether there is a reasonable likelihood that there are
commercially extractable amounts of Hydrocarbons in any given surveyed
area. Further, Liszicasz and the Grantor have agreed that they will both
use their best efforts to train mutually acceptable personnel of the
Grantor to conduct such interpretation under the general supervision of
Liszicasz as soon as is reasonably practical;
6. The Restated Technology Agreement also provides that the Grantor may fulfil
its obligation to Momentum to use its best efforts to exploit a
commercially viable area by means of a wholly-owned subsidiary, and that
the Grantor may license any or all of its rights to a wholly-owned
subsidiary;
7. The Grantee is a wholly-owned subsidiary of the Grantor, and the parties
wish to enter into this Licence Agreement with respect to both the
generation and the interpretation of raw American SFD Data (as hereinafter
defined), and to the exploitation of Hydrocarbons identified by such
interpretation.
NOW THIS AGREEMENT WITNESSES that in consideration of the premises the parties
covenant and agree as follows:
1. DEFINITIONS
In this Agreement:
(a) The terms "Hydrocarbons", "SFD Data", "SFD Technology" and "Stress
Field Detector" shall have the meanings ascribed to them in paragraph
1 of the Restated Technology Agreement;
<PAGE>
3
(b) "American SFD Data" means all SFD Data relating to the sovereign
territory of the United States of America.
(c) "American Prospect" means an area in the sovereign territory of the
United States of America which has been identified, following
interpretation of American SFD Data, as one in which there is a
reasonable likelihood of commercially extractible amounts of
Hydrocarbons.
(d) "Subsidiaries" means any subsidiary of a party (or subsidiary of a
subsidiary of a party) regardless of form of entity, such as a
corporation, partnership, limited partnership, or limited liability
company, with the exception of joint ventures and third party
arrangements described in this Agreement.
2. GRANT OF LICENCE FOR American SFD DATA
2.1 In consideration of the licence fee set out in paragraph 4, the Grantor
hereby grants to the Grantee an exclusive licence, for the periods set out
in paragraph 6, to use and exploit the American SFD Data generated by
Momentum for the Grantor under the Restated Technology Agreement.
2.2 By way of fulfilling its obligation under this Licence Agreement to supply
an amount of American SFD Data sufficient for the Grantee to commercially
exploit the Hydrocarbons identified using such data, the Grantor covenants
with the Grantee that, when pre-selecting Designated Search Areas together
with Momentum under the provisions of paragraph 2 of the Restated
Technology Agreement, the Grantor will at all times during the term of this
Licence Agreement use its best efforts to select sufficient surveys in
American territory to ensure to the Grantee a supply of American SFD Data
sufficient to enable the Grantee to carry on a commercially viable
business, and to fulfil its obligations under all agreements with third
parties respecting the use of American SFD Data.
2.3 The Grantor will also use its best efforts to ensure the availability to
the Grantee of the services of Liszicasz to interpret or cause to be
interpreted, for the benefit of the Grantee, the American SFD Data supplied
under this Licence Agreement. To better secure the availability of
Liszicasz or other trained personnel for such purposes, the Grantee may
itself enter into appropriate employment contracts with Liszicasz and/or
such other trained personnel. In determining the amount of time which
Liszicasz and/or other trained personnel must devote to the interpretation
of the American SFD Data, as a proportion of world-wide SFD Data, the
parties will act reasonably, basing the determination on, among other
things:
(a) the obligations of the Grantee under third party agreements, to the
extent that the Grantor has been made aware of such obligations; and
(b) an estimate of the value of commercially extractable Hydrocarbons
identified in the
<PAGE>
4
United States of America as a proportion of the total value of the
commercially extractible Hydrocarbons identified world-wide.
3. COMMERCIAL EXPLOITATION OF American SFD DATA
Within 180 days after the Grantee has interpreted, or obtained the
interpretation of, the American SFD Data, and has identified an American
Prospect, the Grantee will, either directly or indirectly through joint
ventures and/or other third parties, use its best efforts to commercially
and economically exploit the American Prospect. Such exploitation may occur
through one or a combination of the following, as selected by the Grantee in
its reasonable discretion:
(i) the direct acquisition by the Grantee and/or a wholly owned
Subsidiary of the legal rights for the further exploitation,
development and production of Hydrocarbons with respect to the
American Prospect;
(ii) the indirect acquisition of such rights through joint ventures or
other arrangements with third parties; and/or
(iii) the sale by the Grantee and/or its joint venture partners of such
rights.
The Grantee will use its best efforts to commercially exploit the American
Prospect through one or more of the foregoing methods, and will diligently
pursue such efforts unless it is not, in the opinion of either the Grantee
or the Grantor, commercially reasonable to make any such acquisition and/or
pursue such exploration development and/or production and/or enter into any
such agreement with a joint venture partner and/or other third parties.
4. LICENCE FEE
4.1 Amount of Fee
In consideration of this grant of the licence with respect to the American
SFD Data, the Grantee shall pay to the Grantor a fee (the "Licence Fee")
equal to 50% of the "Gross Revenues" (as such term is defined below)
actually received by the Grantee and/or its Subsidiaries with respect to the
commercial exploitation of the Hydrocarbons identified in each American
Prospect.
<PAGE>
5
4.2 Gross Revenues Defined
The term "Gross Revenues" generally means the aggregate of all gross
revenues received by the Grantee and/or its Subsidiaries from the
commercial exploitation of Hydrocarbons calculated by way of example and
not limitation as follows:
(i) If the Grantee and/or its Subsidiaries indirectly acquire the
legal rights for the further exploration, development and
production of Hydrocarbons with respect to an American Prospect
through joint ventures and/or other arrangements with third
parties, then the Gross Revenues will mean the cash flows
received by the Grantee and/or its Subsidiaries from such joint
venture and/or third party, whether from the sale of Hydrocarbons
or the sale by the joint venture and/or third party of its
interest in such legal rights.
(ii) If the Grantee and/or its Subsidiaries sell or transfer the legal
rights for (or "leads" relating to) an American Prospect, then
the Gross Revenues from such American Prospect will be the gross
consideration received by the Grantee and/or its Subsidiaries as
a result of such sale or transfer.
(iii) If the Grantee and/or its Subsidiaries directly acquire the legal
rights for the further exploration, development and productions
of Hydrocarbons with respect to an American Prospect, and
independently extract and sell Hydrocarbons from such American
Prospect, then the Gross Revenues from such an American Prospect
will be the gross cash flows received by the Grantee and/or its
Subsidiaries from the sale of such Hydrocarbons.
The Grantee and/or its Subsidiaries acknowledge and agree that they shall not
be entitled to deduct any expenses, costs, capital or equity investment
and/or loans against any calculation of Gross Revenues when determining the
Licence Fee owing to the Grantor (such as acquisition, development,
extraction, marketing and/or distribution costs which would be incurred
should the Grantee and/or its Subsidiaries directly exploit the Prospect
without joint venture partners), it being understood that the Grantor has an
interest in Gross Revenues generated from the Hydrocarbons identified in an
American Prospect without offset or deduction. Notwithstanding the foregoing,
the Grantor understands and agrees that Gross Revenues arising from
distributions from joint ventures and/or third party arrangements may, based
upon the terms and conditions of such arrangements, be made after the joint
venture has deducted costs, expenses and reserves, or repaid capital provided
by the joint venture and/or other third party, and the Grantor further agrees
that it shall have no right to "gross up" the Gross Revenues to reflect the
pre-distribution deduction by the joint
<PAGE>
6
venture or other third party of such costs, expenses and reserves and/or
repayment of capital.
The parties further acknowledge that the foregoing examples are merely
examples, and do not fully reflect many methods by which the Grantee may
commercially and economically exploit an American Prospect, with and
without the participation of joint venture and/or other third parties.
Accordingly, the parties agree that the Licence Fee shall be liberally
interpreted to apply to each and every transaction by which the Grantee
and/or any of its Subsidiaries exploit the American Prospect to ensure that
the Grantor receives such equitable portion of the total return received by
the Grantee and/or its Subsidiaries as to enable the Grantor to receive the
benefit of its bargain, subject to avoidance of duplicative payments by the
Grantee and its Subsidiaries. In order to avoid any disputes or
misunderstandings, the parties agree to use their best efforts, while the
Grantee is formulating its proposed method to exploit a Prospect, to
outline in writing, prior to committing to such method, the economics of
the proposed method of exploitation consistent with the terms of this
Agreement. Should the parties be unable to agree upon such economics, they
agree that such issue shall be resolved by arbitration (an "Arbitration
Proceeding") before the American Arbitration Association (the "Arbitration
Authority") located in Carson City, Nevada, according to the rules and
practices of the Arbitration Authority from time-to-time in force, unless
the parties mutually agree upon a different Arbitration Authority and/or
different location for such Arbitration Proceeding.
4.3 Terms of Payment of Licence Fee
The Licence Fee shall be paid to the Grantor within 15 days of the end of
each quarter in which the Grantee and/or any of its Subsidiaries collect
Gross Revenues with respect to any American Prospect. The obligation to pay
the Licence Fee shall continue following the termination of this Agreement
with respect to any American Prospect for which the Licence Fee was
provided by the Grantor to the Grantee on or before the effective date of
such termination.
4.4 Reports
Within 15 days after the end of each quarter, irrespective of whether any
Gross Revenues have been collected by the Grantee and/or any of its
Subsidiaries or whether any sum is then due to the Grantor, the Grantee
shall deliver to the Grantor a complete and accurate written statement
setting forth;
(i) total Gross Revenues earned or accrued from each American
Prospect in such quarter;
(ii) total Gross Revenues collected from each American Prospect in
such quarter;
<PAGE>
7
(iii) the Licence Fee earned from each American Prospect in such
quarter;
(iv) the Grantee's calculation of the amount of the Licence Fee then
due the Grantor for the period covered by such report; and
(v) such other information reasonably requested by the Grantor with
respect to each American Prospect, in specific detail so as to
allow an audit of underlying documents.
4.5 Books and Records
During the period that the Grantee shall be obligated to pay to the Grantor
a Licence Fee, the Grantee shall keep or cause to be kept accurate,
complete and up-to-date books of accounts separately stating records of all
revenues earned, accrued and/or collected with respect to each American
Prospect, and all costs, expenses, and investments in such American
Prospect.
4.6 Inspection
During the period that the Grantee and/or its Subsidiaries shall be
obligated to pay to the Grantor the Licence Fee, the Grantor or its
authorized representatives shall have the right to inspect all records of
the Grantee and/or its Subsidiaries with respect to the American Prospect,
and to make copies of said records utilizing the facilities the Grantee
and/or its Subsidiaries without charge, and shall have free and full access
thereto on reasonable notice during the normal business hours of the
Grantee and/or its Subsidiaries. If such inspection or audit reveals an
underpayment by the Grantee and/or its Subsidiaries of the Licence Fee
and/or any other amounts then due to the Grantor under this Agreement, the
Grantee and/or its Subsidiaries shall upon written notice pay to the
Grantor the balance of all such amounts found to be due pursuant to such
audit inspection, together with interest thereon at the "best commercial
customer" rate of the largest bank in terms of assets in the eleventh
district of the Federal Reserve, plus 4% per annum from the date such
amounts first became due to the Grantor, until all such amounts have been
paid in full. If such inspection or audit discloses that, for the annual
period reviewed or audited, the Grantee has underpaid or understated its
Licence Fee obligation under this Agreement by 5% or more, then the Grantee
shall also pay the reasonable professional fees of the independent
representatives engaged to conduct or review such inspection or audit.
4.7 Security Interest Granted to the Grantor
As security for the Grantee's obligation to pay the Licence Fee to the
Grantor, the Grantee agrees to execute a Security Agreement in a form
reasonably acceptable to the Grantor with respect to any interest in any
American Prospect acquired by the Grantee and/or its Subsidiaries, which
will grant to the Grantor a security interest in any Gross Revenues
generated by the Grantee and/or its Subsidiaries in such American Prospect.
The grant of the security interest shall not exceed the anticipated
aggregate Licence Fee payable to the Grantor with respect to such American
Prospects.
<PAGE>
8
5. TERM OF LICENCE
The term of the licence granted under this Agreement will correspond in all
respects, including provisions for extension and for early termination,
with the term of the Restated Technology Agreement.
6. REPRESENTATIONS AND WARRANTIES OF PARTIES
Each of the parties to this Agreement hereby represents and warrants to
each of the other parties of this Agreement, each of which is deemed to be
a separate representation and warranty, as follows:
(a) Organization, Power and Authority
Such party, if an entity, is duly organized, validly existing and
in good standing under the laws of its state, territory or
province of incorporation or organization, and has all requisite
corporate or other power and authority to enter into this
Agreement.
(b) Authorization and Validity of Agreement
The execution and delivery of this Agreement by such party, and
the performance by such party of the transactions herein
contemplated, have, if such party is an entity, been duly
authorized by its governing organizational documents, and are not
prohibited by its governing organization documents, and no
further corporate or other action on the part of such party is
necessary to authorize this Agreement, or the performance of such
transactions. This Agreement has been duly executed and delivered
by such party and, assuming due authorization, execution and
delivery by all of the other parties hereto, is valid and binding
upon such party in execution and delivery by all of the other
parties hereto, is valid and binding upon such party in
accordance with its terms, except as limited by:
(i) bankruptcy, insolvency, reorganization, moratorium or
other similar laws now or hereafter in effect relating to
creditor rights generally; and
(ii) general principles of equity (regardless of whether such
enforcement is considered in a proceeding in equity or at
law).
(c) No Breach or Conflict
<PAGE>
9
Neither the execution nor delivery of this Agreement, nor the
performance by such party of the transactions contemplated
herein:
(i) if such party is an entity, will breach or conflict with
any of the provisions of such party's governing
organizational documents; nor
(ii) to the best of such party's knowledge and belief, will
violate or constitute an event of default under any
agreement or other instrument to which such party is a
party.
7. INDEMNIFICATION; DEFENSE OF THIRD-PARTY CLAIMS
The provisions of paragraph 12 of the Restated Technology Agreement
entitled "Indemnification; Defense of Third-Party Claims" apply to this
Agreement.
8. MISCELLANEOUS
(a) Cooperation
Each party agrees, without further consideration, to cooperate and
diligently perform any further acts, deeds and things, and to execute
and deliver any documents that may be reasonably necessary or
otherwise reasonably required to consummate, evidence, confirm and/or
carry out the intent and provisions of this Agreement, all without
undue delay or expense.
(b) Interpretation
(i) Survival
All representations and warranties made by any party in
connection with any transaction contemplated by this
Agreement shall, irrespective of any investigation made by
or on behalf of any other party hereto, survive the
execution and delivery of this Agreement, and the
performance or consummation of any transaction described in
this Agreement.
(ii) Entire Agreement/No Collateral Representations
Each party expressly acknowledges and agrees that this
Agreement, and the agreements and documents referenced
herein;
(i) is the final, complete and exclusive statement of the
agreement
<PAGE>
10
of the parties with respect to the subject matter
hereof;
(ii) supersedes any prior or contemporaneous agreements,
memorandums, proposals, commitments, guaranties,
assurances, communications, discussions, promises,
representations, understandings, conduct, acts,
courses of dealing, warranties, interpretations or
terms of any kind, whether oral or written, and that
may such prior agreements are of no force or effect
except as expressly set forth herein; and
(iii) may not be varied, supplemented or contradicted by
evidence of prior agreements, or by evidence of
subsequent oral agreements.
No prior drafts of this Agreement, and no words or phrases
from any prior drafts, shall be admissible into evidence in
any action or suit involving this Agreement.
(iii) Amendment; Waiver; Forbearance
Except as expressly provided otherwise herein, neither this
Agreement nor any of the terms, provisions, obligations or
rights contained herein, may be amended, modified,
supplemented, augmented, rescinded, discharged or terminated
(other than by performance), except by a written instrument
or instruments signed by all of the parties to this
Agreement. No waiver of any breach of any term, provision or
agreement contained herein, or of the performance of any act
or obligation under this Agreement, or of any extension of
time for performance of any such act or obligation, or of
any right granted under this Agreement, shall be effective
and binding unless such waiver shall be in a written
instrument or instruments signed by each party claimed to
have given or consented to such waiver and each party
affected by such waiver. Except to the extent that the party
or parties claimed to have given or consented to a waiver
may have otherwise agreed in writing, no such waiver shall
be deemed a waiver or relinquishment of any other term,
provision, agreement, act, obligation or right granted under
this Agreement, or any preceding or subsequent breach
thereof. No forbearance by a party to seek a remedy for any
noncompliance or breach by another party hereto shall be
deemed to be a waiver by such forbearing party of its rights
and remedies with respect to such noncompliance or breach,
unless such waiver shall be in a written instrument or
instruments signed by the forbearing party.
(iv) Remedies Cumulative
<PAGE>
11
The remedies of each party under this Agreement are
cumulative and shall not exclude any other remedies to which
such party may be lawfully entitled.
(v) Severability
If any term or provision of this Agreement or the
application thereof to any person or circumstance shall, to
any extent, be determined to be invalid, illegal or
unenforceable under present or future laws, then, and in
that event:
(i) The performance of the offending term or provision (but
only to the extent its application is invalid, illegal
or unenforceable) shall be excused as if it had never
been incorporated into this Agreement, and in lieu of
such excused provision, there shall be added a
provision as similar in terms and amount to such
excused provisions as may be possible and be legal,
valid and enforceable; and
(ii) The remaining part of this Agreement (including the
application of the offending term or provision to
persons or circumstances other than those as to which
it is held invalid, illegal or unenforceable) shall not
be affected thereby, and shall continue in full force
and effect to the fullest extent provided by law.
(vi) Parties in Interest
Notwithstanding anything else to the contrary herein,
nothing in this Agreement shall confer any rights or
remedies under or by reason of this Agreement on any persons
other than the parties hereto and their respective
successors and assigns, if any, as may be permitted
hereunder, nor shall anything in this Agreement relieve or
discharge the obligation or liability of any third party to
any party to this Agreement, nor shall any provision give
any third person any right of subrogation or action over or
against any party to this Agreement. Notwithstanding the
prior sentence, the parties acknowledge that the
subsidiaries of the Grantee and the Grantor and their
respective successors and assigns are a third party
beneficiary of this Agreement.
(c) Enforcement
(i) Applicable Law
<PAGE>
12
This Agreement and the rights and remedies of each party
arising out of or relating to this Agreement (including,
without limitation, equitable remedies) shall (with the
exception of the applicable securities laws) be solely
governed by, interpreted under, and construed and enforced
in accordance with the laws (without regard to the
conflicts of law principles) of the State of Nevada, as if
this Agreement were made, and as if its obligations are to
be performed, wholly with in the State of Nevada.
(ii) Consent to Jurisdiction: Service Process
Any "action or proceeding" (as such term is defined below)
arising out of or relating to this Agreement shall be
filed in and heard and litigated solely before the state
courts of Nevada. Each party generally and unconditionally
accepts the exclusive jurisdiction of such courts and
venue therein; consents to the service of process in any
such action or proceeding by certified or registered
mailing of the summons and complaint in accordance with
the notice provisions of this Agreement; and waives any
defense or right to object to venue in said courts based
upon the doctrine of "forum non conveniens" the Term
"action or proceeding" is defined as any and all claims,
suits, actions, hearings, arbitrations or other similar
proceedings, including appeals and petitions therefrom,
whether formal or informal, governmental or non-
governmental, or civil or criminal.
(iii) Waiver of Rights to Jury Trial
Each party hereby waives such party's respective right to
a jury trial of any claim or cause of action based upon or
arising out of this Agreement. Each party acknowledges
that this waiver is a material inducement to each other
party hereto to enter into the transaction contemplated
hereby; that each other party has already relied upon this
waiver in entering into this Agreement; and that each
other party will continue to rely on this waiver in their
future dealings. Each party warrants and represents that
such party has reviewed this waiver with such party's
legal counsel, and that such party has knowingly and
voluntarily waived its jury trial rights following
consultation with such legal counsel.
(d) Assignment
Provided in this Agreement the Grantee may not sell, license,
transfer or assign (whether direct or indirect, merger,
consolidations, conversion, sale of assets, sale or exchange of
securities, or by operation of law, or otherwise) any of its rights
or interests or delegate its duties or obligations under this
Agreement, in whole or in
<PAGE>
13
part, including to any Subsidiary or any Affiliate, without the prior
written consent of the Grantee which consent may be withheld in such
other party's sole discretion.
(e) Counterparts; Electronically Transmitted Documents
This Agreement may be executed in counterparts, each of which shall
be deemed an original, and all of which together shall constitute one
and the same instrument, binding on all parties hereto. Any signature
page of its Agreement may be detached from any counterpart of this
Agreement and reattached to any other counterpart of this Agreement
identical in form hereto by having attached to it one or more
additional signature pages. If a copy or counterpart of this
Agreement is originally executed and such copy or counterpart is
thereafter transmitted electronically by facsimile or similar device,
such facsimiled document shall for all purposes be treated as if
manually signed by the party whose facsimile signature appears.
WHEREFORE, the parties hereto have, for purposes of this Agreement,
executed this Agreement in Vancouver, British Columbia, Canada, as of the date
first herinabove set forth.
THE GRANTOR PINNACLE OIL INTERNATIONAL INC.,
a Nevada corporation
By: /s/ R. Dirk Stinson
----------------------------
R. Dirk Stinson, President
THE GRANTEE PINNACLE OIL INC.
By: /s/ R. Dirk Stinson
-----------------------------
R. Dirk Stinson, President
<PAGE>
EXHIBIT 10.16
Cost Recovery Agreement
THIS AGREEMENT made as of April 1, 1997
BETWEEN:
PINNACLE OIL INTERNATIONAL INC.
a Nevada corporation whose principal executive
office is located at 380 - 1090 West Georgia Street
Vancouver, B.C., Canada, V6E 3V7
("Pinnacle International")
OF THE FIRST PART
AND:
PINNACLE OIL CANADA INC.
a Canadian federal corporation registered in
British Columbia as an extra-provincial
company whose principal executive office
is located at #380 - 1090 West Georgia Street,
Vancouver, B.C. V6E 3V7
("PinCan")
OF THE SECOND PART
AND:
PINNACLE OIL INC.
a Nevada corporation whose principal executive
office is located at 380 - 1090 West Georgia Street
Vancouver, B.C., Canada, V6E 3V7
("PinUS")
OF THE THIRD PART
WHEREAS:
A. PinCan and PinUS are both wholly owned subsidiaries of Pinnacle
International;
B. Pinnacle International has entered into technology licence
agreements (the "Licence Agreements") with each of PinCan and PinUS
<PAGE>
(together called the "Licencees"), pursuant to which the Licencees are
to use their best efforts to
<PAGE>
exploit Hydrocarbons (as defined in the Licence Agreements) in Canada
and the United States, using data obtained from Pinnacle
International;
C. In order to fulfil their obligations under the Licence Agreements,
the Licencees will need to use certain equipment now owned by Pinnacle
International, and which Pinnacle International has agreed to make
available to the Licencees;
D. At the same time, the parties have agreed that PinCan will supply
certain management services to both Pinnacle International and PinUS,
using qualified personnel employed by PinCan for this purpose;
E. Both Licence Agreements provide for a licence fee to be paid to
Pinnacle International based on a percentage of gross revenue from the
commercial exploitation of Hydrocarbons, without any provisions for
adjustments to take into account the use of Pinnacle International's
equipment by the Licencees, and the supply of management services to
Pinnacle International and PinUS by PinCan; and
F. The parties desire to enter into this Agreement to set out the
basis for appropriate cost recovery by each party from the others in
respect of the leasing of equipment and the supply of management
services by PinCan.
NOW THIS AGREEMENT WITNESSES that in consideration of the premises the parties
covenant and agree as follows:
1. DEFINITIONS
In this Agreement:
(a) "Data Acquisition Technology", means all technology owned by
Pinnacle International which is required by the Licencees to enable
them to fulfil their obligations under the Licence Agreements and
under all agreements with third parties, including, without
limitation, computer hardware and supporting software and
communications technology;
(b) "Equipment" means all other equipment owned or leased by Pinnacle
International which Pinnacle International has agreed to make
available to the Licencees on a cost recovery basis, including motor
vehicles, airplanes and other modes of transportation, and ancillary
supplies;
<PAGE>
(c) "Management Services" means services supplied to Pinnacle
International and PinUS by PinCan personnel relating to
administration, finance, accounting, securities compliance, public
relations and negotiations with third parties on behalf of Pinnacle
International and PinUS.
2. AVAILABILITY OF DATA ACQUISITION TECHNOLOGY
During the currency of the Licence Agreement, Pinnacle International will
make its Data Acquisition Technology available to the Licencees for
sufficient periods to enable them to fulfil their obligations under the
technology agreements and their obligations under all third party
agreements.
3. EQUIPMENT LEASE PAYMENTS TO PINNACLE INTERNATIONAL
During the currency of the Licence Agreements, Pinnacle International will
make its Equipment available to the Licencees for sufficient periods to
assist them to fulfil their obligations under the technology agreements and
their obligations under all third party agreements, for lease payments to
be determined by the parties from time to time, based on the per diem use
of the Equipment by the Licencees, with the intent that Pinnacle
International will recover all of its own actual cost of the Equipment,
plus a reasonable competitive market return on capital.
4. MANAGEMENT FEES TO PINCAN
During the currency of the Licence Agreements, PinCan will supply
Management Services to Pinnacle International in connection with the world-
wide activities of Pinnacle International and to PinUS in connection with
its activities in the United States, for an annual fee equal to the actual
employment costs of all personnel engaged by PinCan to supply such
Management Services, (including all reasonable expenses incurred by such
personnel in the course of their employment) plus an annual fee of U.S.
$20,000.
5. PAYMENT
Each of the parties will account to the others, on a quarterly basis, for
the amounts due to the others for Equipment lease payments and for fees for
Management Services, and adjustment amounts will be paid from one party to
the others, annually, so as to result in
<PAGE>
the full recovery by all three parties of all the payments and fees
contemplated by this Agreement.
6. MISCELLANEOUS
(a) Cooperation
Each party agrees, without further consideration, to cooperate and
diligently perform any further acts, deeds and things, and to execute
and deliver any documents that may be reasonably necessary or
otherwise reasonably required to consummate, evidence, confirm and/or
carry out the intent and provisions of this Agreement, all without
undue delay or expense.
(b) Interpretation
(i) Survival
All representations and warranties made by any party in
connection with any transaction contemplated by this
Agreement shall, irrespective of any investigation made by
or on behalf of any other party hereto, survive the
execution and delivery of this Agreement, and the
performance or consummation of any transaction described in
this Agreement.
(ii) Entire Agreement/No Collateral
Representations
Each party expressly acknowledges and agrees that this
Agreement, and the agreements and documents referenced
herein;
(i) is the final, complete and exclusive statement of the
agreement of the parties with respect to the subject
matter hereof;
(ii) supersedes any prior or contemporaneous agreements,
memorandums, proposals, commitments, guarantees,
assurances, communications, discussions, promises,
representations, understandings, conduct, acts,
courses of dealing, warranties, interpretations or
terms of any kind, whether oral or written, and that
may such prior agreements are of no force or effect
except as expressly set forth herein; and
(iii) may not be varied, supplemented or contradicted by
evidence of prior agreements, or by evidence of
subsequent oral agreements.
<PAGE>
No prior drafts of this Agreement, and no words or phrases
from any prior drafts, shall be admissible into evidence in
any action or suit involving this Agreement.
(iii) Amendment; Waiver; Forbearance
Except as expressly provided otherwise herein, neither this
Agreement nor any of the terms, provisions, obligations or
rights contained herein, may be amended, modified,
supplemented, augmented, rescinded, discharged or terminated
(other than by performance), except by a written instrument
or instruments signed by all of the parties to this
Agreement. No waiver of any breach of any term, provision or
agreement contained herein, or of the performance of any act
or obligation under this Agreement, or of any extension of
time for performance of any such act or obligation, or of
any right granted under this Agreement, shall be effective
and binding unless such waiver shall be in a written
instrument or instruments signed by each party claimed to
have given or consented to such waiver and each party
affected by such waiver. Except to the extent that the party
or parties claimed to have given or consented to a waiver
may have otherwise agreed in writing, no such waiver shall
be deemed a waiver or relinquishment of any other term,
provision, agreement, act, obligation or right granted under
this Agreement, or any preceding or subsequent breach
thereof. No forbearance by a party to seek a remedy for any
noncompliance or breach by another party hereto shall be
deemed to be a waiver by such forbearing party of its rights
and remedies with respect to such noncompliance or breach,
unless such waiver shall be in a written instrument or
instruments signed by the forbearing party.
(iv) Remedies Cumulative
The remedies of each party under this Agreement are
cumulative and shall not exclude any other remedies to which
such party may be lawfully entitled.
<PAGE>
(v) Severability
If any term or provision of this Agreement or the
application thereof to any person or circumstance shall, to
any extent, be determined to be invalid, illegal or
unenforceable under present or future laws, then, and in
that event:
(i) The performance of the
offending term or provision (but only to the extent
its application is invalid, illegal or unenforceable)
shall be excused as if it had never been incorporated
into this Agreement, and in lieu of such excused
provision, there shall be added a provision as
similar in terms and amount to such excused
provisions as may be possible and be legal, valid and
enforceable; and
(ii) The remaining part of this Agreement (including the
application of the offending term or provision to
persons or circumstances other than those as to which
it is held invalid, illegal or unenforceable) shall
not be affected thereby, and shall continue in full
force and effect to the fullest extent provided by
law.
(vi) Parties in Interest
Notwithstanding anything else to the contrary herein,
nothing in this Agreement shall confer any rights or
remedies under or by reason of this Agreement on any persons
other than the parties hereto and their respective
successors and assigns, if any, as may be permitted
hereunder, nor shall anything in this Agreement relieve or
discharge the obligation or liability of any third party to
any party to this Agreement, nor shall any provision give
any third person any right of subrogation or action over or
against any party to this Agreement. Notwithstanding the
prior sentence, the parties acknowledge that the
subsidiaries of the Grantee and the Grantor and their
respective successors and assigns are a third party
beneficiary of this Agreement.
(c) Enforcement
(i) Applicable Law
This Agreement and the rights and remedies of each party
arising out of or relating to this Agreement (including,
without limitation, equitable remedies) shall (with the
exception of the applicable securities laws) be solely
governed by, interpreted under, and construed and enforced
in accordance with the laws (without regard to the conflicts
of law principles) of the State of Nevada, as if this
Agreement were made, and as if its obligations are to be
performed, wholly with in the State of Nevada.
<PAGE>
(ii) Consent to Jurisdiction: Service Process
Any "action or proceeding" (as such term is defined below)
arising out of or relating to this Agreement shall be filed
in and heard and litigated solely before the state courts of
Nevada. Each party generally and unconditionally accepts the
exclusive jurisdiction of such courts and venue therein;
consents to the service of process in any such action or
proceeding by certified or registered mailing of the summons
and complaint in accordance with the notice provisions of
this Agreement; and waives any defense or right to object to
venue in said courts based upon the doctrine of "forum non
conveniens" the Term "action or proceeding" is defined as
any and all claims, suits, actions, hearings, arbitrations
or other similar proceedings, including appeals and
petitions therefrom, whether formal or informal,
governmental or non-governmental, or civil or criminal.
(iii) Waiver of Rights to Jury Trial
Each party hereby waives such party's respective right to a
jury trial of any claim or cause of action based upon or
arising out of this Agreement. Each party acknowledges that
this waiver is a material inducement to each other party
hereto to enter into the transaction contemplated hereby;
that each other party has already relied upon this waiver in
entering into this Agreement; and that each other party will
continue to rely on this waiver in their future dealings.
Each party warrants and represents that such party has
reviewed this waiver with such party's legal counsel, and
that such party has knowingly and voluntarily waived its
jury trial rights following consultation with such legal
counsel.
(d) Assignment
Provided in this Agreement the Grantee may not sell, license, transfer
or assign (whether direct or indirect, merger, consolidations,
conversion, sale of assets, sale or exchange of securities, or by
operation of law, or otherwise) any of its rights or interests or
delegate its duties or obligations under this Agreement, in whole or
in part, including to any Subsidiary or any Affiliate, without the
prior written consent of the Grantee which consent may be withheld in
such other party's sole discretion.
(e) Counterparts; Electronically Transmitted Documents
This Agreement may be executed in counterparts, each of which shall be
deemed an original, and all of which together shall constitute one and
the same instrument, binding on all parties hereto. Any signature page
of its Agreement may be detached from any counterpart of this
Agreement and reattached to any other counterpart of this Agreement
identical in form hereto by having attached to it one or more
additional signature pages. If a copy or counterpart of this
<PAGE>
Agreement is originally executed and such copy or counterpart is
thereafter transmitted electronically by facsimile or similar device,
such facsimiled document shall for all purposes be treated as if
manually signed by the party whose facsimile signature appears.
WHEREFORE, the parties hereto have, for purposes of this Agreement,
executed this Agreement in Vancouver, British Columbia, Canada, as of the date
first herinabove set forth.
PINNACLE OIL INTERNATIONAL INC.,
a Nevada corporation
By: /s/ R. Dirk Stinson
--------------------------
R. Dirk Stinson, President
PINNACLE OIL CANADA INC.
By: /s/ R. Dirk Stinson
--------------------------
R. Dirk Stinson, President
PINNACLE OIL INC.
By: /s/ R. Dirk Stinson
--------------------------
R. Dirk Stinson, President
<PAGE>
EXHIBIT 10.17
-1-
ASSIGNMENT AGREEMENT
THIS AGREEMENT made effective as of the 15th day of September, 1997,
BETWEEN:
PINNACLE OIL INTERNATIONAL, INC., (hereinafter referred to as
"Assignor")
- and -
PINNACLE OIL CANADA INC., (hereinafter referred to as "Assignee")
WHEREAS the Assignor, Assignee and the third party listed in Schedule "A"
(the "Third Party") are parties to the joint venture agreement as described in
Schedule "A" (the "Joint Venture Agreement");
AND WHEREAS the Assignor wishes to assign to the Assignee all of the
Assignor's right, title, interest and estate in and to the Joint Venture
Agreement pertaining to operations in Canada;
NOW THEREFORE in consideration of the mutual covenants and agreements
herein set forth, the parties hereto mutually covenant and agree as follows:
1. The Assignor hereby assigns, transfers, sets over and conveys to the
Assignee, effective as of the 15th day of September, 1997, (the "Effective
Date"), all of its right, title, interest and estate in and to the Joint Venture
Agreement pertaining to operations in Canada (the "Assigned Interest"), TO HAVE
AND TO HOLD the same unto the Assignee for the Assignee's sole use and benefit
absolutely from and after the Effective Date.
2. The Assignee hereby accepts the within assignment and covenants and agrees
with the Assignor that it shall be bound by, observe and perform the covenants,
duties and obligations contained in the Joint Venture Agreement and to be
observed and performed by the Assignor, to the extent that such covenants,
duties and obligations relate to the Assigned
<PAGE>
-2-
Interest and to a period, or arise, as the case may be, on or after the
Effective Date, it being the intent and purpose that the Assignee shall to the
extent of the Assigned Interest be a party thereto in the place and stead of the
Assignor from and after the Effective Date.
3. Notwithstanding the assignment of the Assigned Interest to the Assignee,
the Third Party need only look to the Assignor for performance of the duties and
obligations of the Assignee pursuant to the Joint Venture Agreement.
4. Nothing herein contained shall be construed as a release of the Assignor
from any obligation or liability under the Joint Venture Agreement.
5. This Agreement shall enure to the benefit of and be binding upon the
parties hereto and their respective successors and assigns.
IN WITNESS WHEREOF the parties hereto have executed and delivered this
Agreement as of the day and year first above written.
PINNACLE OIL INTERNATIONAL, INC.
By: /s/ R. Dirk Stinson
-----------------------------
Its: _____________________________
PINNACLE OIL CANADA INC.
By: /s/ R. Dirk Stinson
------------------------------
Its: ______________________________
<PAGE>
SCHEDULE "A"
THIRD PARTY
Encal Energy Ltd.
JOINT VENTURE AGREEMENT
Exploration Joint Venture Agreement dated September 15, 1997 between Encal
Energy Ltd., Pinnacle Oil International Inc., Pinnacle Oil Inc., George
Liszicasz, Dirk R. Stinson, Pinnacle Oil Canada Ltd. and Momentum Resources Ltd.
<PAGE>
EXHIBIT 10.18
-1-
ASSIGNMENT AGREEMENT
--------------------
THIS AGREEMENT made effective as of the 1st day of April, 1997,
BETWEEN:
PINNACLE OIL INTERNATIONAL, INC., (hereinafter referred to as
"Assignor")
- and -
PINNACLE OIL CANADA INC., (hereinafter referred to as "Assignee")
WHEREAS the Assignor, Assignee and the third party listed in Schedule "A"
(the "Third Party") are parties to the joint venture agreement as described in
Schedule "A" (the "Joint Venture Agreement");
AND WHEREAS the Assignor wishes to assign to the Assignee all of the
Assignor's right, title, interest and estate in and to the Joint Venture
Agreement pertaining to operations in Canada;
NOW THEREFORE in consideration of the mutual covenants and agreements
herein set forth, the parties hereto mutually covenant and agree as follows:
1. The Assignor hereby assigns, transfers, sets over and conveys to the
Assignee, effective as of the 1st day of April, 1997, (the "Effective Date"),
all of its right, title, interest and estate in and to the Joint Venture
Agreement pertaining to operations in Canada (the "Assigned Interest"), TO HAVE
AND TO HOLD the same unto the Assignee for the Assignee's sole use and benefit
absolutely from and after the Effective Date.
2. The Assignee hereby accepts the within assignment and covenants and agrees
with the Assignor that it shall be bound by, observe and perform the covenants,
duties and obligations contained in the Joint Venture Agreement and to be
observed and performed by the Assignor, to the extent that such covenants,
duties and obligations relate to the Assigned
<PAGE>
-2-
Interest and to a period, or arise, as the case may be, on or after the
Effective Date, it being the intent and purpose that the Assignee shall to the
extent of the Assigned Interest be a party thereto in the place and stead of the
Assignor from and after the Effective Date.
3. Notwithstanding the assignment of the Assigned Interest to the Assignee,
the Third Party need only look to the Assignor for performance of the duties and
obligations of the Assignee pursuant to the Joint Venture Agreement.
4. Nothing herein contained shall be construed as a release of the Assignor
from any obligation or liability under the Joint Venture Agreement.
5. This Agreement shall enure to the benefit of and be binding upon the
parties hereto and their respective successors and assigns.
IN WITNESS WHEREOF the parties hereto have executed and delivered this
Agreement as of the day and year first above written.
PINNACLE OIL INTERNATIONAL, INC.
By: /s/ R. Dirk Stinson
_____________________________
Its: _____________________________
PINNACLE OIL CANADA INC.
By: /s/ R. Dirk Stinson
_____________________________
Its: _____________________________
<PAGE>
SCHEDULE "A"
THIRD PARTY
-----------
Encal Energy Ltd.
JOINT VENTURE AGREEMENT
-----------------------
Exploration Joint Venture Agreement dated February 19, 1997 between Encal Energy
Ltd., Pinnacle Oil International Inc., Pinnacle Oil Inc., George Liszicasz, Dirk
R. Stinson, Pinnacle Oil Canada Ltd. and Momentum Resources Ltd.
<PAGE>
EXHIBIT 10.19
-1-
ASSIGNMENT AGREEMENT
--------------------
THIS AGREEMENT made effective as of the 1st day of November, 1997,
BETWEEN:
PINNACLE OIL INTERNATIONAL, INC., (hereinafter referred to
as "Assignor")
- and -
PINNACLE OIL CANADA INC., (hereinafter referred to as
"Assignee")
WHEREAS the Assignor, Assignee and the third party listed in Schedule "A"
(the "Third Party") are parties to the joint venture agreement as described in
Schedule "A" (the "Joint Venture Agreement");
AND WHEREAS the Assignor wishes to assign to the Assignee all of the
Assignor's right, title, interest and estate in and to the Joint Venture
Agreement pertaining to operations in Canada;
NOW THEREFORE in consideration of the mutual covenants and agreements
herein set forth, the parties hereto mutually covenant and agree as follows:
1. The Assignor hereby assigns, transfers, sets over and conveys to the
Assignee, effective as of the 1st day of November, 1997, (the "Effective Date"),
all of its right, title, interest and estate in and to the Joint Venture
Agreement pertaining to operations in Canada (the "Assigned Interest"), TO HAVE
AND TO HOLD the same unto the Assignee for the Assignee's sole use and benefit
absolutely from and after the Effective Date.
2. The Assignee hereby accepts the within assignment and covenants and agrees
with the Assignor that it shall be bound by, observe and perform the covenants,
duties and obligations contained in the Joint Venture Agreement and to be
observed and performed by the Assignor, to the extent that such covenants,
duties and obligations relate to the Assigned
<PAGE>
-2-
Interest and to a period, or arise, as the case may be, on or after the
Effective Date, it being the intent and purpose that the Assignee shall to the
extent of the Assigned Interest be a party thereto in the place and stead of the
Assignor from and after the Effective Date.
3. Notwithstanding the assignment of the Assigned Interest to the Assignee,
the Third Party need only look to the Assignor for performance of the duties and
obligations of the Assignee pursuant to the Joint Venture Agreement.
4. Nothing herein contained shall be construed as a release of the Assignor
from any obligation or liability under the Joint Venture Agreement.
5. This Agreement shall enure to the benefit of and be binding upon the
parties hereto and their respective successors and assigns.
IN WITNESS WHEREOF the parties hereto have executed and delivered
this Agreement as of the day and year first above written.
PINNACLE OIL INTERNATIONAL, INC.
By: /s/ R. Dirk Stinson
-----------------------------
Its: _____________________________
PINNACLE OIL CANADA INC.
By: /s/ R. Dirk Stinson
-----------------------------
Its: _____________________________
<PAGE>
SCHEDULE "A"
THIRD PARTY
-----------
Renaissance Energy Ltd.
JOINT VENTURE AGREEMENT
-----------------------
SFD Survey Agreement dated November 1, 1997 between Pinnacle Oil International,
Inc. and Renaissance Energy Ltd.
<PAGE>
EXHIBIT 10.20
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement"), dated as of April 1, 1997, is
entered into by and between PINNACLE OIL INTERNATIONAL, INC., a Nevada
corporation (the "Company"), whose principal executive office is located at 380-
1090 West Georgia Street, Vancouver, British Columbia, Canada, V6E 3V7; and R.
DIRK STINSON (the "Executive"), an individual whose principal office is located
at 380-1090 West Georgia Street, Vancouver, British Columbia, Canada, V6E 3V7,
with reference to the following facts:
RECITALS:
--------
WHEREAS, the Executive is the President of the Company, as well as a
director and a stockholder of the Company;
WHEREAS, the Company is the parent of two wholly owned subsidiaries,
namely, Pinnacle Oil, Inc., a Nevada corporation and Pinnacle Oil Canada, Inc.,
a federal Canadian corporation, and the Company (and/or its subsidiaries)
participate as a partner(s) in one or more joint ventures;
WHEREAS, the Company desires to continue to employ the Executive as the
President of the Company, and as an officer of the Company's subsidiaries, in
order to avail itself of the skill, knowledge and experience of the Executive
and to assure the successful management of the Company (and its subsidiaries),
and the Executive desires to continue his employment as the President of the
Company, and as an officer of the Company's subsidiaries;
WHEREAS, the Company (and its subsidiaries) and the Executive desire to
enter into a written employment agreement formally documenting their
relationship and setting forth the duties and responsibilities the Executive has
agreed to undertake as the President of the Company, and as an officer of the
Company's subsidiaries;
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein, and for valuable consideration, the receipt and sufficiency of
which are hereby mutually acknowledged, the parties to this Agreement
(collectively "parties" and individually a "party") agree as follows:
AGREEMENT:
---------
1. DEFINITIONS
Set forth below are definitions of capitalized terms which are
generally used throughout this Agreement, or references to sections containing
those definitions (capitalized terms used only in a specific section of this
Agreement are defined in that section):
(A) "ADVANCE" is defined in section 10.
----------
(B) "AFFILIATE" means any "Person" (as defined below) controlling,
controlled by, or under common control with a party.
(C) "AGREEMENT" means this Agreement, as originally executed and as
amended, modified, supplemented and/or restated from time to time.
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(D) "ANNUAL BONUS" is defined in section 4(b).
------------
(E) "AUTOMOBILE ALLOWANCE" is defined in section 5(a).
------------
(F) "BOARD" means the Board of Directors of the Company, as such body
may be reconstituted from time to time.
(G) "CELL PHONE ALLOWANCE" is defined in section 5(b).
------------
(H) "CHANGE IN CONTROL" shall mean, subject to subparagraphs (iv) and
(v) below, the occurrence of any of the following events:
(i) An acquisition of control by an "Acquiring Person" where,
immediately after the subject acquisition, such "Person" holds "Beneficial
Ownership" of more than fifty percent (50%) of the "Total Combined Voting Power"
of the Company's then outstanding "Voting Securities". The terms in quotations
in the immediately preceding sentence shall, for purposes of this Agreement,
have the following meanings:
(A) "Acquiring Person" shall mean any "Person" which
acquires the defined percentage of securities, with the exception of:
(A) any Employee Benefit Plan (or a trust forming a part thereof)
maintained by the Company, or any corporation or entity in which the
Company holds fifty percent (50%) or more of the "Voting Securities"
(each, a "Controlled Subsidiary"); (B) the Company or any Controlled
Subsidiary; or (C) any "Person" which acquires the threshold
percentage of "Voting Securities" through a "Non-Control Transaction"
(as defined below).
(B) "Non-Control Transaction" shall mean any transaction in
which the stockholders of the Company immediately before such
transaction, directly or indirectly own immediately following such
transaction at least a majority of the "Total Combined Voting Power"
of the outstanding "Voting Securities" of the surviving corporation
(or other entity) resulting from such transaction, in substantially
the same proportion as such stockholders' ownership of the Company's
"Voting Securities" immediately before such transaction.
(C) "Person," "Beneficial Ownership," "Total Combined Voting
Power" and "Voting Securities" shall have the meanings ascribed to
such terms in Sections 13(d) and 14(d) of the Securities Exchange Act
and Rule 13d-3 promulgated thereunder; or
(ii) During any period of three (3) consecutive years after the
date of this Agreement, the individuals who constituted the Board at the
beginning of such period (the "Incumbent Board") cease to constitute a majority
of the Board, for any reason(s) other than (A) the voluntary resignation of one
or more Board members; (B) the refusal by one or more Board members to stand for
election to the Board; and/or (C) the removal of one or more Board members for
good cause; provided, however, (1) that if the nomination or election of any new
director of the Company was approved by a vote of at least a majority of the
Incumbent Board, such new director shall be deemed a member of the Incumbent
Board; and (2) that no individual shall be considered a member of the Incumbent
Board if such individual initially assumed office as a result of either an
actual or threatened "Election Contest" (as described in Rule 14a-11 promulgated
under the Securities Exchange Act of 1934), or as a result of a solicitation of
proxies or consents by or on behalf of an Acquiring Person, other than a member
of the Board (a "Proxy Contest"), or as a result of any agreement intended to
avoid or settle any Election Contest or Proxy Contest; or
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<PAGE>
(iii) The Board or the stockholders of the Company approve:
(A) A merger or consolidation or reorganization of the
Company reorganization with:
(1) any Controlled Subsidiary, and such transaction is
not a Non-Control Transaction; or
(2) any other corporation or other entity, and such
transaction is not a Non-Control Transaction; or
(B) A complete liquidation or dissolution of the Company,
and such transaction is not a Non-Control Transaction; or
(C) An agreement for the sale or other disposition of all
or substantially all of the assets of the Company to (1) any
Controlled Subsidiary, and such transaction is not a Non-Control
Transaction, or (2) to any other Person, and such transaction is not a
Non-Control Transaction.
(iv) Notwithstanding clauses (i) through (iii) above, a Change
-------------------------
In Control shall not be deemed to have occurred solely because any Person
acquired Beneficial Ownership of more than the threshold percentage of the
outstanding Voting Securities as a result of an acquisition of Voting Securities
by the Company (each, a "Redemption") which, by reducing the number of Voting
Securities outstanding, increased the percentage of outstanding Voting
Securities Beneficially Owned by such Person; provided, however, that if (A) a
Change In Control would occur as a result of a Redemption but for the operation
of this sentence, and (B) after such Redemption, such Person becomes the
Beneficial Owner of any additional Voting Securities, which increase the
percentage of the then outstanding Voting Securities Beneficially Owned by such
Person over the percentage owned as a result of the Redemption, then a Change In
Control be deemed to occur.
(v) Notwithstanding any other provision of this subsection (h),
if the Executive or an Affiliate of the Executive who is then a stockholder or
director of the Company, either: (i) expressly voted in favor of the transaction
constituting the Change In Control in such Person's capacity as either a
stockholder or as a director of the Company; or (ii) expressly abstained from
voting (other than by reason of an "interest" in a matter or transaction, as
defined in the Nevada Revised Statutes); and/or (iii) failed or refused to vote,
then the transaction shall not constitute a Change in Control.
(I) "COMPANY" means Pinnacle Oil International, Inc., a Nevada
Corporation, and any successor and assign of the Company, as more particularly
described in section 17(e).
-------------
(J) "DISABILITY" (or the related term "Disabled") means any of the
following: (i) the receipt of any disability insurance benefits by the
Executive; (ii) a declaration by a court of competent jurisdiction that the
Executive is legally incompetent; (iii) the Executive's material inability due
to medically documented mental or physical illness or disability to fully
perform the Executive's regular obligations of his office and as an employee of
the Company (and/or its Subsidiaries) (with reasonable accommodations for such
disability, if then required by applicable federal or state laws or
regulations), for a six (6) month continuous period, or for nine (9) cumulative
months within any one (1) year continuous period; or (iv) the reasonable
determination by the Board that the Executive will not be able to fully perform
the Executive's regular obligations of his office and as an employee of the
Company (and/or its Subsidiaries) (with reasonable accommodations if then
required by applicable federal or state laws or regulations) for a six (6) month
3
<PAGE>
continuous period. If the Board determines that the Executive is Disabled under
clause (iv) above, and the Executive disagrees with the conclusion of the Board,
- -----------
then the Company (and/or its Subsidiaries) shall engage a qualified independent
physician reasonably acceptable to the Executive to examine the Executive at the
Company's (and/or its Subsidiaries') sole expense. The determination of such
physician shall be provided in writing to the parties and shall be final and
binding upon the parties for all purposes of this Agreement. The Executive
hereby consents to examination in the manner set forth above, and waives any
physician-patient privilege arising from any such examination as it relates to
the determination of the purported disability. If the parties cannot agree upon
a physician, a physician shall be appointed by the American Arbitration
Association located in Clark County, Nevada, according to the rules and
practices of the American Arbitration Association from time-to-time in force.
(K) "EMPLOYEE BENEFIT PLAN" is defined in section 4(d).
------------
(L) "EMPLOYEE DEDUCTIONS" are defined in section 7.
---------
(M) "MONTHLY SALARY" is defined in section 4(a).
------------
(N) "MOMENTUM" means Momentum Resources Corporation, a Bahamas
corporation, and its successors and assigns including, without limitation, any
successor (whether direct or indirect, or by means of merger, consolidation,
conversion, purchase of assets, purchase of securities, or otherwise) to all or
substantially all of such corporation's business or assets, or both.
(O) "PERFORMANCE BONUS" is defined in section 4(c).
------------
(P) "PERSON" (other than for purposes of determining a Change in
Control) means an individual or natural person, a corporation, partnership
(limited or general), joint-venture, association, business trust, limited
liability company/partnership, business trust, trust (whether revocable or
irrevocable), pension or profit sharing plan, individual retirement account, or
fiduciary or custodial arrangement.
(Q) "PERSONAL TIME-OFF" is defined in section 8.
---------
(R) "SUBSIDIARY" shall mean any corporation, partnership (limited or
general), joint-venture, association, business trust, limited liability
company/partnership, business trust or trust in which the Company holds a
controlling interest, including but not limited to Pinnacle Oil, Inc., a Nevada
corporation ("Pinnacle Oil"), and Pinnacle Oil Canada, Inc., a British Columbia
corporation ("Pinnacle Canada").
(S) "RELOCATION ALLOWANCE" is defined in section 5(c).
------------
(T) "TAX WITHHOLDINGS" is defined in section 7.
---------
(U) "TERMINATION BY COMPANY FOR CAUSE" means a termination of the
Executive caused by a determination of two-thirds of the Board, excluding the
Executive if then a member of the Board, that one of the following events has
occurred:
(i) Any of the Executive's representations or warranties in this
Agreement is not materially true, accurate and/or complete;
(ii) The Executive has intentionally and continually breached or
wrongfully failed and/or refused to fulfill and/or perform (A) any of the
Executive's obligations, promises or covenants under this Agreement, or (B) any
of the warranties, obligations, promises or covenants in any agreement (other
than this
4
<PAGE>
Agreement) entered into between the Company (and/or its Subsidiaries) and the
Executive, without cure, if any, as provided in such agreement;
(iii) The Executive has intentionally failed and/or refused to
obey any lawful and proper order or directive of the Board, and/or the Executive
has intentionally interfered with the compliance by other employees of the
Company (and/or its Subsidiaries) with any such orders or directives;
(iv) The Executive has intentionally breached the Executive's
fiduciary duties to the Company (and/or its Subsidiaries);
(v) The Executive has intentionally caused the Company (and/or
its Subsidiaries) to be convicted of a crime, or to incur criminal penalties in
material amounts;
(vi) The Executive has committed: (A) any act of fraud,
misrepresentation, theft, embezzlement or misappropriation, and/or any other
dishonest act against the Company (and/or its Subsidiaries) and/or any of its
Affiliates, subsidiaries, joint ventures; or (B) any other offense involving
moral turpitude, which offense is followed by conviction or by final action of
any court of law; or (C) a felony;
(vii) The Executive repeatedly and intemperately used alcohol or
drugs, to the extent that such use (A) interfered with or is likely to interfere
with the Executive's ability to perform the Executive's duties, and/or (B)
endangered or is likely to endanger the life, health, safety, or property of the
Executive, the Company (and/or its Subsidiaries), or any other person;
(viii) The Executive has intentionally demonstrated or committed
such acts of racism, sexism or other discrimination as would tend to bring the
Company (and/or its Subsidiaries) into public scandal or ridicule, or could
otherwise result in material and substantial harm to the Company's (and/or its
Subsidiaries')'s business, reputation, operations, affairs or financial
position; and/or
(ix) The Executive engaged in other conduct constituting legal
cause for termination.
No act, nor failure to act, on the Executive's part shall be
considered "intentional" unless the Executive has acted, or failed to act, with
a lack of good faith and with a lack of reasonable belief that the Executive's
action or failure to act was in the best interests of the Company (and/or its
Subsidiaries). In the event the Executive is both Disabled and the provisions of
clause (vii) of this subsection are applicable, the Company shall nevertheless
- ------------
have the right to deem such event as a Termination By Company For Cause.
If any event described above in clause (ii) or clause (viii) of
----------- -------------
this subparagraph occurs, and such event is reasonably susceptible of being
cured, then the Executive shall be entitled to a grace period of thirty (30)
days following receipt of written notice of such event. If the Company
determines, in its sole discretion, that such event is not reasonably
susceptible of being cured within a period of thirty (30) days), the Company may
grant a longer cure period to the Executive to cure such event to the reasonable
satisfaction of the Company, provided the Executive promptly commences and
diligently pursues such cure. The noted grace periods shall not apply to any
other event described in this subsection.
(v) "TERMINATION BY EXECUTIVE FOR GOOD REASON" means the Executive's
termination of this Agreement based on his reasonable determination that one of
the following events has occurred:
(i) Any of the Company's representations or warranties in this
Agreement is not materially true, accurate and/or complete;
5
<PAGE>
(ii) The Company intentionally and continually breached or
wrongfully failed to fulfill or perform (A) its obligations, promises or
covenants under this Agreement; or (B) any warranties, obligations, promises or
covenants of the Company (and/or its Subsidiaries) in any agreement (other than
this Agreement) entered into between the Company (and/or its Subsidiaries) and
the Executive, without cure, if any, as provided in such agreement;
(iii) The Company terminated this Agreement and the Executive's
employment hereunder, and such termination does not constitute Termination By
Company For Cause;
(iv) Without the consent of the Executive, the Company: (A)
substantially altered or materially diminished the position, nature, status,
prestige or responsibilities of the Executive from those in effect by mutual
agreement of the parties from time-to-time; (B) assigned additional duties or
responsibilities to the Executive which were wholly and clearly inconsistent
with the position, nature, status, prestige or responsibilities of the Executive
then in effect; or (C) removed or failed to reappoint or re-elect the Executive
to the Executive's offices under this Agreement (as they may be changed or
augmented from time-to-time with the consent of the Executive), or as a director
of the Company, except in connection with the Disability of the Executive;
(v) Without the consent of the Executive, the Company
relocated the Company's principal operating offices from their present location,
and as a result increased the Executive's ordinary commute from the Executive's
temporary residence by more than thirty-five (35) miles;
(vi) Without the consent ratification (express or implied) of
the Executive, the Executive was removed from the Board without his consent; or
the Company failed to nominate or reappoint the Executive to the Board (unless
the Executive is deceased or Disabled, or such removal or failure is
attributable to an event which would constitute Termination By Company For
Cause), or if the Executive was so nominated, the stockholders of the Company
failed to re-elect the Executive to the Board;
(vii) The Company (and/or its Subsidiaries) intentionally
required the Executive to commit or participate in any felony or other serious
crime; and/or
(viii) The Company (and/or its Subsidiaries) engaged in other
conduct constituting legal cause for termination.
In the event any of the events described above in this
subparagraph occurs, and such event is reasonably susceptible of being cured,
- ------------
the Company shall be entitled to a grace period of thirty (30) days following
receipt of written notice of such event. If the Company determines, in its sole
discretion, that such event is not reasonably susceptible of being cured within
a period of thirty (30) days, the Company may grant a longer cure period to the
Executive to cure such event to the reasonable satisfaction of the Company,
provided the Executive promptly commences and diligently pursues such cure. The
noted grace periods shall not apply to any other event described in this
subparagraph.
- ------------
2. EMPLOYMENT OBLIGATIONS
(A) ENGAGEMENT; DUTIES. The Company hereby engages the Executive as
------------------
its President, and as an officer of its Subsidiaries, and the Executive accepts
such engagement, upon the terms and conditions set forth below. As President of
the Company, and as an officer of the Subsidiaries, the Executive shall do and
perform all services, acts, or things necessary or advisable that a President of
the Company and an executive officer of the Subsidiaries would customarily be
empowered and authorized to do, and perform by law and under
6
<PAGE>
the Company's (and/or its Subsidiaries') Bylaws, including without limitation:
(i) Managing, conducting and supervising the day-to-day
business of the Company (and/or its Subsidiaries) such as, by way of example and
not limitation, hiring and firing employees and consultants and establishing
compensation levels for such employees and consultants; and negotiating and
entering into contracts on behalf of the Company (and/or its Subsidiaries) with
respect to the ordinary operations of the business of the Company (and/or its
Subsidiaries) such as, by way of example and not limitation, exploration,
equipment, purchase and lease contracts;
(ii) On behalf of the Company (and/or its Subsidiaries),
negotiating and entering into agreements, contracts and/or joint ventures with
third parties relating to the provision of SFD Data;
(iii) Acting as the Company's liaison with its attorneys,
certified public accountants, bankers, joint venture partners, market makers for
the Company's securities and the investment community; and
(iv) Developing and implementing long-term strategic, business
and fiscal planning for the Company (and/or its Subsidiaries) and their
businesses, including but not limited to plans or capital requirements for
financing, the commercial exploitation of SFD Data, finance, and positioning the
Company's securities in the various capital markets.
The Executive shall report only to the Board, and any significant
employment decisions and/or agreements, contracts and/or joint ventures
negotiated by the Executive shall be subject to the review and
approval/ratification of the Board. The Executive's responsibilities with
respect to the Company and each of its Subsidiaries may be changed or
supplemented by the Board from time-to-time, in their discretion. The Executive
shall also hold such offices with the Subsidiaries and/or joint ventures of the
Company (and/or its Subsidiaries) as the Board may, in its discretion and with
the consent of the Executive, from time-to-time determine. The Board shall
determine the amount of the Executive's total remuneration which will be
allocated to and paid by the Company and by each of its Subsidiaries. The
Executive shall be reasonably available to travel as the needs of the business
of the Company (and/or its Subsidiaries) may require.
(B) PERFORMANCE. The Executive shall devote the Executive's entire
-----------
and undivided business time, energy, abilities and attention solely and
exclusively to the performance of the Executive's duties hereunder and the
business of the Company (and/or its Subsidiaries); provided, however, the
Executive may devote a portion of the Executive's business time, energy,
abilities and attention to the Executive's duties as an executive officer of
Momentum, so long as such performance does not materially impair the performance
of the Executive in discharging the Executive's duties hereunder. The Executive
shall at all times faithfully, loyally, conscientiously, diligently and, to the
best of the Executive's ability, perform all of the Executive's duties and
obligations under this Agreement, and otherwise promote the interests and
welfare of the Company (and/or its Subsidiaries), all consistent with the
highest and best standards of the Company's (and/or its Subsidiaries') industry.
The Executive: (i) shall strictly comply with and adhere to all applicable laws,
and the Company's (and/or its Subsidiaries') Articles of Incorporation, Bylaws
and policies; (ii) shall obey all reasonable rules and regulations and policies
now in effect or as subsequently modified governing the conduct of employees of
the Company (and/or its Subsidiaries), and (iii) shall not commit any acts of
gross negligence, willful misconduct, dishonesty, fraud or misrepresentation,
racism, sexism or other discrimination, or any other acts which would tend to
bring the Company (and/or its Subsidiaries) into public scandal or ridicule, or
would otherwise result in material harm to the Company's (and/or its
Subsidiaries') business or reputation.
(C) FACILITIES AND SERVICES. The Company (and/or its Subsidiaries)
-----------------------
shall provide such
7
<PAGE>
support staff, facilities, equipment and supplies as are reasonably necessary or
suitable for the adequate performance of the Executive's duties and obligations
under this Agreement, including technical and secretarial help.
(D) ACKNOWLEDGMENT AND WAIVER RELATIVE TO DUAL EMPLOYMENT AND
---------------------------------------------------------
POTENTIAL CONFLICT OF INTEREST. The parties acknowledge that the Executive is
- ------------------------------
also employed as an executive officer of Momentum, which corporation provides
certain SFD Data to the Company (and/or its Subsidiaries) pursuant to the terms
of certain agreements between the Company (and/or its Subsidiaries) and
Momentum, and is also a director and holds an indirect beneficial interest in
Momentum. The Company (and its Subsidiaries) hereby waive any claim for breach
of the Executive's fiduciary duties to the Company (and its Subsidiaries),
including potential conflicts of interest, as a result of such dual employment,
or arising as a result of the Executive's present or future status as an
employee, officer, director, trustee of, or as the holder of a direct or
indirect beneficial interest in, Momentum (and/or of its subsidiaries and/or of
its joint-ventures). Notwithstanding the foregoing waiver, the Executive shall
use his best efforts to act in good faith with respect to performing the
Executive's present and future duties for the Company and for its Subsidiaries
and/or joint-ventures.
3. TERM
(A) INITIAL TERM. The Company (and/or its Subsidiaries) hereby employ
------------
the Executive pursuant to the terms of this Agreement, and the Executive hereby
accepts such employment, for the period beginning on the date of this Agreement
and ending on December 31, 2002 (the "Initial Term").
(B) AUTOMATIC RENEWAL; TERMINATION BY THE COMPANY. Unless this
---------------------------------------------
Agreement is previously terminated by either party as provided in section 12
----------
below, this Agreement will be automatically renewed for additional and
consecutive one (1) year terms (each, a "Renewal Term") following the expiration
of each Initial or Renewal Term, (each a "Term"), unless either party gives
------
written notice to the other party, no later than sixty (60) days prior to the
expiration of the then pending Term, of its election not to automatically renew
---
this Agreement for an additional year.
4. COMPENSATION
(A) MONTHLY BASE SALARY. From the date of this Agreement to December
-------------------
31, 1997, the Company (and/or its Subsidiaries) shall pay to the Executive a
monthly base salary of Seven Thousand United States dollars (US $7,000). From
January 1, 1998, and throughout the remainder of the Term (subject to periodic
adjustment as described below), the Company (and/or its Subsidiaries) shall pay
to the Executive a monthly base salary of Ten Thousand United States dollars (US
$10,000) (the "Monthly Salary"). The Monthly Salary shall be payable in periodic
installments as agreed from time-to-time by the Executive and the Board, but at
least monthly, and shall be subject to any Tax Withholdings and/or Employee
Deductions that are applicable. In any pay period in which the Executive shall
be employed for less than the entire number of business days in such pay period,
the Monthly Salary for such pay period shall be prorated on the basis of the
number of business days during which the Executive was actually employed during
such pay period, divided by the actual number of business days in such pay
period. Commencing on the first annual anniversary date of this Agreement, and
on each annual anniversary date thereafter, the Monthly Salary then effective
shall be increased by an amount equal to five percent (5%) of the Monthly Salary
for the immediately prior year. Additionally, commencing on or prior to the
first annual anniversary date of this Agreement, and on or prior to each annual
anniversary date thereafter, the Board shall review the Executive's Monthly
Salary to determine whether to increase the Monthly Salary by an amount in
excess of said five percent (5%) increment, without any obligation by the Board
to authorize such increase.
8
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(B) ANNUAL BONUS.
------------
(i) Amount. In the event the Company's "Net Income After Taxes"
------
(as defined below) for any fiscal year during the Term exceeds Five Million
United States dollars (US $5,000,000), the Company (and/or its Subsidiaries)
shall pay the Executive, no later than thirty (30) days after the completion of
the Company's audited financial statements for the subject fiscal year, an
amount equal to five percent (5%) of the "Net Income After Taxes" of the Company
for such fiscal year (the "Annual Bonus"), subject to any Applicable Tax
Withholdings and/or Employee Deductions. The term "Net Income After Income
Taxes" shall mean the net income of the Company after income taxes, computed in
accordance with United States generally accepted accounting principles and as
reflected on the audited financial statements of the Company. Appropriate
adjustments shall be made to the Annual Bonus to be paid to reflect customary
and ordinary accounting adjustments made at year end with respect to the prior
fiscal year.
(ii) Written Statement. The Company shall deliver to the
-----------------
Executive with each Annual Bonus payment a written statement setting forth the
basis of its calculation of the Annual Bonus. The Executive and the Executive's
independent representatives shall have the right, at the Executive's sole cost,
one time per fiscal year, to inspect the records of the Company with respect to
the calculations and to make copies of said records utilizing the Company's
facilities without charge, and shall have free and full access thereto on
reasonable notice during the normal business hours of the Company. In the event
that such inspection reveals an underpayment by the Company of any Annual Bonus
due the Executive, then the Company shall immediately pay to the Executive the
balance of all such amounts found to be due. Further, if such inspection
discloses that the Company has underpaid the Annual Bonus due for the period by
ten percent (10%) or more, and the Executive is no longer employed by the
Company, then the Company shall also pay the reasonable professional fees of the
independent representatives engaged to conduct or review such inspection or
audit.
(C) PERFORMANCE BONUS. The Board shall from time-to-time, but not
-----------------
more than one (1) time per year, evaluate the performance of the Executive and
award to the Executive a performance bonus (the "Performance Bonus") in such
amount as the Board may determine, in its sole discretion, to be reasonable,
after taking into consideration other compensation paid or payable to the
Executive under this Agreement, as well as the financial and non-financial
progress of the business of the Company (and/or its Subsidiaries) and the
contributions of the Executive toward that progress. Payment of the Performance
Bonus shall be subject to any applicable Tax Withholdings and/or Employee
Deductions.
(D) PARTICIPATION IN EMPLOYEE BENEFIT PLANS. The Executive shall have
---------------------------------------
the same rights, privileges, benefits and opportunities to participate in any
employee benefit plans of the Company (and/or its Subsidiaries) which may now or
hereafter be in effect on a general basis for executive officers or employees,
including without limitation retirement, pension, profit-sharing, savings and
insurance (including, but not limited to, health, dental, disability and/or
group insurance) (collectively, "Employee Benefit Plans"). In the event the
Executive receives payments from a disability plan maintained by the Company
(and/or its Subsidiaries), the Company (and/or its Subsidiaries) shall have the
right to offset such payments against Monthly Salary otherwise payable to the
Executive during the period for which payments are made by such disability plan.
(E) STOCK OPTIONS. In addition to the remuneration noted above, the
-------------
Executive shall receive such qualified or unqualified stock options, subject to
such terms and conditions, as the Board of Directors shall determine, in their
sole and absolute discretion.
9
<PAGE>
5. ALLOWANCES
(A) AUTOMOBILE ALLOWANCE. The Company (and/or its Subsidiaries) shall
--------------------
provide a late model luxury automobile to the Executive for his or her use on
behalf of the Company (and/or its Subsidiaries) and for incidental personal use,
during the term of this Agreement, and shall pay all purchase-installment and/or
lease payments to acquire such automobile, as well as the cost to insure the
automobile. Should the Company (and/or its Subsidiaries) fail to provide the
automobile during any portion of the term of this Agreement, the Company (and/or
its Subsidiaries) shall pay the Executive the sum of Seven Hundred United States
dollars (US $700) for each month such automobile is not provided, to cover
and/or reimburse the Executive for the cost of an automobile and for the payment
of insurance in connection therewith. The Company (and/or its Subsidiaries)
shall additionally reimburse the Executive for all gasoline, operation,
maintenance and repair costs associated with the Executive's use of the
automobile provided by the Company (and/or its Subsidiaries) (or the Executive's
personal automobile should the Company and/or its Subsidiaries fail to provide
an automobile) upon submission of itemized receipts therefore. Payment and/or
provision of the aforesaid allowance (the "Automobile Allowance") shall be
subject to any applicable Tax Withholdings and/or Employee Deductions. The
Executive shall be responsible for all income taxes imposed on the Executive by
reason of the Automobile Allowance.
(B) CELLULAR TELEPHONE ALLOWANCE. The Company (and/or its
----------------------------
Subsidiaries) shall provide a cellular phone to the Executive during the term of
this Agreement, to be used by the Executive as necessary for the business of the
Company (and/or its Subsidiaries), and for incidental personal use. In addition,
the Company (and/or its Subsidiaries) shall pay all charges associated with the
Executive's use of the cellular telephone for the business of the Company
(and/or its Subsidiaries) upon submission of itemized receipts therefore.
Payment and/or provision of the aforesaid allowance (the "Cell Phone Allowance")
shall be subject to any applicable Tax Withholdings and/or Employee Deductions.
The Executive shall be responsible for all income taxes imposed on the Executive
by reason of the Cell Phone Allowance.
(C) RELOCATION ALLOWANCE. In the event the Company relocates its
--------------------
principal executive offices from its present location, and, as a result,
increases the Executive's ordinary commute from the Executive's then permanent
residence by more than thirty-five (35) miles (each, a "Relocation"), then the
Company (and/or its Subsidiaries) shall have the following obligations to the
Executive (collectively, the "Relocation Allowance"):
(i) Rental Expenses. The Company (and/or its Subsidiaries) shall
---------------
pay all costs to rent a new residence which is located within thirty-five (35)
miles of the location of the Company's new principal executive offices, to be
selected by the Executive and which is comparable to the Executive's then
current residence including all utilities, maintenance, insurance and other
occupancy costs (the "Old Residence"); provided, however, in the event the
Executive rents the Old Residence to a third party, the amount of the rental the
Company (and/or its Subsidiaries) pay shall be reduced by the amount of rent
(net of expenses) received by the Executive with respect to the Old Residence.
The Company's (and/or its Subsidiaries') obligation shall terminate upon the
earlier of (i) such time as the Executive, without any obligation to do so,
sells or disposes of the Old Residence; or (ii) thirty (30) months after the
date of the Relocation.
(ii) Moving Expenses. The Company (and/or its Subsidiaries) shall
---------------
cover all costs incurred by the Executive as a result of the Relocation, to move
the Executive and his or her family and their personal property to such new
location (or subsequently back to the Old Residence), including without
limitation all costs to move the Executive's personal belongings from the Old
Residence to the new residence, or vice versa.
10
<PAGE>
(iii) Loss and Expenses Incurred Upon Sale of Old Residence. In
-----------------------------------------------------
the event the Executive sells or disposes of the Old Residence as a result of
the Relocation, the Company shall pay to the Executive the following: (i) the
Executive's costs incurred as a result of such sale or disposition, including
closing costs, broker's commissions and costs to place the Old Residence in a
condition to be sold; and (ii) any actual economic loss incurred by the
Executive in selling the Old Residence, which loss shall be defined as the
amount by which the fair market value of the Old Residence (as of the date the
Relocation is announced, as such value shall be determined by an appraisal by an
appraiser satisfactory to both parties) exceeds the actual sales price for the
Old Residence (excluding costs). In the event of such purchase the Company
(and/or its Subsidiaries) shall be solely responsible for, and shall indemnify
and hold the Executive harmless with respect to, any subsequent costs or
expenses incurred with respect to the Old Residence, including debt service,
property taxes and assessments, insurance, expenses and repairs.
(iv) Certain Expenses Incurred Upon Purchase of New Residence.
--------------------------------------------------------
In the event the Executive purchases a new residence within thirty-five (35)
miles of the location of the Company's new principal executive offices as a
result of the Relocation, the Company (and/or its Subsidiaries) shall pay all
costs incurred by the Executive in acquiring the new residence, including loan
and closing costs, but excluding the Executive's down payment, mortgage loan and
mortgage points.
(v) Income Tax Consequences. Payment and/or provision of the
-----------------------
Relocation Allowance shall be subject to any Tax Withholdings and/or Employee
Deductions as may be applicable. The Executive shall be responsible for all
income taxes imposed on the Executive by reason of the Relocation Allowance.
6. BUSINESS EXPENSES
During the Term of this Agreement the Executive is authorized to
incur, and the Company (and/or its Subsidiaries) shall directly pay or reimburse
the Executive for his or her payment of the Executive's reasonable and necessary
business expenses, duly and actually incurred by the Executive in connection
with the duties and services to be performed by the Executive under this
Agreement, including without limitation entertainment, meals, travel, lodging
and other similar out-of-pocket expenses, upon the Executive's submission to the
Company (and/or its Subsidiaries) of itemized expense statements setting forth
the date, purpose and amount of the expense incurred, together with
corresponding receipts showing payment by the Executive in cases where he or she
seeks reimbursement, all in conformity with business expense payment and/or
reimbursement policies as may be established by the Company (and/or its
Subsidiaries) from time to time, all of which shall comply with the
substantiation requirements of any applicable taxing authorities, and
regulations promulgated by such authorities thereto, pertaining to the
deductibility of such expenses. Direct payment and/or reimbursement shall be
made by the Company (and/or its Subsidiaries) no later than thirty (30) days of
the Executive submission of the foregoing documentation. The Executive shall be
entitled to direct payment and/or reimbursement in full for the aforesaid
business expenses. The Company (and/or its Subsidiaries) shall have the option
to pay directly the persons entitled to payment for such business expenses.
7. TAX WITHHOLDINGS AND EMPLOYEE DEDUCTIONS
The Company (and/or its Subsidiaries) shall be entitled to deduct from
any payments to the Executive pursuant to the terms of this Agreement (including
any payments arising from the early termination of this Agreement), amounts
sufficient to cover any applicable federal, provincial, state, local and/or
foreign income tax withholdings and/or deductions as may be required in
connection with such payment, including without limitation old-age and
survivor's and other social security payments, state disability and other
withholdings payment as may be required by the tax laws or regulations of any
applicable jurisdiction (collectively, the "Tax Withholdings"), as well as all
other elective employee deductions applicable to such
11
<PAGE>
payment such as, for example, deductions relating to any Employee Benefit Plan
in which the Executive participates (collectively, the "Employee Deductions").
8. PERSONAL TIME-OFF
The Executive shall be entitled each calendar year during the term of
this Agreement to such number of personal time-off days for such purposes,
including vacations and time for personal affairs ("Personal Time-Off") as are
approved by the Board, but not less than the greater of (i) twenty (20) business
days, or (ii) the number of personal time-off days (including vacation and
personal days) generally given by the Company (and/or its Subsidiaries) to its
employees. Personal Time-Off shall be in addition to regular paid holidays
provided to all employees of the Company (and/or its Subsidiaries). The
Executive's compensation shall be paid in full with respect to approved Personal
Time-Off days. Should the Executive fail to use all Personal Time-Off days in
any calendar year, the Executive shall have the option of (i) receiving payment
for such days on a pro rata basis, or (ii) "carrying-over" unused Personal Time-
Off days to succeeding years. Personal time-off shall be taken during a period
or periods mutually satisfactory to both the Company (and/or its Subsidiaries)
and the Executive.
9. INSURANCE
If requested by the Company (and/or its Subsidiaries), the Executive
shall submit to such physical examinations and otherwise take such actions and
execute and deliver such documents as may be reasonably necessary to enable the
Company (and/or its Subsidiaries), at its expense and for its own benefit, to
obtain disability and/or life insurance on the life of the Executive. The
Executive represents and warrants that he has no reason to believe that he is
not insurable for disability or life coverage with a reputable insurance company
at rates now prevailing in the city of the Company's principal executive
offices, for healthy persons of the Executive's own age and gender.
10. ADVANCES
The Company (and/or its Subsidiaries) may from time-to-time, upon
written consent from the Chairman of the Board or the Board, and without any
obligation to do so, make advances to the Executive against any compensation or
other amounts to be paid by the Company (and/or its Subsidiaries) to the
Executive (each, an "Advance"). Any amounts due hereunder to the Executive
shall, at the election of the Company (and/or its Subsidiaries), be offset by
any then outstanding Advances.
In the event of termination of employment of executive, the Executive
agrees that the Company (and/or its Subsidiaries) shall have the right to offset
the amount of any and all outstanding Advance(s) against any salary or wages
due, or any other amounts due to the Executive from the Company (and/or its
Subsidiaries), and that any remaining balance of the Advance(s) shall be repaid
by the Executive within thirty (30) days after the Executive's termination date.
If such Advance(s) are not repaid within said thirty (30) days, simple interest
shall accrue on the unpaid balance at the rate of ten percent (10%) per annum.
The Executive agrees to pay all costs of collection incurred by the Company
(and/or its Subsidiaries) with respect thereto, including reasonable attorneys'
fees and legal costs.
The Company's (and/or its Subsidiaries') obligation to make payments
to the Executive hereunder shall not, except with respect to Advance(s) as
provided above, be affected by any circumstance, including without limitation
any set-off, counterclaim, recoupment, defense or other right which the Company
(and/or its Subsidiaries) may have against the Executive or others.
12
<PAGE>
11. TERMINATION OF AGREEMENT BEFORE EXPIRATION OF TERM
(A) DEATH OR DISABILITY. Notwithstanding any other term of this
-------------------
Agreement, the applicable Term shall terminate upon the death or Disability of
the Executive, subject to compliance with such federal and state laws and
regulations as may then be applicable.
(B) CHANGE IN CONTROL. Notwithstanding any other term of this
-----------------
Agreement, the applicable Term shall, at the election of the Executive,
delivered by written notice to the Company, terminate effective upon the Change
In Control.
(C) TERMINATION OF AGREEMENT BY COMPANY FOR CAUSE. Subject to
---------------------------------------------
compliance with any applicable federal and state laws and regulations, the
Company may terminate this Agreement and the Executive's employment hereunder at
any time in the event such termination constitutes Termination By Company For
Cause, upon giving written notice to the Executive specifying in reasonable
detail (i) the event which constitutes the cause; (ii) the pertinent facts and
circumstances underlying the cause; and (iii) the effective date of the
termination (not to exceed ninety {90} days from the date of such notice, but
which date may, at the Company's election, be effective upon receipt of said
written notice by the Executive). Such notice shall also afford the Executive an
opportunity to be heard in person by the Board (with the assistance of the
Executive's legal counsel, if the Executive so desires). Such hearing shall be
held reasonably promptly after such notice but, in any event, before the
effective date of the prospective termination.
(D) TERMINATION OF AGREEMENT BY EXECUTIVE FOR GOOD REASON. The
-----------------------------------------------------
Executive may terminate this Agreement and the Executive's employment hereunder
at any time in the event such termination constitutes Termination By Executive
For Good Reason, upon giving written notice to the Company specifying in
reasonable detail (i) the event which constitutes the good reason; (ii) the
pertinent facts and circumstances underling the good reason; and (iii) the
effective date of termination (not to exceed ninety {90} days from the date of
such notice, but which date may, at the Executive's election, be effective upon
receipt of said written notice by the Company).
12. EFFECT OF TERMINATION ATTRIBUTABLE TO DEATH OR DISABILITY; TERMINATION
BY COMPANY FOR CAUSE; TERMINATION BY EXECUTIVE WITHOUT GOOD REASON
In the event the Executive's employment hereunder is terminated before
the expiration of a Term, and such termination is attributable to (i) an event
defined as Death or Disability; (ii) an event defined as Termination By Company
For Cause; and/or (iii) termination by the Executive which does not constitute
---
Termination By Executive For Good Reason, then all rights and obligations of the
Company and the Executive under section 2 [Employment Obligations], section 4
--------- ---------
[Compensation], section 5 [Allowances], section 6 [Business Expenses] and
--------- ---------
section 8 [ Personal Time-Off] shall terminate as of the effective date of the
- ---------
termination; provided, however:
(a) The Company (and/or its Subsidiaries) shall pay the Executive's
accrued but unpaid Monthly Salary and Personal Time-Off days through the
effective date of the termination on or before the close of business on such
effective date; and the Executive shall not be entitled to Monthly Salary and/or
Personal Time-Off days after the effective date of the termination;
(b) The Company (and/or its Subsidiaries) shall pay the Executive's
accrued but unpaid Annual Bonus through the last date of the Executive's
employment within one hundred and twenty (120) days after the end of the fiscal
period to which the Annual Bonus relates. The amount of the Annual Bonus shall
be
13
<PAGE>
determined by calculating the Annual Bonus the Executive would ordinarily be
entitled to for the entire fiscal year, and then dividing such amount by a
fraction wherein the numerator equals the number of days the Executive was
employed in such year and the denominator equals the total number of calendar
days in such year; the Executive shall not be entitled to earn or accrue any
Annual Bonus after the effective date of the termination;
(c) The Company (and/or its Subsidiaries) shall pay any declared but
unpaid Performance Bonus;
(d) The Company (and/or its Subsidiaries) shall reimburse the
Executive for any Automobile Allowance and Cell Phone Allowance incurred prior
to the effective date of the termination;
(e) The Company (and/or its Subsidiaries) shall reimburse the
Executive for any business expenses incurred prior to the effective date of the
termination, within three (3) business days after the Executive's submission of
the Executive's expense report to the Company (and/or its Subsidiaries);
(f) The Executive shall not be entitled to continue to participate in
any Employee Benefit Plans except to the extent provided in such plans for
terminated participants, or as may be required by applicable law.
Notwithstanding the foregoing, amounts which are vested in any Employee Benefit
Plans shall be payable in accordance with such plan; and
(g) If, as the effective date of the termination, the Company has
announced a Relocation, and the Executive has, prior to such effective date,
relocated pursuant to such announcement, or has entered into binding agreements
in connection therewith, the rights of the Executive and obligations of the
Company (and/or its Subsidiaries) under section 5(c) shall continue with respect
------------
to the pending Relocation; otherwise, all rights of the Executive and
obligations of the Company (and/or its Subsidiaries) under section 5(c) shall
------------
terminate as of the date of the notice.
13. EFFECT OF TERMINATION WHERE TERMINATION ATTRIBUTABLE TO CHANGE IN
CONTROL; TERMINATION BY EXECUTIVE FOR GOOD REASON; TERMINATION BY
COMPANY WITHOUT CAUSE
In the event the Executive's employment hereunder is terminated before
the expiration of a Term, and such termination is attributable to (i) an event
defined as a Change in Control; (ii) an event defined as a Termination by
Executive for Good Reason; and/or (iii) termination by the Company which does
not constitute a Termination By Company for Cause; then all rights and
obligations of the Company (and/or its Subsidiaries) and the Executive under
section 2 [Employment Obligations], section 4 [Compensation], section 5
- --------- --------- ---------
[Allowances], section 6 [Business Expenses], and section 8 [ Personal Time-Off]
--------- ---------
shall terminate as of the effective date of the termination date; provided,
however:
(a) The Company (and/or its Subsidiaries) shall continue to pay the
Executive's then effective Monthly Salary through the pending Term of this
Agreement, on the same basis as previously paid to the Executive, but subject to
such minimum increases as are described in section 4;
---------
(b) The Company (and/or its Subsidiaries) shall continue to accrue
and pay the Executive's Annual Bonus through the pending Term of this Agreement,
on the same basis as previously paid to the Executive, and subject to the other
provisions of section 4;
---------
(c) The Company (and/or its Subsidiaries) shall pay the Executive's
declared but unpaid Performance Bonus;
14
<PAGE>
(d) At the election of the Executive, the Company (and/or its
Subsidiaries) shall (i) permit the Executive to continue to participate in any
Employee Benefit Plans, except to the extent prohibited in such plans for
terminated employees, or as may be required by applicable law; or (ii) provide
the Executive with additional compensation, payable on a monthly basis, which
would approximate the cost to the Executive to obtain comparable benefits;
(e) The Company (and/or its Subsidiaries) shall continue to pay the
Executive's monthly Automobile Allowance (but not gasoline, insurance and
repair, maintenance and operating expenses) through the pending Term of this
Agreement, on the same basis as previously paid to the Executive;
(f) The Company (and/or its Subsidiaries) shall reimburse the
Executive for the Cell Phone Allowance through the effective date of the
termination;
(g) The Company (and/or its Subsidiaries) shall reimburse the
Executive for the Executive's business expenses incurred through the effective
date of the termination, within three (3) business days of the Executive's
submission of the Executive's expense report to the Company (and/or its
Subsidiaries);
(h) If, as the effective date of termination, the Company has
announced a Relocation, and the Executive has, prior to such effective date,
relocated pursuant to such announcement, or has entered into binding agreements
in connection therewith, the rights of the Executive and obligations of the
Company (and/or its Subsidiaries) under section 5(c) shall continue with respect
------------
to the pending Relocation; otherwise, all rights of the Executive and
obligations of the Company (and/or its Subsidiaries) under section 5(c) shall
------------
terminate; and
(i) If both (A) the termination is directly or indirectly
attributable to a sale of all or substantially all of the assets of the Company
(each, a "Sale"); and (B) the prospective Sale is approved by a "disinterested"
majority of the Board of Directors (as defined under the Nevada Revised
Statutes), then the Company (and/or its Subsidiaries) shall pay to the Executive
an amount equal to two percent (2%) of the total consideration (including cash,
securities, debt or any other form of property) received by the Company (and/or
its Subsidiaries) in connection with such Sale.
The Executive shall not be required to mitigate the amount of any
payment pursuant to this section by seeking other employment or otherwise, and
-------
no such payment shall be offset or reduced by the amount of any compensation or
benefits provided to the Executive in any subsequent employment. The provisions
of this section shall not be deemed to prejudice the rights of the Company
-------
(and/or its Subsidiaries) or the Executive to any remedy or damages to which
such party may be entitled by reason of a breach of this Agreement by the other
party, whether at law or equity.
14. REPRESENTATIONS AND WARRANTIES OF PARTIES
(A) BY ALL PARTIES. Each of the parties to this Agreement hereby
--------------
represents and warrants to each of the other parties to this Agreement, each of
which is deemed to be a separate representation and warranty, as follows:
(i) Organization, Power and Authority. Such party, if an entity,
---------------------------------
is duly organized, validly existing and in good standing under the laws of its
state, territory or province of incorporation or organization, and has all
requisite corporate or other power and authority to enter into this Agreement.
(ii) Authorization and Validity of Agreement. The execution and
---------------------------------------
delivery of this Agreement by such party, and the performance by such party of
the transactions herein contemplated, have, if
15
<PAGE>
such party is an entity, been duly authorized by its governing organizational
documents, and are not prohibited by its governing organization documents, and
no further corporate or other action on the part of such party is necessary to
authorize this Agreement, or the performance of such transactions. This
Agreement has been duly executed and delivered by such party and, assuming due
authorization, execution and delivery by all of the other parties hereto, is
valid and binding upon such party in accordance with its terms, except as
limited by: (1) bankruptcy, insolvency, reorganization, moratorium or other
similar laws now or hereafter in effect relating to creditor rights generally;
and (2) general principles of equity (regardless of whether such enforcement is
considered in a proceeding in equity or at law).
(iii) No Breach or Conflict. Neither the execution or delivery of
---------------------
this Agreement, nor the performance by such party of the transactions
contemplated herein: (i) if such party is an entity, will breach or conflict
with any of the provisions of such party's governing organizational documents;
or (ii) to the best of such party's knowledge and belief, will such actions
violate or constitute an event of default under any agreement or other
instrument to which such party is a party.
(B) BY EXECUTIVE. The Executive hereby represents and warrants to the
------------
Company (and/or its Subsidiaries) that the Executive is not Disabled at the time
of the execution and delivery of this Agreement by the Executive.
15. PERFORMANCE ON BUSINESS DAY
In the event the date on which a party is required to take any action
under the terms of this Agreement is not a business day, the action shall,
unless otherwise provided herein, be deemed to be required to be taken on the
next succeeding business day.
16. NON-LIABILITY FOR DEBTS
The Executive's rights and obligations under this Agreement shall not
be subject to encumbrance or to the claims of the Executive's creditors (other
than the Company, and/or its Subsidiaries), or subject to the debts, contracts
or engagements of the Executive or the Executive's heirs, successors and
assigns, and any attempt to do any of the foregoing shall be null and void ab
initio and without force and effect.
17. MISCELLANEOUS
(A) PREPARATION OF AGREEMENT; COSTS AND EXPENSES. This Agreement was
--------------------------------------------
prepared by the Company solely on behalf of such party. Each party acknowledges
that: (i) he, she or it had the advice of, or sufficient opportunity to obtain
the advice of, legal counsel separate and independent of legal counsel for any
other party hereto; (ii) the terms of the transactions contemplated by this
Agreement are fair and reasonable to such party; and (iii) such party has
voluntarily entered into the transactions contemplated by this Agreement without
duress or coercion. Each party further acknowledges that such party was not
represented by the legal counsel of any other party hereto in connection with
the transactions contemplated by this Agreement, nor was he, she or it under any
belief or understanding that such legal counsel was representing his, her or its
interests. Except as expressly set forth in this Agreement, each party shall pay
all legal and other costs and expenses incurred or to be incurred by such party
in negotiating and preparing this Agreement; in performing due diligence or
retaining professional advisors; in performing any transactions contemplated by
this Agreement; or in complying with such party's covenants, agreements and
conditions contained herein. Each party agrees that no conflict, omission or
ambiguity in this Agreement, or the interpretation thereof, shall be presumed,
implied or otherwise construed against any other party to this Agreement on the
basis that such party was responsible for drafting this Agreement.
16
<PAGE>
(B) COOPERATION. Each party agrees, without further consideration, to
-----------
cooperate and diligently perform any further acts, deeds and things, and to
execute and deliver any documents that may be reasonably necessary or otherwise
reasonably required to consummate, evidence, confirm and/or carry out the intent
and provisions of this Agreement, all without undue delay or expense.
(C) INTERPRETATION.
--------------
(i) Survival. All representations and warranties made by any
--------
party in connection with any transaction contemplated by this Agreement shall,
irrespective of any investigation made by or on behalf of any other party
hereto, survive the execution and delivery of this Agreement, and the
performance or consummation of any transaction described in this Agreement.
(ii) Entire Agreement/No Collateral Representations. Each party
----------------------------------------------
expressly acknowledges and agrees that this Agreement, and the agreements and
documents referenced herein: (1) are the final, complete and exclusive statement
of the agreement of the parties with respect to the subject matter hereof; (2)
supersede any prior or contemporaneous agreements, memorandums, proposals,
commitments, guaranties, assurances, communications, discussions, promises,
representations, understandings, conduct, acts, courses of dealing, warranties,
interpretations or terms of any kind, whether oral or written (collectively and
severally, the "prior agreements"), and that any such prior agreements are of no
force or effect except as expressly set forth herein; and (3) may not be varied,
supplemented or contradicted by evidence of prior agreements, or by evidence of
subsequent oral agreements. No prior drafts of this Agreement, and no words or
phrases from any prior drafts, shall be admissible into evidence in any action
or suit involving this Agreement.
(iii) Amendment; Waiver; Forbearance. Except as expressly
------------------------------
provided herein, neither this Agreement nor any of the terms, provisions,
obligations or rights may be amended, modified, supplemented, augmented,
rescinded, discharged or terminated (other than by performance), except by a
written instrument or instruments signed by all of the parties to this
Agreement. No waiver of any breach of any term, provision or agreement, or of
the performance of any act or obligation under this Agreement, or of any
extension of time for performance of any such act or obligation, or of any right
granted under this Agreement, shall be effective and binding unless such waiver
shall be in a written instrument or instruments signed by each party claimed to
have given or consented to such waiver. Except to the extent that the party or
parties claimed to have given or consented to a waiver may have otherwise agreed
in writing, no such waiver shall be deemed a waiver or relinquishment of any
other term, provision, agreement, act, obligation or right granted under this
Agreement, or of any preceding or subsequent breach thereof. No forbearance by a
party in seeking a remedy for any noncompliance or breach by another party
hereto shall be deemed to be a waiver by such forbearing party of its rights and
remedies with respect to such noncompliance or breach, unless such waiver shall
be in a written instrument or instruments signed by the forbearing party.
(iv) Remedies Cumulative. The remedies of each party under this
-------------------
Agreement are cumulative and shall not exclude any other remedies to which such
party may be lawfully entitled.
(v) Severability. If any term or provision of this Agreement or
------------
the application thereof to any person or circumstance shall, to any extent, be
determined to be invalid, illegal or unenforceable under present or future laws,
then, and in that event: (1) the performance of the offending term or provision
(but only to the extent its application is invalid, illegal or unenforceable)
shall be excused as if it had never been incorporated into this Agreement, and,
in lieu of such excused provision, there shall be added a provision as similar
in terms and amount to such excused provision as may be possible and be legal,
valid and enforceable; and (2) the remaining part of this Agreement (including
the application of the offending term or provision to persons or circumstances
other than those as to which it is held invalid, illegal or unenforceable) shall
not be
17
<PAGE>
affected thereby, and shall continue in full force and effect to the fullest
legal extent.
(vi) Parties in Interest. Nothing in this Agreement shall
-------------------
confer any rights or remedies under or by reason of this Agreement on any
persons other than the parties hereto and their respective successors and
assigns, if any, or as may be permitted hereunder; nor shall anything in this
Agreement relieve or discharge the obligation or liability of any third person
to any party to this Agreement; nor shall any provision give any third person
any right of subrogation or action over or against any party to this Agreement.
(vii) No Reliance Upon Prior Representation. Each party
-------------------------------------
acknowledges that: (1) no other party has made any oral representation or
promise which would induce them prior to executing this Agreement to change
their position to their detriment, to partially perform, or to part with value
in reliance upon such representation or promise; and (2) such party has not so
changed its position, performed or parted with value prior to the time of the
execution of this Agreement, or such party has taken such action at its own
risk.
(viii) Headings; References; Incorporation; Gender; Statutory
------------------------------------------------------
References. The headings used in this Agreement are for convenience and
- ----------
reference purposes only, and shall not be used in construing or interpreting the
scope or intent of this Agreement or any provision hereof. References to this
Agreement shall include all amendments or renewals thereof. All cross-references
in this Agreement, unless specifically directed to another agreement or
document, shall be construed only to refer to provisions within this Agreement,
and shall not be construed to be referenced to the overall transaction or to any
other agreement or document. Any Exhibit referenced in this Agreement shall be
construed to be incorporated in this Agreement by such reference. As used in
this Agreement, each gender shall be deemed to include the other gender,
including neutral genders appropriate for entities, if applicable, and the
singular shall be deemed to include the plural, and vice versa, as the context
requires. Any reference to statutes or laws will include all amendments,
modifications, or replacements of the specific sections and provisions
concerned.
(D) ENFORCEMENT.
-----------
(i) Applicable Law. This Agreement and the rights and remedies
--------------
of each party arising out of or relating to this Agreement (including, without
limitation, equitable remedies) shall (with the exception of the applicable
securities laws) be solely governed by, interpreted under, and construed and
enforced in accordance with the laws (without regard to the conflicts of law
principles) of the State of Nevada, as if this Agreement were made, and as if
its obligations are to be performed, wholly within the State of Nevada.
(ii) Consent to Jurisdiction; Service of Process. Any "action
-------------------------------------------
or proceeding" (as such term is defined below) arising out of or relating to
this Agreement shall be filed in and heard and litigated solely before the state
courts of Nevada. Each party generally and unconditionally accepts the exclusive
jurisdiction of such courts and venue therein; consents to the service of
process in any such action or proceeding by certified or registered mailing of
the summons and complaint in accordance with the notice provisions of this
Agreement; and waives any defense or right to object to venue in said courts
based upon the doctrine of "forum non conveniens." The term "action or
proceeding" is defined as any and all claims, suits, actions, hearings,
arbitrations or other similar proceedings, including appeals and petitions
therefrom, whether formal or informal, governmental or non-governmental, or
civil or criminal.
(iii) Waiver of Right to Jury Trial. Each party hereby waives
-----------------------------
such party's respective right to a jury trial of any claim or cause of action
based upon or arising out of this Agreement. Each party acknowledges that this
waiver is a material inducement to each other party hereto to enter into the
transaction contemplated hereby; that each other party has already relied upon
this waiver in entering into this Agreement; and that each other party will
continue to rely on this waiver in their future dealings. Each party warrants
and represents that such party has reviewed this waiver with such party's legal
counsel, and that such
18
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party has knowingly and voluntarily waived its jury trial rights following
consultation with such legal counsel.
(iv) Consent to Specific Performance and Injunctive Relief and
---------------------------------------------------------
Waiver of Bond or Security. Each party acknowledges that the other party(s)
- --------------------------
hereto may, as a result of such party's breach of its covenants and obligations
under this Agreement, sustain immediate and long-term substantial and
irreparable injury and damage which cannot be reasonably or adequately
compensated by damages at law. Consequently, each party agrees that in the event
of such party's breach or threatened breach of its covenants and obligations
hereunder, the other non-breaching party(s) shall be entitled to obtain from a
court of competent equitable relief including, without limitation, enforcement
of all of the provisions of this Agreement by specific performance and/or
temporary, preliminary and/or permanent injunctions enforcing any of the rights
of such non-breaching party(s), requiring performance by the breaching party, or
enjoining any breach by the breaching party, all without proof of any actual
damages that have been or may be caused to such non-breaching party(s) by such
breach or threatened breach and without the posting of bond or other security in
connection therewith. The party against whom such action or proceeding is
brought waives the claim or defense therein that the party bringing the action
or proceeding has an adequate remedy at law and such party shall not allege or
otherwise assert the legal position that any such remedy at law exists. Each
party agrees and acknowledges: (i) that the terms of this subsection are fair,
reasonable and necessary to protect the legitimate interests of the other
party(s); (ii) that this waiver is a material inducement to the other party(s)
to enter into the transaction contemplated hereby; (iii) that the other party(s)
has already relied upon this waiver in entering into this Agreement; and (iv)
that each party will continue to rely on this waiver in their future dealings.
Each party warrants and represents that such party has reviewed this provision
with such party's legal counsel, and that such party has knowingly and
voluntarily waived its rights following consultation with legal counsel.
(v) Recovery of Fees and Costs. If any party institutes or
--------------------------
should the parties otherwise become a party to any action or proceeding based
upon or arising out of this Agreement including, without limitation, to enforce
or interpret this Agreement or any provision hereof, or for damages by reason of
any alleged breach of this Agreement or any provision hereof, or for a
declaration of rights in connection herewith, or for any other relief, including
equitable relief, in connection herewith, the "prevailing party" (as such term
is defined below) in any such action or proceeding, whether or not such action
or proceeding proceeds to final judgment or determination, shall be entitled to
receive from the non-prevailing party as a cost of suit, and not as damages, all
fees, costs and expenses of enforcing any right of the prevailing party
(collectively, "fees and costs"), including without limitation, (1) reasonable
attorneys' fees and costs and expenses, (2) witness fees (including experts
engaged by the parties, but excluding shareholders, officers, employees or
partners of the parties), (3) accountants' fees, (4) fees of other
professionals, and (5) any and all other similar fees incurred in the
prosecution or defense of the action or proceeding; including, without
limitation, fees incurred in the following: (A) postjudgment motions; (B)
contempt proceedings; (C) garnishment, levy, and debtor and third party
examinations; (D) discovery; and (E) bankruptcy litigation. All of the aforesaid
fees and costs shall be deemed to have accrued upon the commencement of such
action and shall be paid whether or not such action is prosecuted to judgment.
Any judgment or order entered in such action shall contain a specific provision
providing for the recovery of attorney the aforesaid fees, costs and expenses
incurred in enforcing such judgment and an award of prejudgment interest from
the date of the breach at the maximum rate of interest allowed by law. The term
"prevailing party" is defined as the party who is determined to prevail by the
court after its consideration of all damages and equities in the action or
proceeding, whether or not the action or proceeding proceeds to final judgment
(the court shall retain the discretion to determine that no party is the
prevailing party in which case no party shall be entitled to recover its costs
and expenses under this subsection).
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(E) ASSIGNMENT AND DELEGATION; SUCCESSORS AND ASSIGNS.
-------------------------------------------------
(i) Prohibition Against Assignment or Delegation. Except as
--------------------------------------------
specifically provided in this Agreement, neither party may sell, license,
transfer or assign (whether direct or indirect, merger, consolidation,
conversion, sale of assets, sale or exchange of securities, or by operation of
law, or otherwise) any of such party's rights or interests or delegate such
party's duties or obligations under this Agreement, in whole or in part,
including to any subsidiary or any Affiliate, without the prior written consent
of the other party, which consent may be withheld in such other party's sole
discretion, provided, however:
(A) Subject to clauses (B) and (C) below, the Company may,
----------- ---
with the prior written consent of the Executive, which consent the Executive
shall not unreasonably withhold, assign all of the rights and delegate all of
the obligations of the Company under this Agreement to any other Person in
connection with the transfer or sale of the entire business of the Company
(including its Subsidiaries and its interests in its joint ventures), or the
merger or consolidation of the Company with or into any other Person, so long as
such transferee, purchaser or surviving Person shall expressly assumes such
obligations of the Company;
(B) Notwithstanding clause (A) above to the contrary, no
----------
assignment or transfer under clause (A) may be effectuated unless the proposed
----------
transferee or assignee first executes such agreements (including a restated
employment agreement) in such form as Executive may deem reasonably satisfactory
to (1) evidence the assumption by the proposed transferee or assignee of the
obligations of the Company; and (2) to ensure that the Executive continues to
receive such rights, benefits and protections (both legal and economic) as were
contemplated by the Executive when entering into this Agreement; and
(C) Notwithstanding clause (A) above to the contrary: (1)
----------
any assumption by a successor or assign under clause (A) above shall in no way
----------
release the Company from any of its obligations or liabilities while a party to
this Agreement; and (2) and any merger, consolidation, reorganization, sale or
conveyance under clause (A) above shall not be deemed to abrogate the rights of
----------
the Executive elsewhere contained in this Agreement, including without
limitation those resulting from a Change In Control.
Any purported assignment or transfer in violation of the
terms of this subsection shall be null and void ab initio and of no force and
----------
effect, and shall vest no rights or interests in the purported assignee or
transferee.
(ii) Successors and Assigns. Subject to subsection (e)(i) above,
---------------------- -----------------
each and every representation, warranty, covenant, condition and provision of
this Agreement as it relates to each party hereto shall be binding upon and
shall inure to the benefit of such party and his, her or its respective
successors and permitted assigns, spouses, heirs, executors, administrators and
personal and legal representatives, including without limitation any successor
(whether direct or indirect, or by merger, consolidation, conversion, purchase
of assets, purchase of securities or otherwise).
(iii) Company and Subsidiaries. In accordance with the provisions
------------------------
of section 2, the Board of the Company shall determine, in their sole
------- -
discretion, (1) the responsibilities and duties to be performed by Executive for
each of the Company and the Subsidiaries; and (2) the amount of the Executive's
total remuneration to be allocated and paid by the Company and each of its
Subsidiaries. Such determinations and allocations shall not be deemed an
assignment or delegation under the terms of this section.
(F) COUNTERPARTS; ELECTRONICALLY TRANSMITTED DOCUMENTS. This
--------------------------------------------------
Agreement may be executed in counterparts, each of which shall be deemed an
original, and all of which together shall constitute one and the same
instrument, binding on all parties hereto. Any signature page of this Agreement
may be detached from any counterpart of this Agreement and reattached to any
other counterpart of this Agreement
20
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identical in form hereto by having attached to it one or more additional
signature pages. If a copy or counterpart of this Agreement is originally
executed and such copy or counterpart is thereafter transmitted electronically
by facsimile or similar device, such facsimile document shall for all purposes
be treated as if manually signed by the party whose facsimile signature appears.
(G) NOTICES. Unless otherwise specifically provided in this
-------
Agreement, all notices, demands, requests, consents, approvals or other
communications (collectively and severally called "notices") required or
permitted to be given hereunder, or which are given with respect to this
Agreement, shall be in writing, and shall be given by: (i) personal delivery
(which form of notice shall be deemed to have been given upon delivery), (ii) by
telegraph or by private airborne/overnight delivery service (which forms of
notice shall be deemed to have been given upon confirmed delivery by the
delivery agency), (iii) by electronic or facsimile or telephonic transmission,
provided the receiving party has a compatible device or confirms receipt thereof
(which forms of notice shall be deemed delivered upon confirmed transmission or
confirmation of receipt), or (iv) by mailing in the United States mail by
registered or certified mail, return receipt requested, postage prepaid (which
forms of notice shall be deemed to have been given upon the fifth {5th} business
day following the date mailed. Notices shall be addressed at the addresses first
set forth above, or to such other address as the party shall have specified in a
writing delivered to the other parties in accordance with this paragraph. Any
notice given to the estate of a party shall be sufficient if addressed to the
party as provided in this section.
WHEREFORE, the parties hereto have executed this Agreement in the City of
Vancouver, Province of British Columbia, Canada, as of the date first set forth
above.
COMPANY: PINNACLE OIL INTERNATIONAL, INC.,
a Nevada corporation
By: /s/ George Liszicasz
----------------------------
George Liszicasz, Chief Executive Officer
EXECUTIVE: R. DIRK STINSON,
an individual
/s/ R. Dirk Stinson
---------------------------------
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<PAGE>
EXHIBIT 10.21
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement"), dated as of April 1, 1997, is
entered into by and between PINNACLE OIL INTERNATIONAL, INC., a Nevada
corporation (the "Company"), whose principal executive office is located at 380-
1090 West Georgia Street, Vancouver, British Columbia, Canada, V6E 3V7; and
GEORGE LISZICASZ (the "Executive"), an individual whose principal office is
located at 380-1090 West Georgia Street, Vancouver, British Columbia, Canada,
V6E 3V7, with reference to the following facts:
RECITALS:
--------
WHEREAS, the Executive is the Chief Executive Officer of the Company, as well
as a director and a stockholder of the Company;
WHEREAS, the Company is the parent of two wholly owned subsidiaries, namely,
Pinnacle Oil, Inc., a Nevada corporation and Pinnacle Oil Canada, Inc., a
federal Canadian corporation, and the Company (and/or its subsidiaries)
participate as a partner(s) in one or more joint ventures;
WHEREAS, the Company desires to continue to employ the Executive as the Chief
Executive Officer of the Company, and as an officer of the Company's
subsidiaries, in order to avail itself of the skill, knowledge and experience of
the Executive and to assure the successful management of the Company (and its
subsidiaries), and the Executive desires to continue his employment as the
Chief Executive Officer of the Company, and as an officer of the Company's
subsidiaries;
WHEREAS, the Company (and its subsidiaries) and the Executive desire to enter
into a written employment agreement formally documenting their relationship and
setting forth the duties and responsibilities the Executive has agreed to
undertake as the Chief Executive Officer of the Company, and as an officer of
the Company's subsidiaries;
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein, and for valuable consideration, the receipt and sufficiency of
which are hereby mutually acknowledged, the parties to this Agreement
(collectively "parties" and individually a "party") agree as follows:
AGREEMENT:
---------
1. DEFINITIONS
Set forth below are definitions of capitalized terms which are generally
used throughout this Agreement, or references to sections containing those
definitions (capitalized terms used only in a specific section of this Agreement
are defined in that section):
(a) "ADVANCE" is defined in section 10.
----------
(b) "AFFILIATE" means any "Person" (as defined below) controlling,
controlled by, or under common control with a party.
(c) "AGREEMENT" means this Agreement, as originally executed and as
amended, modified, supplemented and/or restated from time to time.
1
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(d) "ANNUAL BONUS" is defined in section 4(b).
(e) "AUTOMOBILE ALLOWANCE" is defined in section 5(a).
------------
(f) "BOARD" means the Board of Directors of the Company, as such body may
be reconstituted from time to time.
(g) "CELL PHONE ALLOWANCE" is defined in section 5(b).
------------
(h) "CHANGE IN CONTROL" shall mean, subject to subparagraphs (iv) and (v)
below, the occurrence of any of the following events:
(i) An acquisition of control by an "Acquiring Person" where,
immediately after the subject acquisition, such "Person" holds "Beneficial
Ownership" of more than fifty percent (50%) of the "Total Combined Voting Power"
of the Company's then outstanding "Voting Securities". The terms in quotations
in the immediately preceding sentence shall, for purposes of this Agreement,
have the following meanings:
(A) "Acquiring Person" shall mean any "Person" which
acquires the defined percentage of securities, with the exception of:
(A) any Employee Benefit Plan (or a trust forming a part thereof)
maintained by the Company, or any corporation or entity in which the
Company holds fifty percent (50%) or more of the "Voting Securities"
(each, a "Controlled Subsidiary"); (B) the Company or any Controlled
Subsidiary; or (C) any "Person" which acquires the threshold
percentage of "Voting Securities" through a "Non-Control Transaction"
(as defined below).
(B) "Non-Control Transaction" shall mean any transaction in
which the stockholders of the Company immediately before such
transaction, directly or indirectly own immediately following such
transaction at least a majority of the "Total Combined Voting Power"
of the outstanding "Voting Securities" of the surviving corporation
(or other entity) resulting from such transaction, in substantially
the same proportion as such stockholders' ownership of the Company's
"Voting Securities" immediately before such transaction.
(C) "Person," "Beneficial Ownership," "Total Combined Voting
Power" and "Voting Securities" shall have the meanings ascribed to
such terms in Sections 13(d) and 14(d) of the Securities Exchange Act
and Rule 13d-3 promulgated thereunder; or
(ii) During any period of three (3) consecutive years after the
date of this Agreement, the individuals who constituted the Board at the
beginning of such period (the "Incumbent Board") cease to constitute a majority
of the Board, for any reason(s) other than (A) the voluntary resignation of one
or more Board members; (B) the refusal by one or more Board members to stand for
election to the Board; and/or (C) the removal of one or more Board members for
good cause; provided, however, (1) that if the nomination or election of any new
director of the Company was approved by a vote of at least a majority of the
Incumbent Board, such new director shall be deemed a member of the Incumbent
Board; and (2) that no individual shall be considered a member of the Incumbent
Board if such individual initially assumed office as a result of either an
actual or threatened "Election Contest" (as described in Rule 14a-11 promulgated
under the Securities Exchange Act of 1934), or as a result of a solicitation of
proxies or consents by or on behalf of an Acquiring Person, other than a member
of the Board (a "Proxy Contest"), or as a result of any agreement intended to
avoid or settle any Election Contest or Proxy Contest; or
2
<PAGE>
(iii) The Board or the stockholders of the Company approve:
(A) A merger or consolidation or reorganization of the
Company reorganization with:
(1) any Controlled Subsidiary, and such transaction is
not a Non-Control Transaction; or
(2) any other corporation or other entity, and such
transaction is not a Non-Control Transaction; or
(B) A complete liquidation or dissolution of the Company,
and such transaction is not a Non-Control Transaction; or
(C) An agreement for the sale or other disposition of all or
substantially all of the assets of the Company to (1) any Controlled
Subsidiary, and such transaction is not a Non-Control Transaction, or
(2) to any other Person, and such transaction is not a Non-Control
Transaction.
(iv) Notwithstanding clauses (i) through (iii) above, a Change In
-------------------------
Control shall not be deemed to have occurred solely because any Person acquired
Beneficial Ownership of more than the threshold percentage of the outstanding
Voting Securities as a result of an acquisition of Voting Securities by the
Company (each, a "Redemption") which, by reducing the number of Voting
Securities outstanding, increased the percentage of outstanding Voting
Securities Beneficially Owned by such Person; provided, however, that if (A) a
Change In Control would occur as a result of a Redemption but for the operation
of this sentence, and (B) after such Redemption, such Person becomes the
Beneficial Owner of any additional Voting Securities, which increase the
percentage of the then outstanding Voting Securities Beneficially Owned by such
Person over the percentage owned as a result of the Redemption, then a Change In
Control be deemed to occur.
(v) Notwithstanding any other provision of this subsection (h), if
the Executive or an Affiliate of the Executive who is then a stockholder or
director of the Company, either: (i) expressly voted in favor of the transaction
constituting the Change In Control in such Person's capacity as either a
stockholder or as a director of the Company; or (ii) expressly abstained from
voting (other than by reason of an "interest" in a matter or transaction, as
defined in the Nevada Revised Statutes); and/or (iii) failed or refused to vote,
then the transaction shall not constitute a Change in Control.
(i) "COMPANY" means Pinnacle Oil International, Inc., a Nevada Corporation,
and any successor and assign of the Company, as more particularly described in
section 17(e).
- -------------
(j) "DISABILITY" (or the related term "Disabled") means any of the
following: (i) the receipt of any disability insurance benefits by the
Executive; (ii) a declaration by a court of competent jurisdiction that the
Executive is legally incompetent; (iii) the Executive's material inability
due to medically documented mental or physical illness or disability to
fully perform the Executive's regular obligations of his office and as an
employee of the Company (and/or its Subsidiaries) (with reasonable
accommodations for such disability, if then required by applicable federal
or state laws or regulations), for a six (6) month continuous period, or
for nine (9) cumulative months within any one (1) year continuous period;
or (iv) the reasonable determination by the Board that the Executive will
not be able to fully perform the Executive's regular obligations of his
office and as an employee of the Company (and/or its Subsidiaries) (with
reasonable accommodations if then required by applicable federal or state
laws or regulations) for a six (6) month
3
<PAGE>
continuous period. If the Board determines that the Executive is Disabled under
clause (iv) above, and the Executive disagrees with the conclusion of the Board,
then the Company (and/or its Subsidiaries) shall engage a qualified independent
physician reasonably acceptable to the Executive to examine the Executive at the
Company's (and/or its Subsidiaries') sole expense. The determination of such
physician shall be provided in writing to the parties and shall be final and
binding upon the parties for all purposes of this Agreement. The Executive
hereby consents to examination in the manner set forth above, and waives any
physician-patient privilege arising from any such examination as it relates to
the determination of the purported disability. If the parties cannot agree upon
a physician, a physician shall be appointed by the American Arbitration
Association located in Clark County, Nevada, according to the rules and
practices of the American Arbitration Association from time-to-time in force.
(k) "EMPLOYEE BENEFIT PLAN" is defined in section 4(d).
------------
(l) "EMPLOYEE DEDUCTIONS" are defined in section 7.
---------
(m) "MONTHLY SALARY" is defined in section 4(a).
------------
(n) "MOMENTUM" means Momentum Resources Corporation, a Bahamas
corporation, and its successors and assigns including, without limitation, any
successor (whether direct or indirect, or by means of merger, consolidation,
conversion, purchase of assets, purchase of securities, or otherwise) to all or
substantially all of such corporation's business or assets, or both.
(o) "PERFORMANCE BONUS" is defined in section 4(c).
------------
(p) "PERSON" (other than for purposes of determining a Change in
Control) means an individual or natural person, a corporation, partnership
(limited or general), joint-venture, association, business trust, limited
liability company/partnership, business trust, trust (whether revocable or
irrevocable), pension or profit sharing plan, individual retirement account, or
fiduciary or custodial arrangement.
(q) "PERSONAL TIME-OFF" is defined in section 8.
---------
(r) "SUBSIDIARY" shall mean any corporation, partnership (limited or
general), joint-venture, association, business trust, limited liability
company/partnership, business trust or trust in which the Company holds a
controlling interest, including but not limited to Pinnacle Oil, Inc., a Nevada
corporation ("Pinnacle Oil"), and Pinnacle Oil Canada, Inc., a British Columbia
corporation ("Pinnacle Canada").
(s) "RELOCATION ALLOWANCE" is defined in section 5(c).
------------
(t) "TAX WITHHOLDINGS" is defined in section 7.
---------
(u) "TERMINATION BY COMPANY FOR CAUSE" means a termination of the
Executive caused by a determination of two-thirds of the Board, excluding the
Executive if then a member of the Board, that one of the following events has
occurred:
(i) Any of the Executive's representations or warranties in
this Agreement is not materially true, accurate and/or complete;
(ii) The Executive has intentionally and continually breached or
wrongfully failed and/or refused to fulfill and/or perform (A) any of the
Executive's obligations, promises or covenants under this Agreement, or (B)
any of the warranties, obligations, promises or covenants in any agreement
4
<PAGE>
(other than this Agreement) entered into between the Company (and/or its
Subsidiaries) and the Executive, without cure, if any, as provided in such
agreement;
(iii) The Executive has intentionally failed and/or refused to obey
any lawful and proper order or directive of the Board, and/or the Executive
has intentionally interfered with the compliance by other employees of the
Company (and/or its Subsidiaries) with any such orders or directives;
(iv) The Executive has intentionally breached the Executive's
fiduciary duties to the Company (and/or its Subsidiaries);
(v) The Executive has intentionally caused the Company (and/or
its Subsidiaries) to be convicted of a crime, or to incur criminal
penalties in material amounts;
(vi) The Executive has committed: (A) any act of fraud,
misrepresentation, theft, embezzlement or misappropriation, and/or any
other dishonest act against the Company (and/or its Subsidiaries) and/or
any of its Affiliates, subsidiaries, joint ventures; or (B) any other
offense involving moral turpitude, which offense is followed by conviction
or by final action of any court of law; or (C) a felony;
(vii) The Executive repeatedly and intemperately used alcohol or
drugs, to the extent that such use (A) interfered with or is likely to
interfere with the Executive's ability to perform the Executive's duties,
and/or (B) endangered or is likely to endanger the life, health, safety, or
property of the Executive, the Company (and/or its Subsidiaries), or any
other person;
(viii) The Executive has intentionally demonstrated or committed
such acts of racism, sexism or other discrimination as would tend to bring
the Company (and/or its Subsidiaries) into public scandal or ridicule, or
could otherwise result in material and substantial harm to the Company's
(and/or its Subsidiaries')'s business, reputation, operations, affairs or
financial position; and/or
(ix) The Executive engaged in other conduct constituting legal
cause for termination.
No act, nor failure to act, on the Executive's part shall be
considered "intentional" unless the Executive has acted, or failed to act, with
a lack of good faith and with a lack of reasonable belief that the Executive's
action or failure to act was in the best interests of the Company (and/or its
Subsidiaries). In the event the Executive is both Disabled and the provisions of
clause (vii) of this subsection are applicable, the Company shall nevertheless
- ------------
have the right to deem such event as a Termination By Company For Cause.
If any event described above in clause (ii) or clause (viii) of this
subparagraph occurs, and such event is reasonably susceptible of being cured,
then the Executive shall be entitled to a grace period of thirty (30) days
following receipt of written notice of such event. If the Company determines, in
its sole discretion, that such event is not reasonably susceptible of being
cured within a period of thirty (30) days), the Company may grant a longer cure
period to the Executive to cure such event to the reasonable satisfaction of the
Company, provided the Executive promptly commences and diligently pursues such
cure. The noted grace periods shall not apply to any other event described in
this subsection.
(v) "TERMINATION BY EXECUTIVE FOR GOOD REASON" means the Executive's
termination of this Agreement based on his reasonable determination that one of
the following events has occurred:
5
<PAGE>
(i) Any of the Company's representations or warranties in this
Agreement is not materially true, accurate and/or complete;
(ii) The Company intentionally and continually breached or
wrongfully failed to fulfill or perform (A) its obligations, promises or
covenants under this Agreement; or (B) any warranties, obligations,
promises or covenants of the Company (and/or its Subsidiaries) in any
agreement (other than this Agreement) entered into between the Company
(and/or its Subsidiaries) and the Executive, without cure, if any, as
provided in such agreement;
(iii) The Company terminated this Agreement and the Executive's
employment hereunder, and such termination does not constitute Termination
By Company For Cause;
(iv) Without the consent of the Executive, the Company: (A)
substantially altered or materially diminished the position, nature,
status, prestige or responsibilities of the Executive from those in effect
by mutual agreement of the parties from time-to-time; (B) assigned
additional duties or responsibilities to the Executive which were wholly
and clearly inconsistent with the position, nature, status, prestige or
responsibilities of the Executive then in effect; or (C) removed or failed
to reappoint or re-elect the Executive to the Executive's offices under
this Agreement (as they may be changed or augmented from time-to-time with
the consent of the Executive), or as a director of the Company, except in
connection with the Disability of the Executive;
(v) Without the consent of the Executive, the Company relocated
the Company's principal operating offices from their present location, and
as a result increased the Executive's ordinary commute from the Executive's
temporary residence by more than thirty-five (35) miles;
(vi) Without the consent ratification (express or implied) of the
Executive, the Executive was removed from the Board without his consent; or
the Company failed to nominate or reappoint the Executive to the Board
(unless the Executive is deceased or Disabled, or such removal or failure
is attributable to an event which would constitute Termination By Company
For Cause), or if the Executive was so nominated, the stockholders of the
Company failed to re-elect the Executive to the Board;
(vii) The Company (and/or its Subsidiaries) intentionally required
the Executive to commit or participate in any felony or other serious
crime; and/or
(viii) The Company (and/or its Subsidiaries) engaged in other
conduct constituting legal cause for termination.
In the event any of the events described above in this subparagraph
occurs, and such event is reasonably susceptible of being cured, the Company
shall be entitled to a grace period of thirty (30) days following receipt of
written notice of such event. If the Company determines, in its sole discretion,
that such event is not reasonably susceptible of being cured within a period of
thirty (30) days, the Company may grant a longer cure period to the Executive to
cure such event to the reasonable satisfaction of the Company, provided the
Executive promptly commences and diligently pursues such cure. The noted grace
periods shall not apply to any other event described in this subparagraph.
------------
2. EMPLOYMENT OBLIGATIONS
(a) ENGAGEMENT; DUTIES. The Company hereby engages the Executive as its
------------------
Chief Executive Officer, and as an officer of its Subsidiaries, and the
Executive accepts such engagement, upon the
6
<PAGE>
terms and conditions set forth below. As Chief Executive Officer of the Company,
and as an officer of the Subsidiaries, the Executive shall do and perform all
services, acts, or things necessary or advisable that a Chief Executive Officer
of the Company and an executive officer of the Subsidiaries would customarily be
empowered and authorized to do, and perform by law and under the Company's
(and/or its Subsidiaries') Bylaws, including without limitation:
(i) Managing, conducting and supervising the day-to-day business
of the Company (and/or its Subsidiaries) such as, by way of example and not
limitation, hiring and firing employees and consultants and establishing
compensation levels for such employees and consultants; and negotiating and
entering into contracts on behalf of the Company (and/or its Subsidiaries) with
respect to the ordinary operations of the business of the Company (and/or its
Subsidiaries) such as, by way of example and not limitation, exploration,
equipment, purchase and lease contracts;
(ii) On behalf of the Company (and/or its Subsidiaries),
negotiating and entering into agreements, contracts and/or joint ventures with
third parties relating to the provision of SFD Data;
(iii) Acting as the Company's liaison with its attorneys, certified
public accountants, bankers, joint venture partners, market makers for the
Company's securities and the investment community; and
(iv) Developing and implementing long-term strategic, business and
fiscal planning for the Company (and/or its Subsidiaries) and their businesses,
including but not limited to plans or capital requirements for financing, the
commercial exploitation of SFD Data, finance, and positioning the Company's
securities in the various capital markets.
The Executive shall report only to the Board, and any significant
employment decisions and/or agreements, contracts and/or joint ventures
negotiated by the Executive shall be subject to the review and
approval/ratification of the Board. The Executive's responsibilities with
respect to the Company and each of its Subsidiaries may be changed or
supplemented by the Board from time-to-time, in their discretion. The Executive
shall also hold such offices with the Subsidiaries and/or joint ventures of the
Company (and/or its Subsidiaries) as the Board may, in its discretion and with
the consent of the Executive, from time-to-time determine. The Board shall
determine the amount of the Executive's total remuneration which will be
allocated to and paid by the Company and by each of its Subsidiaries. The
Executive shall be reasonably available to travel as the needs of the business
of the Company (and/or its Subsidiaries) may require.
(b) PERFORMANCE. The Executive shall devote the Executive's entire and
-----------
undivided business time, energy, abilities and attention solely and exclusively
to the performance of the Executive's duties hereunder and the business of the
Company (and/or its Subsidiaries); provided, however, the Executive may devote a
portion of the Executive's business time, energy, abilities and attention to the
Executive's duties as an executive officer of Momentum, so long as such
performance does not materially impair the performance of the Executive in
discharging the Executive's duties hereunder. The Executive shall at all times
faithfully, loyally, conscientiously, diligently and, to the best of the
Executive's ability, perform all of the Executive's duties and obligations under
this Agreement, and otherwise promote the interests and welfare of the Company
(and/or its Subsidiaries), all consistent with the highest and best standards of
the Company's (and/or its Subsidiaries') industry. The Executive: (i) shall
strictly comply with and adhere to all applicable laws, and the Company's
(and/or its Subsidiaries') Articles of Incorporation, Bylaws and policies; (ii)
shall obey all reasonable rules and regulations and policies now in effect or as
subsequently modified governing the conduct of employees of the Company (and/or
its Subsidiaries), and (iii) shall not commit any acts of gross negligence,
willful misconduct, dishonesty, fraud or misrepresentation, racism, sexism or
other discrimination, or any other acts which would tend to bring the Company
(and/or its Subsidiaries) into public scandal or ridicule, or would otherwise
result in
7
<PAGE>
material harm to the Company's (and/or its Subsidiaries') business or
reputation.
(c) FACILITIES AND SERVICES. The Company (and/or its Subsidiaries) shall
-----------------------
provide such support staff, facilities, equipment and supplies as are reasonably
necessary or suitable for the adequate performance of the Executive's duties and
obligations under this Agreement, including technical and secretarial help.
(d) ACKNOWLEDGMENT AND WAIVER RELATIVE TO DUAL EMPLOYMENT AND POTENTIAL
-------------------------------------------------------------------
CONFLICT OF INTEREST. The parties acknowledge that the Executive is also
- --------------------
employed as an executive officer of Momentum, which corporation provides certain
SFD Data to the Company (and/or its Subsidiaries) pursuant to the terms of
certain agreements between the Company (and/or its Subsidiaries) and Momentum,
and is also a director and holds an indirect beneficial interest in Momentum.
The Company (and its Subsidiaries) hereby waive any claim for breach of the
Executive's fiduciary duties to the Company (and its Subsidiaries), including
potential conflicts of interest, as a result of such dual employment, or arising
as a result of the Executive's present or future status as an employee, officer,
director, trustee of, or as the holder of a direct or indirect beneficial
interest in, Momentum (and/or of its subsidiaries and/or of its joint-ventures).
Notwithstanding the foregoing waiver, the Executive shall use his best efforts
to act in good faith with respect to performing the Executive's present and
future duties for the Company and for its Subsidiaries and/or joint-ventures.
3. TERM
(a) INITIAL TERM. The Company (and/or its Subsidiaries) hereby employ the
------------
Executive pursuant to the terms of this Agreement, and the Executive hereby
accepts such employment, for the period beginning on the date of this Agreement
and ending on December 31, 2002 (the "Initial Term").
(b) AUTOMATIC RENEWAL; TERMINATION BY THE COMPANY. Unless this Agreement
---------------------------------------------
is previously terminated by either party as provided in section 12 below, this
----------
Agreement will be automatically renewed for additional and consecutive one (1)
year terms (each, a "Renewal Term") following the expiration of each Initial or
Renewal Term, (each a "Term"), unless either party gives written notice to the
------
other party, no later than sixty (60) days prior to the expiration of the then
pending Term, of its election not to automatically renew this Agreement for an
---
additional year.
4. COMPENSATION
(a) MONTHLY BASE SALARY. From the date of this Agreement to December 31,
-------------------
1997, the Company (and/or its Subsidiaries) shall pay to the Executive a
monthly base salary of Seven Thousand United States dollars (US $7,000).
From January 1, 1998, and throughout the remainder of the Term (subject to
periodic adjustment as described below), the Company (and/or its
Subsidiaries) shall pay to the Executive a monthly base salary of Ten
Thousand United States dollars (US $10,000) (the "Monthly Salary"). The
Monthly Salary shall be payable in periodic installments as agreed from
time-to-time by the Executive and the Board, but at least monthly, and
shall be subject to any Tax Withholdings and/or Employee Deductions that
are applicable. In any pay period in which the Executive shall be employed
for less than the entire number of business days in such pay period, the
Monthly Salary for such pay period shall be prorated on the basis of the
number of business days during which the Executive was actually employed
during such pay period, divided by the actual number of business days in
such pay period. Commencing on the first annual anniversary date of this
Agreement, and on each annual anniversary date thereafter, the Monthly
Salary then effective shall be increased by an amount equal to five
percent (5%) of the Monthly Salary for the immediately prior year.
Additionally, commencing on or prior to the first annual anniversary date
of this Agreement, and on or prior to each annual anniversary date
thereafter, the Board shall review the Executive's Monthly Salary to
determine whether to increase the Monthly Salary by an amount in excess of
said five percent (5%) increment, without any obligation by the Board to
authorize such
8
<PAGE>
increase.
(b) ANNUAL BONUS.
------------
(i) Amount. In the event the Company's "Net Income After Taxes" (as
------
defined below) for any fiscal year during the Term exceeds Five Million United
States dollars (US $5,000,000), the Company (and/or its Subsidiaries) shall pay
the Executive, no later than thirty (30) days after the completion of the
Company's audited financial statements for the subject fiscal year, an amount
equal to five percent (5%) of the "Net Income After Taxes" of the Company for
such fiscal year (the "Annual Bonus"), subject to any Applicable Tax
Withholdings and/or Employee Deductions. The term "Net Income After Income
Taxes" shall mean the net income of the Company after income taxes, computed in
accordance with United States generally accepted accounting principles and as
reflected on the audited financial statements of the Company. Appropriate
adjustments shall be made to the Annual Bonus to be paid to reflect customary
and ordinary accounting adjustments made at year end with respect to the prior
fiscal year.
(ii) Written Statement. The Company shall deliver to the Executive
-----------------
with each Annual Bonus payment a written statement setting forth the basis of
its calculation of the Annual Bonus. The Executive and the Executive's
independent representatives shall have the right, at the Executive's sole cost,
one time per fiscal year, to inspect the records of the Company with respect to
the calculations and to make copies of said records utilizing the Company's
facilities without charge, and shall have free and full access thereto on
reasonable notice during the normal business hours of the Company. In the event
that such inspection reveals an underpayment by the Company of any Annual Bonus
due the Executive, then the Company shall immediately pay to the Executive the
balance of all such amounts found to be due. Further, if such inspection
discloses that the Company has underpaid the Annual Bonus due for the period by
ten percent (10%) or more, and the Executive is no longer employed by the
Company, then the Company shall also pay the reasonable professional fees of the
independent representatives engaged to conduct or review such inspection or
audit.
(c) PERFORMANCE BONUS. The Board shall from time-to-time, but not more
-----------------
than one (1) time per year, evaluate the performance of the Executive and award
to the Executive a performance bonus (the "Performance Bonus") in such amount as
the Board may determine, in its sole discretion, to be reasonable, after taking
into consideration other compensation paid or payable to the Executive under
this Agreement, as well as the financial and non-financial progress of the
business of the Company (and/or its Subsidiaries) and the contributions of the
Executive toward that progress. Payment of the Performance Bonus shall be
subject to any applicable Tax Withholdings and/or Employee Deductions.
(d) PARTICIPATION IN EMPLOYEE BENEFIT PLANS. The Executive shall have the
---------------------------------------
same rights, privileges, benefits and opportunities to participate in any
employee benefit plans of the Company (and/or its Subsidiaries) which may now or
hereafter be in effect on a general basis for executive officers or employees,
including without limitation retirement, pension, profit-sharing, savings and
insurance (including, but not limited to, health, dental, disability and/or
group insurance) (collectively, "Employee Benefit Plans"). In the event the
Executive receives payments from a disability plan maintained by the Company
(and/or its Subsidiaries), the Company (and/or its Subsidiaries) shall have the
right to offset such payments against Monthly Salary otherwise payable to the
Executive during the period for which payments are made by such disability plan.
(e) STOCK OPTIONS. In addition to the remuneration noted above, the
-------------
Executive shall receive such qualified or unqualified stock options, subject to
such terms and conditions, as the Board of Directors shall determine, in their
sole and absolute discretion.
9
<PAGE>
5. ALLOWANCES
(a) AUTOMOBILE ALLOWANCE. The Company (and/or its Subsidiaries) shall
--------------------
provide a late model luxury automobile to the Executive for his or her use on
behalf of the Company (and/or its Subsidiaries) and for incidental personal use,
during the term of this Agreement, and shall pay all purchase-installment and/or
lease payments to acquire such automobile, as well as the cost to insure the
automobile. Should the Company (and/or its Subsidiaries) fail to provide the
automobile during any portion of the term of this Agreement, the Company (and/or
its Subsidiaries) shall pay the Executive the sum of Seven Hundred United States
dollars (US $700) for each month such automobile is not provided, to cover
and/or reimburse the Executive for the cost of an automobile and for the payment
of insurance in connection therewith. The Company (and/or its Subsidiaries)
shall additionally reimburse the Executive for all gasoline, operation,
maintenance and repair costs associated with the Executive's use of the
automobile provided by the Company (and/or its Subsidiaries) (or the Executive's
personal automobile should the Company and/or its Subsidiaries fail to provide
an automobile) upon submission of itemized receipts therefore. Payment and/or
provision of the aforesaid allowance (the "Automobile Allowance") shall be
subject to any applicable Tax Withholdings and/or Employee Deductions. The
Executive shall be responsible for all income taxes imposed on the Executive by
reason of the Automobile Allowance.
(b) CELLULAR TELEPHONE ALLOWANCE. The Company (and/or its Subsidiaries)
----------------------------
shall provide a cellular phone to the Executive during the term of this
Agreement, to be used by the Executive as necessary for the business of the
Company (and/or its Subsidiaries), and for incidental personal use. In
addition, the Company (and/or its Subsidiaries) shall pay all charges associated
with the Executive's use of the cellular telephone for the business of the
Company (and/or its Subsidiaries) upon submission of itemized receipts
therefore. Payment and/or provision of the aforesaid allowance (the "Cell Phone
Allowance") shall be subject to any applicable Tax Withholdings and/or Employee
Deductions. The Executive shall be responsible for all income taxes imposed on
the Executive by reason of the Cell Phone Allowance.
(c) RELOCATION ALLOWANCE. In the event the Company relocates its
--------------------
principal executive offices from its present location, and, as a result,
increases the Executive's ordinary commute from the Executive's then permanent
residence by more than thirty-five (35) miles (each, a "Relocation"), then the
Company (and/or its Subsidiaries) shall have the following obligations to the
Executive (collectively, the "Relocation Allowance"):
(i) Rental Expenses. The Company (and/or its Subsidiaries) shall pay
---------------
all costs to rent a new residence which is located within thirty-five (35)
miles of the location of the Company's new principal executive offices, to
be selected by the Executive and which is comparable to the Executive's
then current residence including all utilities, maintenance, insurance and
other occupancy costs (the "Old Residence"); provided, however, in the
event the Executive rents the Old Residence to a third party, the amount of
the rental the Company (and/or its Subsidiaries) pay shall be reduced by
the amount of rent (net of expenses) received by the Executive with respect
to the Old Residence. The Company's (and/or its Subsidiaries') obligation
shall terminate upon the earlier of (i) such time as the Executive, without
any obligation to do so, sells or disposes of the Old Residence; or (ii)
thirty (30) months after the date of the Relocation.
(ii) Moving Expenses. The Company (and/or its Subsidiaries) shall
---------------
cover all costs incurred by the Executive as a result of the Relocation, to
move the Executive and his or her family and their personal property to
such new location (or subsequently back to the Old Residence), including
without limitation all costs to move the Executive's personal belongings
from the Old Residence to the new residence, or vice versa.
10
<PAGE>
(iii) Loss and Expenses Incurred Upon Sale of Old Residence. In the
-----------------------------------------------------
event the Executive sells or disposes of the Old Residence as a result of
the Relocation, the Company shall pay to the Executive the following: (i)
the Executive's costs incurred as a result of such sale or disposition,
including closing costs, broker's commissions and costs to place the Old
Residence in a condition to be sold; and (ii) any actual economic loss
incurred by the Executive in selling the Old Residence, which loss shall be
defined as the amount by which the fair market value of the Old Residence
(as of the date the Relocation is announced, as such value shall be
determined by an appraisal by an appraiser satisfactory to both parties)
exceeds the actual sales price for the Old Residence (excluding costs). In
the event of such purchase the Company (and/or its Subsidiaries) shall be
solely responsible for, and shall indemnify and hold the Executive harmless
with respect to, any subsequent costs or expenses incurred with respect to
the Old Residence, including debt service, property taxes and assessments,
insurance, expenses and repairs.
(iv) Certain Expenses Incurred Upon Purchase of New Residence. In
--------------------------------------------------------
the event the Executive purchases a new residence within thirty-five (35)
miles of the location of the Company's new principal executive offices as a
result of the Relocation, the Company (and/or its Subsidiaries) shall pay
all costs incurred by the Executive in acquiring the new residence,
including loan and closing costs, but excluding the Executive's down
payment, mortgage loan and mortgage points.
(v) Income Tax Consequences. Payment and/or provision of the
-----------------------
Relocation Allowance shall be subject to any Tax Withholdings and/or
Employee Deductions as may be applicable. The Executive shall be
responsible for all income taxes imposed on the Executive by reason of the
Relocation Allowance.
6. BUSINESS EXPENSES
During the Term of this Agreement the Executive is authorized to incur,
and the Company (and/or its Subsidiaries) shall directly pay or reimburse the
Executive for his or her payment of the Executive's reasonable and necessary
business expenses, duly and actually incurred by the Executive in connection
with the duties and services to be performed by the Executive under this
Agreement, including without limitation entertainment, meals, travel, lodging
and other similar out-of-pocket expenses, upon the Executive's submission to the
Company (and/or its Subsidiaries) of itemized expense statements setting forth
the date, purpose and amount of the expense incurred, together with
corresponding receipts showing payment by the Executive in cases where he or she
seeks reimbursement, all in conformity with business expense payment and/or
reimbursement policies as may be established by the Company (and/or its
Subsidiaries) from time to time, all of which shall comply with the
substantiation requirements of any applicable taxing authorities, and
regulations promulgated by such authorities thereto, pertaining to the
deductibility of such expenses. Direct payment and/or reimbursement shall be
made by the Company (and/or its Subsidiaries) no later than thirty (30) days of
the Executive submission of the foregoing documentation. The Executive shall be
entitled to direct payment and/or reimbursement in full for the aforesaid
business expenses. The Company (and/or its Subsidiaries) shall have the option
to pay directly the persons entitled to payment for such business expenses.
7. TAX WITHHOLDINGS AND EMPLOYEE DEDUCTIONS
The Company (and/or its Subsidiaries) shall be entitled to deduct from
any payments to the Executive pursuant to the terms of this Agreement (including
any payments arising from the early termination of this Agreement), amounts
sufficient to cover any applicable federal, provincial, state, local and/or
foreign income tax withholdings and/or deductions as may be required in
connection with such payment, including without limitation old-age and
survivor's and other social security payments, state disability and other
11
<PAGE>
withholdings payment as may be required by the tax laws or regulations of any
applicable jurisdiction (collectively, the "Tax Withholdings"), as well as all
other elective employee deductions applicable to such payment such as, for
example, deductions relating to any Employee Benefit Plan in which the Executive
participates (collectively, the "Employee Deductions").
8. PERSONAL TIME-OFF
The Executive shall be entitled each calendar year during the term of
this Agreement to such number of personal time-off days for such purposes,
including vacations and time for personal affairs ("Personal Time-Off") as are
approved by the Board, but not less than the greater of (i) twenty (20) business
days, or (ii) the number of personal time-off days (including vacation and
personal days) generally given by the Company (and/or its Subsidiaries) to its
employees. Personal Time-Off shall be in addition to regular paid holidays
provided to all employees of the Company (and/or its Subsidiaries). The
Executive's compensation shall be paid in full with respect to approved Personal
Time-Off days. Should the Executive fail to use all Personal Time-Off days in
any calendar year, the Executive shall have the option of (i) receiving payment
for such days on a pro rata basis, or (ii) "carrying-over" unused Personal Time-
Off days to succeeding years. Personal time-off shall be taken during a period
or periods mutually satisfactory to both the Company (and/or its Subsidiaries)
and the Executive.
9. INSURANCE
If requested by the Company (and/or its Subsidiaries), the Executive
shall submit to such physical examinations and otherwise take such actions and
execute and deliver such documents as may be reasonably necessary to enable the
Company (and/or its Subsidiaries), at its expense and for its own benefit, to
obtain disability and/or life insurance on the life of the Executive. The
Executive represents and warrants that he has no reason to believe that he is
not insurable for disability or life coverage with a reputable insurance company
at rates now prevailing in the city of the Company's principal executive
offices, for healthy persons of the Executive's own age and gender.
10. ADVANCES
The Company (and/or its Subsidiaries) may from time-to-time, upon
written consent from the Chairman of the Board or the Board, and without any
obligation to do so, make advances to the Executive against any compensation or
other amounts to be paid by the Company (and/or its Subsidiaries) to the
Executive (each, an "Advance"). Any amounts due hereunder to the Executive
shall, at the election of the Company (and/or its Subsidiaries), be offset by
any then outstanding Advances.
In the event of termination of employment of executive, the Executive
agrees that the Company (and/or its Subsidiaries) shall have the right to offset
the amount of any and all outstanding Advance(s) against any salary or wages
due, or any other amounts due to the Executive from the Company (and/or its
Subsidiaries), and that any remaining balance of the Advance(s) shall be repaid
by the Executive within thirty (30) days after the Executive's termination date.
If such Advance(s) are not repaid within said thirty (30) days, simple interest
shall accrue on the unpaid balance at the rate of ten percent (10%) per annum.
The Executive agrees to pay all costs of collection incurred by the Company
(and/or its Subsidiaries) with respect thereto, including reasonable attorneys'
fees and legal costs.
The Company's (and/or its Subsidiaries') obligation to make payments
to the Executive hereunder shall not, except with respect to Advance(s) as
provided above, be affected by any circumstance, including without limitation
any set-off, counterclaim, recoupment, defense or other right which the Company
(and/or its Subsidiaries) may have against the Executive or others.
12
<PAGE>
11. TERMINATION OF AGREEMENT BEFORE EXPIRATION OF TERM
(a) DEATH OR DISABILITY. Notwithstanding any other term of this
-------------------
Agreement, the applicable Term shall terminate upon the death or Disability of
the Executive, subject to compliance with such federal and state laws and
regulations as may then be applicable.
(b) CHANGE IN CONTROL. Notwithstanding any other term of this Agreement,
-----------------
the applicable Term shall, at the election of the Executive, delivered by
written notice to the Company, terminate effective upon the Change In Control.
(c) TERMINATION OF AGREEMENT BY COMPANY FOR CAUSE. Subject to compliance
---------------------------------------------
with any applicable federal and state laws and regulations, the Company may
terminate this Agreement and the Executive's employment hereunder at any time in
the event such termination constitutes Termination By Company For Cause, upon
giving written notice to the Executive specifying in reasonable detail (i) the
event which constitutes the cause; (ii) the pertinent facts and circumstances
underlying the cause; and (iii) the effective date of the termination (not to
exceed ninety {90} days from the date of such notice, but which date may, at the
Company's election, be effective upon receipt of said written notice by the
Executive). Such notice shall also afford the Executive an opportunity to be
heard in person by the Board (with the assistance of the Executive's legal
counsel, if the Executive so desires). Such hearing shall be held reasonably
promptly after such notice but, in any event, before the effective date of the
prospective termination.
(d) TERMINATION OF AGREEMENT BY EXECUTIVE FOR GOOD REASON. The Executive
-----------------------------------------------------
may terminate this Agreement and the Executive's employment hereunder at any
time in the event such termination constitutes Termination By Executive For Good
Reason, upon giving written notice to the Company specifying in reasonable
detail (i) the event which constitutes the good reason; (ii) the pertinent facts
and circumstances underling the good reason; and (iii) the effective date of
termination (not to exceed ninety {90} days from the date of such notice, but
which date may, at the Executive's election, be effective upon receipt of said
written notice by the Company).
12. EFFECT OF TERMINATION ATTRIBUTABLE TO DEATH OR DISABILITY; TERMINATION BY
COMPANY FOR CAUSE; TERMINATION BY EXECUTIVE WITHOUT GOOD REASON
In the event the Executive's employment hereunder is terminated before
the expiration of a Term, and such termination is attributable to (i) an event
defined as Death or Disability; (ii) an event defined as Termination By Company
For Cause; and/or (iii) termination by the Executive which does not constitute
Termination By Executive For Good Reason, then all rights and obligations of the
Company and the Executive under section 2 [Employment Obligations], section 4
[Compensation], section 5 [Allowances], section 6 [Business Expenses] and
section 8 [ Personal Time-Off] shall terminate as of the effective date of the
termination; provided, however:
(a) The Company (and/or its Subsidiaries) shall pay the Executive's
accrued but unpaid Monthly Salary and Personal Time-Off days through the
effective date of the termination on or before the close of business on such
effective date; and the Executive shall not be entitled to Monthly Salary and/or
Personal Time-Off days after the effective date of the termination;
(b) The Company (and/or its Subsidiaries) shall pay the Executive's
accrued but unpaid Annual Bonus through the last date of the Executive's
employment within one hundred and twenty (120) days after the end of the fiscal
period to which the Annual Bonus relates. The amount of the Annual Bonus shall
be
13
<PAGE>
determined by calculating the Annual Bonus the Executive would ordinarily be
entitled to for the entire fiscal year, and then dividing such amount by a
fraction wherein the numerator equals the number of days the Executive was
employed in such year and the denominator equals the total number of calendar
days in such year; the Executive shall not be entitled to earn or accrue any
Annual Bonus after the effective date of the termination;
(c) The Company (and/or its Subsidiaries) shall pay any declared but
unpaid Performance Bonus;
(d) The Company (and/or its Subsidiaries) shall reimburse the Executive
for any Automobile Allowance and Cell Phone Allowance incurred prior to the
effective date of the termination;
(e) The Company (and/or its Subsidiaries) shall reimburse the Executive for
any business expenses incurred prior to the effective date of the termination,
within three (3) business days after the Executive's submission of the
Executive's expense report to the Company (and/or its Subsidiaries);
(f) The Executive shall not be entitled to continue to participate in any
Employee Benefit Plans except to the extent provided in such plans for
terminated participants, or as may be required by applicable law.
Notwithstanding the foregoing, amounts which are vested in any Employee Benefit
Plans shall be payable in accordance with such plan; and
(g) If, as the effective date of the termination, the Company has announced
a Relocation, and the Executive has, prior to such effective date, relocated
pursuant to such announcement, or has entered into binding agreements in
connection therewith, the rights of the Executive and obligations of the Company
(and/or its Subsidiaries) under section 5(c) shall continue with respect to the
------------
pending Relocation; otherwise, all rights of the Executive and obligations of
the Company (and/or its Subsidiaries) under section 5(c) shall terminate as of
------------
the date of the notice.
13. EFFECT OF TERMINATION WHERE TERMINATION ATTRIBUTABLE TO CHANGE IN CONTROL;
TERMINATION BY EXECUTIVE FOR GOOD REASON; TERMINATION BY COMPANY
WITHOUT CAUSE
In the event the Executive's employment hereunder is terminated before the
expiration of a Term, and such termination is attributable to (i) an event
defined as a Change in Control; (ii) an event defined as a Termination by
Executive for Good Reason; and/or (iii) termination by the Company which does
not constitute a Termination By Company for Cause; then all rights and
obligations of the Company (and/or its Subsidiaries) and the Executive under
section 2 [Employment Obligations], section 4 [Compensation], section 5
- --------- --------- ---------
[Allowances], section 6 [Business Expenses], and section 8 [ Personal Time-Off]
--------- ---------
shall terminate as of the effective date of the termination date; provided,
however:
(a) The Company (and/or its Subsidiaries) shall continue to pay the
Executive's then effective Monthly Salary through the pending Term of this
Agreement, on the same basis as previously paid to the Executive, but subject to
such minimum increases as are described in section 4;
---------
(b) The Company (and/or its Subsidiaries) shall continue to accrue and pay
the Executive's Annual Bonus through the pending Term of this Agreement, on the
same basis as previously paid to the Executive, and subject to the other
provisions of section 4;
---------
(c) The Company (and/or its Subsidiaries) shall pay the Executive's
declared but unpaid Performance Bonus;
14
<PAGE>
(d) At the election of the Executive, the Company (and/or its
Subsidiaries) shall (i) permit the Executive to continue to participate in any
Employee Benefit Plans, except to the extent prohibited in such plans for
terminated employees, or as may be required by applicable law; or (ii) provide
the Executive with additional compensation, payable on a monthly basis, which
would approximate the cost to the Executive to obtain comparable benefits;
(e) The Company (and/or its Subsidiaries) shall continue to pay the
Executive's monthly Automobile Allowance (but not gasoline, insurance and
repair, maintenance and operating expenses) through the pending Term of this
Agreement, on the same basis as previously paid to the Executive;
(f) The Company (and/or its Subsidiaries) shall reimburse the Executive
for the Cell Phone Allowance through the effective date of the termination;
(g) The Company (and/or its Subsidiaries) shall reimburse the Executive
for the Executive's business expenses incurred through the effective date of the
termination, within three (3) business days of the Executive's submission of the
Executive's expense report to the Company (and/or its Subsidiaries);
(h) If, as the effective date of termination, the Company has announced a
Relocation, and the Executive has, prior to such effective date, relocated
pursuant to such announcement, or has entered into binding agreements in
connection therewith, the rights of the Executive and obligations of the
Company (and/or its Subsidiaries) under section 5(c) shall continue with
------------
respect to the pending Relocation; otherwise, all rights of the Executive
and obligations of the Company (and/or its Subsidiaries) under section 5(c)
------------
shall terminate; and
(i) If both (A) the termination is directly or indirectly attributable to
a sale of all or substantially all of the assets of the Company (each, a
"Sale"); and (B) the prospective Sale is approved by a "disinterested" majority
of the Board of Directors (as defined under the Nevada Revised Statutes), then
the Company (and/or its Subsidiaries) shall pay to the Executive an amount equal
to two percent (2%) of the total consideration (including cash, securities, debt
or any other form of property) received by the Company (and/or its Subsidiaries)
in connection with such Sale.
The Executive shall not be required to mitigate the amount of any payment
pursuant to this section by seeking other employment or otherwise, and no such
-------
payment shall be offset or reduced by the amount of any compensation or benefits
provided to the Executive in any subsequent employment. The provisions of this
section shall not be deemed to prejudice the rights of the Company (and/or its
- -------
Subsidiaries) or the Executive to any remedy or damages to which such party may
be entitled by reason of a breach of this Agreement by the other party, whether
at law or equity.
14. REPRESENTATIONS AND WARRANTIES OF PARTIES
(a) BY ALL PARTIES. Each of the parties to this Agreement hereby
--------------
represents and warrants to each of the other parties to this Agreement, each of
which is deemed to be a separate representation and warranty, as follows:
(i) Organization, Power and Authority. Such party, if an
---------------------------------
entity, is duly organized, validly existing and in good standing under the
laws of its state, territory or province of incorporation or organization,
and has all requisite corporate or other power and authority to enter into
this Agreement.
(ii) Authorization and Validity of Agreement. The execution and
---------------------------------------
delivery of this
15
<PAGE>
Agreement by such party, and the performance by such party of the
transactions herein contemplated, have, if such party is an entity, been
duly authorized by its governing organizational documents, and are not
prohibited by its governing organization documents, and no further
corporate or other action on the part of such party is necessary to
authorize this Agreement, or the performance of such transactions. This
Agreement has been duly executed and delivered by such party and, assuming
due authorization, execution and delivery by all of the other parties
hereto, is valid and binding upon such party in accordance with its terms,
except as limited by: (1) bankruptcy, insolvency, reorganization,
moratorium or other similar laws now or hereafter in effect relating to
creditor rights generally; and (2) general principles of equity (regardless
of whether such enforcement is considered in a proceeding in equity or at
law).
(iii) No Breach or Conflict. Neither the execution or delivery of
---------------------
this Agreement, nor the performance by such party of the transactions
contemplated herein: (i) if such party is an entity, will breach or
conflict with any of the provisions of such party's governing
organizational documents; or (ii) to the best of such party's knowledge and
belief, will such actions violate or constitute an event of default under
any agreement or other instrument to which such party is a party.
(b) BY EXECUTIVE. The Executive hereby represents and warrants to the
------------
Company (and/or its Subsidiaries) that the Executive is not Disabled at the time
of the execution and delivery of this Agreement by the Executive.
15. PERFORMANCE ON BUSINESS DAY
In the event the date on which a party is required to take any action
under the terms of this Agreement is not a business day, the action shall,
unless otherwise provided herein, be deemed to be required to be taken on the
next succeeding business day.
16. NON-LIABILITY FOR DEBTS
The Executive's rights and obligations under this Agreement shall not be
subject to encumbrance or to the claims of the Executive's creditors (other than
the Company, and/or its Subsidiaries), or subject to the debts, contracts or
engagements of the Executive or the Executive's heirs, successors and assigns,
and any attempt to do any of the foregoing shall be null and void ab initio and
without force and effect.
17. MISCELLANEOUS
(a) PREPARATION OF AGREEMENT; COSTS AND EXPENSES. This Agreement was
--------------------------------------------
prepared by the Company solely on behalf of such party. Each party acknowledges
that: (i) he, she or it had the advice of, or sufficient opportunity to obtain
the advice of, legal counsel separate and independent of legal counsel for any
other party hereto; (ii) the terms of the transactions contemplated by this
Agreement are fair and reasonable to such party; and (iii) such party has
voluntarily entered into the transactions contemplated by this Agreement without
duress or coercion. Each party further acknowledges that such party was not
represented by the legal counsel of any other party hereto in connection with
the transactions contemplated by this Agreement, nor was he, she or it under any
belief or understanding that such legal counsel was representing his, her or its
interests. Except as expressly set forth in this Agreement, each party shall
pay all legal and other costs and expenses incurred or to be incurred by such
party in negotiating and preparing this Agreement; in performing due diligence
or retaining professional advisors; in performing any transactions contemplated
by this Agreement; or in complying with such party's covenants, agreements and
conditions contained herein. Each party agrees that no conflict, omission or
ambiguity in this Agreement, or the interpretation thereof, shall be presumed,
implied or otherwise construed against any other party to this Agreement on the
basis that such party was responsible for
16
<PAGE>
drafting this Agreement.
(b) COOPERATION. Each party agrees, without further consideration, to
-----------
cooperate and diligently perform any further acts, deeds and things, and to
execute and deliver any documents that may be reasonably necessary or otherwise
reasonably required to consummate, evidence, confirm and/or carry out the intent
and provisions of this Agreement, all without undue delay or expense.
(c) INTERPRETATION.
--------------
(i) Survival. All representations and warranties made by any party in
--------
connection with any transaction contemplated by this Agreement shall,
irrespective of any investigation made by or on behalf of any other party
hereto, survive the execution and delivery of this Agreement, and the
performance or consummation of any transaction described in this Agreement.
(ii) Entire Agreement/No Collateral Representations. Each party expressly
----------------------------------------------
acknowledges and agrees that this Agreement, and the agreements and documents
referenced herein: (1) are the final, complete and exclusive statement of the
agreement of the parties with respect to the subject matter hereof; (2)
supersede any prior or contemporaneous agreements, memorandums, proposals,
commitments, guaranties, assurances, communications, discussions, promises,
representations, understandings, conduct, acts, courses of dealing, warranties,
interpretations or terms of any kind, whether oral or written (collectively and
severally, the "prior agreements"), and that any such prior agreements are of no
force or effect except as expressly set forth herein; and (3) may not be varied,
supplemented or contradicted by evidence of prior agreements, or by evidence of
subsequent oral agreements. No prior drafts of this Agreement, and no words or
phrases from any prior drafts, shall be admissible into evidence in any action
or suit involving this Agreement.
(iii) Amendment; Waiver; Forbearance. Except as expressly provided
------------------------------
herein, neither this Agreement nor any of the terms, provisions, obligations or
rights may be amended, modified, supplemented, augmented, rescinded, discharged
or terminated (other than by performance), except by a written instrument or
instruments signed by all of the parties to this Agreement. No waiver of any
breach of any term, provision or agreement, or of the performance of any act or
obligation under this Agreement, or of any extension of time for performance of
any such act or obligation, or of any right granted under this Agreement, shall
be effective and binding unless such waiver shall be in a written instrument or
instruments signed by each party claimed to have given or consented to such
waiver. Except to the extent that the party or parties claimed to have given or
consented to a waiver may have otherwise agreed in writing, no such waiver shall
be deemed a waiver or relinquishment of any other term, provision, agreement,
act, obligation or right granted under this Agreement, or of any preceding or
subsequent breach thereof. No forbearance by a party in seeking a remedy for any
noncompliance or breach by another party hereto shall be deemed to be a waiver
by such forbearing party of its rights and remedies with respect to such
noncompliance or breach, unless such waiver shall be in a written instrument or
instruments signed by the forbearing party.
(iv) Remedies Cumulative. The remedies of each party under this Agreement
-------------------
are cumulative and shall not exclude any other remedies to which such party
may be lawfully entitled.
(v) Severability. If any term or provision of this Agreement or the
------------
application thereof to any person or circumstance shall, to any extent, be
determined to be invalid, illegal or unenforceable under present or future laws,
then, and in that event: (1) the performance of the offending term or provision
(but only to the extent its application is invalid, illegal or unenforceable)
shall be excused as if it had never been incorporated into this Agreement, and,
in lieu of such excused provision, there shall be added a provision as similar
in terms and amount to such excused provision as may be possible and be legal,
valid and enforceable; and (2) the remaining part of this Agreement (including
the application of the offending term or provision to
17
<PAGE>
persons or circumstances other than those as to which it is held invalid,
illegal or unenforceable) shall not be affected thereby, and shall continue in
full force and effect to the fullest legal extent.
(vi) Parties in Interest. Nothing in this Agreement shall confer any
-------------------
rights or remedies under or by reason of this Agreement on any persons other
than the parties hereto and their respective successors and assigns, if any, or
as may be permitted hereunder; nor shall anything in this Agreement relieve or
discharge the obligation or liability of any third person to any party to this
Agreement; nor shall any provision give any third person any right of
subrogation or action over or against any party to this Agreement.
(vii) No Reliance Upon Prior Representation. Each party acknowledges
-------------------------------------
that: (1) no other party has made any oral representation or promise which would
induce them prior to executing this Agreement to change their position to their
detriment, to partially perform, or to part with value in reliance upon such
representation or promise; and (2) such party has not so changed its position,
performed or parted with value prior to the time of the execution of this
Agreement, or such party has taken such action at its own risk.
(viii) Headings; References; Incorporation; Gender; Statutory References.
-----------------------------------------------------------------
The headings used in this Agreement are for convenience and reference purposes
only, and shall not be used in construing or interpreting the scope or intent of
this Agreement or any provision hereof. References to this Agreement shall
include all amendments or renewals thereof. All cross-references in this
Agreement, unless specifically directed to another agreement or document, shall
be construed only to refer to provisions within this Agreement, and shall not be
construed to be referenced to the overall transaction or to any other agreement
or document. Any Exhibit referenced in this Agreement shall be construed to be
incorporated in this Agreement by such reference. As used in this Agreement,
each gender shall be deemed to include the other gender, including neutral
genders appropriate for entities, if applicable, and the singular shall be
deemed to include the plural, and vice versa, as the context requires. Any
reference to statutes or laws will include all amendments, modifications, or
replacements of the specific sections and provisions concerned.
(D) ENFORCEMENT.
-----------
(i) Applicable Law. This Agreement and the rights and remedies of each
--------------
party arising out of or relating to this Agreement (including, without
limitation, equitable remedies) shall (with the exception of the applicable
securities laws) be solely governed by, interpreted under, and construed and
enforced in accordance with the laws (without regard to the conflicts of law
principles) of the State of Nevada, as if this Agreement were made, and as if
its obligations are to be performed, wholly within the State of Nevada .
(ii) Consent to Jurisdiction; Service of Process. Any "action or
-------------------------------------------
proceeding" (as such term is defined below) arising out of or relating to this
Agreement shall be filed in and heard and litigated solely before the state
courts of Nevada. Each party generally and unconditionally accepts the exclusive
jurisdiction of such courts and venue therein; consents to the service of
process in any such action or proceeding by certified or registered mailing of
the summons and complaint in accordance with the notice provisions of this
Agreement; and waives any defense or right to object to venue in said courts
based upon the doctrine of "forum non conveniens." The term "action or
proceeding" is defined as any and all claims, suits, actions, hearings,
arbitrations or other similar proceedings, including appeals and petitions
therefrom, whether formal or informal, governmental or non-governmental, or
civil or criminal.
(iii) Waiver of Right to Jury Trial. Each party hereby waives such
-----------------------------
party's respective right to a jury trial of any claim or cause of action based
upon or arising out of this Agreement. Each party acknowledges that this waiver
is a material inducement to each other party hereto to enter into the
transaction contemplated hereby; that each other party has already relied upon
this waiver in entering into this Agreement; and that each other party will
continue to rely on this waiver in their future dealings. Each party
18
<PAGE>
warrants and represents that such party has reviewed this waiver with such
party's legal counsel, and that such party has knowingly and voluntarily waived
its jury trial rights following consultation with such legal counsel.
(iv) Consent to Specific Performance and Injunctive Relief and Waiver of
-------------------------------------------------------------------
Bond or Security. Each party acknowledges that the other party(s) hereto may, as
- ----------------
a result of such party's breach of its covenants and obligations under this
Agreement, sustain immediate and long-term substantial and irreparable injury
and damage which cannot be reasonably or adequately compensated by damages at
law. Consequently, each party agrees that in the event of such party's breach or
threatened breach of its covenants and obligations hereunder, the other non-
breaching party(s) shall be entitled to obtain from a court of competent
equitable relief including, without limitation, enforcement of all of the
provisions of this Agreement by specific performance and/or temporary,
preliminary and/or permanent injunctions enforcing any of the rights of such
non-breaching party(s), requiring performance by the breaching party, or
enjoining any breach by the breaching party, all without proof of any actual
damages that have been or may be caused to such non-breaching party(s) by such
breach or threatened breach and without the posting of bond or other security in
connection therewith. The party against whom such action or proceeding is
brought waives the claim or defense therein that the party bringing the action
or proceeding has an adequate remedy at law and such party shall not allege or
otherwise assert the legal position that any such remedy at law exists. Each
party agrees and acknowledges: (i) that the terms of this subsection are fair,
reasonable and necessary to protect the legitimate interests of the other
party(s); (ii) that this waiver is a material inducement to the other party(s)
to enter into the transaction contemplated hereby; (iii) that the other party(s)
has already relied upon this waiver in entering into this Agreement; and (iv)
that each party will continue to rely on this waiver in their future dealings.
Each party warrants and represents that such party has reviewed this provision
with such party's legal counsel, and that such party has knowingly and
voluntarily waived its rights following consultation with legal counsel.
(v) Recovery of Fees and Costs. If any party institutes or should the
--------------------------
parties otherwise become a party to any action or proceeding based upon or
arising out of this Agreement including, without limitation, to enforce or
interpret this Agreement or any provision hereof, or for damages by reason of
any alleged breach of this Agreement or any provision hereof, or for a
declaration of rights in connection herewith, or for any other relief, including
equitable relief, in connection herewith, the "prevailing party" (as such term
is defined below) in any such action or proceeding, whether or not such action
or proceeding proceeds to final judgment or determination, shall be entitled to
receive from the non-prevailing party as a cost of suit, and not as damages, all
fees, costs and expenses of enforcing any right of the prevailing party
(collectively, "fees and costs"), including without limitation, (1) reasonable
attorneys' fees and costs and expenses, (2) witness fees (including experts
engaged by the parties, but excluding shareholders, officers, employees or
partners of the parties), (3) accountants' fees, (4) fees of other
professionals, and (5) any and all other similar fees incurred in the
prosecution or defense of the action or proceeding; including, without
limitation, fees incurred in the following: (A) postjudgment motions; (B)
contempt proceedings; (C) garnishment, levy, and debtor and third party
examinations; (D) discovery; and (E) bankruptcy litigation. All of the aforesaid
fees and costs shall be deemed to have accrued upon the commencement of such
action and shall be paid whether or not such action is prosecuted to judgment.
Any judgment or order entered in such action shall contain a specific provision
providing for the recovery of attorney the aforesaid fees, costs and expenses
incurred in enforcing such judgment and an award of prejudgment interest from
the date of the breach at the maximum rate of interest allowed by law. The term
"prevailing party" is defined as the party who is determined to prevail by the
court after its consideration of all damages and equities in the action or
proceeding, whether or not the action or proceeding proceeds to final judgment
(the court shall retain the discretion to determine that no party is the
prevailing party in which case no party shall be entitled to recover its costs
and expenses under this subsection).
19
<PAGE>
(e) ASSIGNMENT AND DELEGATION; SUCCESSORS AND ASSIGNS.
-------------------------------------------------
(i) Prohibition Against Assignment or Delegation. Except as specifically
--------------------------------------------
provided in this Agreement, neither party may sell, license, transfer or assign
(whether direct or indirect, merger, consolidation, conversion, sale of assets,
sale or exchange of securities, or by operation of law, or otherwise) any of
such party's rights or interests or delegate such party's duties or obligations
under this Agreement, in whole or in part, including to any subsidiary or any
Affiliate, without the prior written consent of the other party, which consent
may be withheld in such other party's sole discretion, provided, however:
(A) Subject to clauses (B) and (C) below, the Company may, with the
----------- ---
prior written consent of the Executive, which consent the Executive shall not
unreasonably withhold, assign all of the rights and delegate all of the
obligations of the Company under this Agreement to any other Person in
connection with the transfer or sale of the entire business of the Company
(including its Subsidiaries and its interests in its joint ventures), or the
merger or consolidation of the Company with or into any other Person, so long as
such transferee, purchaser or surviving Person shall expressly assumes such
obligations of the Company;
(B) Notwithstanding clause (A) above to the contrary, no assignment
----------
or transfer under clause (A) may be effectuated unless the proposed transferee
----------
or assignee first executes such agreements (including a restated employment
agreement) in such form as Executive may deem reasonably satisfactory to (1)
evidence the assumption by the proposed transferee or assignee of the
obligations of the Company; and (2) to ensure that the Executive continues to
receive such rights, benefits and protections (both legal and economic) as were
contemplated by the Executive when entering into this Agreement; and
(C) Notwithstanding clause (A) above to the contrary: (1) any
----------
assumption by a successor or assign under clause (A) above shall in no way
----------
release the Company from any of its obligations or liabilities while a party to
this Agreement; and (2) and any merger, consolidation, reorganization, sale or
conveyance under clause (A) above shall not be deemed to abrogate the rights of
----------
the Executive elsewhere contained in this Agreement, including without
limitation those resulting from a Change In Control.
Any purported assignment or transfer in violation of the terms of
this subsection shall be null and void ab initio and of no force and effect, and
shall vest no rights or interests in the purported assignee or transferee.
(ii) Successors and Assigns. Subject to subsection (e)(i) above,
----------------------
each and every representation, warranty, covenant, condition and provision of
this Agreement as it relates to each party hereto shall be binding upon and
shall inure to the benefit of such party and his, her or its respective
successors and permitted assigns, spouses, heirs, executors, administrators and
personal and legal representatives, including without limitation any successor
(whether direct or indirect, or by merger, consolidation, conversion, purchase
of assets, purchase of securities or otherwise).
(iii) Company and Subsidiaries. In accordance with the provisions of
------------------------
section 2, the Board of the Company shall determine, in their sole discretion,
(1) the responsibilities and duties to be performed by Executive for each of the
Company and the Subsidiaries; and (2) the amount of the Executive's total
remuneration to be allocated and paid by the Company and each of its
Subsidiaries. Such determinations and allocations shall not be deemed an
assignment or delegation under the terms of this section.
(f) COUNTERPARTS; ELECTRONICALLY TRANSMITTED DOCUMENTS. This Agreement may
--------------------------------------------------
be executed in counterparts, each of which shall be deemed an original, and all
of which together shall constitute one and the same instrument, binding on all
parties hereto. Any signature page of this Agreement may be detached from any
counterpart of this Agreement and reattached to any other counterpart of this
Agreement
20
<PAGE>
identical in form hereto by having attached to it one or more additional
signature pages. If a copy or counterpart of this Agreement is originally
executed and such copy or counterpart is thereafter transmitted electronically
by facsimile or similar device, such facsimile document shall for all purposes
be treated as if manually signed by the party whose facsimile signature appears.
(g) NOTICES. Unless otherwise specifically provided in this Agreement, all
-------
notices, demands, requests, consents, approvals or other communications
(collectively and severally called "notices") required or permitted to be given
hereunder, or which are given with respect to this Agreement, shall be in
writing, and shall be given by: (i) personal delivery (which form of notice
shall be deemed to have been given upon delivery), (ii) by telegraph or by
private airborne/overnight delivery service (which forms of notice shall be
deemed to have been given upon confirmed delivery by the delivery agency), (iii)
by electronic or facsimile or telephonic transmission, provided the receiving
party has a compatible device or confirms receipt thereof (which forms of notice
shall be deemed delivered upon confirmed transmission or confirmation of
receipt), or (iv) by mailing in the United States mail by registered or
certified mail, return receipt requested, postage prepaid (which forms of notice
shall be deemed to have been given upon the fifth {5th} business day following
the date mailed. Notices shall be addressed at the addresses first set forth
above, or to such other address as the party shall have specified in a writing
delivered to the other parties in accordance with this paragraph. Any notice
given to the estate of a party shall be sufficient if addressed to the party as
provided in this section.
WHEREFORE, the parties hereto have executed this Agreement in the City of
Vancouver, Province of British Columbia, Canada, as of the date first set forth
above.
COMPANY: PINNACLE OIL INTERNATIONAL, INC.,
a Nevada corporation
By: /s/ R Dirk Stinson
------------------------------
R. Dirk Stinson, President
EXECUTIVE: GEORGE LISZICASZ,
an individual
/s/ George Liszicasz
---------------------------------
21
<PAGE>
EXHIBIT 10.22
UNSECURED CONVERTIBLE PROMISSORY NOTE
-------------------------------------
$ 500,000 JANUARY 31, 1997
LOS ANGELES,CALIFORNIA
FOR VALUE RECEIVED, the receipt and sufficiency of which is hereby
acknowledged, Pinnacle Oil International, Inc., a Nevada corporation, (the
"Maker"), hereby promises to pay to George Liszicasz, or order (the "Holder"),
- ------ ------
at the address designated below on the signature page of this note, or such
other address as the Holder may from time-to-time designate by written notice to
the Maker, the principal sum described below as the "principal amount", together
with interest thereon, in the manner and at the times provided below and subject
to the terms and conditions described herein.
(a) PRINCIPAL AMOUNT.
----------------
The Principal Amount shall be the amount advanced and received by
Maker as of the date hereof, or Five Hundred Thousand and No/100 Dollars
($500,000), or such principal amount as shall be outstanding from time to time
(the "Principal Amount").
----------------
2. INTEREST.
--------
Subject to the provisions of this Section and Section 7, of this note,
interest on the Principal Amount from time-to-time remaining unpaid shall accrue
at the rate of twelve percent (12%) per annum. Interest shall be computed on
the basis of a three hundred sixty (360) day year and a thirty (30) day month.
Notwithstanding the foregoing, in the event the Maker and/or any
surety, guarantor or endorser of this note is in default under this note, the
described interest rate shall, subject to the terms of Section 7 of this note,
accrue from the date of such default until the balance of the Principal Amount,
accrued and unpaid interest, late charges and all other indebtedness under this
note is fully repaid, at a rate equal to the lesser of (i) the maximum legal
rate permitted at law; or (ii) the rate of fourteen percent (14%) per annum.
3. PAYMENT OF PRINCIPAL AND INTEREST.
---------------------------------
Subject to prior prepayment, acceleration or conversion in accordance
with the terms of this note, the Principal Amount, accrued and unpaid interest
on the Principal Amount and all other indebtedness under this note shall be due
and payable one year after the date hereof (the "Maturity Date").
1
<PAGE>
Notwithstanding the foregoing, the Maker shall have the right to
prepay any portion of the Principal Amount in whole or in part (together with
any accrued and unpaid interest through the date of prepayment, plus any other
amounts due under this note), or to convert this note pursuant to Section 6,
without prepayment penalty or premium.
Whenever any payment required under the terms of this note shall be
stated to be due on a day other than a business day, such payment shall be made
on the next succeeding business day, and such extension of time shall in such
case be included in the computation of payment of interest.
4. MANNER OF PAYMENTS/CREDITING OF PAYMENTS.
----------------------------------------
Payments of any amount required hereunder shall be made solely in
lawful money of Canada, and shall be credited first against accrued but unpaid
late charges, if any, then against accrued but unpaid interest, if any, and then
against the unpaid balance of the Principal Amount. If any payments are made by
check, such payments must be delivered to the Holder in sufficient time to allow
the funds to become same day funds on or before the due date for such payment.
5. NO OFFSET.
---------
The Maker shall make all payments required under this note without
offset regardless of any defense, setoff, claim, cause of action, counterclaim,
or cross-claim, whether liquidated or unliquidated, which the Maker may have or
claim to have against the Holder, whether or not related to this note
(collectively, "Claims"), and no portion of the indebtedness evidenced by this
------
note or any payment shall be or be deemed to be offset or compensated by all or
any part of such Claims. The Maker waives, to the fullest extent permitted by
applicable law, the protection or benefits of any statement, code, or judicial
decision which conflicts with the terms of this Section.
6. CONVERSION
----------
(a) Holder's Election to Convert. The Holder may elect, at any time
----------------------------
prior to the Maturity Date, by provision of written notice of conversion to the
Maker delivered with surrender of this note to the Maker on or before the
Maturity Date, to convert the then outstanding principal amount of this note or
any portion thereof, plus any accrued but unpaid interest on this note, into
Common Shares of the Maker, at a conversion price of $4.07 per Common Share.
(b) Maker's Election to Convert. If Holder has not converted the
---------------------------
Indebtedness prior to the earlier of the Maturity Date or the date of
Maker's listing on NASDAQ, the Maker shall, by provision of written notice
of conversion to the Holder on or before the
2
<PAGE>
Maturity Date, to convert the then outstanding principal amount of this note or
any portion thereof, plus any accrued but unpaid interest on this note, into
Common Shares of the Maker, to be issued to the Holder. The number of Common
Shares to be issued to Holder shall be calculated by dividing the total
indebtedness as of such date (including any unpaid interest, late charges, costs
or expenses) by a price equal to $2.72 per Common Share.
(c) Covenants Of Company The Maker makes the following covenants to
--------------------
the Holder, each of which is deemed to be a separate covenant:
(i) Until this note is repaid or converted, the Maker shall not,
without the consent of the Holder, declare or make any dividend or other
distributions to shareholders of Maker.
(ii) The Maker will at all times keep true and complete books or
record and accounts in accordance with generally accepted accounting principles
and practices.
(iii) The Maker will at all times cause to be done all things
necessary to preserve and keep in full force and effect its corporate existence,
rights and franchises; provided, however, that nothing in this Section shall
require the Company to maintain, preserve or renew any right or franchise which
in the opinion of the Board of Directors of the Company is not necessary or
desirable in the conduct of the business of the Company, in the exercise of
their reasonable business judgment.
7. LATE CHARGE.
-----------
If any payment of the Principal Amount and/or interest thereon (a
"Delinquent Payment") is not received by the Holder when due, a late charge the
------------------
("Late Charge") equal to six percent (6%) of the Delinquent Payment may be
-----------
charged by the Holder for the purpose of defraying expenses incurred by the
Holder. In light of all of the circumstances existing on the date of this note,
the parties agree that the Late Charge represents a fair and reasonable estimate
of the costs that will be sustained by the Holder upon any failure by the Maker
to make timely payment. The parties further agree that the amount of actual
damages incurred by the Maker would be costly, inconvenient and extremely
difficult and impractical to prove. The Late Charge shall be paid without
prejudice to the Holder's right to collect any other amounts provided for under
this note, or to declare a default under this note, or from exercising any of
the other rights and remedies available to the Holder.
8. ACCELERATION UPON DEFAULT.
-------------------------
At the option of the Holder, all or any part of the indebtedness of
the Maker shall immediately become due and payable, irrespective of any agreed
maturity, upon the happening of
3
<PAGE>
any of the following events of default (each, an "Event of Default"):
----------------
(a) If any part of the Principal Amount and/or interest thereon and/or
Late Charges under this note are not paid when due;
(b) If any of the following events occurs, it shall constitute an
Event of Default under this note:
(i) If the Maker shall breach any non-monetary condition or
obligation imposed on the Maker pursuant to the terms of this note;
(ii) If the Maker shall make an assignment for the benefit of
creditors;
(iii) If a custodian, trustee, receiver, or agent is appointed
or takes possession of substantially all of the property of the Maker;
(iv) If the Maker becomes insolvent as that term is defined in
Section 101(26) of Title 11 of the United States Code;
(v) If the Maker shall (A) file a voluntary petition under
the Bankruptcy Code, or (B) otherwise file any petition or apply to any tribunal
for appointment of a custodian, trustee, receiver, or agent of the Maker, or
commence any proceeding related to the Maker under any bankruptcy or
reorganization statute, or under any arrangement, insolvency, readjustment of
debt, dissolution, or liquidation law of any jurisdiction, whether now or
hereafter in effect;
(vi) If any involuntary petition is filed against the Maker
under the Bankruptcy Code and such petition is not dismissed by the Bankruptcy
Court within thirty (30) days of the date of filing;
(vii) If any petition or application of the type described
above is filed against the Maker, or any proceeding of the type described above
is commenced, and either: (A) the Maker, by any act, indicates his approval
thereof, consent thereto, or acquiescence therein; or (B) an order is entered
appointing any such custodian, trustee, receiver, or agent, adjudicating the
Maker bankrupt or insolvent, or approving such petition or application in any
such proceeding, and any such order remains in effect for more than thirty (30)
days;
(viii) If any attachment, execution, or other writ is levied on
substantially all of the assets of the Maker and remains in effect for more than
fifteen (15) days; or
(ix) If, without the prior written consent of Holder any of
the following
4
<PAGE>
events occurs: the Maker materially ceases operations; the Board of Directors of
the Maker resolves to dissolve and liquidate the Maker; Maker otherwise
terminates its existence; the Board of Directors of Maker resolve to
consolidate, merge, restructure, or enter into any other combination or
reorganization; the Board of Directors of the Maker resolve to enter into any
divisive reorganization (i.e., "spin-off" or "split-off") involving twenty-five
percent (25%) or more of the Maker's gross assets based on book value; the Maker
sells or hypothecates twenty-five percent (25%) or more of the Maker's gross
assets based on book value; or the Maker distributes to its shareholders twenty-
five percent (25%) or more of its gross assets based on book value.
Notwithstanding the foregoing, if any such default is reasonably susceptible of
being cured, the Maker shall be entitled to a grace period of thirty (30) days
following written notice of such event of default to cure such default, and
further provided, that if such event of default is of such character as to
- ------- --------
reasonably require more than thirty (30) days to cure, and the Maker has
promptly commenced to cure said default within the thirty (30) day period and
uses reasonable diligence thereafter in curing such default, then the thirty
(30) day period shall be reasonably extended.
9. COLLECTION COSTS AND ATTORNEYS' FEES.
------------------------------------
(a) The Maker agrees to pay the Holder all costs and expenses,
including reasonable attorneys' fees, paid or incurred by the Holder in
connection with the collection or enforcement of this note.
(b) In the event any party institutes or should any party otherwise
become a party to any action or proceeding in connection with the enforcement or
interpretation or collection of this note, or for damages by reason of any
alleged breach of this note or any provision hereof, or for a declaration of
rights in connection with this note, or for any other legal or equitable relief,
the prevailing party in any such action or proceeding shall be entitled to
receive from the non-prevailing party all costs and expenses, including without
limitation reasonable attorneys' and other fees incurred by the prevailing party
in connection with such action or proceeding, and shall also be entitled to
collect as damages those costs and expenses described in subsection (a) of this
Section.
(c) The term "attorneys' and other fees" for purposes subsection (b)
of this Section shall mean and include attorneys' fees, accountants' fees, fees
of other professionals, witness fees (including experts engaged by the parties
but excluding the parties themselves) and any and all similar fees incurred in
the prosecution or defense of the action or proceeding. The term "costs" for
purposes of subsection (b) of this Section shall mean and include the cost to
take depositions and the cost of travel and lodging expense incurred. The term
"action" or "proceeding" for purposes of subsections (a) and (b) of this Section
shall mean and include actions, proceedings, suits, arbitrations (if required or
permitted under this note or any agreement securing payment of this note or
consented to by the parties), appeals and other similar proceedings, including
bankruptcy proceedings.
5
<PAGE>
10. NOTICE.
------
Any notice to the Maker provided for in this note shall be given by
personal delivery or by express mail, Federal Express, DHL or similar
airborne/overnight delivery service, or by mailing such notice by first class or
certified mail, return receipt requested, addressed to the Maker at the address
set forth below, or to such other address as the Maker may designate by written
notice to the Holder. Any notice to the Holder shall be given by personal
delivery or by express mail, Federal Express, DHL or similar airborne/overnight
delivery service, or by mailing such notice by first class or certified mail,
return receipt requested, to the Holder at the address set forth below, or at
such other address as may have been designated by written notice to the Maker.
Mailed notices shall be deemed delivered and received three (3) days after
deposit in accordance with this provision in the United States mail.
11. USURY COMPLIANCE.
----------------
All agreements between the Maker and the Holder are expressly limited,
so that in no event or contingency, shall the amount paid or agreed to be paid
to the Holder for the use or forbearance of the indebtedness exceed the highest
lawful rate permissible under applicable usury laws. If under any circumstance,
fulfillment of any provision of this note would violate the provisions
prescribed by law which a court of competent jurisdiction deems applicable,
then, the obligations to be fulfilled under this note shall be reduced to
eliminate such violation. If, under any circumstances, the Holder shall ever
receive as interest an amount that exceeds the highest lawful rate, the amount
that would be excessive interest shall be applied to the reduction of the unpaid
Principal Amount and/or late charges under this note and not to the payment of
interest; or, if such excessive interest exceeds the unpaid balance of the
Principal Amount and/or late charges under this note, such excess shall be
refunded to the Maker.
12. GENERAL.
-------
(a) NO WAIVER OF HOLDER'S RIGHTS. No delay or failure or act on the
----------------------------
part of the Holder in exercising any rights under this note, including without
limitation the Holder's right to accelerate, shall operate as a waiver of the
Maker's right to exercise such right or any other right under this note, or as a
release of Maker for the same default or any other default, except to the extent
such waiver is in writing and signed by the Holder, and then only to the extent
specifically set forth in writing.
(b) WAIVERS, CONSENTS AND RELEASES BY THE MAKER AND SURETIES,
---------------------------------------------------------
GUARANTORS AND ENDORSERS.
- ------------------------
(i) The Maker and each and every surety, guarantor, and endorser
of this note hereby consent to all extensions without notice for any period or
periods of time, and to the
6
<PAGE>
acceptance of partial payments before or after maturity, and to the acceptance,
release, and substitution of security, all without prejudice to the Holder. The
Holder shall similarly have the right to deal in any way, at any time, with one
or more of the foregoing parties without notice to any other party, and to grant
any such party any extensions of time for payment of any of the indebtedness, or
to grant any other indulgences or forbearance whatsoever, without notice to any
other party and without in any way affecting the personal liability of any such
party.
(ii) Except for the provision of written notice expressly set forth in
this note, the Maker and each and every surety, guarantor and endorser of this
note hereby waives presentment for payment, demand, protest, notice of protest
and notice of dishonor, and all other notices to which such parties might
otherwise be entitled in connection with the delivery, acceptance, performance,
default or enforcement of this note.
(iii) The Maker and each and every surety, guarantor and endorser of
this note hereby waive the right to require the Holder to proceed against any
security for this note before proceeding against any of such parties, and
further waive all defenses based on release of security, extension of time or
other indulgence given in respect to payment of this note, to whomsoever given,
and further waives all defenses, generally, except the defense of actual payment
of this note according to its tenor.
(iv) The Maker and each and every surety, guarantor and endorser of
this note hereby waives the pleading of any statute of limitations as a defense
to the obligations evidenced by this note to the fullest extent permissible by
law.
(c) HOLDER'S RIGHT TO ENDORSE OR ASSIGN. The Holder shall have the
-----------------------------------
right to endorse or to sell, assign, transfer, encumber, pledge, or otherwise
alienate or hypothecate, either in part or in its entirety, this note, together
with any instrument evidencing or securing the indebtedness of this note,
without the consent of the Maker or any party constituting the Maker or any
guarantor, endorser or surety. The endorsement or assignment of this note by
the Holder shall be ineffective until actual notice of same is received by the
Maker.
(d) SUCCESSORS AND ASSIGNS. This note and all of the covenants,
----------------------
promises, and agreements contained in it shall be binding on and inure to the
benefit of the respective legal and personal representatives, devises, heirs,
successors, and assigns of the Maker and the Holder.
(e) INTEGRATION. This writing is intended by the parties to be an
-----------
integrated and final expression of this note and also is intended to be a
complete and exclusive statement of the terms of their agreement. No course of
prior dealing between the parties, no usage of trade, and no parole or extrinsic
evidence of any nature shall be used to supplement, modify or vary any of the
terms hereof. There are no conditions to the full effectiveness of this note
except as specifically provided herein.
7
<PAGE>
(f) INVALIDITY. If any provision of this note, or the application of
----------
it to any party or circumstance, is held to be invalid, the remainder of this
note, and the application of such provision to other parties or circumstances,
shall not be affected thereby, the provisions of this note being severable in
any such instance.
(g) INTERPRETATION. This note shall be governed by, interpreted under
--------------
and construed and enforced in accordance with the laws of the State of Nevada
applicable to contracts entered into in the State of Nevada, by residents of the
State of Nevada, and intended to be performed entirely within the State of
Nevada.
(h) TIME OF ESSENCE. Time is of the essence for each and every
---------------
obligation under this note.
IN WITNESS WHEREOF, the Maker, intending to be legally bound hereby, has
duly executed this note the day and year first above written.
HOLDER: MAKER:
George Liszicasz PINNACLE OIL INTERNATIONAL, INC.
By: /s/ Terrence J. Dunne
----------------------------------------
Terrence J. Dunne, Secretary and Treasurer
ADDRESS: ADDRESS:
- ------- -------
George Liszicasz Pinnacle Oil International, Inc.
298 East 55th Avenue 380-1090 West Georgia Street
Vancouver, B.C. V5X 1M9 Vancouver, B.C. V6E 3V7
Canada Canada
8
<PAGE>
EXHIBIT 10.23
UNSECURED CONVERTIBLE PROMISSORY NOTE
-------------------------------------
$ 500,000 January 31, 1997
Los Angeles, California
FOR VALUE RECEIVED, the receipt and sufficiency of which is hereby
acknowledged, Pinnacle Oil International, Inc., a Nevada corporation, (the
"Maker"), hereby promises to pay to R. Dirk Stinson, or order (the "Holder"), at
----- ------
the address designated below on the signature page of this note, or such other
address as the Holder may from time-to-time designate by written notice to the
Maker, the principal sum described below as the "principal amount", together
with interest thereon, in the manner and at the times provided below and subject
to the terms and conditions described herein.
(a) PRINCIPAL AMOUNT.
----------------
The Principal Amount shall be the amount advanced and received by Maker
as of the date hereof, or Five Hundred Thousand and No/100 Dollars ($500,000),
or such principal amount as shall be outstanding from time to time (the
"Principal Amount").
----------------
2. INTEREST.
--------
Subject to the provisions of this Section and Section 7, of this note,
interest on the Principal Amount from time-to-time remaining unpaid shall accrue
at the rate of twelve percent (12%) per annum. Interest shall be computed on
the basis of a three hundred sixty (360) day year and a thirty (30) day month.
Notwithstanding the foregoing, in the event the Maker and/or any
surety, guarantor or endorser of this note is in default under this note, the
described interest rate shall, subject to the terms of Section 7 of this note,
accrue from the date of such default until the balance of the Principal Amount,
accrued and unpaid interest, late charges and all other indebtedness under this
note is fully repaid, at a rate equal to the lesser of (i) the maximum legal
rate permitted at law; or (ii) the rate of fourteen percent (14%) per annum.
3. PAYMENT OF PRINCIPAL AND INTEREST.
---------------------------------
Subject to prior prepayment, acceleration or conversion in accordance
with the terms of this note, the Principal Amount, accrued and unpaid interest
on the Principal Amount and all other indebtedness under this note shall be due
and payable one year after the date hereof (the "Maturity Date").
1
<PAGE>
Notwithstanding the foregoing, the Maker shall have the right to prepay
any portion of the Principal Amount in whole or in part (together with any
accrued and unpaid interest through the date of prepayment, plus any other
amounts due under this note), or to convert this note pursuant to Section 6,
without prepayment penalty or premium.
Whenever any payment required under the terms of this note shall be
stated to be due on a day other than a business day, such payment shall be made
on the next succeeding business day, and such extension of time shall in such
case be included in the computation of payment of interest.
4. MANNER OF PAYMENTS/CREDITING OF PAYMENTS.
----------------------------------------
Payments of any amount required hereunder shall be made solely in
lawful money of Canada, and shall be credited first against accrued but unpaid
late charges, if any, then against accrued but unpaid interest, if any, and then
against the unpaid balance of the Principal Amount. If any payments are made by
check, such payments must be delivered to the Holder in sufficient time to allow
the funds to become same day funds on or before the due date for such payment.
5. NO OFFSET.
---------
The Maker shall make all payments required under this note without
offset regardless of any defense, setoff, claim, cause of action, counterclaim,
or cross-claim, whether liquidated or unliquidated, which the Maker may have or
claim to have against the Holder, whether or not related to this note
(collectively, "Claims"), and no portion of the indebtedness evidenced by this
note or any payment shall be or be deemed to be offset or compensated by all or
any part of such Claims. The Maker waives, to the fullest extent permitted by
applicable law, the protection or benefits of any statement, code, or judicial
decision which conflicts with the terms of this Section.
6. CONVERSION.
----------
(a) Holder's Election to Convert. The Holder may elect, at any time
----------------------------
prior to the Maturity Date, by provision of written notice of conversion to the
Maker delivered with surrender of this note to the Maker on or before the
Maturity Date, to convert the then outstanding principal amount of this note or
any portion thereof, plus any accrued but unpaid interest on this note, into
Common Shares of the Maker, at a conversion price of $4.07 per Common Share.
(b) Maker's Election to Convert. If Holder has not converted the
---------------------------
Indebtedness prior to the earlier of the Maturity Date or the date of Maker's
listing on NASDAQ, the Maker shall, by provision of written notice of conversion
to the Holder on or before the
2
<PAGE>
Maturity Date, to convert the then outstanding principal amount of this note or
any portion thereof, plus any accrued but unpaid interest on this note, into
Common Shares of the Maker, to be issued to the Holder. The number of Common
Shares to be issued to Holder shall be calculated by dividing the total
indebtedness as of such date (including any unpaid interest, late charges, costs
or expenses) by a price equal to $2.72 per Common Share.
(c) Covenants Of Company The Maker makes the following covenants to
--------------------
the Holder, each of which is deemed to be a separate covenant:
(i) Until this note is repaid or converted, the Maker shall not,
without the consent of the Holder, declare or make any dividend or other
distributions to shareholders of Maker.
(ii) The Maker will at all times keep true and complete books or
record and accounts in accordance with generally accepted accounting principles
and practices.
(iii) The Maker will at all times cause to be done all things
necessary to preserve and keep in full force and effect its corporate existence,
rights and franchises; provided, however, that nothing in this Section shall
require the Company to maintain, preserve or renew any right or franchise which
in the opinion of the Board of Directors of the Company is not necessary or
desirable in the conduct of the business of the Company, in the exercise of
their reasonable business judgment.
7. LATE CHARGE.
-----------
If any payment of the Principal Amount and/or interest thereon (a
"Delinquent Payment") is not received by the Holder when due, a late charge (the
---------- -------
"Late Charge") equal to six percent (6%) of the Delinquent Payment may be
---- ------
charged by the Holder for the purpose of defraying expenses incurred by the
Holder. In light of all of the circumstances existing on the date of this note,
the parties agree that the Late Charge represents a fair and reasonable estimate
of the costs that will be sustained by the Holder upon any failure by the Maker
to make timely payment. The parties further agree that the amount of actual
damages incurred by the Maker would be costly, inconvenient and extremely
difficult and impractical to prove. The Late Charge shall be paid without
prejudice to the Holder's right to collect any other amounts provided for under
this note, or to declare a default under this note, or from exercising any of
the other rights and remedies available to the Holder.
8. ACCELERATION UPON DEFAULT.
-------------------------
At the option of the Holder, all or any part of the indebtedness of the
Maker shall immediately become due and payable, irrespective of any agreed
maturity, upon the happening of
3
<PAGE>
any of the following events of default (each, an "Event of Default"):
----- -- -------
(a) If any part of the Principal Amount and/or interest thereon and/or Late
Charges under this note are not paid when due;
(b) If any of the following events occurs, it shall constitute an Event of
Default under this note:
(i) If the Maker shall breach any non-monetary condition or
obligation imposed on the Maker pursuant to the terms of this note;
(ii) If the Maker shall make an assignment for the benefit of
creditors;
(iii) If a custodian, trustee, receiver, or agent is appointed or
takes possession of substantially all of the property of the Maker;
(iv) If the Maker becomes insolvent as that term is defined in
Section 101(26) of Title 11 of the United States Code;
(v) If the Maker shall (A) file a voluntary petition under the
Bankruptcy Code, or (B) otherwise file any petition or apply to any tribunal for
appointment of a custodian, trustee, receiver, or agent of the Maker, or
commence any proceeding related to the Maker under any bankruptcy or
reorganization statute, or under any arrangement, insolvency, readjustment of
debt, dissolution, or liquidation law of any jurisdiction, whether now or
hereafter in effect;
(vi) If any involuntary petition is filed against the Maker under the
Bankruptcy Code and such petition is not dismissed by the Bankruptcy Court
within thirty (30) days of the date of filing;
(vii) If any petition or application of the type described above is
filed against the Maker, or any proceeding of the type described above is
commenced, and either: (A) the Maker, by any act, indicates his approval
thereof, consent thereto, or acquiescence therein; or (B) an order is entered
appointing any such custodian, trustee, receiver, or agent, adjudicating the
Maker bankrupt or insolvent, or approving such petition or application in any
such proceeding, and any such order remains in effect for more than thirty (30)
days;
(viii) If any attachment, execution, or other writ is levied on
substantially all of the assets of the Maker and remains in effect for more than
fifteen (15) days; or
(ix) If, without the prior written consent of Holder any of the
following events occurs: the Maker materially ceases operations; the Board of
Directors of the Maker
4
<PAGE>
resolves to dissolve and liquidate the Maker; Maker otherwise terminates its
existence; the Board of Directors of Maker resolve to consolidate, merge,
restructure, or enter into any other combination or reorganization; the Board of
Directors of the Maker resolve to enter into any divisive reorganization (i.e.,
"spin-off" or "split-off") involving twenty-five percent (25%) or more of the
Maker's gross assets based on book value; the Maker sells or hypothecates
twenty-five percent (25%) or more of the Maker's gross assets based on book
value; or the Maker distributes to its shareholders twenty-five percent (25%) or
more of its gross assets based on book value.
Notwithstanding the foregoing, if any such default is reasonably susceptible of
being cured, the Maker shall be entitled to a grace period of thirty (30) days
following written notice of such event of default to cure such default, and
further provided, that if such event of default is of such character as to
- ------- --------
reasonably require more than thirty (30) days to cure, and the Maker has
promptly commenced to cure said default within the thirty (30) day period and
uses reasonable diligence thereafter in curing such default, then the thirty
(30) day period shall be reasonably extended.
9. COLLECTION COSTS AND ATTORNEYS' FEES.
------------------------------------
(a) The Maker agrees to pay the Holder all costs and expenses,
including reasonable attorneys' fees, paid or incurred by the Holder in
connection with the collection or enforcement of this note.
(b) In the event any party institutes or should any party otherwise
become a party to any action or proceeding in connection with the enforcement or
interpretation or collection of this note, or for damages by reason of any
alleged breach of this note or any provision hereof, or for a declaration of
rights in connection with this note, or for any other legal or equitable relief,
the prevailing party in any such action or proceeding shall be entitled to
receive from the non-prevailing party all costs and expenses, including without
limitation reasonable attorneys' and other fees incurred by the prevailing party
in connection with such action or proceeding, and shall also be entitled to
collect as damages those costs and expenses described in subsection (a) of this
Section.
(c) The term "attorneys' and other fees" for purposes subsection (b) of
this Section shall mean and include attorneys' fees, accountants' fees, fees of
other professionals, witness fees (including experts engaged by the parties but
excluding the parties themselves) and any and all similar fees incurred in the
prosecution or defense of the action or proceeding. The term "costs" for
purposes of subsection (b) of this Section shall mean and include the cost to
take depositions and the cost of travel and lodging expense incurred. The term
"action" or "proceeding" for purposes of subsections (a) and (b) of this Section
shall mean and include actions, proceedings, suits, arbitrations (if required or
permitted under this note or any agreement securing payment of this note or
consented to by the parties), appeals and other similar proceedings, including
bankruptcy proceedings.
5
<PAGE>
10. NOTICE.
------
Any notice to the Maker provided for in this note shall be given by
personal delivery or by express mail, Federal Express, DHL or similar
airborne/overnight delivery service, or by mailing such notice by first class or
certified mail, return receipt requested, addressed to the Maker at the address
set forth below, or to such other address as the Maker may designate by written
notice to the Holder. Any notice to the Holder shall be given by personal
delivery or by express mail, Federal Express, DHL or similar airborne/overnight
delivery service, or by mailing such notice by first class or certified mail,
return receipt requested, to the Holder at the address set forth below, or at
such other address as may have been designated by written notice to the Maker.
Mailed notices shall be deemed delivered and received three (3) days after
deposit in accordance with this provision in the United States mail.
11. USURY COMPLIANCE.
----------------
All agreements between the Maker and the Holder are expressly limited,
so that in no event or contingency, shall the amount paid or agreed to be paid
to the Holder for the use or forbearance of the indebtedness exceed the highest
lawful rate permissible under applicable usury laws. If under any circumstance,
fulfillment of any provision of this note would violate the provisions
prescribed by law which a court of competent jurisdiction deems applicable,
then, the obligations to be fulfilled under this note shall be reduced to
eliminate such violation. If, under any circumstances, the Holder shall ever
receive as interest an amount that exceeds the highest lawful rate, the amount
that would be excessive interest shall be applied to the reduction of the unpaid
Principal Amount and/or late charges under this note and not to the payment of
interest; or, if such excessive interest exceeds the unpaid balance of the
Principal Amount and/or late charges under this note, such excess shall be
refunded to the Maker.
12. GENERAL.
-------
(a) No Waiver of Holder's Rights. No delay or failure or act on the
----------------------------
part of the Holder in exercising any rights under this note, including without
limitation the Holder's right to accelerate, shall operate as a waiver of the
Maker's right to exercise such right or any other right under this note, or as a
release of Maker for the same default or any other default, except to the extent
such waiver is in writing and signed by the Holder, and then only to the extent
specifically set forth in writing.
(b) Waivers, Consents and Releases by the Maker and Sureties,
--------------------------------------------------------
Guarantors and Endorsers.
- ------------------------
(i) The Maker and each and every surety, guarantor, and endorser
of this note hereby consent to all extensions without notice for any period or
periods of time, and to the
6
<PAGE>
acceptance of partial payments before or after maturity, and to the acceptance,
release, and substitution of security, all without prejudice to the Holder. The
Holder shall similarly have the right to deal in any way, at any time, with one
or more of the foregoing parties without notice to any other party, and to grant
any such party any extensions of time for payment of any of the indebtedness, or
to grant any other indulgences or forbearance whatsoever, without notice to any
other party and without in any way affecting the personal liability of any such
party.
(ii) Except for the provision of written notice expressly set forth in
this note, the Maker and each and every surety, guarantor and endorser of this
note hereby waives presentment for payment, demand, protest, notice of protest
and notice of dishonor, and all other notices to which such parties might
otherwise be entitled in connection with the delivery, acceptance, performance,
default or enforcement of this note.
(iii) The Maker and each and every surety, guarantor and endorser of
this note hereby waive the right to require the Holder to proceed against any
security for this note before proceeding against any of such parties, and
further waive all defenses based on release of security, extension of time or
other indulgence given in respect to payment of this note, to whomsoever given,
and further waives all defenses, generally, except the defense of actual payment
of this note according to its tenor.
(iv) The Maker and each and every surety, guarantor and endorser of
this note hereby waives the pleading of any statute of limitations as a defense
to the obligations evidenced by this note to the fullest extent permissible by
law.
(c) Holder's Right to Endorse or Assign. The Holder shall have the right
-----------------------------------
to endorse or to sell, assign, transfer, encumber, pledge, or otherwise alienate
or hypothecate, either in part or in its entirety, this note, together with any
instrument evidencing or securing the indebtedness of this note, without the
consent of the Maker or any party constituting the Maker or any guarantor,
endorser or surety. The endorsement or assignment of this note by the Holder
shall be ineffective until actual notice of same is received by the Maker.
(d) Successors and Assigns. This note and all of the covenants, promises,
----------------------
and agreements contained in it shall be binding on and inure to the benefit of
the respective legal and personal representatives, devises, heirs, successors,
and assigns of the Maker and the Holder.
(e) Integration. This writing is intended by the parties to be an
-----------
integrated and final expression of this note and also is intended to be a
complete and exclusive statement of the terms of their agreement. No course of
prior dealing between the parties, no usage of trade, and no parole or extrinsic
evidence of any nature shall be used to supplement, modify or vary any of the
terms hereof. There are no conditions to the full effectiveness of this note
except as specifically provided herein.
7
<PAGE>
(f) Invalidity. If any provision of this note, or the application of it to
----------
any party or circumstance, is held to be invalid, the remainder of this note,
and the application of such provision to other parties or circumstances, shall
not be affected thereby, the provisions of this note being severable in any such
instance.
(g) Interpretation. This note shall be governed by, interpreted under and
--------------
construed and enforced in accordance with the laws of the State of Nevada
applicable to contracts entered into in the State of Nevada, by residents of the
State of Nevada, and intended to be performed entirely within the State of
Nevada.
(h) Time of Essence. Time is of the essence for each and every obligation
---------------
under this note.
IN WITNESS WHEREOF, the Maker, intending to be legally bound hereby, has
duly executed this note the day and year first above written.
HOLDER: MAKER:
R. Dirk Stinson PINNACLE OIL INTERNATIONAL, INC.
By: /s/ Terrence J. Dunne
---------------------------------------
Terrence J. Dunne, Secretary and Treasurer
ADDRESS: ADDRESS:
- ------- -------
R. Dirk Stinson Pinnacle Oil International, Inc.
1956 Bow Drive 380-1090 West Georgia Street
Coquitlam, B.C. V3E 1T2 Vancouver, B.C. V6E 3V7
Canada Canada
8
<PAGE>
EXHIBIT 10.24
1997 PINNACLE OIL INTERNATIONAL, INC. STOCK PLAN
The Board of Directors of Pinnacle Oil International, Inc. (the "Company"),
a corporation organized under the laws of the State of Nevada, hereby adopts
this 1997 Pinnacle Oil International, Inc. Stock Plan.
PURPOSE OF PLAN
---------------
WHEREAS, the growth, development and financial success of the Company (and
any parents and/or any subsidiaries of the Company) is and will remain
dependent, in significant part, upon the judgment, initiative, efforts and/or
services their respective employees, officers, directors, consultants and
advisors;
WHEREAS, the Company desires, in order to attract, compensate and motivate
selected employees, officers, directors, consultants and/or advisors for the
Company (and any parent and/or any subsidiaries of the Company), and to
appropriately compensate them for their efforts, to create a stock plan which
will enable the Company, in its sole discretion and from time-to-time, to offer
to or provide such persons with incentives and/or inducements in the form of
capital stock of the Company, or rights in the form of options to acquire
capital stock of the Company, thereby affording such persons with an opportunity
to share in potential capital appreciation in the capital stock of the Company
and/or potential distributions made in connection therewith;
WHEREAS, the Company further desires that the stock plan be structured to
permit it, in its sole discretion, to offer and issue options to purchase
capital stock which are classified as incentive stock options within the meaning
of Section 422 of the Internal Revenue Code of 1986, as amended;
WHEREAS, the Company further desires that the stock plan be structured to
permit it, in its sole discretion, to offer and issue capital stock or options
to acquire capital stock in reliance upon certain exemptions from registration
or qualification afforded under certain federal, state, territorial and/or
provincial securities laws to be selected by the Company as are or may become
applicable including, by way of example and not limitation: Rule 701 promulgated
under the Securities Act of 1933, as amended (for compensatory benefit plans);
and Rules 504, 505 and/or 506 of Regulation D promulgated under the Securities
Act of 1933 (for private or limited offerings; and
WHEREAS, should the Company's equity securities be registered at any time
under Sections 12(b) or 12(g) of the Securities and Exchange Act of 1934, the
Company further desires that the stock plan be structured to comply with the
Securities and Exchange Act of 1934.
TERMS AND CONDITIONS OF PLAN
----------------------------
1. DEFINITIONS
Set forth below are definitions of capitalized terms which are
generally used throughout the Plan, or references to provisions containing such
definitions (Capitalized terms used only in a specific section of the Plan are
defined in such section):
(A) "APPROVED CORPORATE TRANSACTION" shall mean any time the Board
------------------------------
and/or, to the extent required by law, the stockholders of the Company, approve
either (i) a merger or consolidation or stock exchange or divisive
reorganization (i.e., spin-off, split-off or split-up) and/or other
reorganization with respect to the Company and/or its stockholders, or (ii) the
sale, transfer, exchange or other disposition by the Company of fifty percent
(50%) or more of its assets in a single or series of related transactions, is
approved, provided, however, the term Approved Corporate Transaction shall not
include any transaction wherein the stockholders of the Company immediately
before such transaction directly or indirectly own, immediately following such
-1-
<PAGE>
transaction, a majority of the Total Combined Voting Power (as such term is
defined in subsection l(f)(i) below) of the outstanding Voting Securities (as
such term is defined in subsection l(f)(i) below) of the surviving corporation
(or other entity) resulting from such transaction pursuant to clause (i), or the
acquiring corporation (or other entity) pursuant to clause (ii).
(B) "AWARD" "shall collectively and severally refer to any Options or
-----
Grant Shares granted or awarded under the Plan.
(C) "AWARD AGREEMENT" shall collectively and severally refer to (i)
---------------
in the case of the grant or award of an Option, a Stock Option Certificate in
the form of Appendix "A" attached hereto, and (ii) in the case of the grant or
award of Grant Shares, a Stock Grant Agreement in the form of Appendix "B"
attached hereto; provided, however, the Company may, in its sole discretion, (1)
revise any such form of Award Agreement to reflect or incorporate such changes
as the Company or its legal counsel may determine is appropriate and consistent
with the terms of the Plan, and/or (2) evidence or confirm the grant of an Award
in a written employment or consulting agreement in lieu of the form of any of
the foregoing Award Agreements.
(D) "BLUE SKY LAWS" shall mean the securities laws of any state or
-------------
territory of the United States or province of Canada, including any regulations
or rules promulgated thereunder, which may apply to a transaction described in
this Plan by reason of, among other things, the Recipient's residing in such,
state, territorial and/or provincial at the time of such transaction.
(E) "BOARD" shall mean the Board of Directors of the Company, as such
-----
body may be reconstituted from time to time.
(F) "CHANGE IN CONTROL" shall mean the occurrence of any "Control
-----------------
Acquisition" or any "Significant Board Change" (as such terms are defined
below).
(i) "Control Acquisition" shall mean any time an "Acquiring
Person" (as defined below) attains, by reason of and immediately after a
transaction or series of related transactions (other than a Non-Control
Transaction), "Beneficial Ownership" of fifty percent (50%) or more of the
"Total Combined Voting Power" of the Company's then outstanding "Voting
Securities" (all as defined below); unless the Board determines that it is
not in the best interests of the Company for such transaction to be
construed as a Control Acquisition; provided, however that at the time of
such approval of the Board there are then in office not less than two
Continuing Directors (as such term is defined below) and such action or
transaction or series of related actions or transactions are approved by a
majority of the Continuing Directors then in office.
(1) "Acquiring Person" shall mean any "Person" (as defined
below) with the exception of: (A) any Employee Benefit Plan (or a
trust forming a part thereof) maintained by the Company, or by any
corporation or entity in which the Company holds fifty percent (50%)
or more of the Voting Securities (each, a "Controlled Subsidiary");
(B) the Company or any Controlled Subsidiary; or (C) any Person which
acquires the threshold percentage of Voting Securities through a "Non-
Control Transaction" (as defined below).
(2) "Non-Control Transaction" shall mean any transaction in
which the stockholders of the Company immediately before such
transaction directly or indirectly own, immediately following such
transaction, at least a majority of the Total Combined Voting Power
(as defined below) of the outstanding Voting Securities (as defined
below) of the surviving corporation (or other entity) resulting from
such transaction, in substantially the same proportion as such
stockholders' ownership of the Company's Voting Securities immediately
before such transaction.
-2-
<PAGE>
(3) "Person," "Beneficial Ownership," "Total Combined Voting
Power" and "Voting Securities" shall have the meaning described to
such terms in Sections 13(d) and 14(d) of the Securities Exchange Act
and Rule 13d-3 promulgated thereunder.
(4) "Continuing Director" shall mean: (A) any member of the
Board, while such Person is a member of the Board, who is not an
Acquiring Person or an "Affiliate" or "Associate" (as defined below)
of an Acquiring Person, or a representative of an Acquiring Person or
any such Affiliate or Associate, and was a member of the Board prior
to the date of this Plan, or (B) any Person who subsequently becomes a
member of the Board, while such Person is a member of the Board, who
is not an Acquiring Person or an Affiliate or Associate of an
Acquiring Person or a representative of an Acquiring Person or any
such Affiliate or Associate, if such Person's nomination for election
or election to the Board is recommended or approved by a majority of
the Continuing Directors. The terms "Affiliate" and "Associates"
shall have the respective meanings ascribed to such terms in Rule 12b-
2 of the General Rules and Regulations under the Exchange Act.
Notwithstanding the foregoing, a Control Acquisition shall
not be deemed to have occurred solely because any Person acquires
Beneficial Ownership of more than the threshold percentage of the
outstanding Voting Securities as a result of an acquisition of Voting
Securities by the Company (each, a "Redemption") which, by reducing the
number of Voting Securities outstanding, increased the percentage of
outstanding Voting Securities Beneficially Owned by such Person; provided,
however, that if (A) a Control Acquisition would occur as a result of a
Redemption but for the operation of this sentence, and (B) after such
Redemption, such Person becomes the Beneficial Owner of any additional
Voting Securities, which increase the percentage of the then outstanding
Voting Securities Beneficially Owned by such Person over the percentage
owned as a result of the Redemption, then a Control Acquisition shall
occur.
(ii) "Significant Board Change" shall mean any time, during any
period of three (3) consecutive years after the date of this Agreement,
wherein the individuals who constituted the Board at the beginning of such
period (the "Incumbent Board") cease to constitute a majority of the Board,
for any reason other than: (1) the voluntary resignation of one or more
Board members; (2) the refusal by one or more Board members to stand for
election to the Board; and/or (3) the removal of one or more Board members
for good cause; provided, however, (A) that if the nomination or election
of any new director of the Company was approved by a vote of at least a
majority of the Incumbent Board, such new director shall be deemed a member
of the Incumbent Board; and (B) that no individual shall be considered a
member of the Incumbent Board if such individual initially assumed office
as a result of either an actual or threatened "Election Contest" (as
described in Rule 14a-11 promulgated under the Securities Exchange Act), or
as a result of a solicitation of proxies or consents by or on behalf of an
Acquiror, other than a member of the Board (a "Proxy Contest"), or as a
result of any agreement intended to avoid or settle any Election Contest or
Proxy Contest.
(G) "CODE" shall mean the Internal Revenue Code of 1986, as amended
----
(references herein to sections of the Code are intended to refer to sections of
the Code as enacted at the time of the adoption of the Plan by the Board and as
subsequently amended, or to any substantially similar successor provisions of
the Code resulting from recodification, renumbering or otherwise).
(H) "COMMISSION" shall mean the United States Securities and Exchange
----------
Commission.
(I) "COMMON STOCK" shall mean the Company's common stock, no par
------------
value.
(J) "COMPANY" shall mean Pinnacle Oil International, Inc., a Nevada
-------
corporation and its successors.
-3-
<PAGE>
(K) "CONSENT OF SPOUSE" shall mean that Consent of Spouse in the form
-----------------
of Appendix "C" attached hereto.
(L) "CONSULTANT" shall mean any Person who, in a capacity other than
----------
as an Employee or Director, provides bona fide services in a consulting or
advisory capacity to the Company and/or to any Parent and/or to any Subsidiary,
whether as an entity or a natural person, and whether as an independent
contractor or an employee of an employer.
(M) "DIRECTOR" shall mean any Person who is voted or appointed as a
--------
member of the Board of Directors of the Company and/or of any Parent and/or of
any Subsidiary, whether such Person is so engaged at the time the Plan is
adopted or becomes so engaged subsequent to the adoption of the Plan.
(N) "DISABILITY" (or the related term "Disabled") shall be defined,
----------
without limitation, as any of the following with respect to a Recipient who is
an Employee or a Director: (i) the receipt of any disability insurance benefits
by the Recipient; (ii) a declaration by a court of competent jurisdiction that
the Recipient is legally incompetent; (iii) the Recipient's material inability
due to medically documented mental or physical illness or disabilities to fully
perform the Recipient's regular obligations as an Employee or as a Director (as
the case may be) under such office, with reasonable accommodation if then
required by applicable federal, state, territorial and/or provincial laws or
regulations, for a three (3) month continuous period, or for six (6) cumulative
months within any one (1) year continuous period, or the reasonable
determination by the Board that the Recipient will not be able to fully perform
the Recipient's regular obligations as an Employee or as a Director (as the case
may be), under such office, with reasonable accommodation if then required by
applicable federal, state, territorial and/or provincial laws or regulations,
for a three (3) month continuous period. If the Board determines that the
Recipient is Disabled under clause (iii) above, and the Recipient disagrees with
the conclusion of the Board, then the Company shall engage a qualified
independent physician reasonably acceptable to the Recipient to examine the
Recipient at the Company's sole expense. The determination of such physician
shall be provided in writing to the parties and shall be final and binding upon
the parties for all purposes of this Agreement. The Recipient hereby consents to
examination in the manner set forth above, and waives any physician-patient
privilege arising from any such examination as it relates to the determination
of the purported disability. If the parties cannot agree upon such physician, a
physician shall be appointed by the American Arbitration Association, located in
Carson City, Nevada, according to the rules and practices of the American
Arbitration Association from time-to-time in force.
(O) "ELIGIBLE PERSON" shall mean any Person who, at the applicable
---------------
time of the grant or award of an Award under the Plan, is an Employee, a
Director, and/or a Consultant. Notwithstanding the foregoing, no Award hereunder
may be granted to any Person, even if otherwise an Eligible Person, with respect
to (i) any circumstances which would not be considered to be either a bonus or
reward for services provided, or compensation for services rendered, or (ii) in
the case of any Consultant, services rendered wholly or partially in connection
with the offer and sale of securities in a capital-raising transaction.
(P) "EMPLOYEE" shall mean any employee of the Company or of any
--------
Parent and/or of any Subsidiary, whether such Person is so employed at the time
the Plan is adopted or becomes so employed subsequent to the adoption of the
Plan.
(Q) "EXECUTIVE OFFICER" shall mean the Company's president, principal
-----------------
financial officer, principal accounting officer (or, if there is no such
accounting officer, the controller), any vice-president of the Company in charge
of a principal business unit, division or function (such as sales,
administration or finance), any other officer who performs a policy-making
function, or any other person who performs similar policy-making functions for
the Company. Officers of any Parent or Subsidiary of the Company shall be deemed
Executive Officers of the Company if they perform such policy-making functions
for the Company.
-4-
<PAGE>
(R) "EXCHANGE ACT" shall mean the Securities and Exchange Act of
------------
1934, as amended, including any regulations or rules promulgated by the
Commission thereunder (references herein to sections of the Exchange Act are
intended to refer to sections of the Exchange Act as enacted at the time of the
adoption of the Plan by the Board and as subsequently amended, or to any
substantially similar successor provisions of the Exchange Act resulting from
recodification, renumbering or otherwise).
(S) "FAIR MARKET VALUE" of a share of Common Stock as of a given
-----------------
valuation date shall be determined as follows:
(i) If the Common Stock is traded on a stock exchange, the Fair
Market Value will be equal to the closing price of Common Stock on the
principal exchange on which the Common Stock is then trading as reported by
such exchange (or as reported by any composite index which includes such
principal exchange) for the trading day previous to the date of valuation,
or if the Common Stock is not traded on such date, on the next preceding
trading day during which a trade occurred;
(ii) If the Common Stock is traded over-the-counter on the
Nasdaq National Market on the date in question, the Fair Market Value will
be equal to the last transaction-price of the Common Stock as reported by
Nasdaq for the trading day previous to the date of valuation, or if the
Common Stock is not traded on such date, on the next preceding trading day
during which a trade occurred;
(iii) If the Common Stock is traded over-the-counter on the
Nasdaq SmallCap Market, the Fair Market Value will equal the mean between
the last reported closing representative bid and asked price for the Common
Stock as reported by Nasdaq for the trading day previous to the date of
valuation, or if the Common Stock is not traded on such date, on the next
preceding trading day during which a trade occurred; or
(iv) If the Common Stock is not publicly traded on an exchange
and is not traded over-the-counter on Nasdaq, the Fair Market Value shall
be determined by the Board acting in good faith on such basis as it deems
appropriate, including quotations by market makers if the Common Stock is
traded over-the-counter on the NASD Electronic Bulletin Board or Pink
Sheets on the date in question should the Plan Administrator deem such
quotations to be appropriate given the volume and circumstances of trades.
The Fair Market Value as determined in clauses (i) through (iv)
above shall be subject to such discount as the Plan Administrator may, in its
sole discretion and without obligation to do so, determine to be appropriate to
reflect any such impairments to the value of the associated Option Shares and/or
Grant Shares to which the valuation relates such as, by way of example and not
limitation, (1) the fact that such Option Shares and/or Grant Shares constitute
unregistered securities (whether or not considered "restricted stock" within the
meaning of Rule 144 of the Securities Act), and/or (2) such Option Shares and/or
Grant Shares are subject to conditions, risk of forfeiture, or repurchase rights
or rights of first refusal which impair their value including, without
limitation, those forfeiture conditions more particularly described in section
7; provided, however, in the event of the grant or award of an Incentive Option,
no discount shall be given with respect to any impairments in value attributable
to any restriction which, by its terms, will never lapse within the meaning of
Section 422(c)(7) of the Code.
(T) "FORFEITABLE GRANT SHARES" shall mean Grant Shares that are
------------------------
subject to restrictions set forth in section 7 of the Plan.
---------
(U) "GRANT SHARES" shall mean Plan Shares granted or awarded in
------------
accordance with section 6 of the Plan.
---------
-5-
<PAGE>
(V) "INCENTIVE OPTION" shall mean an Option which qualifies under
----------------
Section 422 of the Code, and is specifically granted as an Incentive Option
under the Plan in accordance with the applicable provisions of section 5.
---------
(W) "NON-QUALIFIED OPTION" shall mean any Option granted under the
--------------------
Plan other than an Incentive Option; provided, however, the term Non-Qualified
Option shall include any Incentive Option which, for any reason, fails to
qualify as an incentive stock option under Section 422 of the Code and the rules
and regulations thereunder.
(X) "OPTION" shall mean an option to purchase Plan Shares granted or
------
awarded pursuant to section 5. Unless specific reference is made thereto, the
---------
term "Options" shall be construed as referring to both Non-Qualified Options and
Incentive Options.
(Y) "OPTION PRICE" is defined in section 5(b) of the Plan.
------------ ------------
(Z) "OPTION SHARES" shall mean any Plan Shares which an Option
-------------
entitles the holder thereof to purchase.
(AA) "PARENT" shall mean any "parent" of the Company, as such term is
------
defined by, or interpreted under, Rule 701 promulgated under the Securities Act,
including any such parent which is a corporation, partnership, limited
partnership or limited liability company to the extent permitted under Rule 701.
(BB) "PERSON" shall be defined, in its broadest sense, as any
------
individual, entity or fiduciary such as, by way of example and not limitation,
individual or natural persons, corporations, partnerships (limited or general),
joint-ventures, associations, limited liability companies/partnerships or
fiduciary arrangements (such as trusts and custodial arrangements).
(CC) "PLAN" shall mean this 1997 Pinnacle Oil International Stock
----
Plan.
(DD) "PLAN ADMINISTRATOR" shall refer to the Person or Persons who are
------------------
administering the Plan as described in section 3, namely, the Board, the Plan
---------
Committee, or any Director-Officers designated by the Board or the Plan
Committee.
(EE) "PLAN COMMITTEE" shall mean that Committee comprised of members
--------------
of the Board that may be appointed by the Board to administer and interpret the
Plan as more particularly described in section 3 of the Plan.
---------
(FF) "PLAN SHARES" shall refer to shares of Common Stock issuable in
-----------
connection with Awards in accordance with section 4(a) of the Plan, including
------------
both Option Shares and Grant Shares.
(GG) "RECIPIENT" shall mean any Eligible Person who, at a particular
---------
time, receives the grant of an Award.
(HH) "RECIPIENT'S REPRESENTATIVE'S LETTER" shall mean that letter
-----------------------------------
from an independent investment advisor of a Recipient in the form of Appendix
"D" attached hereto.
(II) "REPORTING COMPANY" shall mean a corporation which registers its
-----------------
equity securities pursuant to Sections 12(b) or 12(g) of the Exchange Act;
provided, however, any foreign corporation which registers its equity securities
as a "foreign private issuer" shall not be deemed a Reporting Company for
purposes of this Plan unless and until such time as it is required or elects to
register its equity securities as a foreign issuer other than a foreign private
issuer.
-6-
<PAGE>
(JJ) "SECURITIES ACT" shall mean the Securities Act of 1933, as
--------------
amended, including all regulations or rules promulgated by the Commission
thereunder (references herein to sections of the Securities Act are intended to
refer to sections of the Securities Act as enacted at the time of the adoption
of the Plan by the Board and as subsequently amended, or to any substantially
similar successor provisions of the Securities Act resulting from
recodification, renumbering or otherwise).
(KK) "SECURITIES LAWS" shall collectively refer to the Securities Act,
---------------
the Exchange Act and the Blue Sky Laws.
(LL) "SUBSIDIARY" shall mean any "majority-owned subsidiary" of the
----------
Company, as such term is defined by, or interpreted under, Rule 701 promulgated
under the Securities Act, including any such subsidiary which is a corporation,
partnership, limited partnership or limited liability company to the extent
permitted under Rule 701. The term Subsidiary shall specifically exclude any
majority-owned subsidiaries (other than the Company, if applicable) of any
Parent.
(MM) "TEN PERCENT STOCKHOLDER" shall mean a Person who owns, either
-----------------------
directly or indirectly, at the time such Person is granted an Award, stock of
the Company possessing more than ten percent (10%) of the total combined voting
power or value of all classes of stock of the Company or of any Parent and/or
any Subsidiary.
(NN) "TERMINATION BY COMPANY FOR CAUSE" shall mean the following:
--------------------------------
(i) Employee-Recipient. In the case of a Recipient who is an
------------------
Employee, the Plan Administrator determines that:
--------
(1) The Recipient's representations or warranties in
connection with the grant of the Award (or the subsequent exercise of
an Option, if the Award is an Option) are not materially true,
accurate and complete;
(2) The Recipient has breached or wrongfully failed and/or
refused to fulfill and/or perform any of the Recipient's obligations,
promises or covenants under the underlying Award Agreement;
(3) The Recipient has breached or wrongfully failed and/or
refused to fulfill and/or perform any of the Recipient's
representations, warranties, obligations, promises or covenants in any
agreement (other than the Award Agreement) entered into between the
Company and the Recipient, without cure, if any, as provided in such
agreement;
(4) The Recipient has failed and/or refused to obey any
lawful and proper order or directive of the Board, and/or the
Recipient has intentionally interfered with the compliance by other
employees of the Company with any such orders or directives;
(5) The Recipient has breached the Recipient's fiduciary
duties to the Company;
(6) The Recipient has caused the Company to be convicted of
a crime, or intentionally caused the Company to incur criminal
penalties in material amounts;
-7-
<PAGE>
(7) The Recipient has committed: (A) any act of fraud,
misrepresentation, theft, embezzlement or misappropriation, and/or any
other dishonest act against the Company and/or any of its affiliates,
subsidiaries, joint ventures; or (B) any other offense involving moral
turpitude, which offense is followed by conviction or by final action
of any court of law; or (C) a felony;
(8) The Recipient has used alcohol or drugs to an extent
that such use: (A) interfered with or was likely to interfere with
the Recipient's ability to perform the Recipient's duties to the
Company; and/or (B) such use endangers or was likely to endanger the
life, health, safety, or property of the Recipient, the Company,
and/or any other person;
(9) The Recipient has demonstrated or committed such acts
racism, sexism or other discrimination as would tend to bring the
Company into public scandal or ridicule, or would otherwise result in
material and substantial harm to the Company's business, reputation,
operations, affairs or financial position; and/or
(10) The Recipient engaged in other conduct constituting
cause for termination.
(ii) Director-Recipient. With respect to a Recipient who is a
------------------
Director, the Plan Administrator determines that:
--------
(1) The Board has removed the Recipient as a member of the
Board for "cause" as such term is defined or interpreted by the
Articles or Certificate of Incorporation and/or the Bylaws of the
Company, and/or the laws of the State of the Company's organization,
or for breach of the Recipient's statutory or common law duties as a
Director;
(2) The Recipient has refused or is unable to be nominated
for a position on the Board, including where due to the Recipient's
failure to request cumulative voting for such election (if applicable)
and the Recipient's failure to vote all of the Recipient's shares of
Common Stock for the Recipient's election to the Board; and/or
(3) Any event described above in subsection l(nn)(i) has
-------------------
occurred with respect to the Recipient.
(iii) Consultant- Recipient. In the case of any Recipient who
---------------------
is a Consultant, the Plan Administrator determines that any event described
----------
above in subsection l(nn)(i) has occurred with respect to the Recipient.
-------------------
Any nominees or designees of the Recipient to the Board shall,
if a member of the Plan Administrator, abstain from voting with respect to any
decision by the Plan Administrator relating to any of the foregoing events as
they pertain to any Award in which the Recipient has a direct or indirect
interest.
In the event the Recipient is both Disabled and the provisions of
clause (6) of subsection l(nn)(i) are applicable with respect to the Recipient,
- ---------- -------------------
the Company shall nevertheless have the right to deem such event as a
Termination By Company For Cause.
(OO) "TERMINATION BY RECIPIENT FOR GOOD REASON" shall mean the
----------------------------------------
following:
(i) Employee-Recipient. With respect to any Recipient who is an
------------------
Employee:
--------
-8-
<PAGE>
(1) The Company's representations or warranties in the
Award Agreement are not materially true, accurate and complete;
(2) The Company has intentionally and continually breached
or wrongfully failed and/or refused to fulfill and/or perform any of
the Company's obligations, promises or covenants under the underlying
Award Agreement;
(3) The Company has intentionally and continually breached
or wrongfully failed and/or refused to fulfill and/or perform any of
the Company's representations, warranties, obligations, promises or
covenants in any agreement (other than the Award Agreement) entered
into between the Company and the Recipient, without cure, if any, as
provided in such agreement; and/or
(4) The Company intentionally requires the Recipient to
commit or participate in any felony or other serious crime.
(ii) Director-Recipient. With respect to any Recipient who is a
------------------
Director:
--------
(1) The Company removes or fails to reappoint or re-elect
the Recipient as a Director (unless such action is attributable to an
event considered to constitute Termination By Company For Cause);
and/or
(2) The occurrence of any of the events described above in
clauses (1) through (4) of subsection 1(oo)(i) with respect to the
----------- --- -------------------
Director.
(iii) Consultant-Recipient. With respect to any Recipient who is
--------------------
a Consultant, the occurrence of any of the events described above in
----------
clauses (1) through (4) of subsection 1(oo)(i) with respect to the
----------- --- -------------------
Consultant.
In the event any of the events described above in this subsection
----------
l(nn) occurs with respect to the Company, and such event is reasonably
- -----
susceptible of being cured, then the Company shall be entitled to a grace period
of thirty (30) days following receipt of written notice of such event (or such
longer period of time as is reasonable should such event be of a character which
cannot be cured within a period of thirty (30) days), to cure such event to the
reasonable satisfaction of the Recipient, provided that the Company promptly
commences to cure such event and uses reasonable diligence thereafter in curing
such event. No act, nor failure to act, on the Company's part shall be
considered "intentional" unless the Company has acted, or failed to act, with a
lack of good faith and with a lack of reasonable belief.
(PP) "TERMINATION OF RECIPIENT" is defined, as the case may be, as
----------------------
follows:
(i) Employee-Recipient. With respect to a Recipient who is an
--- ------------------
Employee, the time when the employee-employer relationship between the
--------
Recipient and the Company (or any Parent or Subsidiary) is terminated for
any reason whatsoever, whether voluntary or involuntary (including death or
Disability), or with or without good cause, including, but not by way of
limitation, termination by resignation, discharge, retirement, or leave of
absence, but excluding terminations where: (1) the Recipient remains
employed by the Company (if such termination relates to the Recipient's
employment with any Parent and/or any Subsidiary) and/or by any Parent
and/or any Subsidiary (if such termination relates to the Recipient's
employment with the Company); (2) there is simultaneous employment of the
Recipient by the Company and/or any Parent and/or any Subsidiary; and/or
(3) there is a simultaneous establishment of a consulting relationship
between the Company and the Recipient."
-9-
<PAGE>
(ii) Director-Recipient. With respect to a Recipient who is a
------------------
Director, the time when the Recipient's status as a Director ceases for any
--------
reason whatsoever, whether voluntary or involuntary (including death or
Disability), or with or without good cause, but excluding cases where the
Recipient remains a Director of the Company (if such termination relates to
the Recipient's status as a Director of any Parent and/or any Subsidiary)
and/or by any Parent and/or any Subsidiary (if such termination relates to
the Recipient's status as a Director of the Company).
(iii) Consultant-Recipient. With respect to a Recipient who is
--------------------
a Consultant, the time when the Recipient's engagement as a Consultant to
----------
the Company and/or any Parent and/or any Subsidiary ceases for any reason
whatsoever, whether voluntary or involuntary (including death or
Disability), or with or without good cause, but excluding cases where there
is a simultaneous commencement of employment of the Recipient by the
Company and/or any Parent and/or any Subsidiary.
(QQ) "TRANSFER" shall mean any transfer or alienation of an Award
--------
which would directly or indirectly change the legal or beneficial ownership
thereof, whether voluntary or by operation of law, regardless of payment or
provision of consideration, including, by way of example and not limitation: (i)
the sale, assignment, bequest or gift of the Award; (ii) any transaction that
creates or grants an option, warrant, or right to obtain an interest in the
Award; (iii) any transaction that creates a form of joint ownership in the Award
between the Recipient and one or more other Persons; (iv) any Transfer of the
Award to a creditor of the Recipient, including the hypothecation, encumbrance
or pledge of the Award or any interest therein, or the attachment or imposition
of a lien by a creditor of the Recipient on the Award or any interest therein
which is not released within thirty (30) days after the imposition thereof; (v)
any distribution by a Recipient which is an entity to its stockholders,
partners, co-venturers or members, as the case may be; or (vi) any distribution
by a Recipient which is a fiduciary such as a trustee or custodian to its
settlors or beneficiaries.
2. TERM OF PLAN
(a) Effective Date for Plan; Termination Date for Plan. The Plan
--------------------------------------------------
shall be effective as of such time and date as the Plan is adopted by the Board,
and the Plan shall terminate on the first business day prior to the ten (10)
year anniversary of the date the Plan became effective. No Awards shall be
granted or awarded under the Plan before the date the Plan becomes effective or
after the date the Plan terminates; provided, however: (i) all Awards granted
pursuant to the Plan prior to the effective date of the Plan shall not be
affected by the termination of the Plan; and (ii) all other provisions of the
Plan shall remain in effect until the terms of all outstanding Awards have been
satisfied or terminated in accordance with the Plan and the terms of such
Awards.
(b) Failure of Stockholders to Approve Plan. In the event the Plan
---------------------------------------
is not approved by the holders of a majority of the shares of Common Stock of
the Company (excluding shares of Common Stock derived from Option or Grant
Shares issued under the Plan) within twelve (12) months before or after the date
the Plan becomes effective, then any Incentive Options granted under the Plan
shall be reclassified as Non-Qualified Options retroactive to the date of grant.
3. PLAN ADMINISTRATION
(a) General. The Plan shall be administered exclusively by the
-------
Board and/or, to the extent authorized pursuant to this section 3, the Plan
---------
Committee or Director-Officers (collectively, the "Plan Administrator").
(b) Delegation to Plan Committee. Subject to the authority
----------------------------
granted to the Board under the Articles of Incorporation and the Bylaws of the
Company, the Board may, in its sole discretion and at any time, establish a
committee comprised of two (2) or more members of the Board (the "Plan
Committee") to
-10-
<PAGE>
administer the Plan either in its entirety or to administer such functions
concerning the Plan as delegated to such Committee by the Board. Members of the
Plan Committee may resign at any time by delivering written notice to the Board.
Vacancies in the Plan Committee shall be filled by the Board. The Plan Committee
shall act by a majority of its members in office. The Plan Committee may act
either by vote at a meeting or by a memorandum or other written instrument
signed by a majority of the Plan Committee.
(c) Compliance with Section 16 of the Exchange Act. Anything in
----------------------------------------------
this section 3 to the contrary notwithstanding, in the event and commencing at
---------
such time as this Company becomes a Reporting Company, or is otherwise required
to register its equity securities under Sections 12(b) or 12(g) of the Exchange
Act, any matter concerning a grant or award of an Award under the Plan to any
Director, Executive Officer or Ten Percent Stockholder shall be made only by:
(i) the Board; (ii) the Plan Committee, provided it is comprised solely of "Non-
Employee Directors" within the meaning of Rule 16b-3(b)(3) promulgated under the
Exchange Act; or (iii) a special committee of the Board, or subcommittee of the
Plan Committee, comprised solely of two (2) or more members of the Board who are
non-Employee Directors.
(d) Delegation To Director-Officers. Subject to the authority
-------------------------------
granted to the Board under the Articles of Incorporation and the Bylaws of the
Company, the Board may, in its sole discretion and at any time, and subject to
the authority granted to it by the Board, the Plan Committee may, in its sole
discretion and at any time, delegate all or any portion of their authority
described below under subsections (i) through (iii) of section 3(e) to one or
--------------- ----- ------------
more Directors who are also Director-Officers, provided that the Board or the
Plan Committee (as the case may be) ratifies such actions by such designated
Director-Officers. Notwithstanding the foregoing, in the event the Company is
then a Reporting Company pursuant to subsection 3(c), no authority shall be
---------------
delegated to the aforesaid Director-Officers with respect to any matter
concerning a grant or award of an Award under the Plan to any Director,
Executive Officer or Ten Percent Stockholder.
(e) Authority to Make Awards and to Determine Terms and Conditions of
-----------------------------------------------------------------
Awards. Subject to any limitations prescribed by the Articles of Incorporation
- ------
and Bylaws of the Company, and further subject to the express terms, conditions,
limitations and other provisions of the Plan, the Plan Administrator shall have
the full and final authority, in its sole discretion at any time and from time-
to-time, to do any of the following:
(i) Designate and/or identify the Persons or classes of Persons
who are considered Eligible Persons;
(ii) Grant Awards to such selected Eligible Persons or classes
of Eligible Persons in such form and amount as the Plan Administrator shall
determine;
(iii) Impose such limitations, restrictions and conditions upon
any Award as the Plan Administrator shall deem appropriate and necessary
including, without limitation, the term of Options and any vesting
conditions attached thereto pursuant to section 5, and any vesting and
---------
repurchase conditions placed upon grants or awards of Grant Shares pursuant
to sections 6 or 7;
---------- --
(iv) Require as a condition of the grant of an Award that the
Recipient surrender for cancellation some or all of any unexercised Options
which have previously been granted to the Recipient under the Plan or
otherwise (an Award, the grant of which is conditioned upon such surrender;
may have a price or value lower (or higher) than the surrendered Option;
may cover the same (or a lesser or greater) number of shares of Common
Stock as such surrendered Option; may contain such other terms as the Plan
Administrator deems appropriate and necessary; and shall be exercisable in
or granted in accordance with its terms, without regard to the number of
shares, price, exercise period or any other term or condition of such
surrendered Option);
-11-
<PAGE>
(v) Determine the type and value of consideration which the
Company will accept from Recipients in payment for the exercise of Options
and/or the award of Grant Shares; and
(vi) Interpret the Plan, adopt, amend and rescind rules and
regulations relating to the Plan, and make all other determinations and
take all other action necessary or advisable for the implementation and
administration of the Plan.
In determining the recipient, form and amount of Awards, the Plan
Administrator shall consider any factors it may deem relevant such as, by way of
example and not limitation or obligation, the Recipient's functions,
responsibilities, value of services to the Company, and past and potential
contributions to the Company's profitability and sound growth.
(f) Authority to Interpret Plan; Binding Effect of All
--------------------------------------------------
Determinations. The Plan Administrator shall, in its sole and absolute
- --------------
discretion, interpret and determine the effect of all matters and questions
relating to the Plan including, without limitation, all questions relating to
whether a Termination Of Recipient has occurred such as, by way of example and
not limitation, those relating to the effect of a leave of absence, a change in
status from an employee to an independent contractor, and/or any other change in
the employer-employee relationship. All interpretations and determinations of
the Plan Administrator under the Plan (including, without limitation,
determinations pertaining to the eligibility of Persons to receive Awards, the
form, amount and timing of Awards, the methods of payment for Awards, the
restrictions and conditions placed upon Awards, and the other terms and
provisions of Awards and the certificates or agreements evidencing same) need
not be uniform and may be made by the Plan Administrator selectively among
Persons who receive, or are eligible to receive, Awards under the Plan, whether
or not such Persons are similarly situated. All actions taken and all
interpretations and determinations made under the Plan in good faith by the Plan
Administrator shall be final and binding upon the Recipient, the Company, and
all other interested Persons. No member of the Plan Administrator shall be
personally liable for any action taken or decision made in good faith relating
to the Plan, and all Persons constituting the Plan Administrator shall be fully
protected and indemnified to the fullest extent permitted under applicable law
by the Company in respect to any such action, determination, or interpretation.
(g) Compensation; Advisors. Members of the Plan Administrator shall
----------------------
receive such compensation for their services hereunder as may be determined by
the Board. All expenses and liabilities incurred by members of the Plan
Administrator in connection with the administration of the Plan shall be borne
by the Company. The Plan Administrator may, at the cost of the Company, employ
attorneys, consultants, advisors, accountants, appraisers, brokers or other
Persons to provide advice, opinions or valuations, and the Plan Administrator
shall be entitled to rely upon any such advice, opinions or valuations.
4. SHARES OF COMMON STOCK ISSUABLE UNDER PLAN
(a) Maximum Number of Shares Authorized Under Plan. Plan Shares
----------------------------------------------
which may be issued or granted under the Plan shall be authorized and unissued
or treasury shares of Common Stock. The aggregate maximum number of Plan Shares
which may be issued, whether upon exercise of Options or as a grant of Grant
Shares, shall not exceed one million (1,000,000) shares of Common Stock;
provided, however, that such number shall be increased by the following (unless
and to the extent that such action would cause an Incentive Option to fail to
qualify as an Incentive Option under Section 422 of the Code):
(i) Any shares of Common Stock tendered by a Recipient as
payment for Option Shares (in connection with the exercise of the
associated Option) or Grant Shares;
(ii) Any shares of Common Stock underlying any options, warrants
or other rights to purchase or acquire Common Stock which options, warrants
or rights are surrendered by a Recipient as payment for Option Shares (in
connection with the exercise of the associated Option) or Grant Shares;
-12-
<PAGE>
(iii) Any shares of Common Stock subject to an Option which, for
any reason, is terminated unexercised or expires; and
(iv) Any Forfeitable Grant Shares which, for any reason, are
forfeited by the holder thereof.
(b) Calculation of Number of Shares Available for Awards. For
----------------------------------------------------
purposes of calculating the maximum number of Plan Shares which may be issued
under the Plan, the following rules shall apply:
(i) When Options are exercised, and when cash is used as full
payment for Option Shares issuable upon exercise of such Options, all
---
Option Shares issued in connection with such exercise (including Option
Shares, if any, withheld for tax withholding requirements) shall be
counted;
(ii) When Options are exercised, and when shares of Common Stock
are used as full or partial payment for Option Shares issuable upon
exercise of such Options, the net Option Shares issued in connection with
----
such exercise (including Option Shares, if any, withheld for tax
withholding requirements) shall be counted; and
(iii) When Grant Shares are granted, and when shares of Common
Stock are used as full or partial payment therefore, the net Grant Shares
issued (including Grant Shares, if any, withheld for tax withholding
requirements) shall be counted.
(c) Date of Awards. The date an Award is granted shall mean the
--------------
date selected by the Plan Administrator as of which the Plan Administrator
allots a specific number of Plan Shares to a Recipient with respect to such
Award pursuant to the Plan.
5. OPTIONS (TO PURCHASE OPTION SHARES)
(a) Grant. The Plan Administrator may from time to time, and
-----
subject to the provisions of the Plan and such other terms and conditions as the
Plan Administrator may prescribe, grant to any Eligible Person one or more
options ("Options") to purchase the number of Plan Shares allotted by the Plan
Administrator ("Option Shares"), which Options shall be designated as Non-
Qualified Options or Incentive Options; provided, however, no Incentive Option
shall be granted to any Person who is not an "employee" (within the meaning of
Sections 422(a)(2) and 3401(c) of the Code) of the Company and/or of any Parent
and/or of any Subsidiary.
All Options shall be Non-Qualified Options unless expressly stated by
the Plan Administrator to be an Incentive Option, even if the terms and
conditions of the Option comply with the terms and conditions of Section 422 of
the Code. No Incentive Option may be granted in tandem with any other Option.
The grant of an Option shall be evidenced by a written Stock Option Certificate,
executed by the Recipient and an authorized officer of the Company, stating:
(i) whether the Option is an Incentive Option, if applicable; (ii) the number of
Option Shares subject to the Option; (iii) the Option Price (as such term is
defined below) for the Option; and (iv) all other material terms and conditions
of such Option.
(b) Option Price. The purchase price per Option Share deliverable
------------
upon the exercise of an Option (the "Option Price") shall be such price as may
be determined by the Plan Administrator; provided, however:
(i) If the Option is an Incentive Option, the Option Price per
Option Share may not be less than the Fair Market Value of a share of
Common Stock as of the date of the grant, unless the Recipient of the
Option is a Ten Percent Stockholder at the time of grant, in which case the
Option
-13-
<PAGE>
Price per Option Share may not be less than one hundred ten percent (110%)
of the Fair Market Value of a share of Common Stock on the date the Option
is granted;
(ii) The Option Price per Option Share shall not be less than
that allowed under the exemption from registration or qualification under
the applicable Securities Laws, as selected by the Company in its sole
discretion;
(iii) If the Common Stock is traded on a stock exchange or over-
the-counter on Nasdaq, the Option Price per Option Share may not be less
than the minimum price permitted by such stock exchange or by Nasdaq; and
(iv) Under no circumstances shall the Option Price per Option
Share be less than the then current par value per share of Common Stock.
(c) Option Term; Expiration. The term of each Option shall commence
-----------------------
at the grant date for such Option as determined by the Plan Administrator, and
shall expire (unless an earlier expiration date is expressly provided in the
underlying Stock Option Certificate or another section of the Plan including,
without limitation, section 5(e)(iii)), on the first business day prior to the
ten (10) year anniversary of the date of grant thereof; provided, however,
notwithstanding the foregoing, any Incentive Options granted to a Ten Percent
Stockholder shall terminate on the first business day prior to the five (5) year
anniversary of the date of grant thereof. Except as limited by the requirements
of Section 422(b)(3) of the Code in the case of Incentive Options, the Plan
Administrator may extend the term of any outstanding Option should the Plan
Administrator, in its sole and absolute discretion, determine it advisable or
necessary to do so including, without limitation, in connection with any
Termination Of Recipient.
(d) Exercise Date. Unless a later exercise date is expressly
-------------
provided in the underlying Stock Option Certificate or another section of the
Plan, each Option shall become exercisable on the later of: (i) the date of its
-----
grant as determined by the Plan Administrator; or (ii) the date of delivery to
the Recipient, and execution by the Company and the Recipient, of the underlying
Stock Option Certificate evidencing the grant of the Option. No Option shall be
exercisable after the expiration of its applicable term as set forth in section
-------
5(c). Subject to the foregoing, each Option shall be exercisable in whole or in
- ----
part during its applicable term unless expressly provided otherwise in the
underlying Stock Option Certificate.
(e) Vesting Conditions. The Plan Administrator may subject any
------------------
Options granted to such vesting conditions as the Plan Administrator, in its
sole discretion, determines are appropriate and necessary, such as, by way of
example and not obligation: (1) the attainment of goals by the Recipient; (2)
in the case of a Recipient who is an Employee, the continued provision of
employment services by such Recipient to the Company and/or to any Parent or
Subsidiary; (3) in the case of a Recipient who is a Director, the continued
service by such Recipient as a Director to the Company and/or to any Parent or
Subsidiary; or (4) in the case of a Recipient who is a Consultant, the continued
provision of consulting services by such Recipient to the Company and/or to any
Parent or Subsidiary. If no vesting is expressly provided in the underlying
Stock Option Certificate, the Option Shares shall be deemed fully vested upon
date of grant. Any grant of Option Shares subject to vesting conditions shall
be subject to the following limitations:
(i) Compliance With Securities Laws. No vesting conditions
-------------------------------
may be imposed which are not permitted, or exceed those permitted, under
the exemption from registration or qualification to be relied upon under
applicable Securities Laws, as selected by the Company in its sole
discretion.
(ii) Special Rule Immediate Vesting of Options Where Vesting
-------------------------------------------------------
Conditions Relate to Continued Performance of Services. Where vesting
------------------------------------------------------
conditions are based upon continued performance of services to the Company,
then the prospective right to purchase unvested Option Shares shall
--------
-14-
<PAGE>
immediately lapse if not exercised prior to Termination Of Recipient;
provided, however, the Plan Administrator may, but without any obligation
to do so, provide in the underlying Stock Option Certificate that the
prospective right to purchase unvested Option Shares shall immediately vest
-------- ----------------
upon the occurrence of one or more of the following events as selected by
the Plan Administration in its sole and absolute discretion:
(1) In the event of Termination of Recipient where such
termination is made by the Recipient and constitutes Termination By
Recipient For Good Reason;
(2) In the event of Termination of Recipient where such
termination is made by the Company but does not constitute Termination
By Company For Cause; and/or
(3) In the event of Termination of Recipient due to his or
her death or Disability.
(iii) Special Rule Immediate Vesting Upon Occurrence of Certain
---------------------------------------------------------
Events. The Plan Administrator may, but without any obligation to do so,
------
provide in the underlying Stock Option Certificate that the prospective
right to purchase unvested Option Shares shall immediately vest upon the
-------- ----------------
occurrence of one or more of the following events as selected by the Plan
Administration in its sole and absolute discretion:
(1) In the event of a Change In Control; and/or
(2) In the event of an Approved Corporate Transaction.
(iv) Special Rule Accelerating Expiration Date of Options Where
----------------------------------------------------------
Vesting Conditions Relate to Continued Performance of Services. In the
--------------------------------------------------------------
event the vesting conditions are based upon continued performance of
services to the Company, then, unless otherwise expressly waived or
extended by the underlying Stock Option Certificate, in the event of
Termination of Recipient the following rules shall apply:
(1) The expiration date for vested Options shall be
---------- ---- ------
accelerated to thirty (30) days after the effective date of
Termination Of Recipient; provided, however, the Plan Administrator
may, but without any obligation to do so, provide in the underlying
Stock Option Certificate that the expiration date for such vested
------
Options shall not be accelerated in any event, or be accelerated to
six (6) months or one (1) year (as selected by the Plan Administrator)
after the effective date of Termination Of Recipient, in any of the
following events as selected by the Plan Administration in its sole
and absolute discretion:
(A) In the event of Termination of Recipient where such
termination is made by the Recipient and constitutes Termination
By Recipient For Good Reason;
(B) In the event of Termination of Recipient where such
termination is made by the Company but does not constitute
Termination By Company For Cause; and/or
(C) In the event of Termination of Recipient due to his
or her death or Disability.
-15-
<PAGE>
(2) The expiration date for unvested Options (insofar as
---------- ---- --------
they do not become immediately vested pursuant to section 5(e)(ii)))
----------------
shall be upon Termination Of Recipient if earlier than the expiration
date specified in section 5(c).
------------
(v) Waiver by Plan Administrator. The Plan Administrator may
--- ----------------------------
waive the acceleration of any vesting and/or expiration provision of any
outstanding Option should the Plan Administrator, in its sole and absolute
discretion, determine it advisable or necessary to do so including, without
limitation, in connection with any Termination Of Recipient.
(f) Manner of Exercise and Payment. An exercisable Option, or any
------------------------------
exercisable portion thereof, may be exercised solely by delivery of all of the
following to the Secretary of the Company at its principal executive offices
prior to the time when such Option (or such portion) becomes unexercisable under
this section 5; provided, however, the Plan Administrator may, in its sole
---------
discretion, permit a delay in payment of up to thirty (30) days:
(i) Notice. A Notice of Exercise of Stock Option in the form
------
attached to the underlying Stock Option Certificate, duly signed by the
Recipient or other Person then entitled to exercise the Option or portion
thereof, stating the number of Option Shares to be purchased by exercise of
the associated Option.
(ii) Consent of Spouse. A Consent of Spouse from the spouse of
-----------------
the Recipient, if any, duly signed by such spouse.
(iii) Payment. Full payment for the Option Shares to be
-------
purchased by exercise of the associated Option in immediately available
funds, in U.S. dollars and/or, if expressly permitted in the underlying
Stock Option Certificate, or if otherwise consented to by the Plan
Administrator in writing, any combination of the following:
(1) Shares of Common Stock owned by the Recipient duly
endorsed for transfer to the Company, with a Fair Market Value on the
date of delivery equal to the aggregate Option Price of the Option
Shares with respect to which the Option or portion is thereby
exercised;
(2) The surrender or relinquishment of options, warrants or
other rights to acquire Common Stock held by the Recipient, with a
Fair Market Value on the date of delivery (or date of grant if
permitted by the Plan Administrator) equal to the aggregate Option
Price of the Option Shares with respect to which the Option or portion
is thereby exercised;
(3) A full recourse promissory note bearing interest at a
rate as shall then preclude the imputation of interest under the Code,
and payable upon such terms as may be prescribed by the Plan
Administrator. The Plan Administrator shall prescribe the form of
such note and the security to be given for such note. Notwithstanding
the foregoing, no Option may be exercised by delivery of a promissory
note or by a loan from the Company if such loan or other extension of
credit is prohibited by law at the time of exercise of this Option or
does not comply with the provisions of Regulation G promulgated by the
Federal Reserve Board with respect to "margin stock" if the Company
and the Recipient are then subject to such Regulation; and/or
(4) Property of any kind which constitutes good and
valuable consideration.
-16-
<PAGE>
(iv) Withholding Tax. Payment of any applicable withholding
---------------
taxes pursuant to section 8.
---------
(v) Proof of Authority. In the event that the Option or
------------------
portion thereof shall be exercised by any Person other than the Recipient,
appropriate proof of the right of such person or persons to exercise the
Option or portion thereof.
(vi) Additional Documents. Such documents, representations and
--------------------
undertakings as provided in the Stock Option Certificate and/or which the
Plan Administrator, in its absolute discretion, deems necessary or
advisable pursuant to section 9.
---------
(g) Conditions to Issuance of Option Shares. The Company shall not
---------------------------------------
be required to issue or deliver any certificate or certificates representing the
Option Shares purchased upon exercise of any Option or any portion thereof prior
to fulfillment of all of the following conditions:
(i) The delivery of the documents described in subsection 5(f);
---------------
(ii) The receipt by the Company of full payment for such Option
Shares, including any applicable withholding taxes as pursuant to section
-------
8;
-
(iii) If the Common Stock is listed on any exchange or on either
the Nasdaq National Market or the Nasdaq SmallCap market, the satisfaction
of any requirements or conditions of such exchange or Nasdaq, as the case
may be, relative to the grant of such Options; provided, however, the
Company shall have no obligation to satisfy any requirements or conditions
the Plan Administrator shall, in its sole and absolute discretion,
determine to be objectionable;
(iv) The completion of any registration or other qualification
of such Option Shares under any federal or state securities laws, or under
the rulings or regulations of the Commission or any other governmental
securities regulatory body which the Plan Administrator shall, in its sole
and absolute discretion, deem necessary or advisable;
(v) The obtaining of any approval or other clearance from any
federal, state, territorial and/or provincial governmental agency which the
Plan Administrator shall, in its sole and absolute discretion, deem
necessary or advisable; and
(vi) The lapse of such reasonable period of time following the
exercise of the Option as the Plan Administrator may establish from time-
to-time for administrative convenience.
(h) Non-Assignability.
-----------------
(i) Exercise. Options may be exercised only by the original
--------
Recipient thereof or, to the extent a Transfer is permitted pursuant to
subsections (ii) and/or (iii) below, by a permitted transferee of such Options.
- ---------------- -----
(ii) Transfer. Except as provided in subsection (iii) below,
-------- ----------------
Options may not be Transferred by a Recipient, including upon the Death of a
Recipient and/or pursuant to a Qualified Domestic Relations Order as defined by
Section 414(p) of the Code, unless (A) such Transfer is expressly permitted in
------
the underlying Stock Option Certificate, or (B) the Plan Administrator, in its
sole and absolute discretion, otherwise consents to such Transfer in writing;
provided, however, anything in the preceding sentence to the contrary
notwithstanding, the following Options may not be Transferred:
-17-
<PAGE>
(1) Incentive Options, except to the extent such Transfer
(if otherwise permitted under the terms of the Stock Option
Certificate or by the Plan Administrator) will not violate Section
422(b)(5) of the Code (i.e., any Transfer {including Transfers
pursuant to Qualified Domestic Relations Orders} other than Transfers
to a deceased Recipient's successors pursuant to will or the laws of
descent or distribution by reason of the death of the Recipient );
(2) Options registered under the Securities Act with the
Commission on Form S-8; and/or
(3) Any other exemption from registration or qualification
to be relied upon by the Company under applicable Securities Laws in
granting such Option does not prohibit such assignment.
(iii) Death of Recipient. Upon the death of the Recipient (if
------------------
the Recipient is a natural Person, vested Options may, if such Transfer is
------
expressly permitted in the underlying Stock Option Certificate, or if the Plan
Administrator, in its sole and absolute discretion, otherwise consents to such
Transfer in writing, be Transferred to such Persons who are the deceased
Recipient's successors pursuant to will or the laws of descent or distribution
by reason of the death of the Recipient (the "Recipient's Successors"), and may
thereafter be exercised by the Recipient's Successors. Vested Options so
Transferred shall not be further Transferred by the Recipient's Successors
except to the extent the original Recipient of such Options would have been
permitted to Transfer such Options pursuant to clause (ii) of this subsection
----------- ----------
5(h).
- ----
(iv) Effect of Prohibited Transfer or Exercise. Any Transfer
-----------------------------------------
or exercise of an Option so Transferred in violation of the foregoing provisions
of this subsection 5(h) shall be null and void ab initio and of no further force
---------------
and effect.
(i) No Stockholder Rights. The Recipient shall not be, nor
---------------------
have any of the rights or privileges of, a stockholder of the Company with
respect to the Options or the underlying Option Shares including, by way of
example and not limitation, the right to vote for the election of directors or
upon any matter submitted to stockholders at any meeting thereof, or to give or
withhold consent to any corporate action, or to receive notice of meetings or
other actions affecting stockholders, or to receive dividends, distributions,
subscription rights or otherwise, unless and until all conditions for exercise
of the Option shall be satisfied, and the Option duly exercised and underlying
Option Shares duly issued and delivered, at which time the Recipient shall
become a stockholder of the Company with respect to such issued Option Shares
and, in such capacity, shall thereafter be fully entitled to receive dividends
(if any are declared and paid), to vote, and to exercise all other rights of a
stockholder with respect to such issued Option Shares.
(j) Notice of Disposition of Option Shares Acquired by Exercise
-----------------------------------------------------------
of Incentive Options. The Plan Administrator may require any Recipient who is
- --------------------
an Employee who acquires any Option Shares pursuant to the exercise of an
Incentive Option to give the Company prompt notice of any "disposition" (within
the meaning of Section 422(a)(1) of the Code) of such Option Shares within (i)
two (2) years from the date of grant of the underlying Incentive Option, or (ii)
one (1) year after the issuance of such Option Shares to such Employee. The
Plan Administrator may direct that the certificates evidencing such Option
Shares refer to such requirement to give prompt notice.
6. GRANT SHARES
(a) Grant. The Plan Administrator may from time to time, and
-----
subject to the provision of the Plan and such other terms and conditions as the
Plan Administrator may prescribe, grant to any Eligible Person one or more Plan
Shares allotted by the Plan Administrator ("Grant Shares"). The grant of Grant
Shares or grant of the right to receive Grant Shares shall be evidenced by a
written Stock Grant Agreement, executed by
-18-
<PAGE>
the Recipient and an authorized officer of the Company on or before the time of
the grant of such Grant Shares, setting forth: (i) the number of Grant Shares
granted; (ii) the consideration (if any) for such Grant Shares; and (iii) all
other material terms and conditions of such grant.
(B) CONSIDERATION (PURCHASE PRICE). The Plan Administrator, in its
------------------------------
sole discretion, may grant or award Grant Shares in any of the following
instances:
(i) As Bonus/Reward. As a "bonus" or "reward" for services
---------------
previously rendered and otherwise fully compensated, in which case the
recipient of the Grant Shares shall not be required to pay any
consideration to the Company for such Grant Shares, and the value of each
Grant Shares shall be the Fair Market Value of a share of Common Stock on
the date of grant.
(ii) As Compensation. As "compensation" for the previous
---------------
performance or future performance of services or attainment of goals, in
which case the recipient of the Grant Shares shall not be required to pay
any consideration to the Company for such Grant Shares (other than the
performance of the Recipient's services), and the value of each Grant Share
received (together with the value of such services or attainment of goals
attained by the Recipient), shall be the Fair Market Value of a share of
Common Stock on the date of grant.
(iii) As Purchase Price Consideration. In "consideration" for
-------------------------------
the payment of a purchase price to the Company for each of such Grant
Shares (the "Stock Grant Purchase Price") in an amount established by the
Plan Administrator, provided, however:
(1) The Stock Grant Purchase Price shall not be less than
that allowed under the exemption from registration under the
applicable Blue Sky Laws of the state, territory or province in which
the Recipient then resides as selected by the Company in its sole
discretion;
(2) If the Common Stock is traded on a stock exchange or
over-the-counter on Nasdaq, the purchase price shall not be less than
the minimum price per share permitted by such stock exchange or
Nasdaq; and
(3) Under no circumstances shall the Stock Grant Purchase
Price per Grant Share be less than the then current par value per
share of Common Stock.
(C) TERM; EXPIRATION. The term in which a Recipient may purchase
----------------
any Grant Shares awarded for which the Recipient is required to pay
consideration shall commence at the grant date of the underlying Stock Grant
Agreement as determined by the Plan Administrator, and shall expire on the date
specified in the underlying Stock Grant.
(D) DELIVERIES; MANNER OF PAYMENT. The Grant Shares may be
-----------------------------
purchased solely by delivery of all of the following to the Secretary of the
Company at the principal executive offices at the Company prior to the time the
Grant Shares become purchasable under this section 6:
---------
(i) Stock Grant Agreement. The Stock Grant Agreement for the
---------------------
Grant Shares, duly signed by the Recipient.
(ii) Consent of Spouse. A Consent of Spouse from the spouse of
-----------------
the Recipient, if any, duly signed by such spouse.
(iii) Payment. Full payment for the Grant Shares to be
-------
purchased (where payment thereof is required), in immediately available
funds, in U.S. dollars and/or, if expressly permitted in the
-19-
<PAGE>
underlying Stock Grant Agreement, or if otherwise consented to by the Plan
Administrator in writing, any combination of the following:
(1) Shares of Common Stock owned by the Recipient duly
endorsed for transfer to the Company with a Fair Market Value on the
date of delivery equal to the aggregate purchase price of the Grant
Shares;
(2) The surrender or relinquishment of options, warrants or
other rights to acquire Common Stock owned by the Recipient, with a
Fair Market Value on the date of delivery (or date of grant if
permitted by the Plan Administrator) equal to the aggregate purchase
price of the Grant Shares;
(3) A full recourse promissory note bearing interest at a
rate not less than a rate as shall then preclude the imputation of
interest under the Code, and payable upon such terms as may be
prescribed by the Plan Administrator. The Plan Administrator shall
prescribe the form of such note and the security to be given for such
note. Notwithstanding the foregoing, no Grant Shares may be purchased
by delivery of a promissory note or by a loan from the Company if such
loan or other extension of credit is prohibited by law at the time of
purchase of the Grant Shares or does not comply with the provisions of
Regulation G promulgated by the Federal Reserve Board with respect to
"margin stock" if the Company and the Recipient are then subject to
such Regulation; and/or
(4) Property of any kind which constitutes good and
valuable consideration.
(iv) Additional Documents. Such documents, representations and
--------------------
undertakings as provided in the Stock Grant Agreement and/or which the Plan
Administrator, in its absolute discretion, deems necessary or advisable
pursuant to section 9(a).
------------
(E) CONDITIONS TO ISSUANCE OF GRANT SHARES. The Company shall not
--------------------------------------
be required to issue or deliver any certificate or certificates representing the
Grant prior to fulfillment of all of the following conditions:
(i) The delivery of the documents described in subsection 6(d).
---------------
(ii) The receipt by the Company of full payment for such Grant
Shares, if applicable, including any applicable withholding taxes pursuant
to section 8.
---------
(iii) If the Common Stock is listed on any exchange or on either
the Nasdaq National Market or the Nasdaq SmallCap market, the satisfaction
of any requirements of such exchange or Nasdaq, as the case may be,
relative to the award of such Grant Shares; provided, however, the Company
shall have no obligation to satisfy any requirements or conditions the Plan
Administrator shall, in its sole and absolute discretion, determine to be
objectionable;
(iv) The completion of any registration or other qualification
of such Grant Shares under applicable Securities Laws, or under the rulings
or regulations of the Commission or any other governmental securities
regulatory body which the Plan Administrator shall, in its sole and
absolute discretion, deem necessary and/or advisable;
(v) The obtaining of any approval or other clearance from any
federal, state, territorial or provincial governmental agency which the
Plan Administrator shall, in its sole and absolute discretion, deem
necessary or advisable; and
-20-
<PAGE>
(vi) The lapse of such reasonable period of time following the
grant of the Grant Shares as the Plan Administrator may establish from
time-to-time for administrative convenience.
7. FORFEITURE CONDITIONS PLACED UPON GRANT SHARES
(a) Vesting Conditions; Forfeiture of Unvested Grant Shares.
-------------------------------------------------------
Subject to the limitations in section 7(b) below, the Plan Administrator may
------------
subject or condition Grant Shares granted or awarded (hereinafter referred to as
"Forfeitable Grant Shares") to such vesting conditions based upon continued
provision of services or attainment of goals subsequent to such grant of
Forfeitable Grant Shares as the Plan Administrator, in its sole discretion, may
deem appropriate and necessary, such as, by way of example and not obligation:
(i) the attainment of goals by the Recipient; (ii) in the case of a Recipient
who is an Employee, the continued provision of employment services by such
Recipient to the Company and/or to any Parent or Subsidiary; (iii) in the case
of a Recipient who is a Director, the continued service by such Recipient as a
Director to the Company and/or to any Parent or Subsidiary; or (iv) in the case
of a Recipient who is a Consultant, the continued provision of consulting
services by such Recipient to the Company and/or to any Parent or Subsidiary,
subject to the provisions set forth below. In the event the Recipient does not
satisfy any vesting conditions, the Company may require the Recipient, subject
to the repurchase payment terms of section 7(c), to forfeit such unvested
------------
Forfeitable Grant Shares to the Company. All vesting conditions imposed on the
grant of Forfeitable Grant Shares, including repurchase payment terms complying
with section 7(c), shall be set forth in a written Stock Grant Agreement,
------------
executed by the Company and the Recipient on or before the time of the grant of
such Forfeitable Grant Shares, stating the number of said Forfeitable Grant
Shares subject to such conditions, and further specifying the vesting
conditions. If no vesting conditions are expressly provided in the underlying
Stock Grant Agreement, the Grant Shares shall not be deemed to be Forfeitable
Grant Shares, and will not be subject to forfeiture.
(b) Limitations on Forfeiture Conditions. Any grant of
------------------------------------
Forfeitable Grant Shares shall be subject to the following limitations:
(i) Compliance With Blue Sky Laws. No vesting conditions may
-----------------------------
be imposed which are not permitted, or exceed those permitted, under the
exemption from registration or qualification to be relied upon under
applicable Blue Sky Laws, as selected by the Company in its sole
discretion.
(ii) Vested Forfeitable Grant Shares. In no case shall the
-------------------------------
Recipient be required to forfeit any vested Forfeitable Grant Shares.
(iii) Special Rules Permitting Immediate Vesting of Unvested
------------------------------------------------------
Forfeitable Grant Shares Where Vesting Conditions Relate to Continued
---------------------------------------------------------------------
Performance of Services. Where vesting conditions are based upon
-----------------------
continued performance of services to the Company, then all unvested
--------
Forfeitable Grant Shares shall be immediately forfeited upon Termination Of
----------- ---------
Recipient unless such forfeiture is expressly waived in writing by the
Company; provided, however, the Plan Administrator may, but without any
obligation to do so, provide in the underlying Stock Grant Agreement that
unvested Forfeitable Grant Shares shall immediately vest (i.e., become non-
-------- ----------------
forfeitable) upon the occurrence of one or more of the following events:
(1) In the event of Termination of Recipient where such
termination is made by the Recipient and constitutes Termination By
Recipient For Good Reason;
(2) In the event of Termination of Recipient where such
termination is made by the Company but does not constitute Termination
By Company For Cause; and/or
(3) In the event of Termination of Recipient due to death
or Disability.
-21-
<PAGE>
(iv) Special Rules For Immediate Vesting of Unvested Forfeitable
-----------------------------------------------------------
Grant Shares Upon Occurrence of Certain Events. The Plan
----------------------------------------------
Administrator may, but without any obligation to do so, provide in the
underlying Stock Grant Agreement that unvested Forfeitable Grant Shares
--------
shall immediately vest upon the occurrence one or more of the following
----------------
events:
(1) In the event of a Change In Control; and/or
(2) In the event of an Approved Corporate Transaction.
(v) Special Rule Accelerating Expiration Date of Stock Grant
--------------------------------------------------------
Agreement Where Vesting Conditions Relate to Continued Performance of
---------------------------------------------------------------------
Services. In the event the vesting conditions are based upon continued
--------
performance of services to the Company, then, unless otherwise expressly
waived or extended by the underlying Stock Grant Agreement, in the event of
Termination of Recipient the following rules shall apply:
(1) The expiration date in the underlying Stock Grant
---------- ----
Agreement shall be accelerated to thirty (30) days after the effective
date of Termination Of Recipient; provided, however, the Plan
Administrator may, but without any obligation to do so, provide in the
underlying Stock Grant Agreement that the expiration date shall not be
accelerated in any event, or be accelerated to three (3) months, six
(6) months or one (1) year (as selected by the Plan Administrator)
after the effective date of Termination Of Recipient, in any of the
following events as selected by the Plan Administration in its sole
and absolute discretion:
(A) In the event of Termination of Recipient where such
termination is made by the Recipient and constitutes Termination
By Recipient For Good Reason;
(B) In the event of Termination of Recipient where such
termination is made by the Company but does not constitute
Termination By Company For Cause; and/or
(C) In the event of Termination of Recipient due to his
or her death or Disability.
(C) REPURCHASE OF FORFEITABLE GRANT SHARES WHICH ARE FORFEITED.
----------------------------------------------------------
(i) Repurchase Rights and Price. In the event the Company
---------------------------
does not waive its right to require the Recipient to forfeit any or all of such
unvested Forfeitable Grant Shares, the Company shall be required to pay the
- --------
Recipient, for each unvested Forfeitable Grant Share which the Company requires
the Recipient to forfeit, the amount per Forfeitable Grant Share set forth in
the Stock Grant Agreement, provided, however: the repurchase price per
Forfeitable Grant Share in any event may not be less that the "original cost"
(as such term is defined below) of such Forfeitable Grant Shares to be forfeited
or, if elected by the Plan Administrator in its sole discretion and without any
obligation to do so in the underlying Stock Grant Agreement, the "book value"
(as such term is defined below) of such Forfeitable Grant Shares to be
forfeited, if higher than the original cost.
The "original cost" per Forfeitable Grant Share means the
aggregate amount originally paid to the Company by the Recipient (or his, her or
its predecessor) to purchase or acquire all of the Grant Shares to be forfeited,
divided by the total number of such shares. The amount of consideration paid by
any Recipient (or his, her or its predecessor) who originally received the Grant
Shares as compensation for services or a bonus, or otherwise without payment of
consideration in cash or property, shall be zero
-22-
<PAGE>
The "book value" per Forfeitable Grant Share means the difference
between the Company's total assets and total liabilities as of the close of
business on the last day of the calendar month preceding the date of forfeiture,
divided by the total number of shares of Common Stock then outstanding. The book
value per Forfeitable Grant Share shall be determined by the independent
certified public accountant regularly engaged by the Company. The determination
shall be conclusive and binding and made in accordance with generally accepted
accounting principles applied on a basis consistent with those previously
applied by the Company.
(ii) Form of Payment. The repurchase payments to be made by
---------------
the Company to a Recipient for forfeited Forfeitable Grant Shares shall be in
the form of cash or cancellation of purchase money indebtedness with respect to
the initial purchase of said Forfeitable Grant Shares by the Recipient, if any,
and must be paid no later than ninety (90) days after the date of termination.
(D) RESTRICTIVE LEGEND. Until such time as all conditions placed
------------------
upon Forfeitable Grant Shares lapse, the Plan Administrator may place a
restrictive legend on the share certificate representing such Forfeitable Grant
Shares which evidences said restrictions in such form, and subject to such stop
instructions, as the Plan Administrator shall deem appropriate and necessary,
including the following legend with respect to vesting conditions based upon
continued provision of services by the Recipient:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO FORFEITURE IN
THE EVENT CERTAIN VESTING CONDITIONS BASED UPON THE CONTINUED PROVISION OF
SERVICES TO THE COMPANY BY THE HOLDER HEREOF ARE NOT SATISFIED. THIS RISK
OF FORFEITURE AND UNDERLYING VESTING CONDITIONS ARE SET FORTH IN FULL IN
THAT CERTAIN STOCK GRANT AGREEMENT BETWEEN THE HOLDER OF THIS CERTIFICATE
AND THE COMPANY DATED THE _______DAY OF __________________, _____________,
AND THAT CERTAIN 1997 PINNACLE OIL INTERNATIONAL, INC. STOCK PLAN DATED
JULY 25, 1997, A COPY OF WHICH MAY BE INSPECTED BY AUTHORIZED PERSONS AT
THE PRINCIPAL OFFICE OF THE COMPANY AND ALL THE PROVISIONS OF WHICH ARE
INCORPORATED BY REFERENCE IN THIS CERTIFICATE.
The conditions shall similarly apply to any new, additional or
different securities the Recipient may become entitled to receive with respect
to such Forfeitable Grant Shares by virtue of a stock split or stock dividend or
any other change in the corporate or capital structure of the Company.
The Plan Administrator shall also have the right, should it elect
to do so, to require the Recipient to deposit the share certificate for the
Forfeitable Grant Shares with the Company or its agent, endorsed in blank or
accompanied by a duly executed irrevocable stock power or other instrument of
transfer, until such time as the conditions lapse. The Company shall remove the
legend with respect to any Forfeitable Grant Shares which become vested, and
remit to the Recipient a share certificate evidencing such vested Grant Shares.
(E) STOCKHOLDER RIGHTS. The Recipient of Forfeitable Grant Shares
------------------
shall have all rights or privileges of a stockholder of the Company with respect
to the Forfeitable Grant Shares notwithstanding the terms of this section 7
---------
(with the exception of subsection (f) below) and, as such, shall be fully
--------------
entitled to receive dividends (if any are declared and paid), to vote and to
exercise all other rights of a stockholder with respect to the Forfeitable Grant
Shares.
(F) UNVESTED GRANT SHARES -- NON-ASSIGNABILITY.
------------------------------------------
(i) Transfer. Except as provided in subsection (ii) below,
-------- ---------------
unvested Forfeitable Grant Shares may not be Transferred by a Recipient,
- --------
including upon the Death of a Recipient and/or pursuant to a Qualified Domestic
Relations Order as defined by Section 414(p) of the Code, unless (A) such
------
Transfer is
-23-
<PAGE>
expressly permitted in the underlying Stock Grant Agreement, or (B) the Plan
Administrator, in its sole and absolute discretion, otherwise consents to such
Transfer in writing.
(ii) Death of Recipient. Upon the death of the Recipient (if
------------------
the Recipient is a natural Person, unvested Forfeitable Grant Shares may, if
--------
such Transfer is expressly permitted in the underlying Stock Grant Agreement, or
if the Plan Administrator, in its sole and absolute discretion, otherwise
consents to such Transfer in writing, be Transferred to such Persons who are the
deceased Recipient's successors pursuant to will or the laws of descent or
distribution by reason of the death of the Recipient (the "Recipient's
Successors"), and may thereafter be exercised by the Recipient's Successors.
Unvested Forfeitable Grant Shares so Transferred shall not be further
- --------
Transferred by the Recipient's Successors except to the extent the original
Recipient of such unvested Forfeitable Grant Shares would have been permitted to
--------
Transfer such Grant Shares pursuant to clause (ii) of this subsection 7(f).
----------- ---------------
(iii) Effect of Prohibited Transfer or Exercise. Any Transfer
-----------------------------------------
of unvested Forfeitable Grant Shares in violation of the foregoing provisions of
--------
this subsection 7(f) shall be null and void ab initio and of no further force
---------------
and effect.
(iv) Application to Vested Grant Shares. Under no
----------------------------------
circumstances shall the prohibition against Transfer contained in this
subsection 7(f) be construed to apply to vested Grant Shares.
- --------------- ------
8. WITHHOLDING OF EMPLOYMENT TAXES
(A) WITHHOLDING. As a condition of the grant of any Award and/or
-----------
exercise of any Option, as the case may be, the Company shall have the right to
require the Recipient to remit to the Company an amount sufficient to satisfy
any federal, state and/or local withholding tax requirements incident to such
grant or exercise.
(B) NON-CASH FORMS OF PAYMENT. The Plan Administrator may in its
-------------------------
sole discretion, but without obligation to do so, in order to assist the
Recipient in satisfying his, her or its employment tax withholding obligations,
agree:
(i) To issue or transfer any Plan Shares net of a number of
Plan Shares with a Fair Market Value equal to the amount of the employment
tax withholding; and/or
(ii) To accept payment in the form of the surrender or
relinquishment of options, warrants or other rights to acquire Common Stock
held by the Recipient, with a Fair Market Value of such securities equal to
the amount of the employment tax withholding
9. COMPLIANCE WITH APPLICABLE SECURITIES LAWS
(A) REGISTRATION OR EXEMPTION FROM REGISTRATION. Unless expressly
-------------------------------------------
stipulated in the underlying Award Agreement, in no event shall the Company be
required at any time to register any securities issued under or derivative from
the Plan, including any Option, Option Shares or Grant Shares awarded or granted
hereunder (the "Plan Securities"), under the Securities Act (including, without
limitation, as part of any primary or secondary offering, or pursuant to Form S-
8) or to register or qualify the Plan Securities under any applicable Securities
Laws.
In the event the Company does not register or qualify the Plan
Securities, the Plan Securities shall be issued in reliance upon such exemptions
from registration or qualification under the applicable Securities Laws that the
Company and its legal counsel, in their sole discretion, shall determine to be
-24-
<PAGE>
appropriate and necessary with respect to any particular offer or sale of
securities under the Plan including, without limitation:
(i) In the case of applicable federal securities laws, any of
the following if available: (1) Section 3(a)(11) of the Securities Act for
intrastate offerings and Rule 147 promulgated thereto; (2) Section 3(b) of
the Securities Act for limited offerings and Rule 701 promulgated thereto
and/or Rules 504 and/or 505 of Regulation D promulgated thereto, and/or (3)
Section 4(2) of the Securities Act for private offerings and Rule 506 of
Regulation D promulgated thereto; and
(ii) In the case of applicable Blue Sky Laws, the requirements
of any applicable exemptions from registration or qualification afforded by
such Blue Sky Laws.
(B) FAILURE OR INABILITY TO OBTAIN REGULATORY CONSENTS OR APPROVALS.
---------------------------------------------------------------
In the event the Company is unable to obtain, without undue burden or expense,
such consents or approvals that may be required from any applicable regulatory
authority (or may be deemed reasonably necessary or advisable by legal counsel
for the Company) with respect to the applicable exemptions from registration or
qualification under the applicable Securities Laws which the Company is
reasonably relying upon, the Company shall have no obligation under this
Agreement to issue or sell the Plan Securities until such time as such consents
or approvals may be reasonably obtained without undue burden or expense, and the
Company shall be relieved of all liability therefor; provided, however, the
Company shall, if requested by the Recipient, rescind the Recipient's investment
decisions and return all funds or payments made by the Recipient to the Company
should the Company fail to obtain such consents or approvals within a reasonable
time after the Recipient tenders such funds or property to the Company.
(C) PROVISION OF OTHER DOCUMENTS, INCLUDING RECIPIENT'S
---------------------------------------------------
REPRESENTATIVE'S LETTER. If requested by the Company, the Recipient shall
- -----------------------
provide such further representations or documents as the Company or its legal
counsel, in their reasonable discretion, deem necessary or advisable in order to
effect compliance with the conditions of any and all of the aforesaid exemptions
from registration or qualification under the applicable Securities Laws which
the Company is relying upon, or with all applicable rules and regulations of any
applicable securities exchanges or Nasdaq. If required by the Company, the
Recipient shall provide a Recipient's Representative's Letter from a purchaser
representative with credentials reasonably acceptable to the Company to the
effect that such purchaser representative has reviewed the Recipient's proposed
investment in the Plan Securities and has determined that an investment in the
Plan Securities: (i) is appropriate in light of the Recipient's financial
circumstances, (ii) that the purchaser representative and, if applicable, the
Recipient, have such knowledge and experience in financial and business matters
that such persons are capable of evaluating the merits and risks of an
investment in the Plan Securities, and (iii) that the purchaser representative
and, if applicable, the Recipient, have such business or financial experience to
be reasonably assumed to have the capacity to protect the Recipient's interests
in connection with the purchase of the Plan Securities.
(D) LEGEND ON PLAN SHARES. In the event the Company delivers
---------------------
unregistered Plan Shares, the Company reserves the right to place the following
legend or such other legend as it deems necessary on the share certificate or
certificates to comply with the applicable Securities Laws being relied upon by
the Company.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN (1) REGISTERED
UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED, IN RELIANCE
UPON AN EXEMPTION FROM REGISTRATION AFFORDED BY SUCH ACT INCLUDING, WITHOUT
LIMITATION, RULE 701 TO SECTION 3(b) OF THE SECURITIES ACT OF 1933, OR (2)
REGISTERED OR QUALIFIED, AS THE CASE MAY BE, UNDER THE SECURITIES LAWS OF
ANY STATE OR TERRITORY OF THE UNITED STATES OR PROVINCE OF CANADA WHICH MAY
BE APPLICABLE, IN RELIANCE UPON AN EXEMPTION FROM
-25-
<PAGE>
REGISTRATION OR QUALIFICATION, AS THE CASE MAY BE, AFFORDED BY SUCH STATE,
TERRITORIAL OR PROVINCIAL SECURITIES LAWS. THESE SECURITIES HAVE BEEN
ACQUIRED FOR THE HOLDER'S OWN ACCOUNT FOR INVESTMENT PURPOSES AND NOT WITH
A VIEW FOR RESALE OR DISTRIBUTION. THESE SECURITIES MAY NOT BE SOLD OR
TRANSFERRED UNLESS (A) THEY HAVE BEEN REGISTERED UNDER THE UNITED STATES
SECURITIES ACT OF 1933 AS WELL AS UNDER THE SECURITIES LAWS OF ANY STATE OR
TERRITORY OF THE UNITED STATES AS MAY THEN BE APPLICABLE, OR (B) THE
TRANSFER AGENT (OR THE COMPANY IF THEN ACTING AS ITS TRANSFER AGENT) IS
PRESENTED WITH EITHER A WRITTEN OPINION SATISFACTORY TO COUNSEL FOR THE
COMPANY OR A NO-ACTION OR INTERPRETIVE LETTER FROM THE UNITED STATES
SECURITIES AND EXCHANGE COMMISSION AND ANY APPLICABLE STATE OR TERRITORIAL
SECURITIES REGULATORY AGENCY TO THE EFFECT THAT SUCH REGISTRATION OR
QUALIFICATION, AS THE CASE MAY BE, IS NOT REQUIRED UNDER THE CIRCUMSTANCES
OF SUCH SALE OR TRANSFER.
10. REPORTS TO RECIPIENTS OF AWARDS
(A) FINANCIAL STATEMENTS. The Company shall provide each
--------------------
Recipient with the Company's financial statements at least annually.
(B) INCENTIVE STOCK OPTION REPORTS. The Company shall provide,
------------------------------
with respect to each holder of an Incentive Option who has exercised such
Incentive Option, on or before January 31st of the year following the year of
exercise of such Incentive Option, a statement containing the following
information: (i) the Company's name, address, and taxpayer identification
number; (ii) the name, address, and taxpayer identification number of the Person
to whom Option Shares were issued by the Company upon exercise of the Incentive
Option; (iii) the date the Incentive Option was granted; (iv) the date the
Option Shares underlying the Incentive Option were issued pursuant to the
exercise of the Incentive Option; (v) the Fair Market Value of the Option Shares
on date of exercise; (vi) the number of Option Shares issued upon exercise of
the Incentive Option; (vii) a statement that the Incentive Option was an
incentive stock option; and (viii) the total cost of the Option Shares.
11. ADJUSTMENTS
(A) COMMON STOCK RECAPITALIZATION OR RECLASSIFICATION; COMBINATION OR
-----------------------------------------------------------------
REVERSE STOCK SPLIT; FORWARD STOCK SPLIT. If (i) outstanding shares of
- ----------------------------------------
Common Stock are subdivided into a greater number of shares by reason of
recapitalization or reclassification, (ii) a dividend in Common Stock shall be
paid or distributed in respect of the Common Stock, then the number of Plan
Shares, if any, available for issuance under the Plan, and the Option Price of
any outstanding Options in effect immediately prior to such subdivision or at
the record date of such dividend shall, simultaneously with the effectiveness of
such subdivision or immediately after the record date of such dividend, be
proportionately increased and reduced, respectively. If outstanding shares of
Common Stock are combined into a lesser number of shares by reason of
combination or reverse stock split, then the number of Plan Shares, if any,
available for issuance under the Plan, and the Option Price of any outstanding
Option in effect immediately prior to such combination shall, simultaneously
with the effectiveness of such combination, be proportionately reduced and
increased, respectively.
(B) CONSOLIDATION OR MERGER; EXCHANGE OF SECURITIES; DIVISIVE
---------------------------------------------------------
REORGANIZATION; OTHER REORGANIZATION OR RECLASSIFICATION. In case of (i)
- --------------------------------------------------------
the consolidation, merger, combination or exchange of shares of capital stock
with another entity, (ii) the divisive reorganization of the Company (i.e.,
split-up, spin-off or split-off), or (iii) any capital reorganization or any
reclassification of Common Stock (other than a recapitalization or
reclassification described above in subsection 11(a)), the Recipient shall
----------------
thereafter be entitled upon exercise of the Option to purchase the kind and
number of shares of capital stock or other securities or property of the Company
(or its successor{s}) receivable upon such event by a Recipient of the number of
Option Shares which such Option entitles the Recipient to purchase from the
Company immediately prior to such
-26-
<PAGE>
event. In every such case, the Company may appropriately adjust the number of
Option Shares which may be issued under the Plan, the number of Option Shares
subject to Options theretofore granted under the Plan, the Option Price of
Options theretofore granted under the Plan, and any and all other matters deemed
appropriate by the Plan Administrator.
(C) ADJUSTMENTS DETERMINED IN SOLE DISCRETION OF BOARD. All
--------------------------------------------------
adjustments to be made pursuant to the foregoing subsection shall be made in
such manner as the Plan Administrator shall deem equitable and appropriate, the
determination of the Plan Administrator shall be final, binding and conclusive.
(D) NO OTHER RIGHTS TO RECIPIENT. Except as expressly provided in
----------------------------
this section 11: (i) the Recipient shall have no rights by reason of any
----------
subdivision or consolidation of shares of capital stock of any class or the
payment of any stock dividend or any other increase or decrease in the number of
shares of stock of any class, and (ii) the dissolution, liquidation, merger,
consolidation or divisive reorganization or sale of assets or stock to another
corporation (including any Approved Corporate Transactions), or any issue by the
Company of shares of capital stock of any class, or warrants or options or
rights to purchase securities (including securities convertible into shares of
capital stock of any class), shall not affect, and no adjustment by reason
thereof shall be made with respect to, the number of, or the Option Price for,
the Option Shares. The grant of an Award pursuant to the Plan shall not in any
way affect or impede the right or power of the Company to make adjustments,
reclassifications, reorganizations or changes of its capital or business
structure or to merge, consolidate, dissolve or liquidate, or to sell or
transfer all or any part of its business or assets.
12. APPROVED CORPORATE TRANSACTIONS -- AFFECT ON OPTIONS
Notwithstanding section 11 above, in the event of the occurrence of
----------
any Approved Corporate Transaction, or in the event of any change in applicable
laws, regulations or accounting principles, the Plan Administrator in its
discretion is hereby authorized to take any one or more of the following actions
whenever the Plan Administrator determines that such action is appropriate in
order to facilitate such Approved Corporate Transactions or to give effect to
changes in laws, regulations or principles:
(A) PURCHASE OR REPLACEMENT OF OPTION. In its sole and absolute
---------------------------------
discretion, and on such terms and conditions as it deems appropriate, the Plan
Administrator may provide, either by the terms of the underlying Award Agreement
or by action taken prior to the occurrence of such transaction or event and
either automatically or upon the Recipient's request, for any one or combination
of the following: (1) the purchase of any such Option for an amount of cash
equal to the amount that could have been attained upon the exercise of such
Option, or realization of the Recipient's rights had such Option been currently
exercisable or payable or fully vested; and/or (ii) the replacement of such
Option with other rights or property (which may or may not be securities)
selected by the Plan Administrator in its sole discretion.
(B) ACCELERATION OF VESTING AND EXERCISE. In its sole and
------------------------------------
absolute discretion, and on such terms and conditions as it deems appropriate,
the Plan Administrator may provide, either by the terms of the underlying Award
Agreement or by action taken prior to the occurrence of such transaction or
event, that such Option may not be exercised after the occurrence of such event;
provided, however, the Recipient must be given the opportunity, for a specified
period of time prior to the consummation of such transaction, to exercise the
Option as to all Option Shares (i.e., both fully vested and unvested) covered
thereby.
(C) ASSUMPTION OR SUBSTITUTION. In its sole and absolute
--------------------------
discretion, and on such terms and conditions as it deems appropriate, the Plan
Administrator may provide, either by the terms of the underlying Award Agreement
or by action taken prior to the occurrence of such transaction or event, that
such Option be assumed by the successor or survivor corporation, or a parent or
subsidiary thereof, or shall be substituted for by similar options covering the
capital stock of the successor or survivor corporation, or a parent or
subsidiary thereof, with appropriate adjustments as to the number and kind of
shares and prices.
-27-
<PAGE>
13. CERTAIN TRANSACTIONS WITHOUT CHANGE IN BENEFICIAL OWNERSHIP -- AFFECT
ON OPTIONS
Notwithstanding section 11 above, in the event of a transaction whose
----------
principal purpose is to change the State in which the Company is incorporated,
or to form a holding company, or to effect a similar reorganization as to form
of entity without change of beneficial ownership, including, without limitation,
through (i) a merger or consolidation or stock exchange or divisive
reorganization (i.e., spin-off, split-off or split-up) or other reorganization
with respect to the Company and/or its stockholders, or (ii) the sale, transfer,
exchange or other disposition by the Company of its assets in a single or series
of related transactions, then the Plan Administrator may provide, in its sole
and absolute discretion, and on such terms and conditions as it deems
appropriate, either by the terms of the underlying Award Agreement or by action
taken prior to the occurrence of such transaction or event, that such Option
shall be assumed by the successor or survivor corporation, or a parent or
subsidiary thereof, or shall be substituted for by similar options covering the
capital stock of the successor or survivor corporation, or a parent or
subsidiary thereof, with appropriate adjustments as to the number and kind of
shares and prices.
14. DRAG-ALONG RIGHTS
(A) GENERAL. In the event the Board and, to the extent required
-------
by law, the stockholders of the Company, approve the sale, transfer, exchange or
other disposition of fifty percent (50%) or more of the capital stock of the
Company in a single or series of related transactions (an "Approved Stock Sale
Transaction"), the Company shall have the right (the "Drag-Along Right") to
require the Recipient and/or his, her or its permitted successors, to sell,
transfer, exchange or otherwise dispose of any Plan Shares held by such Persons
as part of such Approved Stock Sale Transaction, notwithstanding that such
Persons did not approve of such Approved Stock Sale Transaction and/or did not
otherwise consent to the sale, transfer, exchange or other disposition of their
Plan Shares in accordance with the terms of such Approved Stock Sale
Transaction; provided, however, in the event less than all of the shares of
Common Stock are to be sold, transferred, exchanged or otherwise disposed as
part of the Approved Stock Sale Transaction, the Recipient and/or his, her or
its permitted successors will not be required to sell, transfer, exchange or
otherwise dispose of a number of Plan Shares which exceeds the aggregate number
of Plan Shares held by such Person multiplied by a fraction, the numerator of
which is the number of Plan Shares held by such Persons and the denominator of
which is the total number of share of Common Stock then issued and outstanding.
(B) LEGEND ON SHARES. To facilitate compliance with the terms of
----------------
this section 14, the Company shall have the right to place the following legend
----------
on the certificates representing the Plan Shares:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
DRAG-ALONG RIGHTS SET FORTH IN FULL IN THAT CERTAIN 1997 PINNACLE OIL
INTERNATIONAL, INC. STOCK PLAN DATED JULY 25 1997, AS IT MAY BE AMENDED OR
RESTATED FROM TIME TO TIME, A COPY OF WHICH MAY BE INSPECTED BY AUTHORIZED
PERSONS AT THE PRINCIPAL OFFICE OF THE COMPANY, AND ALL THE PROVISIONS OF
WHICH ARE INCORPORATED BY REFERENCE IN THIS CERTIFICATE."
(C) ESCROW; IRREVOCABLE POWER OF ATTORNEY. For purposes of
-------------------------------------
facilitating the obligation to transfer set forth in this section 14, the
----------
Company, in its sole discretion, may require each Recipient and/or his, her or
its permitted successors, at the Company's cost, to deliver the share
certificate(s) representing the Plan Shares held by such Recipient and/or his,
her or its permitted successors (the "Stock Certificate") with a stock power
executed by such Recipient and/or his, her or its permitted successors in blank,
to the Secretary of the Company or the Company's designee, to hold the Stock
Certificate and stock power in escrow and to take all such actions and to
effectuate all such transfers or releases as are in accordance with the terms of
this section 14. The Stock Certificate may be held in escrow so long as the Plan
----------
Shares represented by the Stock Certificate are subject to the terms of this
section 14. The Recipient and/or his, her or its permitted successors each
- ----------
hereby
-28-
<PAGE>
irrevocably constitutes and appoints the Secretary of the Company, with
full power of substitution, as the true and lawful attorney to act as escrow
holder for such Persons under this section 14, and any amendments to it. The
----------
power of attorney hereby granted is irrevocable and shall be deemed to be
coupled with an interest, and it shall survive death, disability, dissolution or
termination of the Recipient and/or his, her or its permitted successors. The
escrow holder will not be liable to any party for any act or omission unless the
escrow holder is grossly negligent in performing such act or omission. The
escrow holder may rely upon any letter, notice or other document executed by any
signature purported to be genuine.
15. MARKET STANDOFF
To the extent requested by Company and any underwriter of securities
of the Company in connection with a firm commitment underwriting, no holder of
any Plan Shares will Transfer any such shares not included in such underwriting,
or not previously registered pursuant to a registration statement filed under
the Securities Act, during the period requested by the Company and the
underwriter following the effective date of the registration statement filed
with the Commission.
16. PERFORMANCE ON BUSINESS DAY
In the event the date on which a party to the Plan is required to take
any action under the terms of the Plan is not a business day, the action shall,
unless otherwise provided herein, be deemed to be required to be taken on the
next succeeding business day.
17. EMPLOYMENT STATUS
In no event shall the granting of an Award be construed to: (i) grant
a continued right of employment to a Recipient if such Person is employed by the
Company and/or by the Parent and/or any Subsidiary, or (ii) affect, restrict or
interfere with in any way any right the Company and/or Parent and/or any
Subsidiary may have to terminate or otherwise discharge the employment and/or
engagement of such Person, at any time, with or without cause, except to the
extent that such Person and the Company and/or Parent and/or any Subsidiary may
have otherwise expressly agreed in writing. Unless otherwise expressly agreed in
writing, the application and/or construction of the terms Termination By Company
For Cause, Termination By Recipient For Good Reason and Termination Of Recipient
are solely intended for, and shall be limited to, the operation of the vesting
and expiration provisions of Awards granted under this Plan, and governing Award
Agreements, and not for any other purpose.
18. NON-LIABILITY FOR DEBTS; RESTRICTIONS AGAINST TRANSFER
No Options or unvested Forfeitable Grant Shares granted hereunder, or
--------
any part thereof, (i) shall be liable for the debts, contracts, or engagements
of a Recipient, or such Recipient's successors in interest as permitted under
this Plan, or (ii) shall be subject to disposition by transfer, alienation, or
any other means whether such disposition be voluntary or involuntary or by
operation of law, by judgment, levy, attachment, garnishment, or any other legal
or equitable proceeding (including bankruptcy), and any attempted disposition
thereof shall be null and void ab initio and of no further force and effect.
19. AMENDMENT AND DISCONTINUATION OF PLAN; MODIFICATION OF AWARDS
(a) Amendment, Modification or Termination of Plan. The Board may
----------------------------------------------
amend or modify the Plan or suspend or discontinue the Plan at any time or from
time-to-time; provided, however, (i) no such action may adversely alter or
impair any Award previously granted under the Plan without the consent of each
Recipient affected thereby, and (ii) no action of the Board will cause Incentive
Options granted under the
-29-
<PAGE>
Plan not to comply with Section 422 of the Code unless the Board specifically
declares such action to be made for that purpose.
(B) MODIFICATION OF TERMS OF OUTSTANDING OPTIONS. Subject to the
--------------------------------------------
terms and conditions and within the limitations of the Plan, the Plan
Administrator may modify the terms and conditions of any outstanding Options
granted under the Plan, including extending the expiration date of such Options
or renewing such Options or repricing such options or modifying any vesting
conditions (but only, in the case of Incentive Options, to the extent permitted
under Section 422 of the Code), or accept the surrender of outstanding Options
(to the extent not theretofore exercised) and authorize the granting of new
Options in substitution therefor (to the extent not theretofore exercised);
provided, however, no modification of any outstanding Option may, without the
consent of the Recipient affected thereby, adversely alter or impair such
Recipients rights under such Option.
(C) MODIFICATION OF VESTING CONDITIONS PLACED ON FORFEITABLE GRANT
--------------------------------------------------------------
SHARES. Subject to the terms and conditions and within the limitations of
- ------
the Plan, including vesting conditions, the Plan Administrator may modify the
terms and conditions placed upon the grant of any Forfeitable Grant Shares;
provided, however, no modification of any conditions placed upon Forfeitable
Grant Shares may, without the consent of the Recipient thereof, adversely alter
or impair such Recipient's rights with respect to such Forfeitable Grant Shares.
(D) COMPLIANCE WITH LAWS. The Plan Administrator may, at any time
--------------------
or from time-to-time, without receiving further consideration from, or paying
any consideration to, any Person who may become entitled to receive or who has
received the grant of an Award hereunder, modify or amend Awards granted under
the Plan as required to: (i) comport with changes in securities, tax or other
laws or rules, regulations or regulatory interpretations thereof applicable to
the Plan or Awards thereunder or to comply with the rules or requirements of any
stock exchange or Nasdaq and/or (ii) ensure that the Plan is and remains exempt
from the application of any participation, vesting, benefit accrual, funding,
fiduciary, reporting, disclosure, administration or enforcement requirement of
either the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), or the corresponding provisions of the Internal Revenue Code of 1986,
as amended (Subchapter D of Title A, Chapter 1 of the Code {encompassing
Sections 400 to 420 of the Code}).
20. RELATIONSHIP OF PLAN TO OTHER OPTIONS AND COMPENSATION PLANS
The adoption of this Plan shall not affect any other compensation or
incentive plans in effect for the Company or any Parent or Subsidiary. Nothing
in this Plan shall be construed to limit the right of the Company to: (i)
establish any other forms of incentives or compensation for Employees and/or
Directors of the Company and/or of any Parent and/or any Subsidiary and/or to
any Consultants to the Company and/or to any Parent and/or any Subsidiary; or
(ii) to grant options to purchase shares of Common Stock or to award shares of
Common Stock or grant any other securities or rights otherwise under this Plan
in connection with any proper corporate purpose including but not by way of
limitation, in connection with the acquisition by purchase, lease, merger,
consolidation or otherwise, of the business, stock or assets of any corporation,
partnership, firm or association.
21. SEVERABILITY
If any term or provision of this Plan or the application thereof to
any person or circumstance shall, to any extent, be determined to be invalid,
illegal or unenforceable under present or future laws, then, and in that event:
(i) the performance of the offending term or provision (but only to the extent
its application is invalid, illegal or unenforceable) shall be excused as if it
had never been incorporated into this Plan, and, in lieu of such excused
provision, there shall be added a provision as similar in terms and amount to
such excused provision as may be possible and be legal, valid and enforceable;
and (ii) the remaining part of this Plan (including the application of the
offending term or provision to persons or circumstances other than those as to
-30-
<PAGE>
which it is held invalid, illegal or unenforceable) shall not be affected
thereby, and shall continue in full force and effect to the fullest extent
provided by law.
-31-
<PAGE>
22. HEADINGS; REFERENCES; INCORPORATION; GENDER; STATUTORY REFERENCES
The headings used in this Plan are for convenience and reference
purposes only, and shall not be used in construing or interpreting the scope or
intent of this Plan or any provision hereof. References to this Plan shall
include all amendments or renewals thereof. All cross-references in this Plan,
unless specifically directed to another agreement or document, shall be
construed only to refer to provisions within this Plan, and shall not be
construed to be referenced to the overall transaction or to any other agreement
or document. Any Exhibit referenced in Plan shall be construed to be
incorporated in this Plan by such reference. As used in this Plan, each gender
shall be deemed to include the other gender, including neutral genders
appropriate for entities, if applicable, and the singular shall be deemed to
include the plural, and vice versa, as the context requires. Any reference to
statutes or laws will include all amendments, modifications, or replacements of
the specific sections and provisions concerned.
23. APPLICABLE LAW
This Plan and the rights and remedies of each party arising out of or
relating to this Plan (including, without limitation, equitable remedies) shall
(with the exception of the Securities Laws) be solely governed by, interpreted
under, and construed and enforced in accordance with the laws (without regard to
the conflicts of law principles) of the State of Nevada, as if this Plan were
made, and as if its obligations are to be performed, wholly within the State of
Nevada.
* * * * *
The undersigned hereby certifies that the foregoing 1997 Pinnacle Oil
International, Inc. Stock Plan was duly adopted by the Board of Directors and
stockholders of Pinnacle Oil International, Inc. as of July 25, 1997.
/s/ R. Dirk Stinson
-------------------
R. DIRK STINSON, President
-32-
<PAGE>
STOCK OPTION CERTIFICATE
1997 PINNACLE OIL INTERNATIONAL, INC. STOCK PLAN
------------------------------------------------
[To be prepared by the Company and signed by the Recipient]
<TABLE>
- -----------------------------------------------------------------------------------------------------
<S> <C>
Name of Recipient...................... _____________________________________________________
Capacity of Recipient.................. [_] Employee who is an Executive Officer
[_] Employee other than an Executive Officer
[_] Director
[_] Consultant
Legal Address/Domicile of Recipient.... ______________________________________________________
Citizenship of Recipient............... [_] United States [_] Other: _______________
Number of Option Shares................ _______________________
Option Price per Option Share.......... $______________________
Classification of Option............... [_] Non-Qualified Option [_] Incentive Option
Vesting................................ [_] Fully Vested
[_] Continuous Service Vesting (see sections 2 to 4 below)
[_] Other Vesting (see Addendum)
Option Expiration Date................. _______________________ (subject to section 4 below)
Option Effective Date.................. _______________________
U.S. Federal Exemption Relied Upon at
the Time of Grant or Exercise.......... [_] Rule 701 [_] Regulation D
[_] Other_____________ [_] Rule 504
______________________ [_] Rule 505
______________________ [_] Rule 506
Blue Sky Exemption Relied Upon......... ______________________________________________________
Subject to Addendum.................... [_] Yes [_] No
- -----------------------------------------------------------------------------------------------------
</TABLE>
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN REGISTERED OR QUALIFIED WITH, OR
APPROVED OR DISAPPROVED BY, THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE, TERRITORIAL OR PROVINCIAL SECURITIES REGULATORY AGENCY, NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE, TERRITORIAL OR PROVINCIAL
SECURITIES REGULATORY AGENCY REVIEWED OR PASSED UPON OR ENDORSED THE MERITS OF
THE OFFERING CONTEMPLATED BY THIS STOCK OPTION CERTIFICATE OR THE ACCURACY OR
ADEQUACY OF ANY OFFERING MATERIALS, INCLUDING THE 1997 PINNACLE OIL
INTERNATIONAL, INC. STOCK PLAN OR THE PLAN SUMMARY FOR SUCH STOCK PLAN. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THESE SECURITIES ARE
SPECULATIVE AND INVOLVE A HIGH DEGREE OF RISK AND SUBSTANTIAL AND IMMEDIATE
DILUTION. THERE IS NO PUBLIC MARKET FOR THE SALE OF THESE SECURITIES BY THE
RECIPIENT. THESE SECURITIES MAY NOT BE SOLD OR TRANSFERRED UNLESS REGISTERED OR
QUALIFIED, OR THE RECIPIENT PROVIDES THE COMPANY AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY, OR ITS LEGAL COUNSEL, THAT SUCH REGISTRATION OR
QUALIFICATION IS NOT REQUIRED BY REASON OF AN EXEMPTION OR OTHERWISE. AS A
RESULT, THESE SECURITIES ARE SUITABLE ONLY FOR CERTAIN SOPHISTICATED AND
QUALIFIED INVESTORS WHO CAN BEAR THE FINANCIAL RISK OF AN INVESTMENT IN THESE
SECURITIES FOR AN INDEFINITE PERIOD OF TIME.
- --------------------------------------------------------------------------------
1
<PAGE>
THIS STOCK OPTION CERTIFICATE is entered into between Pinnacle Oil
International, Inc., a Nevada corporation (the "Company"), whose principal
executive office is located at 840 7th Avenue, Suite 750, Phoenix Place, S.W.,
Calgary, Alberta, Canada T2P 3G2, and the Recipient identified on the first
page of this Stock Option Certificate (the "Recipient"), pursuant to that
certain 1997 Pinnacle Oil International, Inc. Stock Plan dated July 25, 1997, as
such Plan may be amended and/or restated from time to time (the "Plan").
Subject to the terms of this Stock Option Certificate and the Addendum, if any,
attached to this Stock Option Certificate, the Recipient's rights to purchase
the Option Shares are governed by the Plan, the terms of which are incorporated
herein by this reference. Defined terms in this Stock Option Certificate shall
have the same meaning as defined terms in the Plan.
1. GRANT OF OPTION. This Stock Option Certificate certifies that the
---------------
Company has granted to the Recipient, pursuant to the terms of the Plan, a stock
option (the "Option") to purchase, in whole or in part, the number of Option
Shares designated on the first page of this Stock Option Certificate
(collectively and severally, the "Option Shares"), representing shares of the
common stock, no par value (the "Common Stock") of the Company, at the exercise
or Option Price per Option Share designated on the first page of this Stock
Option Certificate (the "Option Price"), subject to the following terms and
conditions.
2. CONTINUOUS SERVICE VESTING--SCHEDULE. If the Option Shares are
------------------------------------
subject to vesting by reason of the Continuous Service Vesting designation set
forth on the first page of this Stock Option Certificate, then, subject to
section 5(e) of the Plan, the Option Shares are subject to vesting based upon
- ------------
continued performance of services in the Ccapacity set forth on the first page
of this Stock Option Certificate as follows:
<TABLE>
<CAPTION>
VESTED CUMULATIVE VESTED
NUMBER OF PERCENTAGE OF
DATE OPTION SHARES OPTION SHARES
- ---------------------- ----------------- -----------------
<S> <C> <C>
____________.......... ___________ ______%
____________.......... ___________ ______%
____________.......... ___________ ______%
____________.......... ___________ ______%
____________.......... ___________ ______%
----------------- -----------------
TOTAL.......... ___________ 100%
================= =================
</TABLE>
3. CONTINUOUS SERVICE VESTING -- ACCELERATION OF VESTING IN THE EVENT OF
---------------------------------------------------------------------
TERMINATION OF RECIPIENT. If the Option Shares are subject to vesting by
- ------------------------
reason of the Continuous Service Vesting designation set forth on the first page
of this Stock Option Certificate, then the prospective right to purchase
unvested Option Shares shall immediately lapse if such right does not vest prior
- --------
to Termination Of Recipient.
4. TERM OF OPTION. The right to exercise the Options granted by this
--------------
Stock Option Certificate shall commence on the Option Effective Date designated
on the first page of this Stock Option Certificate, and shall expire and be null
and void ab initio and of no further force or effect to the extent not exercised
by 5:00 p.m. P.S.T., on the Option Expiration Date designated on the first page
of this Stock Option Certificate (the "Option Expiration Date"); provided,
however, if the Option Shares are subject to the Continuous Service Vesting
designation set forth on the first page of this Stock Option Certificate, then,
pursuant to section 5(e)(iii) of the Plan, in the event of Termination Of
-----------------
Recipient, the expiration date shall be accelerated to thirty (30) days after
the effective date of Termination Of Recipient.
5. DELIVERIES; MANNER OF -- EXERCISE AND PAYMENT. This Option shall be
---------------------------------------------
exercised by delivery of the following to the Secretary of the Company at the
Company's principal executive offices: (i) this Stock Option Certificate, duly
signed by the Recipient; (ii) full payment for the Option Shares to be purchased
in immediately available funds (in
2
<PAGE>
U.S. dollars); (iii) a Consent of Spouse (as such consent is defined in the
Plan) from the spouse of the Recipient, if any, duly signed by such spouse, and
(iv) such other documents specified in the Addendum to this Stock Option
Certificate, if any.
6. EXERICISE AND TRANSFER OF OPTION. Except as may be permitted by an
--------------------------------
Addendum to this Stock Option Certificate, Options may only be exercised by the
original Recipient hereof, and may not be Transferred by such Recipient. Any
Transfer or exercise of an Option so Transferred in violation of this Stock
Option Certificate shall be null and void ab initio and of no further force and
effect.
7. REPRESENTATIONS, WARRANTIES AND COVENANTS. The Recipient hereby
-----------------------------------------
represents, warrants and covenants to the Company, each of which is deemed to be
a separate representation, warranty and covenant, whichever the case may be,
that:
(A) DOMICILE. The Recipient's permanent legal residence and domicile,
--------
if the Recipient is an individual, or permanent legal executive offices and
principal place of business, if the Recipient is an Entity, was and is in the
State, territory or province designated on the first page of this Stock Option
Certificate at both the time of the "offer" and the time of the "sale" of this
Option and the Option Share to the Recipient.
(B) AGE. The Recipient, if a natural person, is age eighteen (18) or
---
over.
(C) RECEIPT AND REVIEW OF PLAN AND PLAN SUMMARY. The Recipient has
-------------------------------------------
received a copy of the Plan as well as a copy of the 1997 Pinnacle Oil
International, Inc. Stock Plan Summary (the "Plan Summary"), which explains the
administration and operation of the Plan, risk factors concerning an investment
in the Common Stock and the Company, the tax consequences of grants of Options
under the Plan, and certain other relevant matters pertaining to the Plan, and
has read and understood the Plan and the Plan Summary.
(D) INDEPENDENT REVIEW OF INVESTMENT MERITS; DUE DILIGENCE. During
------------------------------------------------------
the course of the transaction contemplated by this Stock Option Certificate, and
prior to exercising the Option, the Recipient: (i) had the opportunity to
engage such investment professionals and advisors including, without limitation,
accountants, appraisers, investment, tax and legal advisors, each of whom are
independent of the Company and its advisors and agents, to: (1) conduct such due
diligence review as the Recipient and/or such investment professionals and
advisors deem necessary or advisable, and (2) to provide such opinions as to (A)
the investment merits of a proposed investment in the Option Shares, (B) the tax
consequences of the grant and exercise of the Option, and the subsequent
disposition of the Option Shares, and (C) the effect of same upon the
Recipient's personal financial circumstances, as the Recipient and/or his, her
or its investment professionals and advisors may deem advisable; and (ii) the
Recipient, to the extent he, she or it availed himself, herself or itself of
this opportunity, received satisfactory information and answers from such
investment professionals and advisors.
(E) OPPORTUNITY TO ASK QUESTIONS AND TO REVIEW DOCUMENTS, BOOKS AND
---------------------------------------------------------------
RECORDS Without limiting the generality of subsection 7(d) above, during the
- ------- ---------------
course of the transaction contemplated by Stock Option Certificate, and prior to
exercising the Option, the Recipient, and his, her or its investment
professionals and advisors, had the opportunity, to the extent the Recipient
and/or such investment professionals and advisors determined it to be necessary,
to: (i) be provided with financial and other written information (in addition
to that contained in the Plan and Plan Summary); (ii) ask questions and receive
answers concerning the terms and conditions of this Stock Option Certificate, an
investment in the Option Shares, and the business of the Company and its
finances; (iii) review all documents, books and records of the Company; and (iv)
the Recipient and/or his, her or its investment professionals and advisors, to
the extent they availed themselves of this opportunity, received satisfactory
information and answers.
(F) OFFERING COMMUNICATIONS. With the exception of the President of
-----------------------
the Company, no person has provided any information (other than the provision of
the Plan and Plan Summary), or made any representations to the Recipient,
concerning the Company or its past, present or future business; and the only
information or representations given by the President of the Company on which
the Recipient has relied in offering to purchase the Option Shares (other than
contained in the Plan and the Plan Summary) have been given in writing to the
Recipient.
3
<PAGE>
(G) RESTRICTIONS ON TRANSFERABILITY OF OPTION SHARES. The Recipient
------------------------------------------------
has been informed and understands and agrees as follows: (i) there are
substantial restrictions on the transferability of the Option Shares as set
forth in the Plan and as are more particularly described in the Plan Summary;
(ii) as a result of such restrictions, (1) it may not be possible for the
Recipient to sell or otherwise liquidate the Option Shares in the case of
emergency and/or other need, and the Recipient must therefore be able to hold
the Option Shares until the lapse of said restrictions, (2) the Recipient must
have adequate means of providing for the Recipient's current needs and personal
contingencies, and (3) the Recipient must have no need for liquidity in an
investment in the Option Shares; and (iii) the Recipient has evaluated the
Recipient's financial resources and investment position in view of the
foregoing; and the Recipient is able to bear the economic risk of an investment
in the Option Shares.
(H) SECURITIES PURCHASED FOR RECIPIENT'S OWN ACCOUNT. The Option
------------------------------------------------
Shares are being purchased by the Recipient as principal and not by any other
person, with the Recipient's own funds and not with the funds of any other
person, and for the account of the Recipient and not as a nominee or agent and
not for the account of any other person. The Recipient is purchasing the Option
Shares for investment purposes only for an indefinite period, and not with a
view to the sale or distribution of any part or all thereof by public or private
sale or other disposition. No person other than the Recipient will have any
interest, beneficial or otherwise, in the Option Shares, and the Recipient is
not obligated to transfer the Option Shares to any other person nor does the
Recipient have any agreement or understanding to do so.
(I) COMPLIANCE WITH INVESTMENT LAWS. The Recipient has complied with
-------------------------------
all applicable investment laws and regulations in force relating to the legality
of an investment in the Option Shares by the Recipient in any jurisdiction in
which he, she or it purchases the Option Shares or enters into this Stock Option
Certificate, and has obtained any consent, approval or permission required of
him, her or it for the purchase of the Option Shares under the investment laws
and regulations in force in any jurisdiction to which he, she or it is subject,
or in which he, she or it makes such purchase, and the Company shall have no
responsibility therefor.
(J) NO GENERAL SOLICITATION OR PUBLIC ADVERTISING. With the exception
---------------------------------------------
of direct communication to the Recipient by the President of the Company, and/or
the provision of the Plan and the Plan Summary, the Recipient has not, with
respect to the offer and sale of the Option Shares, seen, received, been
presented with or been solicited: (i) by any advertisement, article, notice,
leaflet or other communication (whether published in any newspaper, magazine, or
similar media or broadcast over television or radio or otherwise generally
disseminated or distributed); or (ii) through any public or promotional seminar
or meeting to which the Recipient was invited through any such advertisement,
article, notice, leaflet or other communication.
(K) FEES AND COMMISSIONS. The Recipient has not retained any broker-
--------------------
dealer, placement agent or finder to whom the Company will have any obligation
to pay any commissions or fees.
Each representation, warranty and covenant of the Recipient shall be deemed
made at the time of grant of this Option, shall be deemed remade at any time the
Recipient exercises this Option, and shall survive the date of closing with
respect to the exercise of the last Option hereunder.
8. MISCELLANEOUS.
-------------
(A) PREPARATION OF STOCK OPTION CERTIFICATE; COSTS AND EXPENSES.
-----------------------------------------------------------
This Stock Option Certificate was prepared by the Company solely on behalf of
the Company. Each party acknowledges that: (i) he, she or it had the advice
of, or sufficient opportunity to obtain the advice of, legal counsel separate
and independent of legal counsel for any other party hereto; (ii) the terms of
the transaction contemplated by this Stock Option Certificate are fair and
reasonable to such party; and (iii) such party has voluntarily entered into the
transaction contemplated by this Stock Option Certificate without duress or
coercion. Each party further acknowledges such party was not represented by the
legal counsel of any other party hereto in connection with the transaction
contemplated by this Stock Option Certificate, nor was such party under any
belief or understanding that such legal counsel was representing his, her or its
interests. Except as expressly set forth in this Stock Option Certificate, each
party shall pay all legal and other costs and expenses incurred or to be
incurred by such party in negotiating and preparing this Stock Option
Certificate; in performing due diligence or retaining professional advisors; in
performing any transactions contemplated by this Stock Option Certificate; or in
complying with such party's covenants, agreements and conditions contained
herein. Each party agrees that no conflict,
4
<PAGE>
omission or ambiguity in this Stock Option Certificate, the Plan and/or the Plan
Summary or the interpretation thereof, shall be presumed, implied or otherwise
construed against the Company or any other party to this Stock Option
Certificate on the basis that such party was responsible for drafting this Stock
Option Certificate.
(B) COOPERATION. Each party agrees, without further consideration,
-----------
to cooperate and diligently perform any further acts, deeds and things, and to
execute and deliver any documents that may be reasonably necessary or otherwise
reasonably required to consummate, evidence, confirm and/or carry out the intent
and provisions of this Stock Option Certificate, all without undue delay or
expense.
(C) INTERPRETATION.
--------------
(i) Survival. All representations and warranties made by any
--------
party in connection with any transaction contemplated by this Stock Option
Certificate shall, irrespective of any investigation made by or on behalf of any
other party hereto, survive the execution and delivery of this Stock Option
Certificate and the performance or consummation of any transaction described in
this Stock Option Certificate.
(ii) Entire Agreement/No Collateral Representations. Each party
----------------------------------------------
expressly acknowledges and agrees that this Stock Option Certificate, together
with and subject to the Plan and the Plan Summary: (1) is the final, complete
and exclusive statement of the agreement of the parties with respect to the
subject matter hereof; (2) supersedes any prior or contemporaneous agreements,
proposals, commitments, guarantees, assurances, communications, discussions,
promises, representations, understandings, conduct, acts, courses of dealing,
warranties, interpretations or terms of any kind, whether oral or written
(collectively and severally, the "prior agreements"), and that any such prior
agreements are of no force or effect except as expressly set forth herein; and
(3) may not be varied, supplemented or contradicted by evidence of prior
agreements, or by evidence of subsequent oral agreements. No prior drafts of
this Stock Option Certificate, and no words or phrases from any prior drafts,
shall be admissible into evidence in any action or suit involving this Stock
Option Certificate.
(iii) Amendment; Waiver; Forbearance. Except as expressly
------------------------------
provided otherwise herein, neither this Stock Option Certificate nor any of the
terms, provisions, obligations or rights contained herein may be amended,
modified, supplemented, augmented, rescinded, discharged or terminated (other
than by performance), except as provided in the Plan or by a written instrument
or instruments signed by all of the parties to this Stock Option Certificate.
No waiver of any breach of any term, provision or agreement contained herein, or
of the performance of any act or obligation under this Stock Option Certificate,
or of any extension of time for performance of any such act or obligation, or of
any right granted under this Stock Option Certificate, shall be effective and
binding unless such waiver shall be in a written instrument or instruments
signed by each party claimed to have given or consented to such waiver and each
party affected by such waiver. Except to the extent that the party or parties
claimed to have given or consented to a waiver may have otherwise agreed in
writing, no such waiver shall be deemed a waiver or relinquishment of any other
term, provision, agreement, act, obligation or right granted under this Stock
Option Certificate, or any preceding or subsequent breach thereof. No
forbearance by a party to seek a remedy for any noncompliance or breach by
another party hereto shall be deemed to be a waiver by such forbearing party of
its rights and remedies with respect to such noncompliance or breach, unless
such waiver shall be in a written instrument or instruments signed by the
forbearing party.
(iv) Remedies Cumulative. The remedies of each party under this
-------------------
Stock Option Certificate are cumulative and shall not exclude any other remedies
to which such party may be lawfully entitled, at law or in equity.
(v) Severability. If any term or provision of this Stock
------------
Option Certificate or the application thereof to any person or circumstance
shall, to any extent, be determined to be invalid, illegal or unenforceable
under present or future laws, then, and in that event: (1) the performance of
the offending term or provision (but only to the extent its application is
invalid, illegal or unenforceable) shall be excused as if it had never been
incorporated into this Stock Option Certificate, and, in lieu of such excused
provision, there shall be added a provision as similar in terms and amount to
such excused provision as may be possible and be legal, valid and enforceable;
and (2) the remaining part of this Stock Option Certificate (including the
application of the offending term or provision to persons or circumstances other
than those as to which it is held invalid, illegal or unenforceable) shall not
be affected thereby, and shall continue in full force and effect to the fullest
extent provided by law.
5
<PAGE>
(vi) Parties in Interest. Notwithstanding anything else to the
-------------------
contrary herein, nothing in this Stock Option Certificate shall confer any
rights or remedies under or by reason of this Stock Option Certificate on any
persons other than the parties hereto and their respective successors and
assigns, if any, as may be permitted under the Plan or hereunder, nor shall
anything in this Stock Option Certificate relieve or discharge the obligation or
liability of any third person to any party to this Stock Option Certificate, nor
shall any provision give any third person any right of subrogation or action
over or against any party to this Stock Option Certificate.
(vii) No Reliance Upon Prior Representation. Each party
-------------------------------------
acknowledges that: (i) no other party has made any oral representation or
promise which would induce them prior to executing this Stock Option Certificate
to change their position to their detriment, to partially perform, or to part
with value in reliance upon such representation or promise; and (ii) such party
has not so changed its position, performed or parted with value prior to the
time of the execution of this Stock Option Certificate, or such party has taken
such action at its own risk.
(viii) Headings; References; Incorporation; "Person"; Gender;
------------------------------------------------------
Statutory References. The headings used in this Stock Option Certificate are
- --------------------
for convenience and reference purposes only, and shall not be used in construing
or interpreting the scope or intent of this Stock Option Certificate or any
provision hereof. References to this Stock Option Certificate shall include all
amendments or renewals thereof. All cross-references in this Stock Option
Certificate, unless specifically directed to another agreement or document,
shall be construed only to refer to provisions within this Stock Option
Certificate, and shall not be construed to be referenced to the overall
transaction or to any other agreement or document. Any Exhibit referenced in
this Stock Option Certificate shall be construed to be incorporated in this
Stock Option Certificate by such reference. As used in this Stock Option
Certificate, the term "person" is defined in its broadest sense as any
individual, entity or fiduciary who has legal standing to enter into this Stock
Option Certificate such as, by way of example and not limitation, individual or
natural persons and trusts. As used in this Stock Option Certificate, each
gender shall be deemed to include the other gender, including neutral genders
appropriate for entities, if applicable, and the singular shall be deemed to
include the plural, and vice versa, as the context requires. Any reference to
statutes or laws will include all amendments, modifications, or replacements of
the specific sections and provisions concerned.
(D) ENFORCEMENT.
-----------
(i) Applicable Law. This Stock Option Certificate and the
--------------
rights and remedies of each party arising out of or relating to this Stock
Option Certificate (including, without limitation, equitable remedies) shall
(with the exception of the Securities Act and the Blue Sky Laws) be solely
governed by, interpreted under, and construed and enforced in accordance with
the laws (without regard to the conflicts of law principles) of the State of
Nevada, as if this Stock Option Certificate were made, and as if its obligations
are to be performed, wholly within the State of Nevada.
(ii) Consent to Jurisdiction; Service of Process. Any "action
-------------------------------------------
or proceeding" (as such term is defined below) arising out of or relating to
this Stock Option Certificate shall be filed in and heard and litigated solely
before the state courts of Nevada located within the County of Ormsby. Each
party generally and unconditionally accepts the exclusive jurisdiction of such
courts and venue therein; consents to the service of process in any such action
or proceeding by certified or registered mailing of the summons and complaint in
accordance with the notice provisions of this Stock Option Certificate; and
waives any defense or right to object to venue in said courts based upon the
doctrine of "forum non conveniens." The term "action or proceeding" is defined
as any and all claims, suits, actions, hearings, arbitrations or other similar
proceedings, including appeals and petitions therefrom, whether formal or
informal, governmental or non-governmental, or civil or criminal.
(iii) Waiver of Right to Jury Trial. Each party hereby waives
-----------------------------
such party's respective right to a jury trial of any claim or cause of action
based upon or arising out of this Stock Option Certificate. Each party
acknowledges that this waiver is a material inducement to each other party
hereto to enter into the transaction contemplated hereby; that each other party
has already relied upon this waiver in entering into this Stock Option
Certificate; and that each other party will continue to rely on this waiver in
their future dealings. Each party warrants and represents that such party has
reviewed this waiver with such party's legal counsel, and that such party has
knowingly and voluntarily waived its jury trial rights following consultation
with such legal counsel.
6
<PAGE>
(E) SUCCESSORS AND ASSIGNS. All of the representations, warranties,
----------------------
covenants, conditions and provisions of this Stock Option Certificate shall be
binding upon and shall inure to the benefit of each party and such party's
respective successors and permitted assigns, spouses, heirs, executors,
administrators, and personal and legal representatives.
(F) NOTICES. Except as otherwise specifically provided in this Stock
-------
Option Certificate, all notices, demands, requests, consents, approvals or other
communications (collectively and severally called "notices") required or
permitted to be given hereunder shall be given in accordance with the notice
provisions in the Plan.
(G) COUNTERPARTS. This Stock Option Certificate may be executed in
------------
counterparts, each of which shall be deemed an original, and all of which
together shall constitute one and the same instrument, binding on all parties
hereto. Any signature page of this Stock Option Certificate may be detached
from any counterpart of this Stock Option Certificate and reattached to any
other counterpart of this Stock Option Certificate identical in form hereto by
having attached to it one or more additional signature pages.
WHEREFORE, the parties hereto have for purposes of this Stock Option
Certificate executed this Stock Option Certificate in Carson City, County of
Ormsby, State of Nevada, effective as of the Option Effective Date first set
forth on the first page of this Stock Option Certificate.
COMPANY:
Pinnacle Oil International, Inc.,
a Nevada corporation
By:
--------------------------
R. Dirk Stinson, President
ATTEST:
[SEAL] By
-----------------------------
Terrence J. Dunne, Secretary
RECIPIENT:**
- ----------------------------- ** By execution hereof, the Recipient
acknowledges prior receipt of the 1997
- ----------------------------- Pinnacle Oil International, Inc. Stock
Plan and Plan Summary Nos.: _____
7
<PAGE>
Attachment
to
Stock Option Certificate
NOTICE OF EXERCISE OF STOCK OPTION
----------------------------------
[To be signed by the Recipient only upon exercise of Option]
TO: Secretary
Pinnacle Oil International, Inc.
840 7th Avenue, Suite 750, Phoenix Place, S.W.
Calgary, Alberta, Canada T2P
The undersigned, the holder of Options under that certain Stock Option
Certificate dated effective the _________ day of _______________________,
___________, between Pinnacle Oil International, Inc., a Nevada corporation (the
"Company") and the undersigned (the "Recipient"), hereby irrevocably elects, in
accordance with the terms and conditions of that certain 1997 Pinnacle Oil
International, Inc. Stock Plan dated July 25, 1997, as it may be amended from
time to time (the "Plan"), under which the Stock Option Certificate was granted,
to exercise the undersigned's Option under the Plan to purchase
(______________)(1) shares of the common stock, no par value ("Common Stock") of
the Company (collectively and severally, the "Option Shares"), for the aggregate
purchase price of ($______________)(2).
(1) Insert number of Option Shares as specified in the Stock Option
Certificate which are vested Option Shares (as defined by the Plan)
which the Recipient is exercising the Recipient's Option to purchase.
(2) Number of Option Shares to be exercised as specified above multiplied
by the Option Price per share ($______________ per share).
The Recipient hereby remakes, reaffirms and reacknowledges all agreements,
representations, warranties and covenants set forth in the Stock Option
Certificate as of the date of the Recipient's notice, all of which shall survive
the Closing with respect to the shares of Common Stock purchased hereby.
If the Option (i) is a Non-Qualified Option, (ii) was granted to the
Recipient as an Employee, and (iii) the Recipient is an Employee as of the date
of his, her or its exercise of the Option, the Recipient acknowledges that the
Company shall withhold from the compensation of the Recipient such amounts as
may be sufficient to satisfy any federal, state, territorial and/or provincial
withholding tax requirements incident to such exercise pursuant to section 8 of
---------
the Plan, and the Recipient shall remit to the Company any additional amounts
which may be required.
The Recipient hereby acknowledges that the following legend (or any
variation thereof determined appropriate by the Company) will be placed on the
share certificate or certificates for the Option Shares to comply with
applicable federal, state, territorial and/or provincial securities laws.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN (1) REGISTERED
UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED, IN RELIANCE
UPON AN EXEMPTION FROM REGISTRATION AFFORDED BY SUCH ACT INCLUDING, WITHOUT
LIMITATION, RULE 701 TO SECTION 3(b) OF THE SECURITIES ACT OF 1933, OR (2)
1
<PAGE>
REGISTERED OR QUALIFIED, AS THE CASE MAY BE, UNDER THE SECURITIES LAWS OF
ANY STATE OR TERRITORY OF THE UNITED STATES OR PROVINCE OF CANADA WHICH MAY
BE APPLICABLE, IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION OR
QUALIFICATION, AS THE CASE MAY BE, AFFORDED BY SUCH STATE, TERRITORIAL OR
PROVINCIAL SECURITIES LAWS. THESE SECURITIES HAVE BEEN ACQUIRED FOR THE
HOLDER'S OWN ACCOUNT FOR INVESTMENT PURPOSES AND NOT WITH A VIEW FOR RESALE
OR DISTRIBUTION. THESE SECURITIES MAY NOT BE SOLD OR TRANSFERRED UNLESS
(A) THEY HAVE BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF
1933 AS WELL AS UNDER THE SECURITIES LAWS OF ANY STATE OR TERRITORY OF THE
UNITED STATES OR PROVINCE OR CANADA AS MAY THEN BE APPLICABLE, OR (B) THE
TRANSFER AGENT (OR THE COMPANY IF THEN ACTING AS ITS TRANSFER AGENT) IS
PRESENTED WITH EITHER A WRITTEN OPINION SATISFACTORY TO COUNSEL FOR THE
COMPANY OR A NO-ACTION OR INTERPRETIVE LETTER FROM THE UNITED STATES
SECURITIES AND EXCHANGE COMMISSION AND ANY APPLICABLE STATE, TERRITORIAL
OR PROVINCIAL SECURITIES REGULATORY AGENCY TO THE EFFECT THAT SUCH
REGISTRATION OR QUALIFICATION, AS THE CASE MAY BE, IS NOT REQUIRED UNDER
THE CIRCUMSTANCES OF SUCH SALE OR TRANSFER.
The Recipient hereby acknowledges that the following legend (or any
variation thereof determined appropriate by the Company) will be placed on the
share certificate or certificates for the Option Shares to comply with the
Market Standoff Provision set forth in section 13 of the Plan.
----------
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
MARKET STANDOFF OBLIGATIONS SET FORTH IN FULL IN THAT CERTAIN 1997 PINNACLE
OIL INTERNATIONAL, INC. STOCK PLAN DATED JULY 25, 1997, AS IT MAY BE
AMENDED OR RESTATED FROM TIME TO TIME, A COPY OF WHICH MAY BE INSPECTED BY
AUTHORIZED PERSONS AT THE PRINCIPAL OFFICE OF THE COMPANY, AND ALL THE
PROVISIONS OF WHICH ARE INCORPORATED BY REFERENCE IN THIS CERTIFICATE."
The Recipient hereby acknowledges that the following legend (or any
variation thereof determined appropriate by the Company) will be placed on the
share certificate or certificates for the Option Shares to comply with the Drag-
Along Rights granted to the Company pursuant to section 14 of the Plan.
----------
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
DRAG-ALONG RIGHTS SET FORTH IN FULL IN THAT CERTAIN 1997 PINNACLE OIL
INTERNATIONAL, INC. STOCK PLAN DATED JULY 25, 1997, AS IT MAY BE AMENDED OR
RESTATED FROM TIME TO TIME, A COPY OF WHICH MAY BE INSPECTED BY AUTHORIZED
PERSONS AT THE PRINCIPAL OFFICE OF THE COMPANY, AND ALL THE PROVISIONS OF
WHICH ARE INCORPORATED BY REFERENCE IN THIS CERTIFICATE."
(Signature must conform in all respects to name of the Recipient as
specified in the Plan, unless the undersigned is the Recipient's Successor,
in which case the undersigned must submit appropriate proof of the right of
the undersigned to exercise the Option)
Signature:
--------------------------------
Print Name:
--------------------------------
Address:
--------------------------------
--------------------------------
Date:
--------------------------------
2
<PAGE>
STOCK GRANT AGREEMENT
---------------------
1997 PINNACLE OIL, INC. STOCK PLAN
----------------------------------
[To be prepared by the Company and signed by the Recipient]
<TABLE>
- -------------------------------------------------------------------------------------------------
<S> <C>
Name of Recipient............... ____________________________________________
Status of Recipient............. [_] Employee who is an Executive Officer
[_] Employee other than an Executive Officer
[_] Director
[_] Consultant
Legal Address/Domicile
of Recipient....................
_____________________________________________
Citizenship of Recipient........ [_] United States [_] Other:
Number of Grant Shares.......... _______________________
Nature of Grant................. [_] As a "Bonus" or "Reward" [_] Value per Grant
Share -- $______
[_] As "Compensation"
[_] Stock Grant Purchase
[_] For Payment of Price per Grant
"Consideration" Share -- $________
Forfeiture...................... [_] Not Subject to Forfeiture
[_] Continuous Service Forfeiture (see sections 5 & 6 below)
[_] Other Forfeiture (see Addendum)
Stock Grant Expiration Date..... _______________________ (subject to section 3 below)
Stock Grant Effective Date...... _______________________
U.S. Federal Exemption Relied
Upon at the Time of Grant....... [_] Rule 701 [_] Regulation D
[_] Other_______________ [_] Rule 504
_______________________ [_] Rule 505
_______________________ [_] Rule 506
Blue Sky Exemption Relied
Upon at Time of Grant........... ____________________________________________________
Subject to Addendum............. [_] Yes [_] No
- -------------------------------------------------------------------------------------------------
</TABLE>
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN REGISTERED OR QUALIFIED WITH, OR
APPROVED OR DISAPPROVED BY, THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE, TERRITORIAL OR PROVINCIAL SECURITIES REGULATORY AGENCY, NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE, TERRITORIAL OR PROVINCIAL
SECURITIES REGULATORY AGENCY REVIEWED OR PASSED UPON OR ENDORSED THE MERITS OF
THE OFFERING CONTEMPLATED BY THIS STOCK GRANT AGREEMENT OR THE ACCURACY OR
ADEQUACY OF ANY OFFERING MATERIALS, INCLUDING THE 1997 PINNACLE OIL, INC. STOCK
PLAN OR THE PLAN SUMMARY FOR SUCH STOCK PLAN. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE. THESE SECURITIES ARE SPECULATIVE AND INVOLVE A
HIGH DEGREE OF RISK AND SUBSTANTIAL AND IMMEDIATE DILUTION. THERE IS NO PUBLIC
MARKET FOR THE SALE OF THESE SECURITIES BY THE RECIPIENT. THESE SECURITIES MAY
NOT BE SOLD OR TRANSFERRED UNLESS REGISTERED OR QUALIFIED, OR THE RECIPIENT
PROVIDES THE COMPANY AN
1
<PAGE>
OPINION OF COUNSEL SATISFACTORY TO THE COMPANY, OR ITS LEGAL COUNSEL, THAT SUCH
REGISTRATION OR QUALIFICATION IS NOT REQUIRED BY REASON OF AN EXEMPTION OR
OTHERWISE. AS A RESULT, THESE SECURITIES ARE SUITABLE ONLY FOR CERTAIN
SOPHISTICATED AND QUALIFIED INVESTORS WHO CAN BEAR THE FINANCIAL RISK OF AN
INVESTMENT IN THESE SECURITIES FOR AN INDEFINITE PERIOD OF TIME.
================================================================================
THIS STOCK GRANT AGREEMENT is entered into between Pinnacle Oil, Inc., a
Nevada corporation (the "Company"), whose principal executive office is located
at 840 7th Avenue, Suite 750, Phoenix Place, S.W., Calgary, Alberta, Canada T2P
3G2, and the Recipient identified on the first page of this Stock Grant
Agreement (the "Recipient"), pursuant to that certain 1997 Pinnacle Oil, Inc.
Stock Plan dated July 25, 1997, as such Plan may be amended from time to time
(the "Plan"). Subject to the terms of this Stock Grant Agreement and the
Addendum, if any, attached to this Stock Grant Agreement, the Recipient's rights
to purchase the Grant Shares are governed by the Plan, the terms of which are
incorporated herein by this reference. Defined terms in this Stock Grant
Agreement shall have the same meaning as defined terms in the Plan.
1. GRANT OF GRANT SHARES. The Company hereby grants to the Recipient,
---------------------
pursuant to the terms of the Plan, and subject to the following terms and
conditions, the right to purchase, in whole or in part, the number of Grant
Shares designated on the first page of this Stock Grant Agreement (collectively
and severally, the "Grant Shares"), representing shares of the common stock, no
par value (the "Common Stock") of the Company, subject to the following terms
and conditions.
2. NATURE OF GRANT. The grant of the Grant Shares shall be characterized
---------------
as follows:
(a) BONUS OR REWARD. If made as a "bonus" or "reward" as set forth on
---------------
the first page of this Stock Grant Agreement, then the grant of the Grant Shares
shall be deemed made as a "bonus" or "award" for services previously rendered
pursuant to section 6(b)(i) of the Plan, with a deemed value per Grant Share set
---------------
forth on the first page of this Stock Grant Agreement.
(b) COMPENSATION. If made as "compensation" as set forth on the first
------------
page of this Stock Grant Agreement, then the grant of the Grant Shares shall be
deemed made as "compensation" for the previous performance or future performance
of services or attainment of goals pursuant to section 6(b)(ii) of the Plan,
----------------
with a deemed value per Grant Share set forth on the first page of this Stock
Grant Agreement.
(c) PURCHASE CONSIDERATION. If made for payment of "purchase
----------------------
consideration" as set forth on the first page of this Stock Grant Agreement, the
grant of the Grant Shares shall, pursuant to section 6(b)(iii) of the Plan, be
-----------------
deemed the grant of a stock purchase right subject to and conditional upon the
prospective payment by the Recipient of "consideration" per Grant Share in the
amount of the Stock Grant Purchase Price per Grant Share (in U.S. dollars)
designated on the first page of this Stock Grant Agreement. The Grant Share
shall have a deemed value per Grant Share set forth on the first page of this
Stock Grant Agreement, which may or may not be the same as the Stock Grant
Purchase Price.
3. EXPIRATION OF RIGHT TO PURCHASE GRANT SHARES. If this Stock Grant
--------------------------------------------
Agreement is made in payment of "purchase consideration" as set forth above in
section 2(c), the right to purchase the Grant Shares shall expire and be null
- ------------
and void ab initio and of no further force or effect to the extent the Grant
Shares are not purchased by 5:00 p.m. P.S.T. on the Stock Grant Expiration Date
as designated on the first page of this Stock Grant Agreement, provided,
however, if the Grant Shares are subject to forfeiture by reason of the
Continuous Service Vesting designation set forth on the first page of this Stock
Grant Agreement, then pursuant to section
-------
2
<PAGE>
7(a)(iv) of the Plan, in the event of Termination Of Recipient the expiration
- --------
date shall be accelerated to thirty (30) days after the effective date of
Termination Of Recipient.
1. DELIVERIES; MANNER OF PURCHASE AND PAYMENT. The Grant Shares shall be
------------------------------------------
purchased by delivery of the following to the Secretary of the Company at the
Company's principal executive offices: (i) this Stock Grant Agreement, duly
signed by the Recipient; (ii) if this Stock Grant Agreement is made in payment
of "consideration" as set forth above on the first page of this Stock Grant
Agreement, full payment for the Grant Shares to be purchased in immediately
available funds (in U.S. dollars); (iii) a Consent of Spouse (as such consent is
defined in the Plan) from the spouse of the Recipient, if any, duly signed by
such spouse, and (iv) such other documents specified in the Addendum to this
Stock Grant Agreement, if any.
4. PAYROLL TAXES. If the grant of the Grant Shares is made to the
-------------
Recipient as an Employee, the Recipient acknowledges that the Company shall
withhold from the compensation of the Recipient such amounts as may be
sufficient to satisfy any federal, state and/or local withholding tax
requirements incident to the grant of the Grant Shares pursuant to section 8 of
---------
the Plan, and the Recipient shall remit to the Company any additional amounts
which may be required.
5. FORFEITABLE GRANT SHARES; FORFEITURE VESTING CONDITIONS. If the Grant
-------------------------------------------------------
Shares are subject to forfeiture by reason of the Continuous Service Forfeiture
designation on the first page of this Stock Grant Agreement, then the Grant
Shares, once purchased, will be Forfeitable Grant Shares which, subject to
section 7(b) of the Plan, are subject to forfeiture based upon continued
- ------------
performance of services in the Capacity indicated on the first page of this
Stock Grant Agreement as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
CUMULATIVE
VESTED
VESTED PERCENTAGE OF
NUMBER OF GRANT
DATE GRANT SHARES SHARES
---------------- ----------------- -----------------
____________ ___________ ______%
____________ ___________ ______%
____________ ___________ ______%
____________ ___________ ______%
____________ ___________ ______%
----------------- -------------------
Total ___________ 100%
================= ===================
</TABLE>
6. CONTINUOUS SERVICE FORFEITURE ACCELERATION OF VESTING IN THE EVENT OF
----------------------------------------------------------------------
TERMINATION OF RECIPIENT. If the Grant Shares are subject to forfeiture by
- ------------------------
reason of the Continuous Service Forfeiture designation on the first page of
this Stock Grant Agreement, then the prospective right to purchase unvested
--------
Forfeitable Grant Shares shall immediately lapse if such right does not vest
prior to Termination Of Recipient.
7. PURCHASE PRICE FOR UNVESTED FORFEITED GRANT SHARES. In the event of
--------------------------------------------------
forfeiture of unvested Forfeitable Grant Shares, as governed by section 7 of the
---------
Plan, the purchase price for unvested Forfeitable Grant Shares shall, subject to
the minimum price provisions set forth in section 7(c)(i) of the Plan:
---------------
[_] Be
------------------------------------------------------------
-------------------------($ ) per Forfeiitable Grant Share
3
<PAGE>
[_] Be determined as follows:
---------------------------------------
----------------------------------------------------------------
----------------------------------------------------------------
----------------------------------------------------------------
8. TRANSFER. Except as may be permitted by an Addendum to this Stock
--------
Grant Agreement, unvested Forfeitable Grant Shares may not be Transferred by a
--------
Recipient, and any such Transfer shall be null and void ab initio and of no
further force and effect.
9. LEGENDS.
-------
(a) SECURITIES LAWS. The Recipient hereby acknowledges that the
---------------
following legend (or any variation thereof determined appropriate by the
Company) will be placed on the share certificate or certificates for the Grant
Shares to comply with applicable federal and state securities laws:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN (1) REGISTERED
UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED, IN RELIANCE
UPON AN EXEMPTION FROM REGISTRATION AFFORDED BY SUCH ACT INCLUDING, WITHOUT
LIMITATION, RULE 701 TO SECTION 3(b) OF THE SECURITIES ACT OF 1933, OR (2)
REGISTERED OR QUALIFIED, AS THE CASE MAY BE, UNDER THE SECURITIES LAWS OF
ANY STATE OR TERRITORY OF THE UNITED STATES OR PROVINCE OF CANADA WHICH MAY
BE APPLICABLE, IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION OR
QUALIFICATION, AS THE CASE MAY BE, AFFORDED BY SUCH STATE, TERRITORIAL OR
PROVINCIAL SECURITIES LAWS. THESE SECURITIES HAVE BEEN ACQUIRED FOR THE
HOLDER'S OWN ACCOUNT FOR INVESTMENT PURPOSES AND NOT WITH A VIEW FOR RESALE
OR DISTRIBUTION. THESE SECURITIES MAY NOT BE SOLD OR TRANSFERRED UNLESS
(A) THEY HAVE BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF
1933 AS WELL AS UNDER THE SECURITIES LAWS OF ANY STATE OR TERRITORY OF THE
UNITED STATES AS MAY THEN BE APPLICABLE, OR (B) THE TRANSFER AGENT (OR THE
COMPANY IF THEN ACTING AS ITS TRANSFER AGENT) IS PRESENTED WITH EITHER A
WRITTEN OPINION SATISFACTORY TO COUNSEL FOR THE COMPANY OR A NO-ACTION OR
INTERPRETIVE LETTER FROM THE UNITED STATES SECURITIES AND EXCHANGE
COMMISSION AND ANY APPLICABLE STATE OR TERRITORIAL SECURITIES REGULATORY
AGENCY TO THE EFFECT THAT SUCH REGISTRATION OR QUALIFICATION, AS THE CASE
MAY BE, IS NOT REQUIRED UNDER THE CIRCUMSTANCES OF SUCH SALE OR TRANSFER.
(b) FORFEITURE CONDITIONS. The Recipient hereby acknowledges that
---------------------
the following legend (or any variation thereof determined appropriate by the
Company) will be placed on the share certificate or certificates for the Grant
Shares to comply with any forfeiture conditions placed upon the Grant Shares by
this Stock Grant Agreement:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO FORFEITURE IN
THE EVENT CERTAIN VESTING CONDITIONS BASED UPON THE CONTINUED PROVISION OF
SERVICES TO THE COMPANY BY THE HOLDER HEREOF ARE NOT SATISFIED. THIS RISK
OF FORFEITURE AND UNDERLYING VESTING CONDITIONS ARE SET FORTH IN FULL IN
THAT CERTAIN STOCK GRANT AGREEMENT BETWEEN THE HOLDER OF THIS CERTIFICATE
AND THE COMPANY DATED ___________________, __________, AND THAT CERTAIN
1997 PINNACLE OIL, INC. STOCK PLAN DATED JULY 25, 1997, A COPY OF WHICH MAY
BE INSPECTED BY AUTHORIZED PERSONS AT THE PRINCIPAL OFFICE OF THE COMPANY
AND ALL THE
4
<PAGE>
PROVISIONS OF WHICH ARE INCORPORATED BY REFERENCE IN THIS
CERTIFICATE.
(c) MARKET STANDOFF PROVISION. The Recipient hereby acknowledges
-------------------------
that the following legend (or any variation thereof determined appropriate by
the Company) will be placed on the share certificate or certificates for the
Grant Shares to comply with the Market Standoff Provision set forth in section
-------
13 of the Plan.
- --
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
MARKET STANDOFF OBLIGATIONS SET FORTH IN FULL IN THAT CERTAIN 1997 PINNACLE
OIL, INC. STOCK PLAN DATED JULY 25, 1997, AS IT MAY BE AMENDED OR RESTATED
FROM TIME TO TIME, A COPY OF WHICH MAY BE INSPECTED BY AUTHORIZED PERSONS
AT THE PRINCIPAL OFFICE OF THE COMPANY, AND ALL THE PROVISIONS OF WHICH ARE
INCORPORATED BY REFERENCE IN THIS CERTIFICATE."
(d) DRAG-ALONG RIGHTS. The Recipient hereby acknowledges that the
-----------------
following legend (or any variation thereof determined appropriate by the
Company) will be placed on the share certificate or certificates for the Grant
Shares to comply with the Drag-Along Rights granted to the Company pursuant to
section 14 of the Plan.
- ----------
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
DRAG-ALONG RIGHTS SET FORTH IN FULL IN THAT CERTAIN 1997 PINNACLE OIL, INC.
STOCK PLAN DATED JULY 25, 1997, AS IT MAY BE AMENDED OR RESTATED FROM TIME
TO TIME, A COPY OF WHICH MAY BE INSPECTED BY AUTHORIZED PERSONS AT THE
PRINCIPAL OFFICE OF THE COMPANY, AND ALL THE PROVISIONS OF WHICH ARE
INCORPORATED BY REFERENCE IN THIS CERTIFICATE."
10. REPRESENTATIONS, WARRANTIES AND COVENANTS. The Recipient hereby
-----------------------------------------
represents, warrants and covenants to the Company, each of which is deemed to be
a separate representation, warranty and covenant, whichever the case may be,
that:
(a) DOMICILE. The Recipient's permanent legal residence and
--------
domicile, if the Recipient is an individual, or permanent legal executive
offices and principal place of business, if the Recipient is an Entity, was and
is in the State or territory designated on the first page of this Stock Grant
Agreement at both the time of the "offer" and the time of the "sale" of the
Grant Share to the Recipient.
(b) AGE. The Recipient, if a natural person, is age eighteen (18) or
---
over.
(c) RECEIPT AND REVIEW OF PLAN AND PLAN SUMMARY. The Recipient has
-------------------------------------------
received a copy of the Plan, as well as a copy of the 1997 Pinnacle Oil, Inc.
Stock Plan Summary (the "Plan Summary"), which explains the administration and
operation of the Plan, risk factors concerning an investment in the Common Stock
and the Company, the tax consequences of purchasing Grant Shares under the Plan,
and certain other relevant matters pertaining to the Plan, and has read and
understood the Plan and the Plan Summary.
(d) INDEPENDENT REVIEW OF INVESTMENT MERITS; DUE DILIGENCE. During
------------------------------------------------------
the course of the transaction contemplated by this Stock Grant Agreement, and
prior to purchasing the Grant Shares, the Recipient: (i) had the opportunity to
engage such investment professionals and advisors including, without limitation,
accountants, appraisers, investment, tax and legal advisors, each of whom are
independent of the Company and its advisors and agents, to: (1) conduct such
due diligence review as the Recipient and/or such investment professionals and
advisors deem necessary or advisable; and (2) to provide such opinions as to (A)
the investment merits of a proposed investment in the Grant Shares, (B) the tax
consequences of the purchase of
5
<PAGE>
the Grant Shares and the subsequent disposition of the Grant Shares, and (C) the
effect of same upon the Recipient's personal financial circumstances, as the
Recipient and/or his, her or its investment professionals and advisors may deem
advisable; and (ii) the Recipient, to the extent he, she or it availed himself,
herself or itself of this opportunity, received satisfactory information and
answers from such investment professionals and advisors.
(e) OPPORTUNITY TO ASK QUESTIONS AND TO REVIEW DOCUMENTS, BOOKS AND
---------------------------------------------------------------
RECORDS. Without limiting the generality of subsection 10(d) above, during the
- ------- ----------------
course of the transaction contemplated by this Stock Grant Agreement, and prior
to purchasing the Grant Shares, the Recipient, and his, her or its investment
professionals and advisors, had the opportunity, to the extent the Recipient
and/or such investment professionals and advisors determined it to be necessary,
to: (i) be provided with financial and other written information (in addition
to that contained in the Plan and Plan Summary); (ii) to ask questions and
receive answers concerning the terms and conditions of this Stock Grant
Agreement, an investment in the Grant Shares, and the business of the Company
and its finances; (iii) to review all documents, books and records of the
Company; and (iv) the Recipient and/or his, her or its investment professionals
and advisors, to the extent they availed themselves of this opportunity,
received satisfactory information and answers.
(f) OFFERING COMMUNICATIONS. With the exception of the President of
-----------------------
the Company, no person has provided any information (other than the provision of
the Plan and Plan Summary), or made any representations to the Recipient,
concerning the Company or its past, present or future business, and the only
information or representations given by the President of the Company upon which
the Recipient has relied in offering to purchase the Grant Shares (other than
contained in the Plan and the Plan Summary) have been given in writing to the
Recipient.
(g) RESTRICTIONS ON TRANSFERABILITY OF GRANT SHARES. The Recipient
-----------------------------------------------
has been informed and understands and agrees as follows: (i) there are
substantial restrictions on the transferability of the Grant Shares as set forth
in the Plan and as are more particularly described in the Plan Summary; (ii) as
a result of such restrictions: (1) it may not be possible for the Recipient to
sell or otherwise liquidate the Grant Shares in the case of emergency and/or
other need, and the Recipient must therefore be able to hold the Grant Shares
until the lapse of said restrictions, (2) the Recipient must have adequate means
of providing for the Recipient's current needs and personal contingencies, and
(3) the Recipient must have no need for liquidity in an investment in the Grant
Shares; and (iii) the Recipient has evaluated the Recipient's financial
resources and investment position in view of the foregoing; and the Recipient is
able to bear the economic risk of an investment in the Grant Shares.
(h) SECURITIES PURCHASED FOR RECIPIENT'S OWN ACCOUNT. The Grant
------------------------------------------------
Shares are being purchased by the Recipient as principal and not by any other
person, with the Recipient's own funds and not with the funds of any other
person, and for the account of the Recipient and not as a nominee or agent and
not for the account of any other person. The Recipient is purchasing the Grant
Shares for investment purposes only for an indefinite period, and not with a
view to the sale or distribution of any part or all thereof by public or private
sale or other disposition. No person other than the Recipient will have any
interest, beneficial or otherwise, in the Grant Shares, and the Recipient is not
obligated to transfer the Grant Shares to any other person nor does the
Recipient have any agreement or understanding to do so.
(i) COMPLIANCE WITH INVESTMENT LAWS. The Recipient has complied with
-------------------------------
all applicable investment laws and regulations in force relating to the legality
of an investment in the Grant Shares by the Recipient in any jurisdiction in
which he, she or it purchases the Grant Shares or enters into this Stock Grant
Agreement, and has obtained any consent, approval or permission required of him,
her or it for the purchase of the Grant Shares under the investment laws and
regulations in force in any jurisdiction to which he, she or it is subject, or
in which he, she or it makes such purchase, and the Company shall have no
responsibility
6
<PAGE>
therefor.
(j) NO GENERAL SOLICITATION OR PUBLIC ADVERTISING. With the exception
---------------------------------------------
of direct communication to the Recipient by the President of the Company and/or
the provision of the Plan and the Plan Summary, the Recipient has not, with
respect to the offer and sale of the Grant Shares, seen, received, been
presented with or been solicited: (i) by any advertisement, article, notice,
leaflet or other communication (whether published in any newspaper, magazine, or
similar media or broadcast over television or radio or otherwise generally
disseminated or distributed); or (ii) through any public or promotional seminar
or meeting to which the Recipient was invited through any such advertisement,
article, notice, leaflet or other communication.
(k) FEES AND COMMISSIONS. The Recipient has not retained any broker-
--------------------
dealer, placement agent or finder to whom the Company will have any obligation
to pay any commissions or fees.
Each representation, warranty and covenant of the Recipient shall be
deemed made at the time of entering into this Stock Grant Agreement, and shall
survive the date of closing with respect to the purchase of the Grant Shares
hereunder.
11. MISCELLANEOUS.
-------------
(a) PREPARATION OF STOCK GRANT AGREEMENT; COSTS AND EXPENSES. This
--------------------------------------------------------
Stock Grant Agreement was prepared by the Company solely on behalf of the
Company. Each party acknowledges that: (i) he, she or it had the advice of, or
sufficient opportunity to obtain the advice of, legal counsel separate and
independent of legal counsel for any other party hereto; (ii) the terms of the
transaction contemplated by this Stock Grant Agreement are fair and reasonable
to such party; and (iii) such party has voluntarily entered into the transaction
contemplated by this Stock Grant Agreement without duress or coercion. Each
party further acknowledges such party was not represented by the legal counsel
of any other party hereto in connection with the transaction contemplated by
this Stock Grant Agreement, nor was it under any belief or understanding that
such legal counsel was representing his, her or its interests. Except as
expressly set forth in this Stock Grant Agreement, each party shall pay all
legal and other costs and expenses incurred or to be incurred by such party in
negotiating and preparing this Stock Grant Agreement; in performing due
diligence or retaining professional advisors; in performing any transactions
contemplated by this Stock Grant Agreement; or in complying with such party's
covenants, agreements and conditions contained herein. Each party agrees that
no conflict, omission or ambiguity in this Stock Grant Agreement, the Plan
and/or the Plan Summary, or the interpretation thereof, shall be presumed,
implied or otherwise construed against the Company or any other party to this
Stock Grant Agreement on the basis that such party was responsible for drafting
this Stock Grant Agreement.
(b) COOPERATION. Each party agrees, without further consideration,
-----------
to cooperate and diligently perform any further acts, deeds and things, and to
execute and deliver any documents that may be reasonably necessary or otherwise
reasonably required to consummate, evidence, confirm and/or carry out the intent
and provisions of this Stock Grant Agreement, all without undue delay or
expense.
(c) INTERPRETATION.
--------------
(i) Survival. All representations and warranties made by any party
--------
in connection with any transaction contemplated by this Stock Grant Agreement
shall, irrespective of any investigation made by or on behalf of any other party
hereto, survive the execution and delivery of this Stock Grant Agreement, and
the performance or consummation of any transaction described in this Stock Grant
Agreement.
7
<PAGE>
(ii) Entire Agreement/No Collateral Representations. Each party
----------------------------------------------
expressly acknowledges and agrees that this Stock Grant Agreement, together with
and subject to the Plan and the Plan Summary: (1) is the final, complete and
exclusive statement of the agreement of the parties with respect to the subject
matter hereof; (2) supersedes any prior or contemporaneous agreements,
proposals, commitments, guarantees, assurances, communications, discussions,
promises, representations, understandings, conduct, acts, courses of dealing,
warranties, interpretations or terms of any kind, whether oral or written
(collectively and severally, the "prior agreements"), and that any such prior
agreements are of no force or effect except as expressly set forth herein; and
(3) may not be varied, supplemented or contradicted by evidence of prior
agreements, or by evidence of subsequent oral agreements. No prior drafts of
this Stock Grant Agreement, and no words or phrases from any prior drafts, shall
be admissible into evidence in any action or suit involving this Stock Grant
Agreement.
(iii) Amendment; Waiver; Forbearance. Except as expressly provided
------------------------------
otherwise herein, neither this Stock Grant Agreement nor any of the terms,
provisions, obligations or rights contained herein, may be amended, modified,
supplemented, augmented, rescinded, discharged or terminated (other than by
performance), except as provided in the Plan or by a written instrument or
instruments signed by all of the parties to this Stock Grant Agreement. No
waiver of any breach of any term, provision or agreement contained herein, or of
the performance of any act or obligation under this Stock Grant Agreement, or of
any extension of time for performance of any such act or obligation, or of any
right granted under this Stock Grant Agreement, shall be effective and binding
unless such waiver shall be in a written instrument or instruments signed by
each party claimed to have given or consented to such waiver and each party
affected by such waiver. Except to the extent that the party or parties claimed
to have given or consented to a waiver may have otherwise agreed in writing, no
such waiver shall be deemed a waiver or relinquishment of any other term,
provision, agreement, act, obligation or right granted under this Stock Grant
Agreement, or any preceding or subsequent breach thereof. No forbearance by a
party to seek a remedy for any noncompliance or breach by another party hereto
shall be deemed to be a waiver by such forbearing party of its rights and
remedies with respect to such noncompliance or breach, unless such waiver shall
be in a written instrument or instruments signed by the forbearing party.
(iv) Remedies Cumulative. The remedies of each party under this
-------------------
Stock Grant Agreement are cumulative and shall not exclude any other remedies to
which such party may be lawfully entitled.
(v) Severability. If any term or provision of this Stock Grant
------------
Agreement or the application thereof to any person or circumstance shall, to any
extent, be determined to be invalid, illegal or unenforceable under present or
future laws, then, and in that event: (1) the performance of the offending term
or provision (but only to the extent its application is invalid, illegal or
unenforceable) shall be excused as if it had never been incorporated into this
Stock Grant Agreement, and, in lieu of such excused provision, there shall be
added a provision as similar in terms and amount to such excused provision as
may be possible and be legal, valid and enforceable; and (2) the remaining part
of this Stock Grant Agreement (including the application of the offending term
or provision to persons or circumstances other than those as to which it is held
invalid, illegal or unenforceable) shall not be affected thereby, and shall
continue in full force and effect to the fullest extent provided by law.
(vi) Parties in Interest. Notwithstanding anything else to the
-------------------
contrary herein, nothing in this Stock Grant Agreement shall confer any rights
or remedies under or by reason of this Stock Grant Agreement on any persons
other than the parties hereto and their respective successors and assigns, if
any, as may be permitted under the Plan or hereunder, nor shall anything in this
Stock Grant Agreement relieve or
8
<PAGE>
discharge the obligation or liability of any third person to any party to this
Stock Grant Agreement, nor shall any provision give any third person any right
of subrogation or action over or against any party to this Stock Grant
Agreement.
(vii) No Reliance Upon Prior Representation. Each party
-------------------------------------
acknowledges that: (i) no other party has made any oral representation or
promise which would induce them prior to executing this Stock Grant Agreement to
change their position to their detriment, to partially perform, or to part with
value in reliance upon such representation or promise; and (ii) such party has
not so changed its position, performed or parted with value prior to the time of
the execution of this Stock Grant Agreement, or such party has taken such action
at its own risk.
(viii) Headings; References; Incorporation; "Person"; Gender;
------------------------------------------------------
Statutory References. The headings used in this Stock Grant Agreement are for
- --------------------
convenience and reference purposes only, and shall not be used in construing or
interpreting the scope or intent of this Stock Grant Agreement or any provision
hereof. References to this Stock Grant Agreement shall include all amendments
or renewals thereof. All cross-references in this Stock Grant Agreement, unless
specifically directed to another agreement or document, shall be construed only
to refer to provisions within this Stock Grant Agreement, and shall not be
construed to be referenced to the overall transaction or to any other agreement
or document. Any Exhibit referenced in this Stock Grant Agreement shall be
construed to be incorporated in this Stock Grant Agreement by such reference.
As used in this Stock Grant Agreement, the term "person" is defined in its
broadest sense as any individual, entity or fiduciary who has legal standing to
enter into this Stock Grant Agreement such as, by way of example and not
limitation, individual or natural persons and trusts. As used in this Stock
Grant Agreement, each gender shall be deemed to include the other gender,
including neutral genders appropriate for entities, if applicable, and the
singular shall be deemed to include the plural, and vice versa, as the context
requires. Any reference to statutes or laws will include all amendments,
modifications, or replacements of the specific sections and provisions
concerned.
(d) ENFORCEMENT.
-----------
(i) Applicable Law. This Stock Grant Agreement and the rights and
--------------
remedies of each party arising out of or relating to this Stock Grant Agreement
(including, without limitation, equitable remedies) shall (with the exception of
the Securities Act and the Blue Sky Laws) be solely governed by, interpreted
under, and construed and enforced in accordance with the laws (without regard to
the conflicts of law principles) of the State of Nevada, as if this Stock Grant
Agreement were made, and as if its obligations are to be performed, wholly
within the State of Nevada.
(ii) Consent to Jurisdiction; Service of Process. Any "action or
-------------------------------------------
proceeding" (as such term is defined below) arising out of or relating to this
Stock Grant Agreement shall be filed in and heard and litigated solely before
the state courts of Nevada located within the County of Ormsby. Each party
generally and unconditionally accepts the exclusive jurisdiction of such courts
and venue therein; consents to the service of process in any such action or
proceeding by certified or registered mailing of the summons and complaint in
accordance with the notice provisions of this Stock Grant Agreement; and waives
any defense or right to object to venue in said courts based upon the doctrine
of "forum non conveniens." The term "action or proceeding" is defined as any and
all claims, suits, actions, hearings, arbitrations or other similar proceedings,
including appeals and petitions therefrom, whether formal or informal,
governmental or non-governmental, or civil or criminal.
(iii) Waiver of Right to Jury Trial. Each party hereby waives
-----------------------------
such party's respective right to a jury trial of any claim or cause of action
based upon or arising out of this Stock Grant
9
<PAGE>
Agreement. Each party acknowledges that this waiver is a material inducement to
each other party hereto to enter into the transaction contemplated hereby; that
each other party has already relied upon this waiver in entering into this Stock
Grant Agreement; and that each other party will continue to rely on this waiver
in their future dealings. Each party warrants and represents that such party has
reviewed this waiver with such party's legal counsel, and that such party has
knowingly and voluntarily waived its jury trial rights following consultation
with such legal counsel.
(e) SUCCESSORS AND ASSIGNS. All of the representations, warranties,
----------------------
covenants, conditions and provisions of this Stock Grant Agreement shall be
binding upon and shall inure to the benefit of each party and such party's
respective successors and permitted assigns, spouses, heirs, executors,
administrators, and personal and legal representatives.
(f) NOTICES. Except as otherwise specifically provided in this Stock
-------
Grant Agreement, all notices, demands, requests, consents, approvals or other
communications required or permitted to be given hereunder shall be given in
accordance with the notice provisions in the Plan.
(g) COUNTERPARTS. This Stock Grant Agreement may be executed in
------------
counterparts, each of which shall be deemed an original, and all of which
together shall constitute one and the same instrument, binding on all parties
hereto. Any signature page of this Stock Grant Agreement may be detached from
any counterpart of this Stock Grant Agreement and reattached to any other
counterpart of this Stock Grant Agreement identical in form hereto by having
attached to it one or more additional signature pages.
WHEREFORE, the parties hereto have for purposes of this Stock Grant Agreement
executed this Stock Grant Agreement in Carson City, Nevada, effective as of the
Stock Grant Effective Date first set forth on the first page of this Stock Grant
Agreement.
COMPANY:
Pinnacle Oil, Inc.
a Nevada corporation
By:
-----------------------------
R. Dirk Stinson, President
ATTEST:
[SEAL] By
-----------------------------
Terrence J. Dunne, Secretary
RECIPIENT:**
** By execution hereof, the Recipient acknowledges
prior receipt of the 1997 Pinnacle Oil
International, Inc. Stock Plan and Plan
Summary Nos.: _____
- -------------------------
10
<PAGE>
CONSENT OF SPOUSE
The undersigned hereby certifies as follows:
1. I am the spouse of
_______________________________________________________________________ ("My
Spouse"), such person being a Recipient of an "Award" (as defined in the Plan)
granted under the 1997 Pinnacle Oil International, Inc. Stock Plan dated July
25, 1997 (the "Plan") which has been adopted by Pinnacle Oil International, Inc,
a Nevada corporation (the "Company").
2. My Spouse now desires to acquire shares of Common Stock (the "Shares")
offered under the Award pursuant to the terms of the underlying Award Agreement
(as defined in the Plan).
3. Pursuant to the terms of the Plan and the Award Agreement, the issuance of
the Shares to My Spouse may be subject to forfeiture based upon My Spouse's
satisfaction of certain vesting conditions based upon continued performance of
services as specified in the underlying Award Agreement and defined in the Plan.
4. I have read and approved the provisions of the Plan and the underlying
Award Agreement including, without limitation, the provisions in the Plan and
the underlying Award Agreement pertaining to the forfeiture of the Shares if any
vesting conditions which are imposed on the Award are not satisfied by My
Spouse.
5. I hereby agree to be bound by and accept the aforesaid provisions of the
Plan and the underlying Award Agreement as they affect any legal or equitable
right, title or interest I may have in the Shares by reason of any marital or
quasi-marital relationship with My Spouse under the laws of any jurisdiction,
and in lieu of any and all other legal or equitable rights or interests I may
have in the Shares.
6. I agree that My Spouse shall have full power of management of our interest
in the Company, and My Spouse shall have the full right, without my further
approval, to exercise our voting rights as a stockholder in the Company, to
authorize any action or execute any document which requires the signature of the
Company's stockholders pursuant to the Articles of Incorporation or Bylaws of
the Company and/or applicable state general corporate law, and to deal with any
matter pertaining to the Shares.
7. I have been advised and understand that the grant of an Award, the
acquisition of the Shares under the underlying Award Agreement, and the
Disposition of the Shares (including by forfeiture) will have tax consequences.
8. I have been advised that my interest in the Shares may conflict with or be
adverse to the interests of My Spouse, the Company, and any other stockholders
in the Company.
9. I have been advised to seek separate and independent advice of counsel
regarding the Plan and the underlying Award Agreement as to any legal or
equitable right, title or interest I may have in the Shares, the tax
consequences of the acquisition or disposition of the Shares, and the
conflicting and adverse interests of My Spouse, the Company and any other
stockholders in the Company.
10. I acknowledge that I either had separate and independent advice of
counsel or the opportunity to avail myself of same before executing this Consent
Of Spouse.
1
<PAGE>
11. I acknowledge that I have read and understand the terms of the Plan and
the Award Agreement and their legal consequences, and further acknowledge that
the terms of the Plan and the Award Agreement are fair and reasonable.
Signature:
------------------------
Print Name:
------------------------
Date:
------------------------
2
<PAGE>
RECIPIENT'S REPRESENTATIVE'S LETTER
-----------------------------------
Secretary
Pinnacle Oil International, Inc.
1820-1095 West Pender Street
Vancouver, British Columbia, Canada
V6E 3V7
Re: Grant of Awards under the 1997 Pinnacle Oil International, Inc. Stock
Plan
Dear Sir/Madam:
The information contained herein is being furnished to Pinnacle Oil
International, Inc., a Nevada corporation (the "Company"), on behalf of
__________________________________________________________________ (the
"Recipient"), in connection with that certain 1997 Pinnacle Oil International,
Inc. Stock Plan dated July 25, 1997 (the "Plan"), in order for the Company to
determine whether the grant of certain Grant Shares to the Recipient under the
Plan, or the grant of certain Options and/or the exercise of such Options and
the issuance of certain Option Shares thereunder to the Recipient under the Plan
(the "Award"), pursuant to the terms of the underlying Stock Option Certificate
or Stock Grant Agreement, as the case may be (the "Award Agreement"), may be
considered by the Company for acceptance in reliance upon the exemption from
registration or qualification afforded under the Securities Act of 1933, as
amended (the "Securities Act"), or the securities laws of the state, territory
or province in which the Recipient resides (the "Blue Sky Laws").
The undersigned acknowledges and agrees that: (i) the Company will rely upon
the information contained herein for purposes of such determination; and (ii)
the Grant Shares or Option Shares, as the case may be, will not be registered
under the Securities Act, nor will they be registered or qualified under any
applicable Blue Sky Laws, in reliance on exemptions from registration or
qualification afforded by the Securities Act and the applicable Blue Sky Laws.
The Company has provided to the Recipient a copy of the Award Agreement, Plan
and a copy of the 1997 Pinnacle Oil International, Inc. Stock Plan Summary (the
"Plan Summary") which describes the Plan. Nothing herein shall be construed as
a representation by me that I have attempted to verify the information set forth
in these documents.
THE SCOPE OF MY ENGAGEMENT BY AND MY DISCUSSION WITH THE RECIPIENT HAS BEEN
LIMITED TO A DETERMINATION OF THE SUITABILITY OF THE PURCHASE OF THE GRANT
SHARES OR THE OPTION SHARES, AS THE CASE MAY BE, BY THE RECIPIENT IN LIGHT OF
THE RECIPIENT'S PRESENT INVESTMENT CIRCUMSTANCES AS SUCH CIRCUMSTANCES HAVE BEEN
PRESENTED TO ME. FOR THIS PURPOSE I HAVE ASSUMED, BUT DO NOT IN ANY WAY
REPRESENT OR WARRANT, EITHER TO THE COMPANY OR TO THE RECIPIENT, THAT THE
INFORMATION SET FORTH IN THE AWARD AGREEMENT, THE PLAN AND/OR THE PLAN SUMMARY
IS ACCURATE AND COMPLETE IN ALL MATERIAL RESPECTS. MOREOVER, I GIVE NO OPINION
IN THIS LETTER AS TO WHETHER THE PURCHASE OF THE GRANT SHARES OR THE OPTION
SHARES, AS THE CASE MAY BE, AND THE PAYMENT OF THE PURCHASE PRICE THEREFOR, WILL
CONTINUE TO BE A SUITABLE INVESTMENT FOR THE RECIPIENT.
I herewith furnish you with the following information:
I. I have discussed the Award Agreement, the Plan and the Plan Summary
with the Recipient with a view to determining whether an investment in
the Grant Shares or Option Shares, as the case may be, by the
Recipient is appropriate in light of the Recipient's financial
circumstances, as
<PAGE>
Secretary
Pinnacle Oil International, Inc.
Page 2
such circumstances have been disclosed to me by the Recipient.
II. I am not an affiliate or a director, officer or other employee of
the Company or a beneficial owner of 10% or more of an equity interest
in the Company except as follows:
(State "No Exceptions" or set forth exceptions and give details.)
----------------------------------------------------------------------
----------------------------------------------------------------------
--------------------------------------------------------------------
III. I have such knowledge and experience in financial and business
matters as to be capable of evaluating the merits and risks of an
investment in the Grant Shares or Option Shares, as the case may be.
I am also a person who, as a regular part of his or her business, is
customarily relied upon by others for investment recommendations or
decisions, and is customarily compensated for such services. I offer
as evidence thereof the following additional information (e.g.,
investment experience, business experience, profession, education):
----------------------------------------------------------------------
----------------------------------------------------------------------
----------------------------------------------------------------------
IV. There is no material relationship between me or my affiliates and
the Company or its affiliates which now exists or is mutually
understood to be contemplated or which has existed at any time during
the previous two years, nor has compensation been received or will be
received as a result of any such relationship, except as follows:
----------------------------------------------------------------------
----------------------------------------------------------------------
----------------------------------------------------------------------
(If any exceptions exist and are described above, please confirm that
such exceptions were disclosed to the Recipient in writing prior to
the date hereof by attaching hereto a copy of such disclosure
statement.)
Dated:
----------------- -----------------------------------
Purchaser Representative (Sign)
-----------------------------------
Name (Print)
-----------------------------------
Business Address
-----------------------------------
City, State and Zip or Postal Code
( )
-----------------------------------
Business Telephone
<PAGE>
EXHIBIT 10.25
PROMISSORY NOTE
(With rights of conversion to shares of stock)
$100,000.00 Date: October 21, 1995
For value received the undersigned Corporation (the "Promisor") promises to pay
to the order of George Liszicasz or his designee (the "Payee"), through the
U.S./Canadian mail at Vancouver, BC (or at such other place the Payee may
designate in writing) the sum of $100,000.00 plus interest on or before March 1,
1996.
The terms of this note provide for interest payable at the rate of 0%; with this
note due and payable on or before March 1, 1996.
No renewal or extension of this Note, delay in enforcing any right of the Payee
under this Note, or assignment by Payee of this Note shall affect the liability
of the Promisor. All rights of the Payee under this Note are cumulative and may
be exercised concurrently or consecutively at the Payee's option.
If any one or more of the provisions of this Note are determined to be
unenforceable, in whole or in part, for any reason, the remaining provisions
shall remain fully operative.
All payments of this Note shall be paid in the legal currency of the United
States.
Promisor waives presentment for payment, protest, and notice of protest and
nonpayment of this Note.
This Note at the option of the Payee, may be converted to shares of common
restricted stock at 50% of the Bid price, upon the proposed reorganization of
the Promisor/or its successor as a public corporation.
Signed this 21 day of October, 1995 at Vancouver, British Columbia.
PINNACLE OIL, INC.
(A Nevada corporation)
by [SIGNATURE ILLEGIBLE]
-------------------
President
<PAGE>
PROMISSORY NOTE
(With rights of conversion to shares of stock)
Date: October 21, 1995
For consulting services in lieu of wages the undersigned Corporation (the
"Promisor") promises to pay to the order of George Liszicasz or his designee
(the Payee"), through the U.S./Canadian mail at Vancouver, BC (or at such other
place the Payee may designate in writing) a maximum cummulative sum of
$27,000.00, calculated at the rate of $4,500.00 per month, plus interest
commencing from September 1, 1995 up to April 30, 1996, on or before March 1,
1996.
The terms of this note provide for interest payable at the rate of 0%; with this
note due and payable on or before March 1, 1996.
No renewal or extension of this Note, delay in enforcing any right of the Payee
under this Note, or assignment by Payee of this Note shall affect the liability
of the Promisor. All rights of the Payee under this Note are cumulative and may
be exercised concurrently or consecutively at the Payee's option.
If any one or more of the provisions of this Note are determined to be
unenforceable, in whole or in part, for any reason, the remaining provisions
shall remain fully operative.
All payments of this Note shall be paid in the legal currency of the United
States.
Promisor waives presentment for payment, protest, and notice of protest and
nonpayment of this Note.
This Note at the option of the Payee, may be converted to shares of common
restricted stock at 50% of the Bid price, upon the proposed reorganization of
the Promisor/or its successor as a public corporation.
Signed this 21 day of October, 1995 at Vancouver, British Columbia.
PINNACLE OIL, INC.
(A Nevada corporation)
by [SIGNATURE ILLEGIBLE]
-------------------
President
<PAGE>
PROMISSORY NOTE
(With rights of conversion to shares of stock)
Date: October 21, 1995
For consulting services in lieu of wages the undersigned Corporation (the
"Promisor") promises to pay to the order of R. Dirk Stinson or his designee (the
Payee"), through the U.S./Canadian mail at Vancouver, BC (or at such other
place the Payee may designate in writing) a maximum cummulative sum of
$27,000.00, calculated at the rate of $4,500.00 per month, plus interest,
commencing from September 1, 1995 up to April 30, 1996, on or before March 1,
1996.
The terms of this note provide for interest payable at the rate of 0%; with this
note due and payable on or before March 1, 1996.
No renewal or extension of this Note, delay in enforcing any right of the Payee
under this Note, or assignment by Payee of this Note shall affect the liability
of the Promisor. All rights of the Payee under this Note are cumulative and may
be exercised concurrently or consecutively at the Payee's option.
If any one or more of the provisions of this Note are determined to be
unenforceable, in whole or in part, for any reason, the remaining provisions
shall remain fully operative.
All payments of this Note shall be paid in the legal currency of the United
States.
Promisor waives presentment for payment, protest, and notice of protest and
nonpayment of this Note.
This Note at the option of the Payee, may be converted to shares of common
restricted stock at 50% of the Bid price, upon the proposed reorganization of
the Promisor/or its successor as a public corporation.
Signed this 21 day of October, 1995 at Vancouver, British Columbia.
PINNACLE OIL, INC.
(A Nevada corporation)
by [SIGNATURE ILLEGIBLE]
-------------------
President
<PAGE>
EXHIBIT 10.26
REGISTRATION AND PARTICIPATION RIGHTS AGREEMENT
THIS REGISTRATION AND PARTICIPATION RIGHTS AGREEMENT, dated as of April 3,
1998, is entered into by and among Pinnacle Oil International, Inc., a Nevada
corporation (the "Company"), and SFD Investment LLC, an Arkansas limited
liability company (the "Investor").
RECITALS:
Whereas, pursuant to a Stock Subscription Agreement, dated April 3, 1998
(the "Subscription Agreement"), the Investor has subscribed to purchase 800,000
shares of Series A Convertible Preferred Stock (the "Preferred Stock"), of the
Company, which shares are convertible into shares of Common Stock of the Company
(the "Common Stock"), and has also purchased warrants to acquire up to 200,000
shares of Common Stock of the Company (the "Warrants"); and
Whereas, a material inducement for the Investor to enter into the
Subscription Agreement was the Company's agreement to grant to the Investor
certain rights to (i) have the shares of Common Stock of the Company that the
Investor is entitled to receive upon conversion of the Preferred Stock, and upon
exercise of the Warrants, registered under the Securities Act of 1933, as
amended (the "Act"); and (ii) to participate in certain offerings of the
Company's securities.
Now, therefore, in consideration of the foregoing and the mutual promises
and covenants herein contained, the Parties agree as follows:
1. Definitions. A glossary of the definitions of the capitalized terms
-----------
used in this Agreement is set forth in Appendix A which is attached hereto and
----------
incorporated herein by this reference.
2. Required Registration. From and after the first anniversary of the
---------------------
date hereof, the Investor may make a written request to the Company requesting
that the Company effect the registration of Registrable Securities under the
Act, and specifying the Company's intended method or methods of disposition
thereof; provided, however, in order to make such demand, the Investor must then
own (or have the right to own assuming all of the shares of Preferred Stock have
then been converted and all of the Warrants have then been exercised) at least
one percent (1%) of the outstanding shares of Common Stock of the Company (after
taking into consideration shares of Common Stock issuable upon the conversion of
all of the shares of Preferred Stock were converted and the exercise of all of
the Warrants, but without considering any other rights, options or warrants to
purchase shares of Common Stock of the Company or any other securities of the
Company convertible into shares of Common Stock of the Company); and provided
further, the Investor must register at least one-half (1/2) of the Registrable
Securities. The Company will use commercially reasonable efforts to effect the
registration under the Act of all shares of Registrable Securities which the
Company has been requested to register pursuant to this Section 2; provided,
however, that:
(a) the Company will not be required to effect more than two
registrations of any Registrable Securities pursuant to this Section 2;
(b) the Company will not be required to file an additional
registration requested pursuant to this Section 2, if the Company has furnished
to the Investor a certificate, signed by the President of the Company, stating
that in the good faith judgment of the Board of Directors of the Company the
filing of a registration statement would require the disclosure of material
information that the Company has a bona fide
Page 1 of 11
<PAGE>
business purpose for preserving as confidential, and that is not then otherwise
legally required to be disclosed; and
(c) the Company will not be required to file a registration statement
requested pursuant to this Section 2 within twelve (12) months after the
effective date of a registration statement of the type referred to in Section 3
if the Investor was entitled but did not make a request to participate in such
registration.
3. "Piggyback" Registration.
------------------------
(a) If the Company at any time proposes to register under the Act any
of its securities that are of the same class as the Registrable Securities
(other than in connection with a tender offer, merger, or other acquisition, or
a registration on any registration form which does not permit secondary sales,
or does not include substantially the same information as would be required to
be included in a registration statement covering the sale of Registrable
Securities) for sale for its own account or otherwise, it will at such time give
prompt written notice to the Investor of its intention to do so. Upon the
written request of the Investor made within fifteen (15) days after the date of
any such notice, the Company will use its best efforts to affect the
registration under the Act of all Registrable Securities which the Company has
been so requested to register by the Investor, to the extent required to permit
the disposition of the Registrable Securities to be so registered; provided
however, that the Company may at any time withdraw or cease proceeding with any
such registration, if it shall at the same time withdraw or cease proceeding
with the registration of all other securities originally proposed to be
registered.
(b) If (i) a registration pursuant to this Section 3 involves an
underwritten offering of the securities being registered, whether or not for
sale for the account of the Company, to be distributed, on a firm commitment
basis, by or through one or more underwriters of recognized national or regional
standing under underwriting terms appropriate for such a transaction; and (ii)
the managing underwriter of such underwritten offering shall inform the Company
and the Investor by letter of its belief that the number of securities requested
to be included for the account of the Investor (and any other participating
securities holders of the Company) in such registration exceeds the number which
can be sold in (or during the time of) such offering, or that the inclusion
would in the underwriter's reasonable judgment adversely affect the marketing of
the securities to be sold by the Company therein, and such other investors of
securities other than Registrable Securities, then the Company shall include in
such registration such number of Registrable Securities that the Company has
been so advised may be sold in such offering as the number of Registrable
Securities. The limitation on the number of Registrable Securities to be
registered on behalf of the securities holders of the Company will be imposed
first, upon any other security holder of the Company (other than the Investor),
and last, upon the Investor.
(c) The Registrable Securities proposed to be registered under any
registration statement under Section 3 hereof will be offered for sale at the
same public offering price as the securities offered for sale by the Company or
any other selling shareholder covered thereby.
(d) The Investor shall be entitled to have its Registrable Securities
included in an unlimited number of registrations pursuant to this Section 3.
4. Underwriting. If the Investor requests that a registration pursuant
------------
to Section 2 involve an underwriting, or if any registration of which the
Company gives notice pursuant to Section 3 is for a registered public offering
involving an underwriting, the right of the Investor to registration hereunder
shall be conditioned upon its participation in such underwriting, and the
inclusion of its Registrable Securities in the underwriting to the extent
provided herein. The Investor shall (together with the Company and any other
security holder
Page 2 of 11
<PAGE>
distributing securities through such underwriting) enter into an underwriting
agreement with the representative of the underwriter or underwriters selected
for underwriting by the Company, containing customary (x) terms of offer and
sale of the securities, payment provisions, underwriting discounts and
commissions; and (y) representations, warranties, covenants and indemnities;
provided, however, that the Investor may, at its option, require that any or all
of the representations and warranties by, and the other agreements on the part
of, the Company to and for the benefit of such underwriters shall also be made
to and for the benefit of the Investor and that any or all of the conditions
precedent to the obligations of the Company shall also be conditions precedent
to the obligations of the Investor; and provided further that the Investor shall
not be required to make any representations or warranties to or enter into any
agreements with the Company or the underwriters, other than representations,
warranties or agreements regarding the Investor and its intended method of
distribution and any other representation required by law. Notwithstanding any
other provision hereof, if the representative of the underwriter determines that
marketing factors require a "lock-up period," the Investor agrees not to
transfer any of its Registrable Securities (including pursuant to the
registration statement in Section 2) during the ten (10) day period prior to
effective date of the registration statement and for such additional period as
may be required by the underwriters, up to one hundred eighty (180) days after
the effectiveness of the registration statement. If the Investor disapproves of
the terms of any such underwriting, it may elect to withdraw therefrom by
written notice to the Company and the underwriter. Any Registrable Securities or
other securities excluded or withdrawn from such underwriting shall be withdrawn
from such registration.
5. Expenses of Registration. All Registration Expenses incurred in
------------------------
connection with any registration, qualification or compliance pursuant to this
Agreement shall be borne by the Company, and all Selling Expenses shall be borne
by the Company and the Investor pro rata on the basis of the number of shares so
registered. The Investor shall be solely responsible for the costs and expenses
of its legal counsel.
6. Registration Procedures. In the case of each registration effected
-----------------------
by the Company pursuant to this Agreement, the Company will keep the Investor
advised in writing as to the initiation of each registration and as to the
completion thereof. At its expense, the Company will:
(a) keep such registration effective until the earlier of (i) the
-------
date the distribution described in the registration statement relating thereto
shall have been completed; or (ii) one (1) year from the effective date of such
registration statement;
(b) furnish to the Investor, prior to the filing of the requisite
registration statement, copies of drafts of such registration statement as
proposed to be filed, and thereafter such number of copies of such registration
statement, each amendment and supplement thereto (in each case including all
exhibits thereto), the prospectus included in such registration statement
(including each preliminary prospectus), and such other documents in such
quantities as the Investor may reasonably request from time to time in order to
facilitate the disposition of the Registrable Securities included in such
registration statement;
(c) notify the Investor promptly of any request by the Commission for
an amendment supplementing such registration statement or prospectus, or for
additional information;
(d) advise the Investor promptly after the Company receives notice or
obtains knowledge of the issuance of any stop order by the Commission suspending
the effectiveness of any such registration statement or amendment thereto or of
the initiation or threat of any proceeding for that purpose, and promptly use
its best efforts to prevent the issuance of any stop order and to obtain its
withdrawal promptly if such stop order should be issued;
Page 3 of 11
<PAGE>
(e) use all reasonable efforts to register or qualify the Registrable
Securities included in the registration statement under such other securities or
blue sky laws of such jurisdictions (not to exceed ten (10)) as the Investor (or
the managing underwriter, in the case of underwritten offerings) may reasonably
request, and to do any and all other acts and things as may be reasonably
necessary or advisable to enable the Investor (or the managing underwriter, in
the case of underwritten offerings) to consummate the disposition in such
jurisdictions of the Registrable Securities to be sold; provided, however, that
the Company will not be required to (i) qualify generally to do business in any
jurisdiction where it would not otherwise be required to qualify but for this
Section 6, (ii) subject itself to taxation in any such jurisdiction; or (iii)
consent to general service of process in any such jurisdiction;
(f) use all reasonable efforts to cause the Registrable Securities
included in the registration statement to be registered with or approved by such
other governmental agencies or authorities as may be necessary by virtue of the
business and operations of the Company and its subsidiaries, including, without
limitation, all necessary approval from insurance regulatory bodies, to enable
the Investor to consummate the disposition of such Registrable Securities,
provided that the Company shall not be required to incur any expenses to satisfy
regulatory requirements applicable to a particular purchaser of such Registrable
Securities;
(g) notify the Investor, at any time when a prospectus relating to
the proposed sale is required to be delivered under the Securities Act, of the
happening of any event as a result of which the prospectus included in such
registration statement or amendment contains an untrue statement of a material
fact or omits to state any material fact required to be stated therein to make
the statements therein, in light of the circumstances under which they were
made, not misleading; and the Company will prepare a supplement or amendment to
such prospectus so that, as thereafter delivered to the purchasers of the
Registrable Securities, such prospectus will not contain an untrue statement of
a material fact or omit to state any material fact required to be stated therein
to make the statements therein, in light of the circumstances under which they
were made, not misleading;
(h) enter into customary agreements (including, without limitation,
an underwriting agreement in customary form) and take such other actions as are
reasonably required in order to expedite or facilitate the disposition of the
Registrable Securities included in the registration statement;
(i) make available for inspection by the Investor, any managing
underwriter participating in any disposition pursuant to such registration, and
any attorney, accountant or other agent retained by the Investor or any managing
underwriter (collectively, the "Agents"), all financial and other records,
pertinent corporate documents and properties of the Company (collectively, the
"Records") as shall be necessary to enable them to exercise their due diligence
responsibility, and cause the officers, directors and employees of the Company
to supply all information reasonably requested by any such Agent in connection
with such registration; provided, however, that (i) Records and information
obtained herein shall be used by such persons only to fulfill their due
diligence responsibility; and (ii) Records or information which the Company
determines in good faith to be confidential shall not be disclosed by the Agents
unless (x) the Company determines that the disclosure of such Records or
information is necessary to avoid or correct a material misstatement or omission
in the registration statement; or (y) the release of such Records or information
is ordered pursuant to a subpoena or other order from a court or governmental
authority of competent jurisdiction. The Investor further agrees that it will,
upon learning that disclosure of such Records or information is sought in a
court or governmental authority, give notice to the Company and allow the
Company to undertake appropriate action to prevent disclosure of the Records or
information deemed confidential;
Page 4 of 11
<PAGE>
(j) use all reasonable efforts to furnish to the underwriters in such
offering (i) at the effective date of such registration statement and the date
of the closing of the sale of the Registrable Securities to the underwriters in
such offering, if any, a "comfort letter" signed by the independent certified
public accountants who have certified the financial statements included or
incorporated by reference in such registration statement, covering such matters
as are customarily covered in "comfort letters" for similar offerings; and (ii)
at the date of closing of the sale of Registrable Securities to the underwriters
in such offering, if any, a signed opinion of counsel for the Company, dated the
closing date of such offering, covering such matters as are customarily covered
in opinion letters for similar offerings; and
(k) otherwise use its best efforts to comply with all applicable
rules and regulations of the Commission, and make available to its security
holders as soon as reasonably practicable, but not later than 16 months after
the effective date of the registration statement, an earnings statement covering
a period of at least twelve (12) months beginning after the effective date of
the registration statement, which earnings statement shall satisfy the
provisions of Section 11(a) of the Act.
7. Rule 144 Reporting. With a view to making available the benefits of
------------------
certain rules and regulations of the Commission which may permit the sale of
restricted securities to the public without registration, the Company agrees to:
(a) make and keep public information available as those terms are
understood and defined in Rule 144 under the Act, at all times from and after
ninety (90) days following the effective date of the first registration under
the Act filed by the Company for an offering of its securities to the general
public;
(b) use its best efforts to file with the Commission in a timely
manner all reports and other documents required of the Company under the Act and
the Exchange Act at any time after it has become subject to such reporting
requirements; and
(c) so long as the Investor owns any Registrable Securities, furnish
upon request, a written statement by the Company as to its compliance with the
reporting requirements of Rule 144 at any time from and after ninety (90) days
following the effective date of the first registration statement filed by the
Company for an offering of its securities to the general public (at any time
after it has become subject to such reporting requirement), a copy of the most
recent annual or quarterly report of the Company, and such other reports and
documents so filed as the Investor may reasonably request in availing itself of
any rule or regulation of the Commission allowing the Investor to sell any such
securities without registration.
8. Indemnification.
---------------
(a) To the extent permitted by law, the Company will indemnify the
Investor, each of its officers, directors, partners, members, managers, agents
and representatives, each "underwriter" (as defined in the Act), if any, and
each person "controlling" the Investor or such underwriter within the meaning of
the Act and the rules and regulations thereunder, with respect to each
registration which has been effected pursuant to this Agreement, against all
claims, losses, damages and liabilities (or actions in respect thereof) arising
out of or based on any untrue statement (or alleged untrue statement) of a
material fact contained in any prospectus, offering circular or other document
(including any related registration statement, notification or the like)
incident to any such registration, qualification or compliance, or based on any
omission (or alleged omission) to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading; or
any violation by the Company of the Act or any rule or regulation thereunder
applicable to the Company and relating to action or inaction required of the
Company in connection with any such registration, qualification or
Page 5 of 11
<PAGE>
compliance, and will reimburse the Investor, each of its officers, directors,
partners, members, managers, agents, representatives and their affiliates, each
such underwriter and each person controlling the Investor or any such
underwriter, for any legal and any other expenses reasonably incurred in
connection with investigating and defending any such claim, loss, damage,
liability or action, provided that the Company will not be liable in any such
case to the extent that any such claim, loss, damage, liability or expense
arises out of or is based on any untrue statement or omission based upon written
information furnished to the Company by the Investor or underwriter and stated
to be specifically for use therein; and provided, further that no person shall
have the right to be indemnified hereunder for its own gross negligence or
willful misconduct as finally determined by a court of competent jurisdiction.
(b) To the extent permitted by law, the Investor will, if Registrable
Securities held by it are included in the securities as to which registration,
qualification or compliance is being effected, indemnify the Company, each of
its directors, officers, agents and representatives and each underwriter, if
any, and each person controlling the Company or such underwriter, against all
claims, losses, damages and liabilities (or actions in respect thereof) arising
out of or based on any untrue statement (or alleged untrue statement) of a
material fact contained in any such registration statement, prospectus, offering
circular or other document made by the Investor, or any omission (or alleged
omission) to state therein a material fact required to be stated therein or
necessary to make the statements by the Investor therein not misleading, and
will reimburse the Company and such directors, officers, agents,
representatives, underwriters or control persons for any legal or any other
expenses reasonably incurred in connection with investigating or defending any
such claim, loss, damage, liability or action, in each case to the extent, but
only to the extent, that such untrue statement (or alleged untrue statement) or
omission (or alleged omission) is made in such registration statement,
prospectus, offering circular or other document in reliance upon and in
conformity with written information furnished to the Company by the Investor and
stated to be specifically for use therein; provided, however, that the indemnity
agreement contained in this Section 8 shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Investor, and provided further
that the obligations of the Investor hereunder shall be limited to an amount
equal to the proceeds to the Investor of securities sold as contemplated herein.
(c) Each party entitled to Indemnification under this Section 8 (the
"Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom; provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or any litigation resulting
therefrom, shall be approved by the Indemnified Party (whose approval shall not
unreasonably be withheld) and the Indemnified Party may participate in such
defense at such party's expense (unless the Indemnified Party shall have
reasonably concluded that there may be a conflict of interest between the
Indemnifying Party and the Indemnified Party in such action, in which case the
fees and expenses of counsel shall be at the expense of the Indemnifying Party);
and provided further that the failure of any Indemnified Party to give notice as
provided herein shall not relieve the Indemnifying Party of its obligations
under this Section 8 unless the Indemnifying Party is materially prejudiced
thereby. No Indemnifying Party, in the defense of any such claim or litigation,
shall, except with the consent of each Indemnified Party, consent to entry of
any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect of such claim or
litigation. Each Indemnified Party shall furnish such information regarding
itself or the claim in question as an Indemnifying Party may reasonably request
in writing and as shall be reasonably required in connection with the defense of
such claim and litigation resulting therefrom.
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<PAGE>
(d) If the indemnification provided for in this Section 8 is held by
a court of competent jurisdiction to be unavailable to an Indemnified Party with
respect to any loss, liability, claim, damage or expense referred to herein,
then the Indemnifying Party, in lieu of indemnifying such Indemnified Party
hereunder, shall contribute to the amount paid or payable by such Indemnified
Party as a result of such loss, liability, claim, damage or expense in such
proportion as is appropriate to reflect the relative fault of the Indemnifying
Party on the one hand and of the Indemnified Party on the other in connection
with the statements or omissions which resulted in such loss, liability, claim,
damage or expense, as well as any other relevant equitable considerations,
provided, however, that the obligations of the Investor shall be limited to an
amount equal to the proceeds to the Investor from the sale of Registrable
Securities as contemplated herein. The relative fault of the Indemnifying Party
and of the Indemnified Party shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Indemnifying Party or by the Indemnified Party and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act), shall be
entitled to contribution from any person who is not guilty of such fraudulent
misrepresentation.
(e) Notwithstanding the foregoing, to the extent that the provisions
on indemnification and contribution by the Company contained in the underwriting
agreement entered into in connection with any underwritten public. offering
contemplated by this Agreement are in conflict with the foregoing provisions,
the provisions in such underwriting agreement shall be controlling.
(f) The foregoing indemnity agreements are subject to the condition
that, insofar as they relate to any loss, claim, liability or damage made in a
preliminary prospectus but eliminated or remedied in the amended prospectus on
file with the Commission at the time the registration statement in question
becomes effective or the amended prospectus filed with the Commission pursuant
to Commission Rule 424(b) (the "Final Prospectus"), such indemnity agreement
shall not inure to the benefit of any underwriter or the Investor if a copy of
the Final Prospectus was furnished to the underwriter or the Investor and was
not furnished to the person asserting the loss, liability, claim, or damage at
or prior to the time such action is required by the Act.
(g) The indemnification obligations of the Company and the Investor
under this Section 8 shall survive the termination of this Agreement or the
completion of any offering of Registrable Securities in a registration statement
under this Agreement and otherwise.
(h) The indemnification required by this Section 8 shall be made by
periodic payments of the amount thereof during the course of the investigation
or defense, as and when bills are received or expense, loss, damage or
liabilities are incurred.
9. Offering Participation Rights. In the event the Company desires at
-----------------------------
any time to issue any securities (other than debt securities with no equity
feature) in a private offering, the Company shall offer to the Investor the
right for ten (10) days to purchase such securities at the price at which such
securities are to be issued and on the other terms and conditions fixed by the
Board of Directors. The portion of the securities the Investor shall have the
initial right to purchase in any issuance subject to this Section 9 shall be in
the same ratio as the total shares of Common Stock held of record by the
Investor then bears to the total number of shares of Common Stock then
outstanding, as adjusted as provided herein. For purposes of the preceding
sentence, the Investor shall be deemed to own a number of shares of Common Stock
determined on the same basis as if all then outstanding shares of Preferred
Stock have been converted in full into Common Stock, and the Warrant has been
exercised in full. After giving notice of any proposed issuance of securities,
and affording the Investor the opportunity to purchase such securities within
the time period specified above, the Company may thereafter sell
Page 7 of 11
<PAGE>
any of such securities that are not purchased by the Investor, without further
offering such securities to the Investor. The Company may make such adjustment
to the total number of shares of Common Stock deemed outstanding for purposes of
calculating the proportionate share of the securities offered which the Investor
may purchase, in order to appropriately reflect any offering participation
rights held by any other person not holding shares of Common Stock who is
similarly entitled to participate in such offering. If the Investor elects to
purchase more securities than offered, the Investor will be entitled to purchase
his, her or its pro rata portion of the offered securities. The purchase right
afforded by this Section 9 shall expire upon the earlier of the second
anniversary of the date of this Agreement, or the date the Preferred Stock has
been redeemed or converted into Common Stock in full. Anything in this Agreement
to the contrary notwithstanding, the purchase right afforded under this Section
9 is a personal, non-transferable right limited to the Investor. The purchase
right afforded under this Section 9 shall not apply to the following
transactions:
(a) securities issued or created as a result of any stock
dividend, subdivision, reclassification, recapitalization or similar event;
(b) securities issued pursuant to a firm commitment underwritten
public offering;
(c) securities issued to fulfill or comply with any obligation of
the Company to issue securities pursuant to any present or future stock option
plan, stock purchase, bonus, savings investment, or other stock incentive
programs for the benefit of the directors, officers, employees of or consultants
to the Company;
(d) securities issued by reason of the exercise of outstanding
options, warrants or other rights to acquire securities;
(e) securities issued in consideration of the acquisition (whether
by merger or otherwise) by the Company or any of its subsidiaries of the stock
or assets of another entity; provided, however, the Company shall afford the
Investor the opportunity to purchase such number of securities of the same type
as given by the Company in connection with such acquisition in such amount as
will maintain the Investor's proportionate equity interests in the Company,
provided further, however, that (i) the Investor must purchase such securities
by cash payment determined in reference to such acquisition; and (ii) the
Investor shall make such payment no later than thirty (30) days following the
date of such acquisition; and/or
(f) securities issued in a private placement to third-party
investors through an investment banker, placement agent or finder; provided,
however, the Company shall use its best efforts to persuade the intermediary
party to sell such portion of the offered securities requested by the Investor
to the Investor as part of such offering.
10. Assignability. The rights to cause the Company to register
-------------
Registrable Securities pursuant to this Agreement may not be assigned by the
Investor except with respect to any affiliate of the Investor, provided such
affiliate enters into an agreement to be bound by the terms of this Agreement.
The Company may not assign or transfer its rights or obligations hereunder
without the prior written consent of the Investor.
Page 8 of 11
<PAGE>
11. Miscellaneous.
-------------
(a) No Third-Party Beneficiaries. This Agreement shall not confer
----------------------------
any rights or remedies upon any Person other than the Parties and their
respective successors and permitted assigns.
(b) Entire Agreement. This Agreement (including the documents
----------------
referred to herein) constitutes the entire agreement among the Parties and
supersedes any prior understandings, agreements, or representations by or among
the Parties, written or oral, to the extent they related in any way to the
subject matter hereof.
(c) Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
(d) Headings. The section headings contained in this agreement
--------
are inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
(e) Notices. All notices, requests, demands, claims, and other
-------
communications hereunder will be in writing. Any notice, request, demand, claim,
or communication hereunder shall be deemed duly given if (and then two business
days after) it is sent by registered or certified mail, return receipt
requested, postage prepaid, and addressed to the intended recipient as set forth
below:
If to the Company: Pinnacle Oil International, Inc.
Attn.: R. Dirk Stinson
840 7th Avenue, S.W., Suite 750
Calgary, Alberta, Canada
T2P 3G2
Copy to: Andrew F. Pollet
Pollet & Woodbury
10900 Wilshire Boulevard, Suite 500
Los Angeles, CA 90024-6525
If to the Investor: SFD Investment LLC
Attn.: K. Rick Turner
111 Center Street
Suite 2500
Little Rock, AR 72201
Copy to: Jackson Farrow Jr.
111 Center Street
Suite 2500
Little Rock, AR 72201
Any Party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail), but no such notice,
request, demand, claim, or other communication shall be deemed to have been duly
given unless and until it actually is received by the
Page 9 of 11
<PAGE>
intended recipient. Any Party may change the address to which notices, requests,
demands, claims, and other communications hereunder are to be delivered by
giving the other Parties notice in the manner herein set forth.
(f) Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the domestic laws of the State of Nevada without
giving effect to any choice or conflict of law provision or rule (whether of the
State of Nevada or any other jurisdiction) that would cause the application of
the laws of any jurisdiction other than the State of Nevada.
(g) Amendments and Waivers. No amendment of any provision of this
----------------------
Agreement shall be valid unless the same shall be in writing and signed by the
Company and the Investor. No waiver by any Party or any default,
misrepresentation, or breach of warranty or covenant hereunder, whether
intentional or not, shall be deemed to extend to any prior of subsequent
default, misrepresentation, or breach of warranty or covenant hereunder or
affect in any way any rights arising by virtue of any prior or subsequent such
occurrence.
(h) Severability. Any term or provision of this Agreement that is
------------
invalid or unenforceable in any situation in any jurisdiction shall not affect
the validity or enforceability of the remaining terms and provisions hereof or
the validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction.
(i) Construction. The Parties have participated jointly in the
------------
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the Parties and no presumption or burden of proof shall
arise favoring or disfavoring any Party by virtue of the authorship of any of
the provision of the Agreement. Any reference to any federal, state, local, or
foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context requires otherwise. The
word "including" shall mean including without limitation. The Parties intend
that each representation, warranty, and covenant contained herein shall have
independent significance. If any Party has breached any representation,
warranty, or covenant contained herein in any respect, the fact that there
exists another representation, warranty, or covenant relating to the same
subject matter (regardless of the relative levels of specificity) which the
Party has not breached shall not detract from or mitigate the fact that the
Party is in breach of the first representation, warranty, or covenant.
(j) Incorporation of Exhibits and Schedules. The Exhibits
---------------------------------------
identified in this Agreement are incorporated herein by reference and made a
part hereof.
(k) Specific Performance. Each of the Parties acknowledges and
--------------------
agrees that the other Parties would be damaged irreparably in the event any of
the provisions of this Agreement are not performed in accordance with their
specific terms or otherwise are breached. Accordingly, each of the Parties
agrees that the other Parties shall be entitled to an injunction or injunctions
to prevent breaches of the provisions of this Agreement and to enforce
specifically this Agreement and the terms and provisions hereof in any action
instituted in any court of the United States or any state thereof having
jurisdiction over the Parties and the matter, in addition to any other remedy to
which they may be entitled, at law or in equity.
*****
Page 10 of 11
<PAGE>
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement on [as
of] the date first above written.
PINNACLE OIL INTERNATIONAL, INC.
a Nevada corporation
By: /s/ R. Dirk Stinson
-----------------------------------
Title:
--------------------------------
SFD INVESTMENT LLC,
an Arkansas limited liability company
By: K. Rick Turner
----------------------------------
Title:
-------------------------------
Page 11 of 11
<PAGE>
APPENDIX A
"Act" shall mean the Securities Act of 1933, as amended.
"Agents" shall have the meaning set forth in Section 2.4 (ix).
"Commission" shall mean the Securities and Exchange Commission or any other
federal agency at the time administering the Act.
"Company" shall have the meaning set forth in the preface.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
"Final Prospectus" shall have the meaning set forth in Section 3 (f).
"Indemnified Party" shall have the meaning set forth in Section 3 (c).
"Indemnifying Party" shall have the meaning set forth in Section 3 (c).
"Investor" shall mean the Person identified in the preface and any
subsequent holder of Registrable Securities pursuant to Section 10..
"Person" shall mean an individual, a partnership, a corporation, an
association, a joint stock company, a trust, a joint venture, an unincorporated
organization, or a governmental entity (or any department, agency, or political
subdivision thereof).
"Records" shall have the meaning set forth in Section 2.4 (ix).
The terms "register", "registered", and "registration" refer to a
registration effected by preparing and filing a registration statement in
compliance with the Act (and any post-effective amendments filed or required to
be filed) and the declaration or ordering of effectiveness of such registration
statement.
"Registrable Securities" means (i) any shares of Common Stock of the
Company that are issuable upon conversion of any shares of Preferred Stock or
upon exercise of any of the Warrants that have been granted to the Investor
pursuant to the Subscription Agreement, and (ii) any capital stock of the
Company issued as a dividend or other distribution with respect to, or in
exchange for or in replacement of, any such shares of Common Stock in the
Company; provided, however, that any such securities shall no longer be
considered Registrable Securities if either of the following apply: (1) such
securities have been sold to or through a broker, dealer or underwriter in a
public distribution or a public securities transaction; or (2) such securities
have been sold in a transaction exempt from the registration and prospectus
delivery requirements of the Act, so that all transfer restrictions and
restrictive legends with respect thereto are no longer applicable upon the
consummation of such sale.
"Registration Expenses" shall mean all expenses incurred by the Company in
compliance with Section 2 hereof, including, without limitation, all
registration and filing fees, printing expenses, fees and disbursements of
counsel for the Company, blue sky fees and expenses and the expense of any
special audits incident to or required by any such registration (but excluding
the compensation of regular employees of the Company, which shall be paid in any
event by the Company).
<PAGE>
"Selling Expenses" shall mean all underwriting discounts and selling
commissions applicable to the sale of Registrable Securities.
"Subscription Agreement" shall mean that certain Stock Subscription
Agreement dated April 3, 1998, between the Company and the Investor.
<PAGE>
EXHIBIT 10.27
INDEMNIFICATION AGREEMENT
This Indemnification Agreement is made as of the ____ day of _________,
1998, by and between Pinnacle Oil International, Inc., a Nevada corporation (the
"Company"), and ____________ (the "Indemnitee"), with reference to the following
facts:
RECITALS:
--------
WHEREAS, the Indemnitee is or will become a director, officer, employee,
agent and/or fiduciary of the Company and/or a subsidiary of the Company;
WHEREAS, the Company and the Indemnitee recognize the continued difficulty
of the Company obtaining liability insurance for its directors, officers,
employees, agents and fiduciaries and those of its subsidiaries, the significant
increases in the cost of such insurance, and the general reduction in the
availability of such insurance;
WHEREAS, the Company and the Indemnitee further recognize the substantial
increase in corporate litigation in general and the attendant risk to directors,
officers, employees, agents and fiduciaries of the Company and its subsidiaries
to litigation costs at the same time as the availability and coverage of
liability insurance has been limited;
WHEREAS, the Indemnitee does not regard the current protection available to
him or her as adequate to balance the risks he or she is undertaking as a
director, officer, employee, agent and/or fiduciary of the Company and/or its
subsidiaries; and
WHEREAS, in recognition of the Indemnitee's need for substantial protection
against personal liability, and in order to enhance the Indemnitee's service to
the Company and/or its subsidiaries as a director, officer, employee, agent
and/or fiduciary thereof, and to induce the Indemnitee to provide such services,
the Company wishes to provide in this Agreement for the indemnification of and
the advancement of expenses to the Indemnitee to the fullest extent permitted by
law and as set forth in this Agreement and, to the extent applicable insurance
is maintained, for the coverage of the Indemnitee under the Company's policies
of directors' and officers' liability insurance.
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein, and for valuable consideration, the receipt and sufficiency of
which are hereby mutually acknowledged, the parties to this Agreement
(collectively "parties" and individually a "party") agree as follows:
AGREEMENT
---------
1. DEFINITIONS
Set forth below are definitions of capitalized terms which are generally
used throughout this Agreement, or references to sections containing those
definitions (capitalized terms used only in a specific section of this Agreement
are defined in that section):
(a) "BOARD OF DIRECTORS" means the Company's Board of Directors as
constituted at the relevant time.
(b) A "CHANGE IN CONTROL" shall mean, subject to subsection 1(b)(iv) and
-------------------
subsection 1(b)(v) below, the occurrence of any of the following events:
- ------------------
-i-
<PAGE>
(i) An acquisition of control by an "Acquiring Person" where,
immediately after the subject acquisition, such "Person" holds "Beneficial
Ownership" of more than fifty percent (50%) of the "Total Combined Voting Power"
of the Company's then outstanding "Voting Securities." The terms in quotations
in the immediately preceding sentence shall, for purposes of this Agreement,
have the following meanings:
(1) "Acquiring Person" shall mean any "Person" which acquires the
defined percentage of securities, with the exception of: (A) any
Employee Benefit Plan (or a trust forming a part thereof) maintained by
the Company, or any corporation or entity in which the Company holds
fifty percent (50%) or more of the "Voting Securities" (each, a
"Controlled Subsidiary"); (B) the Company or any Controlled Subsidiary;
or (C) any "Person" which acquires the threshold percentage of "Voting
Securities" through a "Non-Control Transaction" (as defined below).
(2) "Non-Control Transaction" shall mean any transaction in which
the stockholders of the Company immediately before such transaction,
directly or indirectly own immediately following such transaction at
least a majority of the "Total Combined Voting Power" of the outstanding
"Voting Securities" of the surviving corporation (or other entity)
resulting from such transaction, in substantially the same proportion as
such stockholders' ownership of the Company's "Voting Securities"
immediately before such transaction.
(3) "Person," "Beneficial Ownership," "Total Combined Voting Power"
and "Voting Securities" shall have the meanings ascribed to such terms
in Sections 13(d) and 14(d) of the Securities Exchange Act and Rule 13d-
3 promulgated thereunder; or
(ii) During any period of three (3) consecutive years after the date of
this Agreement, the individuals who constituted the Board at the beginning of
such period (the "Incumbent Board") cease to constitute a majority of the Board,
for any reason(s) other than: (1) the voluntary resignation of one or more Board
members; (2) the refusal by one or more Board members to stand for election to
the Board; and/or (3) the removal of one or more Board members for good cause;
provided, however, (A) that if the nomination or election of any new director of
the Company was approved by a vote of at least a majority of the Incumbent
Board, such new director shall be deemed a member of the Incumbent Board; and
(B) that no individual shall be considered a member of the Incumbent Board if
such individual initially assumed office as a result of either an actual or
threatened "Election Contest" (as described in Rule 14a-11 promulgated under the
Exchange Act), or as a result of a solicitation of proxies or consents by or on
behalf of an Acquiring Person, other than a member of the Board (a "Proxy
Contest"), or as a result of any agreement intended to avoid or settle any
Election Contest or Proxy Contest; or
(iii) The Board or the stockholders of the Company approve:
(1) A merger or consolidation or reorganization of the Company
with:
(A) any Controlled Subsidiary, and such transaction is not a
Non-Control Transaction; or
(B) any other corporation or other entity, and such
transaction is not a Non-Control Transaction; or
(2) A complete liquidation or dissolution of the Company, and such
transaction is not a Non-Control Transaction; or
-ii-
<PAGE>
(3) An agreement for the sale or other disposition of all or
substantially all of the assets of the Company to: (A) any Controlled
Subsidiary, and such transaction is not a Non-Control Transaction or (B) to
any other Person, and such transaction is not a Non-Control Transaction.
(iv) Notwithstanding subsection 1(b)(i) above, a Change In Control
------------------
shall not be deemed to have occurred solely because any Person acquired
Beneficial Ownership of more than the threshold percentage of the
outstanding Voting Securities as a result of an acquisition of Voting
Securities by the Company (each, a "Redemption") which, by reducing the
number of Voting Securities outstanding, increased the percentage of
outstanding Voting Securities Beneficially Owned by such Person; provided,
however, that if (1) a Change In Control would occur as a result of a
Redemption but for the operation of this sentence, and (2) after such
Redemption, such Person becomes the Beneficial Owner of any additional
Voting Securities, which increase the percentage of then outstanding Voting
Securities Beneficially Owned by such Person over the percentage owned as a
result of the Redemption, then a Change In Control be deemed to occur.
(v) In the case of any transaction described in subsection 1(b)(i) or
------------------
subsection 1(b)(iii) above, a Change in Control under such subsection shall
--------------------
not be deemed to have occurred if the Indemnitee or an affiliate of the
Indemnitee who is then a stockholder or director of the Company, either:
(1) expressly voted in favor of the transaction constituting the Change In
Control in such Person's capacity as either a stockholder or as a director
of the Company; or (2) expressly abstained from voting (other than by
reason of an "interest" in a matter or transaction, as defined in the
Nevada Revised Statutes); and/or (3) failed or refused to vote, then the
transaction shall not constitute a Change in Control.
(c) "INDEMNIFIABLE CLAIM" means any claims, counter-claims, demands,
disputes or causes of action, whether civil, criminal, administrative or
otherwise, arising from or relating to in whole or in part the Indemnitee's
past, present or future capacity as a director, officer, employee, agent and/or
fiduciary of: (i) the Company; (ii) any subsidiary of the Company; and/or (iii)
any other corporation, partnership, joint venture, trust or other enterprise
(including employee benefit plans) to whom the Indemnitee is or was serving in
any of such capacities at the request of the Company. The term Indemnifiable
Claim shall be construed broadly, and shall include any acts and omissions, and
alleged acts and omissions, on the part of the Indemnitee while serving in any
such capacity or capacities, including to any participants and/or beneficiaries
of any such employee benefit plans.
(d) "INDEMNITY PROCEEDING" means: (i) any threatened, pending or
completed action, suit, proceeding or alternative dispute resolution mechanism
(including appeals and petitions therefrom) based upon or arising out of in part
any Indemnifiable Claim, and/or (ii) any threatened, pending or completed
hearing, inquiry or investigation (including appeals and petitions therefrom)
based upon or arising out of any Indemnifiable Claim that the Indemnitee in good
faith believes might lead to the institution of any such action, suit,
proceeding or alternative dispute resolution mechanism. The term Indemnity
Proceeding shall be construed broadly to include any action, suit, proceeding or
alternative dispute resolution mechanism and all claims directly or indirectly
relating to any Indemnifiable Claim, whether civil, criminal, administrative,
investigative or otherwise.
(e) "COMPANY" means Pinnacle Oil International, Inc., a Nevada
corporation, as such party is identified in the introductory paragraph to this
Agreement, and any successor and assign of Pinnacle Oil International, Inc., as
more particularly described in, and permitted or prescribed pursuant to, section
-------
17, such that if the Indemnitee is or was a director, officer, employee, agent
- --
or fiduciary of such successor or assign, the Indemnitee shall stand in the same
position under the provisions of this Agreement with respect to such successor
or assign as the Indemnitee would under this Agreement.
-iii-
<PAGE>
(f) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as heretofore
or hereafter amended.
(g) "EXPENSES" means any and all costs and expenses (including attorneys
fees and all other costs, expenses and obligations reasonably incurred in
connection with investigating, defending, being a witness in or participating in
(including on appeal), or preparing to defend, be a witness in or participate
in, any Indemnity Proceeding.
(h) "EXPENSE ADVANCE" is defined in section 2(b)(iv) hereof.
--------------------
(i) "INDEMNITEE" means _____________, as such party is identified in the
introductory paragraph to this Agreement, and any successor and assign of
_____________ as more particularly described in, and permitted or prescribed
pursuant to, section 17.
----------
(j) "INDEPENDENT COUNSEL" means an attorney or firm of attorneys, selected
in accordance with the provisions of section 4 hereof, who shall not have
---------
otherwise performed services for the Company or the Indemnitee within the last
three (3) years (other than with respect to matters concerning the rights of the
Indemnitee under this Agreement or of other indemnitees under similar indemnity
agreements).
(k) "LIABILITIES" means: (i) any judgments, damages, fines (including any
excise taxes (as determined on a grossed-up basis) assessed on the Indemnitee
with respect to an employee benefit plan), interest, assessments, penalties and
other amounts paid or to be paid with respect to any Indemnifiable Claim,
including any paid or to be paid in settlement thereof (provided such settlement
is approved in advance by the Company, which approval shall not be unreasonably
withheld, delayed or conditioned); and (ii) any federal, state, local or foreign
taxes (as determined on a grossed-up basis) imposed on the Indemnitee as a
result of the actual or deemed receipt for tax purposes by Indemnitee of any
payments under this Agreement.
(l) "REVIEWING PARTY" means: (i) any appropriate person or body consisting
of a member or members of the Board of Directors; or (ii) any other person or
body appointed by the Board of Directors who is not a party to the particular
Indemnifiable Claim for which the Indemnitee is seeking indemnification; or
(iii) Independent Counsel.
2. INDEMNIFICATION OF LIABILITIES AND EXPENSES
(a) LIABILITIES. The Company shall, to the fullest extent presently or
-----------
hereafter permitted by applicable law, indemnify and hold the Indemnitee and
each of his or her spouse, heirs, successors, assigns, agents, affiliates,
insurers, executors and personal or legal representatives harmless from and
against any and all Liabilities asserted against, imposed upon, or incurred or
suffered or sustained by the Indemnitee, whether foreseeable or unforeseeable,
and whether meritorious or not meritorious, based upon or related to or arising
from any Indemnifiable Claim; provided, however:
(i) The Company shall have no obligation to indemnify the Indemnitee for
any Liabilities based upon or related to or arising from any Indemnifiable
Claim (other than an Indemnifiable Claim brought by or in the right of the
Company pursuant to subsection 2(a)(ii) below) resulting from an Indemnity
-------------------
Proceeding within the meaning of Section 78.7502(1) of the Nevada Revised
Statutes, unless the Indemnitee shall have acted in good faith and in a
------
manner which he or she reasonably believed to be in or not opposed to the
best interest of the Company, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his or her conduct was
unlawful;
-iv-
<PAGE>
(ii) Notwithstanding subsection 2(a)(i) above, the Company shall have no
------------------
obligation to indemnify the Indemnitee for any Liabilities based upon or
related to or arising from any Indemnifiable Claim resulting from an
Indemnity Proceeding brought by or in the right of the Company within the
meaning of Section 78.7502(2) of the Nevada Revised Statutes, unless (1)
------
the Indemnitee shall have acted in good faith and in a manner which he or
she reasonably believed to be in or not opposed to the best interest of the
Company, and (2) the Indemnitee has not been adjudged by a court of
competent jurisdiction, after exhaustion of all appeals therefrom, to be
liable to the Company or for amounts paid in settlement by the Company
(unless and only to the extent the court in which the Indemnity Proceeding
was brought or any other court of competent jurisdiction determines upon
application that in view of all the circumstances of the case, the
Indemnitee is fairly and reasonably entitled to indemnification for such
Liabilities as such court deems proper); and
(iii) Unless ordered by a court of competent jurisdiction, the
obligations of the Company to indemnify and pay the Indemnitee for
Liabilities incurred under subsection 2(a)(i) and subsection 2(a)(ii) above
------------------ -------------------
shall, to the extent Section 78.751(1) of the Nevada Revised Statutes
governing discretionary indemnification under Section 78.5702 of the Nevada
Statutes is applicable, be subject to the condition (as provided in Section
78.751(1) of the Nevada Revised Statutes) that the Reviewing Party shall
have determined, in the manner set forth below in section 4 (in a written
---------
opinion, in any case in which the Independent Counsel is involved), that
such indemnification is proper under the circumstances, which determination
the Reviewing Party shall not unreasonably withhold, condition or delay.
(b) EXPENSES. If the Indemnitee was, is or becomes a party to or witness
--------
or other participant in, or is threatened to be made a party to or witness or
other participant in, any threatened, pending or completed Indemnity Proceeding,
the Company shall, to the fullest extent presently or hereafter permitted by
applicable law, indemnify the Indemnitee against any and all Expenses incurred
by the Indemnitee in connection with investigating, defending, being a witness
in or participating in (including on appeal), or preparing to defend, be a
witness in or participate in, any such Indemnity Proceeding, including all
interest, assessments and other charges paid or payable in connection with or in
respect of such Expenses, notwithstanding that there has been no final
disposition of any such Indemnity Proceeding; provided, however:
(i) The Company shall have no obligation to indemnify the Indemnitee for
any Expenses based upon or related to or arising from any Indemnifiable Claim
(other than an Indemnifiable Claim brought by or in the right of the Company
pursuant to subsection 2(b)(ii) below) resulting from an Indemnity
-------------------
Proceeding within the meaning of Section 78.7502(1) of the Nevada Revised
Statutes, unless the Indemnitee shall have acted in good faith and in a
manner which he or she reasonably believed to be in or not opposed to the
best interest of the Company, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his or her conduct was
unlawful;
(ii) Notwithstanding subsection 2(b)(i) above, the Company shall have no
------------------
obligation to indemnify the Indemnitee for any Expenses based upon or
related to or arising from any Indemnifiable Claim resulting from an
Indemnity Proceeding brought by or in the right of the Company within the
meaning of Section 78.7502(2) of the Nevada Revised Statutes, unless (1)
------
the Indemnitee shall have acted in good faith and in a manner which he or
she reasonably believed to be in or not opposed to the best interest of the
Company, and (2) the Indemnitee has not been adjudged by a court of
competent jurisdiction, after exhaustion of all appeals therefrom, to be
liable to the Company or for amounts paid in settlement by the Company
(unless and only to the extent the court in which the Indemnity Proceeding
was brought or any other court of competent jurisdiction determines upon
application that in view of all the circumstances of the case, the
Indemnitee is fairly and reasonably entitled to indemnification for such
Expenses as such court deems proper);
-v-
<PAGE>
(iii) Unless ordered by a court of competent jurisdiction, the
obligations of the Company to indemnify and pay the Indemnitee for Expenses
incurred under subsection 2(b)(i) and subsection 2(b)(ii) above shall, to
------------------ -------------------
the extent Section 78.751(1) of the Nevada Revised Statutes governing the
payment of Expenses is applicable, be subject to the condition (as provided
in such statute) that the Reviewing Party shall have determined, in the
manner set forth below in section 4 (in a written opinion, in any case in
---------
which the Independent Counsel is-involved), that such indemnification is
proper under the circumstances, which determination the Reviewing Party
shall not unreasonably withhold, condition or delay;
(iv) The obligations of the Company to indemnify and pay any Indemnitee
who is a director and/or an officer of the Company for any Expenses
incurred in defending any Indemnity Proceeding shall be subject to the
receipt by the Company of an undertaking by such Indemnitee to reimburse
the Company for all Expenses theretofore paid if it is ultimately
determined by a court of competent jurisdiction that the Indemnitee is not
entitled to be indemnified by the Company for any such Expenses paid (an
"Expense Advance"). The Indemnitee's obligation to reimburse the Company
for any such Expense Advance shall be unsecured and no interest shall be
charged thereon; and
(v) To the extent that the Indemnitee has been successful on the merits
or otherwise, in defense of any Indemnity Proceeding referred to in
subsection 2(b)(i) and/or subsection 2(b)(ii) above and/or Indemnity Claim
------------------ -------------------
therein, including the dismissal of any such Indemnity Proceeding and/or
Indemnification Claim without prejudice, the Indemnitee shall, to the
maximum extent allowed by Section 78.7502(3) of the Nevada Revised
Statutes, be indemnified against all Expenses incurred by the Indemnitee in
connection therewith (including any amounts theretofore denied by the
Reviewing Party pursuant to section 2(b)(iii)).
------------------
(c) EXCEPTIONS TO INDEMNIFICATION OBLIGATION. Notwithstanding anything in
----------------------------------------
section 2(a) and section 2(b) to the contrary, the Company shall not be
- ------------ ------------
obligated to indemnify the Indemnitee pursuant to the terms of this Agreement
for any Liabilities or Expenses (as the case may be) incurred with respect to
any of the following matters:
(i) For any acts, omission, or transactions from which the Indemnitee
may not be relieved of liability under applicable law.
(ii) For any Indemnifiable Claims initiated or brought voluntarily by
the Indemnitee and not by way of defense, except: (i) with respect to
actions or proceedings brought to establish or enforce a right to
indemnification under this Agreement or any other agreement or insurance
policy or under the Company's Articles of Incorporation or Bylaws now or
hereafter in effect relating to Indemnifiable Claims; or (ii) in specific
cases if the Board of Directors has approved the initiation or bringing of
such Indemnifiable Claim;
(iii) For any Expenses incurred by the Indemnitee with respect to any
Indemnity Proceeding instituted by the Indemnitee to enforce or interpret
this Agreement, if a court of competent jurisdiction determines that each
of the material assertions made by the Indemnitee in such proceeding was
not made in good faith or was frivolous; and/or
(iv) For Expenses and the payment of profits arising from the purchase
and sale, or sale and purchase, by the Indemnitee of securities in
violation of Section 16(b) of the Exchange Act or any similar successor
statute, except that the Company shall indemnify the Indemnitee with
respect to all such Expenses if the Indemnitee ultimately prevails on the
merits with respect to such claim.
-vi-
<PAGE>
(d) TERMINATION OF INDEMNIFIABLE CLAIM; NO PRESUMPTION. The termination of
--------------------------------------------------
any Indemnifiable Claim by judgment, order, settlement (whether with or without
court approval) or conviction, or upon a plea of "nolo contendere," or its
equivalent, shall not, of itself, create a presumption that: (i) in the case of
any Indemnifiable Claim or Indemnity Proceeding referred to in subsection
----------
2(a)(i), subsection 2(a)(ii), subsection 2(b)(i), and/or subsection 2(b)(ii),
- ------- ------------------- ------------------ -------------------
the Indemnitee did not act in good faith and in a manner which he or she
reasonably believed to be in or not opposed to the best interests of the
Company, and with respect to any criminal Indemnifiable Claim or Indemnity
Proceeding, he or she had reasonable cause to believe that his or her conduct
was unlawful; and (ii) with respect to any other Indemnifiable Proceeding or
Indemnity Claim, the Indemnitee did not meet any particular standard of conduct
or have any particular belief or that a court has determined that
indemnification is not permitted by applicable law.
(e) NON-EXCLUSIVITY. The indemnification rights provided by this
---------------
section 2 shall not, to the fullest extent permitted by law, including Section
- ---------
78.751(a)(3) of the Nevada Revised Statutes, be deemed exclusive of any rights
to which the Indemnitee may be entitled under the Company's Articles of
Incorporation or its Bylaws, any other agreement to which the Indemnitee is a
party, any right granted to the Indemnitee, either individually or as a member
of the group of officers, directors, employees, agents or fiduciaries of the
Company, by reason of any vote of shareholders or disinterested directors of the
Company, the Nevada Revised Statutes or otherwise, both as to any act or
omission, or alleged act or omission, in the Indemnitee's official capacity as
an officer, director, employee, agent or fiduciary of the Company or any
subsidiary of the Company and as to any act or omission, or alleged act or
omission, in any other capacity while holding such office (collectively, the
"Other Indemnification Rights"); provided, however, the Company may not,
pursuant to Section 78.751(a)(3) of the Nevada Revised Statutes, indemnify any
Indemnitee in his or her capacity as an officer or director of the Company
pursuant to such Other Indemnification Rights if a final adjudication
establishes that the Indemnitee's acts or omissions involved intentional
misconduct, fraud or a knowing violation of the law, and were material to the
cause of action, unless: (i) ordered by a court of competent jurisdiction
pursuant to subsection 2(a)(ii) or subsection 2(b)(ii), or (i) is an expense
------------------- -------------------
advance which satisfies the conditions of subsection 2(b)(iii).
--------------------
(f) SCOPE OF INDEMNIFICATION OBLIGATION; CHANGE IN LAWS. In the event of
---------------------------------------------------
any change, after the date of this Agreement, in any applicable law, statute or
rule which expands the right of a Nevada corporation to indemnify an officer,
director, employee, agent or fiduciary, including Section 78.7502 and Section
78.751 of the Nevada Revised Statutes, this Agreement automatically shall be
amended as of the effective date of such change to incorporate such expanded
right and, from and after such effective date, the Company shall be obligated to
indemnify the Indemnitee for any Liabilities to the maximum extent of such
expanded right. In the event of any change, after the date of this Agreement,
in any applicable law, statute or rule which narrows the right of a Nevada
corporation to indemnify an officer, director, employee, agent or fiduciary,
such change, except to the minimum extent required by such law, statute or rule,
shall have no effect on this Agreement (as it may be expanded by operation of
the preceding sentence) or the parties' rights and obligations hereunder. As
soon as practicable after the effective date of any such change in any such
applicable law, statute or rule, the Company and the Indemnitee shall prepare
and execute a written amendment to this Agreement memorializing the effect of
such change; provided that any delay in the preparation or execution of such
written amendment shall not delay the date on which this Agreement is deemed
amended to incorporate the effect of such change.
3. PAYMENTS
(a) GENERAL. Liabilities and Expenses which the Company is obligated to
-------
indemnify the Indemnitee shall be paid by the Company as soon as practicable
after the Indemnitee becomes legally obligated to pay such Liabilities, but in
any event no later than thirty (30) days after the Indemnitee delivers written
demand therefor to the Company; provided, however, in any circumstances where
such payment shall be conditioned upon the determination, pursuant to section
-------
2(a)(iii) and section 2(b)(iii), by the Reviewing Party that such payment is
- --------- -----------------
proper under the circumstances, the Company shall promptly tender such matter to
-vii-
<PAGE>
the Reviewing Party, and use its best efforts to promptly obtain such
determination from the Reviewing Party, in order that such payment may be made
within said thirty (30) day period. For purposes of the foregoing: (i) the
Indemnitee shall not be deemed to have become legally obligated to pay any
Liabilities imposed by reason of any civil or criminal judgment in any Indemnity
Proceeding until such time that a final judicial determination is made with
respect thereto by way of judgment or order (as to which all rights of appeal
therefrom have been exhausted or lapsed; provided, however, the Company shall
post any bond required in connection with any appeal); and (ii) the Indemnitee
shall be deemed to have incurred the legal obligation to pay any such Expense at
the time that the Indemnitee either receives an invoice or statement requesting
payment of such amount or otherwise becomes obligated to pay such amount. It
shall not be a condition precedent to the Indemnitee's right to receive payment
of any Liabilities or Expenses that the Indemnitee shall have first paid such
amount.
(b) PRIOR APPROVAL OF EXPENSES. The Indemnitee shall not incur Expenses
--------------------------
for which the Company is obligated to indemnify the Indemnitee without the
Company's consent, which the Company shall not unreasonably withhold, delay or
condition (or, in any circumstances where such payment shall be conditioned upon
the determination, pursuant to section 2(a)(iii) and section 2(b)(iii), by the
----------------- ------------------
Reviewing Party that such payment is proper under the circumstances, such
determination by the Reviewing Party, which it shall not unreasonably withhold,
condition or delay). The Company (and the Reviewing Party, if applicable) and
the Indemnitee shall, with respect to any Indemnity Proceeding or Indemnifiable
Claim, enter into an arrangement pursuant to which the Indemnitee will be
authorized, prior to the Indemnitee incurring any such Expense, to: (i) incur
Expenses likely to be incurred with respect to any Indemnity Proceeding or
Indemnifiable Claim; (ii) incur Expenses of a general type or description with
respect to any Indemnity Proceeding; and (iii) such mechanism to prospectively
render consent on such expedited basis with respect to any Indemnity Proceeding
as may be appropriate so as to facilitate the investigation, defense or
settlement of such Indemnity Proceeding.
(c) TAX BENEFITS; INSURANCE PROCEEDS. All Indemnifiable Claims shall be
--------------------------------
computed net of: (i) any actual income tax benefit resulting therefrom to the
Indemnitee; and (ii) any insurance coverage with respect thereto which reduces
the amount of the Indemnitee's Liabilities that would otherwise be sustained;
provided, however, that, in all cases, the timing of the receipt or realization
of income tax benefits or insurance proceeds shall be taken into account in
determining the amount of reduction of the Indemnitee's Liabilities.
(d) DUPLICATION OF PAYMENTS. The Company shall not be liable under this
-----------------------
Agreement to make any payment to the Indemnitee in connection with any
Indemnifiable Claim to the extent the Indemnitee has otherwise actually received
payment (under any insurance policy, the Company's Articles of Incorporation or
Bylaws or otherwise) of the amounts otherwise Indemnifiable hereunder with
respect to such Indemnifiable Claim.
4. REVIEWING PARTY
(a) IDENTITY. The Reviewing Party shall be selected by the Board of
--------
Directors; provided, however, if there has been a Change of Control, the
Reviewing Party shall be the Independent Counsel.
(b) ACTION BY REVIEWING PARTY; PAYMENT. Except as otherwise provided in
----------------------------------
section 4(c) hereof, any determination by the Reviewing Party shall be
- ------------
conclusive and binding on the Company and the Indemnitee. Payment by the
Company of Expenses incurred by the Indemnitee prior to the final disposition of
any Indemnity Proceeding shall be presumed to evidence the waiver by the
Reviewing Party of its right not to approve such payment pursuant to the terms
of section 4 unless the Reviewing Party has first notified the Indemnitee that
---------
it is reserving its right to disapprove of such Expenses until a final judicial
-viii-
<PAGE>
determination is made with respect thereto (as to which all rights of appeal
therefrom have been exhausted or lapsed).
(c) RIGHT TO COMMENCE ACTION. If there has been no determination by the
------------------------
Reviewing Party or if the Reviewing Party determines that the Indemnitee
substantively would not be permitted to be indemnified in whole or in part under
applicable law, the Indemnitee shall have the right to commence litigation
seeking an initial determination by the court or challenging any such
determination by the Reviewing Party or any aspect thereof, including the legal
or factual bases therefor, and the Company hereby consents to service of process
and to appear in any such proceeding. If the Indemnitee has commenced or
thereafter commences legal proceedings in a court of competent jurisdiction to
secure a determination that the Indemnitee should be indemnified Liabilities
and/or Expenses under applicable law, any determination made by the Reviewing
Party that the Indemnitee would not be permitted to be indemnified under
applicable law shall not be binding and the Indemnitee shall not be required to
reimburse the Company for any Expense Advance until a final judicial
determination is made with respect thereto (as to which all rights of appeal
therefrom have been exhausted or lapsed).
(d) CHANGE IN CONTROL. If there is a Change in Control, then with respect
-----------------
to all matters thereafter arising concerning the rights of the Indemnitee to
payment of Liabilities and Expenses (including Expense Advances) under this
Agreement or any other agreement or under the Company's Articles of
Incorporation or Bylaws as now or hereafter in effect, Independent Counsel shall
be selected by the Indemnitee and approved by the Company (which approval shall
not be unreasonably withheld). Such counsel, among other things, shall render
its written opinion to the Company and the Indemnitee as to whether and to what
extent the Indemnitee would be permitted to be indemnified under applicable law
and the Company agrees to abide by such opinion. The Company agrees to pay the
reasonable fees of the Independent Counsel referred to above and to fully
indemnify such counsel against any and all expenses (including attorneys' fees),
claims, liabilities and damages arising out of or relating to this Agreement or
such counsel's engagement pursuant hereto.
(e) NO PRESUMPTIONS; BURDEN OF PROOF. Neither the failure of the Reviewing
--------------------------------
Party to have made a determination as to whether the Indemnitee has met any
particular standard of conduct or had any particular belief, nor an actual
determination by the Reviewing Party that the Indemnitee has not met such
standard of conduct or did not have such belief, prior to commencement of legal
proceedings by the Indemnitee to secure a judicial determination that the
Indemnitee should be indemnified under applicable law, shall be a defense to the
Indemnitee's claim or create a presumption that the Indemnitee has not met any
particular standard of conduct or did not have any particular belief. In
connection with any determination by the Reviewing Party or otherwise as to
whether the Indemnitee is entitled to be indemnified hereunder, the burden of
proof shall be on the Company to establish that the Indemnitee is not so
entitled.
5. MECHANICS AND SETTLEMENT OF INDEMNITY CLAIMS
(a) NOTICE BY INDEMNITEE TO COMPANY. The Indemnitee shall give the Company
-------------------------------
written notice as soon as practicable of any Indemnifiable Claim made against
the Indemnitee for which indemnification will or could be sought by him or her
under this Agreement; provided, however, that the Indemnitee's delay in
notifying the Company shall not limit in any way the Indemnitee's right to
indemnification under this Agreement unless such delay materially adversely
affects the ability of the Indemnitee or the Company to defend against such
Indemnifiable Claim. Such notice shall set forth whether the Indemnitee elects
to assume and control the defense of the underlying Indemnity Proceeding.
(b) NOTICE BY COMPANY TO INSURERS. If, at the time of its receipt of a
-----------------------------
notice of Indemnifiable Claim pursuant to section 5(a) hereof, the Company has
------------
in effect liability insurance applicable to such Indemnifiable Claim, the
Company shall give prompt notice of the commencement of such
-ix-
<PAGE>
Indemnifiable Claim to the insurers in accordance with the procedures set forth
in the respective policies. The Company shall thereafter take all necessary or
desirable action to cause such insurers to pay, on behalf of the Indemnitee, all
amounts payable as a result of such Indemnifiable Claim in accordance with the
terms of such policies. In the event that the Company delays notice or fails to
notify any insurer in a timely manner and, as a result of such delay or failure
of notification, the Indemnitee does not receive the benefits of such insurance,
then the Company shall conclusively be deemed to be obligated to indemnify the
Indemnitee against all Expenses incurred by the Indemnitee with respect to such
Indemnifiable Claim.
(c) SELECTION OF COUNSEL. In the event the Company shall be obligated
--------------------
under this Agreement to pay Liabilities or Advance Expenses with respect to any
Indemnifiable Claim against the Indemnitee, the Company shall be entitled to
assume the defense of such Indemnifiable Claim, with counsel approved by the
Indemnitee, which approval shall not be unreasonably withheld, conditioned or
delayed, upon the delivery to the Indemnitee of written notice of the Company's
election to do so. After the Company's assumption of such defense, the Company
shall not be liable to the Indemnitee under this Agreement for any fees of
counsel subsequently incurred by the Indemnitee with respect to the same
Indemnifiable Claim; provided, however, that: (i) the Indemnitee shall have the
right to employ his or her own counsel in any such Indemnifiable Claim at the
Indemnitee's expense; and (ii) if the Indemnitee shall have reasonably concluded
that there may be a conflict of interest by reason of the representation in such
Indemnifiable Claim of the Indemnitee and the Company and/or any other
defendants by the same counsel, then the Indemnitee may retain his or her own
counsel with respect to such Indemnifiable Claim and the fees and expenses of
such counsel shall be an amount for which the Indemnitee is entitled to
indemnification from the Company under this Agreement.
(d) ADVISEMENT; COOPERATION. Counsel handling the Indemnity Proceeding on
-----------------------
behalf of any party or parties shall diligently defend the matter and shall keep
the other parties fully informed of the status of the Indemnity Proceeding and
of any Indemnifiable Claims, including all relevant facts and information
pertaining to the action, claims and strategy to be followed. Each party shall
cooperate with each other party and their respective counsel in connection with
the defense, compromise, settlement or other resolution of the Indemnifiable
Claims; shall assert the "joint-counsel" privilege or its equivalent where
reasonably possible and appropriate; shall make available his, her or its
personnel, and provide such testimony and access to books, records, materials
and information in their possession or control relating thereto as is reasonably
required by the party handling the defense of such Indemnifiable Claims; all at
the sole cost and expense of the party defending such Indemnifiable Claims
(unless such defending party is entitled to indemnification as provided herein).
(e) COMPROMISE OR SETTLEMENT BY COMPANY. No Indemnifiable Claim shall be
-----------------------------------
compromised or settled by the Company without the written consent of the
Indemnitee, which the Indemnitee shall not unreasonably withhold, delay or
condition, except where: (i) such compromise or settlement involves all
Indemnifiable Claims under the underlying Indemnity Proceedings for which the
Company is liable to the Indemnitee; (ii) as a condition of such compromise or
settlement, the claimant or plaintiff unconditionally releases the Indemnitee
from any liability for all such Indemnifiable Claims; (iii) such compromise or
settlement will not have any material, non-monetary affect on the Indemnitee,
other than as a result of money damages or payment of monies, none of which
shall be paid by the Indemnitee; (iv) the Indemnitee is totally indemnified,
directly or indirectly, by the Company for any money damages or payment of
monies; and (v) the Indemnitee is not obligated to admit culpability for any
criminal act.
(f) COMPROMISE OR SETTLEMENT BY INDEMNITEE. No Indemnifiable Claim shall
--------------------------------------
be compromised or settled by the Indemnitee without the written consent of the
Company, which the Company shall not unreasonably withhold, delay or condition,
except where: (i) such compromise or settlement involves all Indemnifiable
Claims under the underlying Indemnity Proceedings for which the Company is
liable; (ii) if the Company is named as a party to the Indemnity Proceeding, as
a condition of such compromise or settlement the claimant or plaintiff
unconditionally releases the Company from any liability for all Indemnifiable
Claims;
-x-
<PAGE>
(iii) the Indemnitee releases the Company from any further liability to
the Indemnitee under this Agreement with respect to the released Indemnifiable
Claims; (iv) if Company is named as a party to the Indemnity Proceeding, such
compromise or settlement will not materially or adversely affect the Company
other than as a result of money damages or payment of monies, none of which
shall be paid by the Company; and (v) the Company is not obligated to admit
culpability for any criminal act.
6. PERIOD OF LIMITATIONS
No legal action shall be brought and no cause of action shall be
asserted by or in the right of the Company against the Indemnitee or his or her
estate, spouse, heirs, successors, assigns, affiliates, insurers, executors or
personal or legal representatives after the expiration of two (2) years from the
date of accrual of such cause of action, and any claim or cause of action of the
Company shall be extinguished and deemed released unless asserted by the timely
filing of a legal action within such two-year period; provided, however, that if
any shorter period of limitations is otherwise applicable to any such cause of
action, such shorter period shall govern.
7. PARTIAL INDEMNIFICATION
If the Indemnitee is entitled under any provision of this Agreement to
indemnification by the Company for some or a portion of the Liabilities and/or
Expenses incurred by him or her with respect to any Indemnity Proceeding, but
not for the total amount thereof, the Company shall nevertheless indemnify the
Indemnitee for the portion of such Liabilities and/or Expenses to which the
Indemnitee is entitled.
8. SUBROGATION
In the event the Company makes any payment to the Indemnitee under
this Agreement: (i) the Company shall be subrogated to the extent of such
payment to all of the rights of recovery of the Indemnitee from any co-
defendant, insurer or other person; and (ii) the Indemnitee shall execute all
papers requested by the Company and shall do such other things as the Company
may request for the purpose of securing such rights for the benefit of the
Company, including the execution of such documents as may be necessary to enable
the Company to bring suit to enforce such rights. The Company shall be solely
responsible for securing such subrogation rights for its benefit and the
Indemnitee shall have no liability to the Company solely by reason of the
Company's failure or inability either to secure such subrogation rights or to
recover any amounts from any co-defendant of the Indemnitee, any insurer, or any
other person.
9. LIABILITY INSURANCE
The Company shall use its best efforts to obtain and maintain in effect during
the entire period for which the Company is obligated to indemnify the Indemnitee
under this Agreement, one or more policies of insurance with reputable insurance
companies to provide the officers and directors of the Company with coverage for
losses from wrongful acts and omissions and to ensure the Company's performance
of its indemnification obligations under this Agreement. In all such insurance
policies, the Indemnitee shall be named as an insured in such a manner as to
provide the Indemnitee with the same rights and benefits as are accorded to the
most favorably insured of the Company's directors and officers. Notwithstanding
the foregoing, the Company shall have no obligation to obtain or maintain such
insurance if the Company determines in good faith that: (i) such insurance is
not reasonably available; (ii) that the premium costs for such insurance are
disproportionate to the amount of coverage provided; (iii) that the coverage
provided by such insurance is limited by exclusions so as to provide an
insufficient benefit; and/or (iv) if the Indemnitee is covered by similar
insurance maintained by a subsidiary or parent of the Company.
-xi-
<PAGE>
10. PROHIBITIONS AGAINST INDEMNIFICATION
The Company and the Indemnitee acknowledge that in certain instances
federal or state law and/or applicable public policy may prohibit the Company
from indemnifying its officers and directors, including the Indemnitee, under
this Agreement or otherwise. The Indemnitee understands and acknowledges that
the Company has undertaken or may be required in the future to undertake with
the Securities and Exchange Commission and/or the securities agency of any state
that in certain circumstances the Company will submit for determination by a
court the question of the Company's right to indemnify the Indemnitee with
respect to an Indemnifiable Claim of the violation of applicable securities
laws. If the Company's indemnification obligation under this Agreement is
subject to the limitations of any federal or state law or applicable public
policy that prohibits the Company's indemnification of its officers, directors,
employees, agents or fiduciaries, or any group of them, the Company shall have
no liability to the Indemnitee solely by reason of its failure or refusal to
indemnify the Indemnitee as a result of the application of such law or public
policy.
11. VIOLATION OF LAW
Nothing in this Agreement is intended to require or shall be construed
as requiring the Company to do or fail to do any act in violation of applicable
law. The Company's inability to perform its obligations under this Agreement by
reason of any prohibitions or limitations imposed by federal or state law,
applicable public policy, or court order, shall not constitute a breach of this
Agreement.
12. EFFECTIVENESS OF AGREEMENT
This Agreement shall be effective as of the day and year first above
written and shall apply to all Indemnifiable Claims against or involving the
Indemnitee that are threatened or pending as of such date or are initiated on or
after such date, regardless of whether the underlying facts relating to the
Indemnitee occurred before, on or after such date. The Indemnitee's right to
indemnification under this Agreement shall continue in effect after the
Indemnitee ceases to be, for whatever reason, an officer, director, employee,
agent or fiduciary of the Company and for so long as he or she might be made a
party to any Indemnifiable Claim and with respect to which the Indemnitee would
or might be entitled to indemnification under this Agreement if he or she then
was an officer, director, employee, agent or fiduciary of the Company.
13. NO CONSTRUCTION AS EMPLOYMENT AGREEMENT
Nothing contained in this Agreement shall be construed as giving the
Indemnitee any right to be retained in the employ of the Company or any of its
subsidiaries.
14. REPRESENTATIONS AND WARRANTIES
Each of the parties to this Agreement hereby represents and warrants
to each of the other parties to this Agreement, each of which is deemed to be a
separate representation and warranty, as follows:
(a) ORGANIZATION, POWER AND AUTHORITY. Such party: (i) if an entity, is
---------------------------------
duly organized, validly existing and in good standing under the laws of its
state, territory or province of incorporation or organization; and (ii) if an
entity or fiduciary, has all requisite corporate or other power and authority to
enter into this Agreement.
(b) AUTHORIZATION. The execution and delivery of this Agreement by such
-------------
party, and the performance by such party of the transactions herein
contemplated, have, if such party is an entity or a fiduciary, been duly
authorized by, and are prohibited under, its governing organization or
authorizing
-xii-
<PAGE>
documents, and no further corporate or other action on the part of such party is
necessary to authorize this Agreement, or the performance of such transactions.
(c) VALIDITY. This Agreement has been duly executed and delivered by
--------
such party and, assuming due authorization, execution and delivery by each of
the other parties hereto, is valid and binding upon such party in accordance
with its terms, except as limited by: (1) bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereafter in effect
relating to creditor rights generally; and (2) general principles of equity
(regardless of whether such enforcement is considered in a proceeding in equity
or at law).
(d) NON-CONTRAVENTION. Neither the execution or delivery of this
-----------------
Agreement by such party, nor the performance by such party of the transactions
contemplated herein: (i) will, if such party is an entity, breach or conflict
with any of the provisions of such party's governing, organizational or
authorizing documents; or (ii) to the best of such party's knowledge and belief,
will such actions violate or constitute an event of default under any agreement
or other instrument to which such party is a party.
(e) LEGAL REPRESENTATION. Such party: (i) had the advice, or sufficient
--------------------
opportunity to obtain the advice, of legal counsel separate and independent from
legal counsel for any other party hereto; and (ii) such party was not
represented by the legal counsel of any other party hereto in connection with
the transactions contemplated by this Agreement, nor was such party under any
belief or understanding that such legal counsel was representing such party's
interests.
(f) FAIRNESS. The terms and conditions of the transactions contemplated
--------
by this Agreement are fair and reasonable to such party based upon all of the
facts and circumstances at the time this Agreement is entered into; and such
party has voluntarily entered into the transactions contemplated by this
Agreement, without duress or coercion.
15. INTERPRETATION AND CONSTRUCTION
(a) PREPARATION OF AGREEMENT. The parties have participated jointly in
------------------------
the negotiation and drafting of this Agreement and each provision hereof. In the
event any ambiguity, conflict, omission or other question of intent or
interpretation arises, this Agreement shall be construed as if jointly drafted
by the parties, and no presumption or burden of proof shall be presumed, implied
or otherwise construed favoring or disfavoring any party by virtue of the
authorship of this Agreement or of any provision hereof.
(b) PERFORMANCE ON BUSINESS DAY. In the event the date on which a party
---------------------------
is required to take any action under the terms of this Agreement is not a
business day, the action shall, unless otherwise provided herein, be deemed to
be required to be taken on the next succeeding business day. For purposes of
this section, the term "business day" shall mean Monday through Friday
(excluding any legal holidays).
(c) SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations and
------------------------------------------
warranties made by any party in connection with any transaction contemplated by
this Agreement shall, irrespective of any investigation made by or on behalf of
any other party hereto, survive the execution and delivery of this Agreement and
the performance or consummation of any transaction described in this Agreement,
and shall continue in full force and effect forever thereafter (subject to any
applicable statutes of limitation).
(d) INDEPENDENT SIGNIFICANCE. The parties intend that each
------------------------
representation, warranty and covenant shall have independent significance. If
any party has falsely made or breached any representation, warranty or covenant
contained herein in any respect, the fact that there exists another
representation, warranty or covenant relating to the same subject matter
(regardless of the relative levels of specificity) which the party has not
falsely made or breached shall not detract from or mitigate the fact that the
party has falsely made or breached the first representation, warranty or
covenant.
-xiii-
<PAGE>
(e) ENTIRE AGREEMENT; NO COLLATERAL REPRESENTATIONS. Each party
-----------------------------------------------
expressly acknowledges and agrees that this Agreement, and the agreements and
documents referenced herein: (i) are the final, complete and exclusive statement
of the agreement of the parties with respect to the subject matter hereof; (ii)
supersede any prior or contemporaneous agreements, memorandums, proposals,
commitments, guaranties, assurances, communications, discussions, promises,
representations, understandings, conduct, acts, courses of dealing, warranties,
interpretations or terms of any kind, whether oral or written (collectively and
severally, the "prior agreements"), and that any such prior agreements are of no
force or effect except as expressly set forth herein; and (iii) may not be
varied, supplemented or contradicted by evidence of prior agreements, or by
evidence of subsequent oral agreements. No prior drafts of this Agreement, and
no words or phrases from any prior drafts, shall be admissible into evidence in
any action or suit involving this Agreement.
(f) AMENDMENT; WAIVER; FORBEARANCE. Except as expressly provided
------------------------------
herein, neither this Agreement nor any of the terms, provisions, obligations or
rights contained herein, may be amended, modified, supplemented, augmented,
rescinded, discharged or terminated (other than by performance), except by a
written instrument or instruments signed by all of the parties to this
Agreement. No waiver of: (i) any breach of any term, provision or agreement;
(ii) the performance of any act or obligation under this Agreement; and/or (iii)
any right granted under this Agreement, shall be effective and binding unless
such waiver shall be in a written instrument or instruments signed by each party
claimed to have given or consented to such waiver. Except to the extent that the
party or parties claimed to have given or consented to a waiver may have
otherwise agreed in writing, no such waiver shall be deemed a waiver or
relinquishment of any other term, provision, agreement, act, obligation or right
under this Agreement, or of any preceding or subsequent breach thereof. No
forbearance by a party in seeking a remedy for any noncompliance or breach by
another party hereto shall be deemed to be a waiver by such forbearing party of
its rights and remedies with respect to such noncompliance or breach, unless
such waiver shall be in a written instrument or instruments signed by the
forbearing party.
(g) REMEDIES CUMULATIVE. The remedies of each party under this
-------------------
Agreement are cumulative and shall not exclude any other remedies to which such
party may be lawfully entitled.
(h) SEVERABILITY. If any term or provision of this Agreement, or the
------------
application thereof to any person or circumstance, shall to any extent be
determined to be invalid, illegal or unenforceable under present or future laws,
then, and in such event: (i) the performance of the offending term or provision
(but only to the extent its application is invalid, illegal or unenforceable)
shall be excused as if it had never been incorporated into this Agreement, and,
in lieu of such excused provision, there shall be added a provision as similar
in terms and amount to such excused provision as may be possible and still be
legal, valid and enforceable; and (ii) the remaining part of this Agreement
(including the application of the offending term or provision to persons or
circumstances other than those as to which it is held invalid, illegal or
unenforceable) shall not be affected thereby, and shall continue in full force
and effect to the fullest legal extent.
(i) TIME IS OF THE ESSENCE. Except and to the extent there is a
----------------------
specific cure provision in this Agreement, each party understands and agrees
that: (i) time of performance is strictly of the essence with respect to each
and every date, term, condition, obligation and provision hereof imposed upon
such party; and (ii) the failure to timely perform any of the terms, conditions,
obligations or provisions hereof by such party shall constitute a material
breach and a noncurable (but waivable) default under this Agreement by such
party.
(j) PARTIES IN INTEREST. Nothing in this Agreement shall confer any
-------------------
rights or remedies under or by reason of this Agreement on any persons other
than the parties hereto and their respective successors and assigns, if any, or
as may be permitted hereunder; nor shall anything in this Agreement relieve or
discharge the obligation or liability of any third person to any party to this
Agreement; nor shall any provision give any third person any right of
subrogation or action against any party to this Agreement.
-xiv-
<PAGE>
(k) NO RELIANCE UPON PRIOR REPRESENTATIONS. Each party acknowledges
--------------------------------------
that: (1) no other party has made any oral representation or promise which would
induce such party, prior to executing this Agreement, to change such party's
position to his, her or its detriment, to partially perform, or to part with
value in reliance upon such representation or promise; and (2) such party has
not so changed its position, performed or parted with value prior to the time of
the execution of this Agreement, or such party has taken such action at its own
risk.
(l) RULES OF CONSTRUCTION. In interpreting the meaning of this
---------------------
Agreement: (i) the term "person" is defined in its broadest sense to include any
individual or natural person, entity (as such term is defined in this subsection
----------
(l)) and/or fiduciary (as such term is defined in this subsection (l)), and
- ---- ---------------
their successors and assigns; (ii) the term "entity" means any legal entity,
including any corporation, association, joint stock company, partnership
(limited, general or limited liability), joint-venture, and limited liability
company, business trust, trust (whether revocable or irrevocable), pension or
profit sharing plan, individual retirement account, or fiduciary or custodial
arrangement; (iii) the term "fiduciary" means any person acting in a fiduciary
capacity, including in their capacity as a trustee or a custodian; (iv) the term
"affiliate" means any person controlling, controlled by, or under common control
with a party (for purposes of the foregoing, the term "control" (including with
the correlative meanings, the terms "controlled by" and "under common control
with") means the possession directly or indirectly of the power to direct or
cause the direction of the management and policies of a person, whether through
the ownership of voting securities or by contract or otherwise); (v) the term
"subsidiary" means any entity in which a party holds a controlling interest;
(vi) the words "herein" and "hereunder" and other words of similar report refer
to this Agreement as a whole, and not to any particular sections, subsections,
paragraph, subparagraph or other subdivision of this Agreement; (vii) the words
"including," "includes," and "include" shall be deemed to be followed by the
words "including without limitation;" (viii) the word "or" shall not be deemed
to be exclusive unless the context indicates otherwise; and (ix) the word "all"
shall be deemed to include the word "any," and vice versa. All pronouns and any
variation thereof used in this Agreement shall be deemed to refer to the
masculine, feminine, or neuter (as the case may be), and to the singular or
plural (as the case may be), as the identity of the person or persons or the
context may require for proper interpretation of this Agreement. Any references
in this Agreement to "dollars" shall be deemed to refer to the currency of the
United States of America, unless such reference specifically references a dollar
- -denominated currency of a country other than the United States of America. The
headings used in this Agreement are for convenience and reference purposes only,
and shall not be used in construing or interpreting the scope or intent of this
Agreement or any provision hereof. Each cross-references in this Agreement
shall, unless specifically directed to another agreement or document, be
construed only to refer to provisions within this Agreement, and shall not be
construed to refer to the overall transaction or to any other agreement or
document. Each exhibit, addendum, schedule and/or attachment referenced in this
Agreement shall be construed to be incorporated into this Agreement by such
reference and made a part hereof. References to any agreements (other than this
Agreement) shall include all amendments, modifications, supplements and/or
renewals thereof. Unless the context requires otherwise: (1) any reference
herein to any federal, state, local or foreign statutes or laws (collectively,
the "Statutes") will be deemed to include all rules and regulations promulgated
thereunder: and (2) any references herein to any Statute and/or any specific
section or provision of any such Statute are intended to refer to such section
or provision thereof as presently enacted and as subsequently amended,
succeeded, recodified or renumbered.
16. ENFORCEMENT
(a) APPLICABLE LAW. This Agreement and the rights and remedies of each
--------------
party arising out of or relating to this Agreement (including equitable
remedies) shall be solely governed by, interpreted under, and construed and
enforced in accordance with the laws (without regard to the conflicts of law
principles) of the State of Nevada, as if this Agreement were made, and as if
its obligations were to be performed in their entirety, within the State of
Nevada.
-xv-
<PAGE>
(b) CONSENT TO JURISDICTION AND VENUE; SERVICE OF PROCESS. Any "action
-----------------------------------------------------
or proceeding" (as such term is defined below) arising out of or relating to
this Agreement shall be filed in and litigated solely before the state courts of
Nevada located within the County of Nevada, or the United States District Court
for the _______ District of Nevada. By execution and delivery of this Agreement,
each party: (i) generally and unconditionally accepts the exclusive jurisdiction
of the aforesaid courts and venue therein, and waives to the fullest extent
provided by law any defense or objection to such jurisdiction and venue based
upon the doctrine of "forum non conveniens;" and (ii) consents to service of
process in any such action or proceeding by delivery of certified or registered
mailing of the summons and complaint in accordance with the notice provisions of
this Agreement. The term "action or proceeding" is defined as any and all
claims, suits, actions, hearings, arbitrations or other similar proceedings,
including appeals and petitions therefrom, whether formal or informal,
governmental or non-governmental, or civil or criminal. The foregoing consent to
jurisdiction shall not constitute general consent to service of process in the
State of Nevada for any purpose except as provided above, and shall not be
deemed to confer rights on any person other than the parties to this Agreement.
(c) WAIVER OF RIGHT TO JURY TRIAL. Each party hereby waives such
-----------------------------
party's respective right to a jury trial of any claim or cause of action based
upon or arising out of this Agreement. Each party acknowledges that this waiver
is a material inducement to each other party hereto to enter into the
transaction contemplated hereby; that each other party has already relied upon
this waiver in entering into this Agreement; and that each other party will
continue to rely on this waiver in their future dealings. Each party warrants
and represents that such party has reviewed this waiver with such party's legal
counsel, and that such party has knowingly and voluntarily waived its jury trial
rights following consultation with such legal counsel.
(d) CONSENT TO SPECIFIC PERFORMANCE AND INJUNCTIVE RELIEF; WAIVER OF
----------------------------------------------------------------
BOND OR SECURITY. The Company acknowledges that the Indemnitee may, as a result
- ----------------
of the Company's breach of its covenants and obligations under this Agreement,
sustain immediate and long-term substantial and irreparable injury and damage
which cannot be reasonably or adequately compensated by damages at law.
Consequently, the Company agrees that that the Indemnitee shall be entitled, in
the event of the Company's breach or threatened breach of its covenants and
obligations hereunder, to obtain equitable relief from a court of competent
jurisdiction, including enforcement of each provision of this Agreement by
specific performance and/or temporary, preliminary and/or permanent injunctions
enforcing any of the Indemnitee's rights, requiring performance by the Company,
or enjoining any breach by the Company, all without proof of any actual damages
that have been or may be caused to the Indemnitee by such breach or threatened
breach and without the posting of bond or other security in connection
therewith. The Company waives the claim or defense therein that the Indemnitee
has an adequate remedy at law, and the Company shall not allege or otherwise
assert the legal position that any such remedy at law exists. The Company agrees
and acknowledges that: (i) the terms of this subsection (d) are fair, reasonable
--------------
and necessary to protect the legitimate interests of the Indemnitee; (ii) this
waiver is a material inducement to the Indemnitee to enter into the transactions
contemplated hereby; (iii) the Indemnitee relied upon this waiver in entering
into this Agreement; and will continue to rely on this waiver in its future
dealings with the Company. The Company warrants and represents that it has
reviewed this provision with its legal counsel, and that it has knowingly and
voluntarily waived his, her or its rights following consultation with such legal
counsel.
(e) RECOVERY OF FEES AND COSTS. If any party institutes, or should any
--------------------------
party otherwise become a party to, any action or proceeding based upon or
arising out of this Agreement, including the enforcement or interpretation of
this Agreement or any provision hereof, or for damages by reason of any alleged
breach of this Agreement or any provision hereof, or for a declaration of rights
in connection herewith, or for any other relief, including equitable relief, in
connection herewith, the "prevailing party" (as such term is defined below) in
any such action or proceeding, whether or not such action or proceeding proceeds
to final judgment or determination, shall be entitled to receive from the non-
prevailing party as a cost of suit, and not
-xvi-
<PAGE>
as damages, all fees, costs and expenses of enforcing any right of the
prevailing party (collectively, "fees and costs"), including: (i) reasonable
attorneys' fees and costs and expenses; (ii) witness fees (including experts
engaged by the parties, but excluding officers, directors, employees, managers
or general partners of the parties); (iii) accountants' fees; (iv) fees of other
professionals and (v) any and all other similar fees incurred in the prosecution
or defense of the action or proceeding; including the following: (1)
postjudgment motions; (2) contempt proceedings; (3) garnishment, levy, and
debtor and third party examinations; (4) discovery and (5) bankruptcy
litigation. All of the aforesaid fees and costs shall be deemed to have accrued
upon the commencement of such action, and shall be paid whether or not such
action is prosecuted to judgment. Any judgment or order entered in such action
shall contain a specific provision providing for the recovery of the aforesaid
fees, costs and expenses incurred in enforcing such judgment and an award of
prejudgment interest from the date of the breach at the maximum rate of interest
allowed by law. The term "prevailing party" is defined as the party who is
determined to prevail by the court after its consideration of all damages and
equities in the action or proceeding (the court shall retain the discretion to
determine that no party is the prevailing party, in which case no party shall be
entitled to recover its fees and costs under this subsection 16).
-------------
17. ASSIGNMENT AND DELEGATION; SUCCESSORS AND ASSIGNS.
(a) ASSIGNMENT OR DELEGATION. Except as specifically provided in this
------------------------
Agreement, no party (an "assigning party") may directly or indirectly sell,
license, transfer or assign (whether through a merger, consolidation,
conversion, sale of assets, sale or exchange of securities, or by operation of
law, or otherwise) any of such party's rights or interests under this Agreement,
or delegate any of such party's duties or obligations under this Agreement, in
whole or in part, including to any subsidiary or to any affiliate, without the
prior written consent of the other party (a "consenting party"), which consent
may be withheld in the consenting party's sole and absolute discretion;
provided, however:
(i) Subject to prior compliance with subsection (iii) and
----------------
subsection (iv) below, an assigning party may assign all of the rights and
---------------
interests and delegate all of the duties and obligations of the assigning
party under this Agreement in connection with a transaction whose principal
purpose is to change the State in which the assigning party is
incorporated, or to form a holding company, or to effect a similar
reorganization as to form of entity without change of beneficial ownership,
including through: (1) a merger or consolidation or stock exchange or
divisive reorganization (i.e., spin-off, split-off or split-up) or other
reorganization with respect to the assigning party and/or its stockholders;
or (2) the sale, transfer, exchange or other disposition by the assigning
party of its assets in a single or series of related transactions, so long
as such transferee, purchaser or surviving person shall expressly assume
such obligations of the assigning party;
(ii) Subject to subsection (iii) and subsection (iv) below, an
---------------- ---------------
assigning party may, with the prior written consent of the consenting
party, which consent the consenting party may withhold in its sole and
absolute discretion, assign all of the rights and interests and delegate
all of the duties and obligations of the assigning party under this
Agreement to any other person in connection with the transfer or sale of
the entire business of the assigning party (other than with respect to a
sale described in subsection (i) above), or the merger or consolidation of
--------------
the assigning party with or described in subsection (i) above), so long as
--------------
such transferee, purchaser or surviving person shall expressly assume such
obligations of the assigning party;
(iii) Notwithstanding anything in subsection (i) or subsection (ii)
-------------- ---------------
above to the contrary, no assignment or transfer under subsection (i) or
--------------
subsection (ii) may be effectuated unless the proposed transferee or
---------------
assignee first executes such agreements (including the restatement of this
Agreement) in such form as the consenting party may deem reasonably
satisfactory to: (1) evidence the assumption by the proposed transferee or
assignee of the obligations of the assigning party; and
-xvii-
<PAGE>
(2) to ensure that the consenting party continues to receive such rights,
benefits and protections (both legal and economic) as were contemplated by the
consenting party when entering into this Agreement; and
(iv) Notwithstanding anything in subsection (i) or subsection (ii)
-------------- ---------------
above to the contrary: (1) any assumption by a successor or assign under
subsection (i) or subsection (ii) above shall in no way release the
-------------- ---------------
assigning party from any of its obligations or liabilities under this
Agreement; and (2) and any merger, consolidation, reorganization, sale or
conveyance under subsection (i) or subsection (ii) above shall not be
-------------- ---------------
deemed to abrogate the rights of the consenting party elsewhere contained
in this Agreement, including those resulting from a Change In Control.
Any purported assignment or transfer in violation of the terms of this
subsection 17(a) shall be null and void ab initio and of no force and effect,
- ----------------
and shall vest no rights or interests in the purported assignee or transferee.
(b) SUCCESSORS AND ASSIGNS. Subject to subsection 17(a) above, each and
----------------
every representation, warranty, covenant, condition and provision of this
Agreement as it relates to each party hereto shall be binding upon and shall
inure to the benefit of such party and his, her or its respective successors and
permitted assigns, spouses, heirs, executors, administrators and personal and
legal representatives, including any successor (whether direct or indirect, or
by merger, consolidation, conversion, purchase of assets, purchase of securities
or otherwise).
18. MISCELLANEOUS
(a) COSTS AND EXPENSES. Except as expressly set forth in this Agreement,
------------------
each party shall pay all legal and other fees, costs and expenses incurred or to
be incurred by such party in negotiating and preparing this Agreement; in
performing due diligence or retaining professional advisors; and in complying
with such party's covenants, agreements and conditions contained herein.
(b) COOPERATION. Each party agrees, without further consideration, to
-----------
cooperate and diligently perform any further acts, deeds and things, and to
execute and deliver any documents that may be reasonably necessary or otherwise
reasonably required to consummate, evidence, confirm and/or carry out the intent
and provisions of this Agreement, all without undue delay or expense.
(c) NOTICES. Unless otherwise specifically provided in this Agreement, all
-------
notices, demands, requests, consents, approvals or other communications
(collectively and severally called "notices") required or permitted to be given
hereunder, or which are given with respect to this Agreement, shall be in
writing, and shall be given by: (i) personal delivery (which form of notice
shall be deemed to have been given upon delivery); (ii) by telegraph or by
private airborne/overnight delivery service (which forms of notice shall be
deemed to have been given upon confirmed delivery by the delivery agency), (iii)
by electronic or facsimile or telephonic transmission, provided the receiving
party has a compatible device or confirms receipt thereof (which forms of notice
shall be deemed delivered upon confirmed transmission or confirmation of
receipt); or (iv) by mailing in the United States mail by registered or
certified mail, return receipt requested, postage prepaid (which forms of notice
shall be deemed to have been given upon the fifth {5th} business day following
the date mailed). Notices shall be addressed at the addresses set forth below,
or to such other address as the party shall have specified in a writing
delivered to the other parties in accordance with this paragraph. Any notice
given to the estate of a party shall be sufficient if addressed to the party as
provided in this subsection (c).
--------------
If to the Company: Pinnacle Oil International, Inc.:
840th 7th Avenue, S.W., Suite 750
-xviii-
<PAGE>
Calgary, Alberta, Canada T2P 3G2
Telephone No.: (403) 264-7020
Facsimile No.: (403) 264-6442
If to the Indemnitee: -----------------------------
-----------------------------
-----------------------------
Telephone No.: (___) ____________
Facsimile No.: (___) ____________
(d) COUNTERPARTS; ELECTRONICALLY TRANSMITTED DOCUMENTS. This Agreement
--------------------------------------------------
may be executed in counterparts, each of which shall be deemed an original, and
all of which together shall constitute one and the same instrument, binding on
all parties hereto. Any signature page of this Agreement may be detached from
any counterpart of this Agreement and reattached to any other counterpart of
this Agreement identical in form hereto by having attached to it one or more
additional signature pages. If a copy or counterpart of this Agreement is
originally executed and such copy or counterpart is thereafter transmitted
electronically by facsimile or similar device, such facsimile document shall for
all purposes be treated as if manually signed by the party whose facsimile
signature appears.
(e) EXECUTION BY ALL PARTIES REQUIRED TO BE BINDING. This Agreement shall
-----------------------------------------------
not be construed to be an offer and shall have no force and effect until all
parties hereto pursuant to the terms of section 18(d). Until such time as all
-------------
parties fully execute this Agreement, any party who has previously executed and
delivered this Agreement may revoke such execution and delivery.
WHEREFORE, the parties hereto have executed this Agreement in the City of
Calgary, Province of Alberta, as of the date first set forth above.
Company: Pinnacle Oil International, Inc.,
By:_______________________________
Indemnitee: _______________, an individual
_______________________________
-xix-
<PAGE>
EXHIBIT 10.28
________________________________________________________________________________
EVALUATION OF STRESS FIELD
DETECTOR TECHNOLOGY
IMPLICATIONS FOR OIL AND GAS
EXPLORATION IN WESTERN CANADA
________________________________________________________________________________
This report has been prepared as an independent evaluation for Pinnacle Oil
International Inc. The evaluation is based upon field trials of their
proprietary SFD Technology conducted between September 16 - 28, 1996, over known
oil and gas accumulations in central Alberta, Canada.
Report Prepared By
ROD MORRIS
P. Geologist, A.P.E.G.G.A
September 30, 1996
________________________________________________________________________________
<PAGE>
Evaluation of Stress Field Detector Technology
Implications for Oil and Gas Exploration in Western Canada
Rod Morris, P. Geologist
September 30, 1996
ABSTRACT
A field evaluation of the Pinnacle Oil International Inc.'s Stress Field
Detector technology (SFD) was conducted in southern Alberta between September
16 - 28/th/, 1996. The evaluation involved over 1,000 miles and 27 hours of SFD
recordings. Field tests were designed to assess the applicability and
reliability of the SFD technology in detecting significant oil and gas
accumulations over a variety of hydrocarbon trap types and reservoirs.
Discussions with Mr. George Liszicasz regarding performance of the SFD indicated
that the technology is currently more conclusive when looking for hydrocarbons
in Limestone and Dolostone reservoirs. Therefore, for the purposes of these
field tests, SFD Profiles were specifically directed at Mississippian and
Devonian age carbonate reservoirs. During the course the field trips a number of
Cretaceous clastic reservoirs were also traversed. Although they were not
intended to be evaluated in this report, one traverse is included as an example.
Six oil and gas trap types representing the primary hydrocarbon trapping
mechanisms of Mississippian and Devonian resevoirs in central Alberta were
evaluated by selecting and traversing 20 specific oil and gas pools. During the
evaluations the vehicle used to transport the SFD was driven by the author. The
SFD operator did not have any prior notice of the intended route nor the oil and
gas accumulations that were traversed. Several observations were made during the
field evaluations:
. The SFD system records an anomalous response over known oil and gas
accumulations;
. The SFD appears to become more definitive in proportion to the size
and quality of the hydrocarbon accumulation;
. Pools within the boundaries of larger regional hydrocarbon reservoirs
were detected substantiating the ability of the SFD to detect multiple
horizon oil and gas accumulations;
. Oil versus gas accumulations can be successfully differentiated as
experience in gained in an area;
. Existing boundaries of fully developed pools were delineated with
accuracy's approaching several hundred meters;
. The SFD only appears to become saturated over large hydrocarbon pools
which can extend their apparent size. Multiple traverses from opposing
directions must be conducted to minimize this effect;
. Signal saturation appears to be cumulative, decreasing instrument
sensitivity during extended use;
The field tests were directed at Devonian Leduc, Nisku and Wabamun formations;
and Mississippian Pekisko and Elkton formations. Oil pools evaluated ranged in
size from 6.6 million to 88 million barrels in place and from 0.25 to 6 square
miles in aerial extent at depths ranging from 5,200 to 7,300 ft. Gas pools
evaluated ranged in size from 25 billion to 1.9 trillion cubic feet of natural
gas in place and 2 to 112 sq. miles in aerial extent at depths ranging from
5,000 to 11,700 feet.
Definite anomalous SFD responses were recorded over 19 of the 20 targeted known
pools representing all of the six trap types surveyed. These responses clearly
demonstrate the effectiveness of the SFD to detect significant hydrocarbon
accumulations. Although SFD technology is in its infancy, it adds an entirely
new dimension to oil and gas exploration. This technology compliments and
significantly enhances the coventional tools of seismic, subsurface geology and
airborne geophysical surveys that are currently in widespread use by the oil and
gas industry worldwide.
<PAGE>
================================================================================
EVALUATION OF STRESS FIELD
DETECTOR TECHNOLOGY
IMPLICATIONS FOR OIL AND GAS
EXPLORATION IN WESTERN
CANADA
================================================================================
Introduction
- --------------------------------------------------------------------------------
Mississippian and Devonian aged reservoirs in central Alberta are well known for
containing large accumulations oil and gas. Over a period of seven days three
field trips with the Stress Field Detector technology (SFD) were undertaken to
survey 20 known oil and gas pools. The purpose of the surveys were to test the
applicability and reliability of the SFD in Alberta, as well as assess current
limitations of the technology. The field tests were not designed or intended to
find new exploration prospects. The SFD surveys and routes were designed and
selected solely by the author. The principals of Pinnacle Oil International had
no input in, or prior knowledge of, the objectives of the study.
Subsurface fluids are found in porous rocks geologists and engineers call
"aquifers". Over time portions of aquifers can become locally sealed to create
"traps" or "reservoirs". Initially, all reservoirs are filled with water. As oil
and gas are generated from the surrounding shale's called "source rocks", they
accumulate in the aquifers. Since hydrocarbons are lighter than the water, they
migrate upward within the aquifer until the aquifer terminates or a local trap
is created. If enough hydrocarbons collect in a trap an oil or gas pool or
reservoir is created. Therefore, in order to create an economic accumulation of
hydrocarbons three things must occur.
1. The trap must be sufficiently large;
2. The reservoir must be porous and permeable enough to store and transmit
fluids;
3. Enough hydrocarbons had to be generated and accumulated in the trap to
create an economic deposit.
To evaluate the SFD technology the field tests were designed to profile six
primary trap styles, as well as known water versus hydrocarbons filled aquifers
and reservoirs.
<PAGE>
. Figure 1. illustrates a subcrop or erosional edge trap and is
representative of typical Elkton and Pekisko reservoirs evaluated in
central Alberta. These traps are profiled by SFD traverses of the
Chestermere Elkton oil pool; and the Carstairs and Crossfield Elkton gas
pools.
Figure 1. Subcrop Edges and Outliers
. Figure 2. is typical of Nisku pools that develop behind the Leduc reef
margins in Alberta. These traps are a combination of structural highs and
facies changes, SFD traverses of the Wayne-Rosedale and Drumheller Nisku
"B" oil pools are included.
Figure 2. Drape over Structures or Reefs
. Figure 3. represents a typical pinnacle reef development in the Leduc and
Nisku formations. SFD traverses of Nisku patch reefs at Mikwan; and Leduc
pinnacles at Fenn West are illustrated. At Fenn West drape of the Nisku
formation over the underlying Leduc Pinnacles creates multizone pools.
Figure 3. Isolated Pinnacle or Patch Reefs
. Figure 4. depicts a porosity pinch out and is the type of trap that
contains oil in the Nisku Fm. at Joffre and gas in the giant Wabamun pools
found in the Crossfield area of Alberta. A traverse of the Crossfield East
pool is illustrated.
Figure 4. Porosity Lenses or Pinch Outs
. Figure 5. illustrates a typical large Devonian atoll in which hydrocarbons
are trapped along the updip margins of the reef complex. Or in overlying
formations that drape over the reef margins creating a structural high. SFD
Profiles of the Wimbome Leduc and Nisku oil pools; and West Drumheller
Nisku "A" are representative of this type of trap.
Figure 5. Large Reef Complexes and Atolls
. Figure 6. is a simplified diagram of thrust faulted structural traps that
develop along the foothills of the Rocky Mountains. These traps are very
complex but can contain significant hydrocarbon accumulations in
Mississippian and Devonian reservoirs. A traverse of the Jumping Pound west
pool is illustrated.
Figure 6. Thrust Faults
Hydrocarbon accumulations in the above trap types were selected to document the
________________________________________________________________________________
Evaluation of SFD Technology Page 2 CONFIDENTIAL
<PAGE>
performance of the SFD over a cross section of pool sizes and trapping
mechanisms.
The SFD field evaluations were made during three separate trips on trips on
September 18, 22 and 28, 1996. The trips were conducted on primary and
secondary roads covering a total of 1,000 miles and 27 hours of SFD
sampling throughout central Alberta. The author, Mr. George Liszicasz and
Mr. Dirk Stinson were the only people involved in the evaluations. Table 1
summarizes the SFD Profiles detailed in this report. These pools were
deliberately traversed in order to evaluate the SFD technology.
Table 1.
<TABLE>
<CAPTION>
====================================================================================================================================
SFD PROFILE # OIL / DEPTH AVG. PAY, PROVEN SFD SFD ANOMALY
POOL NAME GAS FEET POROSITY AREA RESERVES PROFILE
(SQ. MI.) REPEATED
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
1) Chestermere Oil unknown new pool 2, E to W Excellent, repeatable oil
Elkton and W to E signature.
- ------------------------------------------------------------------------------------------------------------------------------------
2) Wayne Oil 5,800 up to 65', 12%, more than new pool 2, E to W Excellent, repeatable oil
Rosedale D2 "A" 3.5 and W to E signature
- ------------------------------------------------------------------------------------------------------------------------------------
3) Drumheller Oil 5,430 31', 7.6%, 4.7 36 MMBbls 2, S to N and Excellent, repeatable oil
Nisku B N to S signature
- ------------------------------------------------------------------------------------------------------------------------------------
4) Drumheller W Oil 5,500 46', 7%, 6.7 63 MMBbls 1, N to S Excellent oil signature
Nisku A
- ------------------------------------------------------------------------------------------------------------------------------------
5) Carstairs Gas 7,600 unknown est. 50 BCF + 1, N to S Good gas signature
Elkton NGL NGL's
- ------------------------------------------------------------------------------------------------------------------------------------
6) Crossfield Gas 8,526 31', 7%, 112 1.3 TCF 1, E to W Strong repeatable gas
East, Wabaman 3, N to S signature
- ------------------------------------------------------------------------------------------------------------------------------------
7) Crossfield Gas 7,520 34', 6%, 3.7 70 BCF & 6.6 3, N to S Excellent, repeatable gas
East, Elkton MMBbls signature
- ------------------------------------------------------------------------------------------------------------------------------------
8) Mikwan Nisku Oil 7,000 area less than 0.25 1.6 MMBbls 1, N to S Distinctive SFD Signature
D2-1
- ------------------------------------------------------------------------------------------------------------------------------------
9) Fenn West Oil 5,800 area less than 0.25 9 pools up to 9 1, N to S SFD profile questionable,
Nisku & Leduc MMBbls requires further field
work,
- ------------------------------------------------------------------------------------------------------------------------------------
10) Wimbome Oil 7,300 26, 5%, 6 & 620 BCF & 88 1, W to E Excellent gas and oil
Nisku B & Leduc 60, 8%, 24 MMBbls Total signatures
- ------------------------------------------------------------------------------------------------------------------------------------
11) Jumping Gas 9,400 - 180, 8%, 7 & 874 BCF & 1, E to W Strong, repeatable
Pound Area, 11,240 120, 6%, 30 2.76 TCF 2 W to E signature
Rundle
- ------------------------------------------------------------------------------------------------------------------------------------
12) Gadsby Gas 3,700 24', 20-25%, 15 BFC 1, N to S Excellent gas signature
Cretaceous less than 1.5
====================================================================================================================================
</TABLE>
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Evaluation of SFD Technology Page 3 CONFIDENTIAL
<PAGE>
Discussion
- --------------------------------------------------------------------------------
Each of the 20 pools traversed were selected and profiled for specific reasons.
The traverses were designed to test the response, reliability and repeatability
of the SFD to various trap types, pool sizes, reservoir fluids and reservoir
quality.
In the Crossfield area natural gas is produced from wells that have encountered
multiple carbonate horizons. This area was profiled to test for the ability of
the SFD to detect smaller pools either above or below a regionally extensive gas
bearing carbonate reservoir.
Twelve of the 20 pools traversed are detailed in this report.
SFD PROFILE 1. CHESTERMERE ELKTON
The Chestermere Elkton pool is a recent discovery that produces 36 degrees oil
from an Elkton Fm. erosional subcrop edge or outlier. This trap type is shown in
Figure 1, and is typical of the majority of Elkton Reservoirs that produce oil
or gas in southern Alberta. The Chestermere traverse clearly demonstrated that
an erosional edge filled with oil could be detected. The proven boundaries of
this pool have yet to be defined. It is important to note that the detection of
hydrocarbons is best when done in a real time setting. Mr. Liszicasz was not
told of the pools existence until after he has emphatically stated, without
prompting. "There is oil here, it must be here!". When informed that we were
deliberately traversing a new oil discovery his response was a good natured,
"you are trying to tick me!". However, the SFD Profile and Mr. Liszicasz
immediate interpretation of a strong oil signature established strong
credibility for the SFD technology. This particular oil pool was traversed twice
and successfully identified in both directions. Subcrop plays can be difficult
to interpret using conventional seismic techniques, but if seismic and the SFD
Profiles were to be combined along known subcrop plays, the oil industry would
have a very powerful set of tools.
SFD PROFILE 2. WAYNE / ROSEDALE NISKU OIL
The Wayne / Rosedale oil pool was selected as the second pool to be traversed
for three reasons. First, the pool is a recent discovery that is being developed
with directionally drilled wells from central pads. Second, the pool does not
appear to be draped over a Leduc reef margin like other surrounding Nisku pools.
The third reason was that the Nisku Fm. is a blanket carbonate that extends over
hundreds of square miles in this area and is approximately 100 kilometers from
the Chestermere Elkton pool discussed above. There are no known hydrocarbon
accumulations in carbonate pools along the route that was taken between these
two pools. Furthermore the route was designed to remain in the continuous Leduc
and Nisku Fm carbonate complex. The purpose was to observe how the SFD reacted
in an area which has not produced any known carbonate pools, but has numerous
shallow gas pools and fields. In this situation many weak signals and changes in
the SFD recording were observed but, there were no violent or drastic changes
similar to the Chestermere profile.
Due to the nature of the development of the Wayne / Rosedale Nisku Pool the pool
boundaries are not obvious to the casual observer. Most of the surface equipment
is located at central pads with directional wells that are deviated up to 0.5
miles laterally. Although the terrain is open prairie the rolling land also
obscures any vision of the limited surface equipment as the pool is approached
from the southwest. Once again there was no prior warning that a significant oil
pool was being approached. At the south western margin of the pool the SFD
produced a strong anomalous reading that continued until 300m past the
northeastern most wells in the pool. Dramatic variations in the amplitude of the
signal were also observed which may indicate changes in the reservoir quality,
pay thickness or continuity. However, more comprehensive studies must be
undertaken to determine if detailed SFD profiling can be used in reservoir
characterization studies. The characteristics of the SFD waveform are
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Evaluation of SFD Technology Page 4 CONFIDENTIAL
<PAGE>
very similar to those recorded over the West Drumheller Nisku "A" pool shown in
SFD Profile 4.
The Wayne / Rosedale Nisku oil pool was profiled on two separate field trips
from opposing directions. Both traverses recorded powerful SFD signatures. These
traverses strongly support the ability of the SFD to detect localized
hydrocarbon accumulations within regionally extensive carbonate banks.
SFD PROFILE 3. DRUMHELLER NISKU "B" POOL
The Drumheller Nisku "B" oil pool is approximately 7 miles north of the Wayne /
Rosedale Nisku pool and was discovered in 1961. It is interesting to note that
34 years elapsed before the next major Nisku oil pool was discovered only 7
miles to the south in this area.
The Drumheller Nisku "B" pool is formed by a combination of drape along the
underlying Leduc carbonate bank margin, structural highs and patch reef
development. This is similar to the trap shown in Figure 2. but with elements of
the traps shown in Figure 5. This pool is thought to be very similar to the
Wayne / Rosedale pool.
A traverse across this pool was done to observe how the SFD would profile a very
complex reservoir. The Drumheller Nisku "B" pool is well known for being
heterogeneous in geographic, as well as reservoir development. Especially along
its eastern flank, oil wells that produce hundreds of thousands of barrels of
oil can be offset by 200m and encounter water filled reservoir.
The SFD Profile of this pool is very abrupt with sharp boundaries. The full
meaning of this signature will require detailed waveform analysis and
comprehensive study of future surveys. However, there is no doubt that the SFD
reacted very dramatically when traversing this pool. The northern boundary of
the pool can be matched to within 200m of the SFD Profile.
SFD PROFILE 4. WEST DRUMHELLER NISKU "A"
The West Drumheller Nisku "A" pool is located 5 kilometers west of the
Drumheller Nisku "B" pool discussed above. This pool is typical of the trap
illustrated in Figure 5.
The trap is created by drape over the underlying margin of the Leduc carbonate
complex. In portions of the pool, both the Leduc and Nisku Formations contain
oil. This pool was traversed in order to compare its SFD Profile with that of
the more irregularly shaped and heterogeneous Drumheller Nisku "B" pool
discussed above. As shown in the SFD Profile the two pools have dramatically
different SFD signatures, even though they produce from the same formation and
are only 5 kilometers apart. These two profiles indicate that like seismic, SFD
Profiles are not unique signatures of the subsurface.
Further study is required to determine the significance of the Drumheller and
West Drumheller SFD Profiles. However, the SFD produced strong anomalous
readings over both pools.
SFD PROFILE 5. CARSTAIRS ELKTON
The Carstairs Elkton Gas pool was discovered in September 1995. The author was
directly involved in the exploration and approval process leading up to this
discovery. The pool is typical of the trap type illustrated in Figure 1. and is
essentially the same play type as the Chestermere Elkton pool in SFD Profile 1.
The major difference is that Chestermere is an oil pool and Carstairs is a gas
and natural gas liquids (NGL) pool.
The Carstairs pool was discovered using a combination of 2 - dimensional (2-D)
seismic and subsurface geological information from surrounding well bores. The
original 2-D seismic interpretation indicated that there was a potential
erosional remnant of the Elkton formation that had not been previously drilled.
The Elkton Fm. to the west of Carstairs had been producing natural gas for over
35 years. The seismic over the prospect was tied to the older Elkton "A" gas
pool and surrounding wells that had not encountered the Elkton reservoir.
Subsequent reprocessing of a key seismic line over the prospect indicated that
the proposed exploration well would not encounter any Elkton Fm. and would
likely result in a dry hole. The reprocessed seismic data was ultimately ignored
and the prospect was drilled based upon the original interpretation. The well is
currently producing 20-25 MMCF and 1000 Bbls of NGL per day.
________________________________________________________________________________
Evaluation of SFD Technology Page 5 CONFIDENTIAL
<PAGE>
The key lesson in the above history is for the reader to understand that seismic
does not provide a unique interpretation of the subsurface. After fifty plus
years of development, the geophysical industry is still learning how to acquire,
process and interpret seismic data. Furthermore, only in very specific
circumstances can seismic make any indication of the type of reservoir fluids.
The purpose of the SFD traverse was three fold; to compare the signature with
that of the Chestermere oil discovery; determine if the SFD could detect
relatively small carbonate gas pools; and examine the potential size of the
Carstairs discovery. The SFD Profile of the Carstairs Elkton pool clearly
produced a strong anomalous reading. North and south boundaries of the pool were
well defined by the SFD. The profile is similar in character to that of
Chestermere Elkton (SFD Profile 1), except the profile is much tighter,
indicating gas.
SFD PROFILE 6. CROSSFIELD EAST WABAMUN
Crossfield Alberta is famous for the giant Wabamun and Elkton formation gas
pools that have been producing in this area since the late 1950's. The Wabamun
Crossfield member reservoir is a porous dolomito sandwiched between tight
limestone and sealed updip by anhydrite and salts. The trap is illustrated in
Figure 4. The traverse of this reservoir was designed to determine if the SFD
could detect pools that did not have a significant structural component, or a
major change in reservoir thickness that controlled the development of the
reservoir. The blanket like nature of the Crossfield reservoir and tremendous
aerial extent would also indicate to what degree saturation of the SFD can
become a factor. Finally, the Crossfield east pool has several overlying Elkton
pools that are completely enclosed within the boundaries of the Wabamun pool.
This would allow a perfect opportunity to observe SFD signatures over
multi-formation carbonate pools.
SFD Profile 6 is an extremely compressed representation of the SFD signals
recorded in the Crossfield area. The horizontal scaling is 350 to 1 versus 10 to
1 for most of the other profiles illustrated in this report. At the left or
northern end of the profile, a sharp drop is recorded just before the SFD
entered the Crossfield East pool. This drop represents the area separating the
Lone Pine Wabamun pool from the Crossfield East Wabamun pool. South of this
point the traverse clearly shows an elevated SFD signature that extends off the
profile to the south and east. The sharp drops in the profile were recorded in
areas where the Crossfield reservoir is not productive. On the north end of the
profile numerous oil signatures were also noted. In some instances these
coincided with shallow oil pools producing from the Cretaceous age Cardium fm.,
others have not been drilled as of this report. The southern half of the profile
has a very strong, high amplitude signature that occurred as the shallower
Crossfield East Elkton "A" pool was traversed. This high amplitude zone weakens
slowly to the south rather than forming an abrupt drop as seen at Carstairs.
This may be the result of saturation of the SFD. The salient points of this
profile are:
. Elevated base level of the overall SFD Profile,
. Sharp increases in amplitude across known Elkton accumulations,
. Oil signals observed across shallower Cretaceous oil pools,
. significant drops in the SFD signal amplitude in areas where the Crossfield
member of the Wabarmun is known to be tight and non productive.
The SFD Profile shown is not complete across the southern portion of the map
between Airdrie and the portion of the route traveled along Highway 566. This
was due to space and resolution limitations. However, the SFD recorded
anomalous gas signatures over the southern pools as well.
The results of three traverses of the Crossfield area were very encouraging.
They clearly showed repeatability of an SFD anomaly signature. They also
substantiate the ability of the SFD to detect multiple zone pools and their
boundaries, possibly with a high degree of accuracy and repeatability in areas
where regionally extensive hydrocarbon reservoirs are known.
- --------------------------------------------------------------------------------
Evaluation of SFD Technology Page 6 CONFIDENTIAL
<PAGE>
SFD Profile 7. Crossfield East Elkton "A"
The Crossfield East Elkton "A" profile is included in the Crossfield East
Wabamun SFD Profile. This SFD Profile is included to show the type of SFD
signature that was obtained from a pool within a pool. The pool is an Elkton
formation outlier that is typical of the trap type shown in figure 1.
The Elkton "A" pool traverse is important because it demonstrates the ability of
the SFD to detect smaller pools within the boundaries of larger pools. The SFD
recorded an abrupt increase in readings entering the Elkton "A" pool despite the
elevated background levels of the underlying Wabamun reservoir. The change in
signal strength closely matches the proven limits of the pool and demonstrates
the credibility of the technology. This ability to detect the Elkton "A" pool
was demonstrated on three separate field excursions.
A further implication is that the SFD could also be used to detect sweet spots
within regional reservoirs. Matching SFD signal characteristics with detailed
mapping of known reservoir production profiles, may expand the usefulness of SFD
profiling to reservoir characterization studies.
SFD Profile 8. Mikwan Nisku
The Mikwan Nisku D2-l pool was traversed to determine whether small patch reefs
could be detected with the SFD. The reservoir trap type is illustrated in Figure
3. It is a single well pool with less than 160 acres of aerial extent. The patch
reefs are encased in a tight anhydrite off reef facies that provides the lateral
and vertical seals. Although these pools are small they are very prolific
producers capable of producing hundreds of BOPD. These pools are very difficult
to detect, even on 3-D seismic.
Several Nisku tests that did not encounter any reservoir were passed en route to
the D2-l pool. These holes provided added credibility for the SFD in the area by
confirming the background signature of the SFD.
SFD Profile 8 illustrates the signature that was recorded approximately 300'
feet west of the producing well on a north to south traverse. The signature
shows an abrupt increase in amplitude and activity of the SFD recording.
There were other anomalous signals recorded in the Mikwan area that are
essentially identical to the Mikwan Nisku D2-l, pool. These anomalies have not
been drilled as of the date of this report.
SFD Profile 9 Fenn West Nisku and Leduc
The Fenn West area has several prolific Leduc pinnacle reefs that were
discovered in the early 1980's. After the initial discovery the area was the
target of intense exploration efforts by the oil and gas industry. However, the
reefs have proven to be a difficult and expensive target to explore for. This is
primarily due to the small aerial size of the pools. Figure 3 is a schematic
diagram typical of pinnacle reef traps.
The reefs are usually less than 320 acres (0.5 sq. mi.) in size and several have
been found that are believed to be less than 35 acres in size. Despite the small
aerial extent, these pools can hold significant oil reserves with the larger
reefs capable of producing several million barrels of oil.
The problem is in locating the reefs without having to shoot large grids of
closely spaced 2-D or 3-D seismic surveys. Therefore the purpose of the
traverses in the Fenn West area were to determine whether the SFD could detect
these small targets. Several producing Leduc reefs were profiled during the
field evaluations. The results were mixed and further work is required before a
conclusion may be reached as to the validity of SFD sampling for this play type.
SFD Profile 9 is the most interesting of the traverses done on this play type.
The SFD did not record any signals across an area that has three known Leduc
pinnacles within 1.5 square miles. However, closer inspection revealed that
three wells were directionally drilled virtually directly under the road that
was used to traverse the area. Two of these wells were dry holes and the third
did not produce enough oil to justify the cost of drilling. The producing wells
that were the target of the traverse can be seen 1000 feet east and west of the
roadway and therefore they were not directly traversed.
This profile raises many questions, especially after the success encountered in
detecting equally small Nisku patch reefs in the Mikwan
________________________________________________________________________________
Evaluation of SFD Technology Page 7 CONFIDENTIAL
<PAGE>
area. The Fenn West area requires further field work to compare SFD profiles
over other Leduc pinnacle reefs before any conclusions can be reached regarding
SFD Profile 9. It should be noted that this was the only planned SFD traverse of
a known hydrocarbon pool that did not record an anomalous SFD reading.
SFD PROFILE 10 WIMBORNE LEDUC AND NISKU
The Wimborne Leduc and Nisku pools were selected to test the lateral resolution
of the SFD. These two pools represent the trap type illustrated in Figure 5.
They are situated along the updip margin of a Leduc reef complex that covers
several hundred square miles. These pools are different in fluid composition in
that the Leduc reservoir has a substantial associated gas column (45') above a
relatively thinner oil column (15'); while the Nisku D2-A pool does not have an
associated gas column.
During the traverse the Nisku pool was correctly identified as an oil pool,
furthermore the limits of the pool were very precisely defined.
As the Leduc pool was traversed Mr. Liszicasz correctly identified the limits of
the pool, but also made remarks regarding the signal that indicated a much more
gassy reservoir. These remarks were made without any prior knowledge of either
the producing zone, fluid type, or surface facilities in the area.
The results of this traverse lend credibility to claims that SFD Profiling can
provide further indication regarding the nature of the hydrocarbons in a given
reservoir.
SFD PROFILE 11 JUMPING POUND WEST RUNDLE
The Jumping Pound and Jumping Pound West pools are giant gas reservoirs found
along the eastern margin of the Rocky Mountains. The pools are contained in
traps similar to Figure 6, although this is an extremely simplified
representation of these complex traps. These pools were traversed on three
separate road trips with anomalous signatures recorded each time. The geology of
these pools is very complex due to the thrust faulting that has created the
traps. The reservoir and surrounding formations are often inclined at steep
angles or tightly folded, which makes seismic imaging of these reservoirs very
challenging. Thrust faulting creates fractures and fault planes that can enhance
the productivity of the reservoir, but also scatter seismic reflections.
These pools were selected for two reasons. First, to evaluate the ability of the
SFD to detect hydrocarbons in purely structural traps. Second to evaluate the
horizontal resolution of the SFD in heavily structured areas. The later would
provide clues as to whether the SFD would detect the pools at the surface
expression of the thrust faults, or actually above the underlying pool.
For this test the SFD was calibrated to acquire only high energy signals. This
was due to the SFD's propensity to react to strong faulting in the region. The
SFD traverse recorded the strong anomalous signatures directly above the Jumping
Pound and Jumping Pound West pools. Both of the signatures are comparable in
character, however, the larger Jumping Pound West anomaly is stronger and wider
than the signature of the smaller Jumping Pound pool.
These signatures add further credibility to claims that the SFD not only detects
hydrocarbon reservoirs, but inferences can be made to the relative size of the
two adjacent anomalies. Examination of the magnitude of two proximal SFD
signatures may allow geologists to place a relative ranking on the size of
separate prospects.
The clarity of the SFD response over these large structural gas pools was very
impressive.
SFD PROFILE 12 GADSBY CRETACEOUS GAS.
Although the field evaluations of the SFD were targeted at carbonate reservoirs
in central Alberta, many Cretaceous age oil and gas pools were traversed over
the 1,000 miles of surveys. Most of these pools were shallow gas pools (less
than 1,500 - 2,000 feet). However, several significant anomalies were
encountered that when examined in Calgary and were clearly recorded over
Cretaceous age clastic reservoirs. These reservoirs had
________________________________________________________________________________
Evaluation of SFD Technology Page 8 CONFIDENTIAL
<PAGE>
one common characteristic: they have all produced abnormally high volumes of gas
in comparison to surrounding wells.
A more in-depth study is required before any more detailed conclusions can be
drawn regarding the SFD's effectiveness in clastic reservoirs. SFD Profile 12 is
included as an example of one of these anomalies that were encountered over
significant Cretaceous age clastic reservoirs.
EXPLORATION POTENTIAL OF SFD TECHNOLOGY
During the course of conducting field evaluations of the SFD, several major
anomalous reactions were observed that have not been drilled at this time. Each
of these anomalies requires further investigation before it would be selected as
a drilling prospect. Ultimately, subsurface geology and seismic would have to be
evaluated in conjunction with multiple SFD traverses from various directions.
These anomalous SFD recordings are both very intriguing and promising.
SFD PROFILE 13. UNDRILLED PLAINS AREA ANOMALY
This anomaly was recorded in the plains area of central Alberta. The anomaly
displays typical characteristics of a major gas, or gas and NGL's pool. Similar
SFD signatures were recorded in the Chestermere, Airdrie and Crossfield areas
where several large Elkton Fm. pools have been producing for up to 30 years.
It is noteworthy that this anomaly extends for over 2 miles in length, and is
untested.
SFD PROFILE 14. UNDRILLED POTENTIAL FOOTHILLS STRUCTURE ANOMALY
This SFD anomaly was recorded in the foothills of Alberta. Readers are
encouraged to compare this anomaly to the SFD signature of the Jumping Pound
West Pool, illustrated in SFD Profile 11, which has established reserves of 1.8
TCF of natural gas.
The above examples are two of the six promising anomalies that were encountered
during the field evaluations. These undrilled anomalies were documented to
illustrate the exploration potential of the SFD.
SUMMARY NOTES
SFD profiling produced a 95% success ratio in identifying known oil and gas
accumulations within carbonate reservoirs. Only one profile produced
questionable results. This profile was taken along a north south road which had
three wells drilled directionally under it. One of these wells encountered the
D-3 reef but was a marginal producer. The other two wells were abandoned, yet
300m, east and 300m west of the road two D-3 pinnacles are currently producing
oil and have produced in excess of 2 MMBbls of oil to date. If the SFD is
accurate in locating pinnacle reefs with an error of less than 250m, then this
apparent failure to produce an anomaly becomes an exceptional example of the
lateral definition of SFD. The SFD Profile for this traverse was discussed in
SFD Profile 9 above.
The immediate question that comes to mind is "what does SFD actually measure?".
The answer to this question is unknown to the author, but several possible
answers can be immediately ruled out.
. The SFD does not react to surface or airborne hydrocarbons. There would be
a massive reaction every time you approached a gas station if this was the
case, and the SFD does not detect gas stations!
. The SFD does not appear to output a signal and read the reflection or
reaction from that signal. It is a passive receiver of signals.
. The SFD does not appear to be influenced by high voltage power lines.
Dozens of high voltage lines were crossed during the field tests with no
reactions recorded.
. The SFD does not appear to react to the noise generated by surface or
underground oil and gas field
________________________________________________________________________________
Evaluation of SFD Technology Page 9 CONFIDENTIAL
<PAGE>
operations. Identical SFD signatures can be found where one anomaly is
directly attributed to an existing oil or gas well and the next anomaly one
mile away has yet to be drilled.
. SFD signals are not influenced by input from the computer operator
monitoring the SFD signals, I tried.
. The SFD does not appear to react to, radio signals, microwave signals,
cellular phones or any obvious electrical / electronic interference outside
of the instrument.
. Furthermore during the field tests:
. The SFD was not linked to a GPS system during data acquisition.
. Time and date information was recorded automatically with the SFD signals.
This information cannot be altered without access to the software
developers source code. I confirmed this through an independent source that
the software developer will not, and did not, supply the source code to
anyone.
. Large portions of the SFD field excursions did not record any exceptional
SFD anomalies. A review of these areas was conducted using AccuMap and
knowledge of the regional geology. The findings indicated that significant
hydrocarbon bearing carbonate reservoirs were not expected.
The SFD field tests were conducted in all types of weather conditions (not on
purpose). During the tests weather ranged from plus 25 degrees C to freezing,
brilliant sunshine to heavy snow and light overcast to heavy rain (all on the
same day). After all this was Alberta. The weather conditions did not appear to
have any adverse affect on the performance of the SFD.
Advantages of SFD Profiling
- ---------------------------
SFD Profiling of oil and gas reservoirs has many advantages over currently
accepted remote sensing exploration and development tools.
The Key Current Advantages are:
1. Remote indication of reservoir fluid content, i.e. oil, gas or water.
2. Potential for very precise lateral definition of hydrocarbon accumulations.
3. Speed of acquisition and interpretation of the data dramatically reduces
the amount of time and cost required to conduct wide area evaluations.
4. Interpretations can be made in the filed on a real time basis.
5. Portability of the SFD instrumentation allows for rapid deployment.
6. Future development will allow for conducting airborne SFD surveys.
7. Large crews and expensive support equipment are not required to operate the
SFD unlike Geophysical Surveys.
8. SFD Profiling is a non-intrusive, environmentally friendly technology.
Current Limitations of the SFD
The field evaluations have raised questions and highlighted current limitations
regarding the applicability of SFD profiling in the Canadian oil and gas
industry.
The key current limitations are:
1. Surface access. The SFD is currently transported by a specially equipped
vehicle that requires smooth roads and speeds in excess of 10-20 kph. At
higher speeds better resolution appears to be obtained. The SFD appeared to
perform best at highway speeds.
2. The SFD has not evolved to the point where the anomaly can be tied to a
specific depth interval or formation.
3. Pool signatures change depending upon saturation levels of the SFD.
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Evaluation of SFD Technology Page 10 CONFIDENTIAL
<PAGE>
4. The SFD does not record a unique signature for identical reservoirs.
5. Oil and gas have different SFD signatures, but the interpretation of these
signatures is a combination of both science and art.
6. Areas with complex, multi-layered oil and gas accumulations are more
difficult to interpret with the SFD. However, every known major oil or gas
pool that was traversed during the field tests was matched to an anomalous
SFD profile.
7. Direct well ties for evaluation purposes are impossible in most pools due
to the spacing regulations in Alberta. Given the apparent resolution of the
SFD this becomes a factor in field testing.
The above limitations are a combination of the following factors.
. The SFD is still in the early stages of development.
. Surface constraints are a physical barrier to the operation of the vehicle.
. Insufficient testing has been undertaken to determine whether the SFD can
be calibrated to convey information from specific depth ranges, formations
or hydrocarbon types.
Recommendations
The biggest limitation to the operation of the SFD at this time is surface
restrictions. The current method of transporting the SFD and conducting surveys
is by vehicle and reasonable quality road surfaces are required.
In order for the SFD to become more versatile and effective it must learn to
fly!
This will open large areas, that lack surface access, to be surveyed using the
SFD. This will also allow the technology to be utilized in remote basins,
frontier areas and ultimately in offshore surveys.
Further testing should be undertaken to investigate the applicability of this
technology to reservoir characterization studies.
Work should also be initiated to develop the technology to combine 2-D profiles
into three dimensional representations of the SFD data.
Conclusions
Based upon the field trips conducted and empirical results obtained from this
evaluation, it is clear that the SFD technology has excellent potential. The
technology cannot, and is not anticipated to be used in isolation from other
conventional oil industry tools and methods. However, this technology
introduces a new and powerful tool that should improve the industry's ability
to discover significant new hydrocarbon reserves.
Only through further research, field application and integration with current
exploration tools, will the full potential of the SFD ever be achieved. However,
the above noted potential can only be realized if the oil and gas industry
accepts the challenge of embracing this technology.
. It would be a tragic mistake to dismiss this technology simply because the
industry does not understand it.
About the Author
- ----------------
Mr. Morris is an independent geologist with 15 years of multidisciplinary
experience in oil and gas exploration in western Canada. He has been involved in
oil and gas exploration and development; seismic acquisition, processing, and
interpretation research; and new venture developments. He is currently a minor
shareholder in Pinnacle Oil International Inc. through participating in the
March 1995 public offering of Regulation D shares on the OTC NASDAQ Exchange.
At the time of undertaking this evaluation Mr. Morris did not have any direct
affiliation with Pinnacle Oil International, Inc. or any of its principles. The
report was prepared with the cooperation of the principals of Pinnacle Oil.
However, the design and planning of the field trip routes, selection of pools to
be evaluated, findings and conclusions are entirely those of the author.
The author accepts no responsibility for the actions or financial decisions of
third parties that are based upon the information or conclusions provided
herein.
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Evaluation of SFD Technology Page 11 CONFIDENTIAL
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Confidential Waveform information
Eyes Only
[GRAPH APPEARS HERE]
Chestermere - Elkton SFD Signature
West to East Traverse
SFD PROFILE 1
The Chestermere Elkton oil pool was discovered in 1995. The pool boundaries had
not been fully delineated when this SFD profile was recorded. Wells within the
pool can produce up to 800 BOPD. Older Elkton wells 1.5 miles north have
produced in excess of 950,000 barrels of oil and are currently producing
approximately 135 BOPD each. Both pools are approximately 7,000 feet deep. The
reservoir is a dolostone with 8-11% porosity and an average thickness of 40-50
feet.
[MAP APPEARS HERE]
Confidential information - Pinnacle Oil International Inc.
<PAGE>
Confidential Waveform information
Eyes Only
[GRAPH APPEARS HERE]
Wayne Rosedale Nisku - SFD Signature
South to North Traverse
SFD Portfile 2
The Wayne Rosedale Nisku "A" and "B" pools were discovered in 1994. The pool
boundaries had not been fully delineated when this SFD Profile was recorded.
The pool was traveresd on two separate occassions from opposing directions with
comparable results. Oils is drawn from a dolostone reservoir at 5,800 feet and
individual wells are capable of producing up to 1,200 BOPD.
[MAP APPEARS HERE]
Confidential Informational - Pinnacle Oil International Inc.
<PAGE>
Confidential Waveform
Information
Eyes Only
[GRAPH APPEARS HERE]
Drumheller - Nisku SFD Signature
South To North Traverse
SFD PROFILE 3
The Drumheller Nisku "B" oil pool was discovered in 1961. The pool boundaries
have been well delineated when this SFD profile was recorded. Wells within the
pool have produced at rates of up to 1,000 BOPD. The pool has proven reserves
of 36 million barrels of oil in place. The reservoir is a dolomite with an
average of 7.6% porosity and 30ft of pay thickness at a depth of 5,291 ft. The
pool was surveyed twice along the same route, but from opposing directions on
separate field trips. On both traverses the SFD produced an anomalous reading.
[MAP APPEARS HERE]
Confidential Information - Pinnacle Oil International Inc.
<PAGE>
Confidential Waveform
Information
Eyes Only
[GRAPH APPEARS HERE]
W. Drumheller - Nisku SFD Signature
North To South Traverse
SFD PROFILE 4
The West Drumheller Nisku oil pool was discovered in 1952. The pool boundaries
have been fully delineated when this SFD profile was recorded. Wells within the
pool have produced at up to 800 BOPD. The pool has established reserves of 63
MMBbls of oil in place. The reservoir produces from a dolostone with 7-8%
porosity and an average thickness of 46 feet at a depth of 5.500 feet.
[MAP APPEARS HERE]
Confidential Informational - Pinnacle Oil International Inc.
<PAGE>
Confidential Waveform Information
Eyes Only
[GRAPH APPEARS HERE]
Carstairs - Elkton SFD Signature
North to South Traverse
SFD PROFILE 5
The Carstairs Elkton gas pool was discovered in 1995. The pool boundaries had
not been fully delineated when this SFD profile was recorded. Wells within the
pool can produce up to 25 MMcf/d and 1,000 barrels of natural gas liquids per
day. The reservoir is a dolostone at a depth of 7,600 feet.
[MAP APPEARS HERE]
Confidential Information - Pinnacle Oil International Inc.
<PAGE>
Confidential Waveform Information
Eyes Only
[GRAPH APPEARS HERE]
CROSSFIELD E.- Wabamun SFD Signature
North To South Traverse
SFD PROFILE 6
The Crossfield East Wabamun "A" pool was discovered in 1954. Recent drilling in
the area indicates that the pool boundaries have not been fully delineated.
Established reserves are 1.3 TCF of sour gas, (33% H\2\S). The reservoir
produces from a porous dolomite sandwiched between tight limestones. The trap is
created by facies change to tight anhydrides and salts to the east. The average
thickness of the reservoir is 32' with 7% porosity at a depth of 8,500 feet.
[MAP APPEARS HERE]
Confidential Information - Pinnacle Oil International Inc.
<PAGE>
Confidential Waveform Information
Eyes only
[GRAPH APPEARS HERE]
Crossfield E.- Elkton "A" SFD Signature
North To South Traverse
SFD PROFILE 7
The Crossfield East Elkton "A" pool was discovered in 1960. The pool boundaries
have been fully delineated. Established reserves are 70 BCF gas and 6.6 MMBbls
of oil. The reservoir produces from a porous dolostone subcriop outlier.
The average thickness of the reservoir is 34' with 6% porosity at a depth of
7,520 feet. The pool covers an area of 3.7 sq. mi. and lies 1,000 feet above the
Crossfield East Wabamun gas pool.
[MAP APPEARS HERE]
Confidential Information - Pinnacle Oil International Inc.
<PAGE>
Confidential
Waveform
Information
Eyes only
[GRAPH APPEARS HERE]
Mikwan - Nisku SFD Signature
North To South Traverse
SFD Profile 8
The Mikwan Nisku D2-1 oil pool was discovered in 1994. The pool is a single
well patch reef that is encased in anhydrite. The well was producing at 170
BOPD when this SFD profile was recorded. It is approximately 7,000 feet
deep and produces from a dolostone with an average porosity of 9%.
Estimated reserves are 1.6 MMBbls in place. These patch reefs are less than
160 acres in size and are very difficult to detect on 2-D and 3-D seismic.
[MAP APPEARS HERE]
Confidential Information - Pinnacle Oil International
<PAGE>
Confidential Waveform
Information
Eyes only
[GRAPH APPEARS HERE]
Fenn W. - Leduc, Nisku SFD Signature
South To North Traverse
SFD Profile 9
The seven Fenn West Leduc (D3) and Nisku (D2) oil pools were discovered in
1982. The pools produce from Leduc pinnacle reefs that cover 34-160 acres,
as well as from the overlying Nisku. Wells within the pools can produce up
to 1,000 BOPD and have have produced in excess of 2 MMBbls of oil. The
reservoir is a dolostone with an average porosity of 7%. Pay thickness
varies from 60-180 feet at a depth of 5,800 feet. This small cluster of
pools was not detected by the SFD. However, only one very marginal pool,
the "D2-D/D3-G", was directly taversed with the SFD.
[MAP APPEARS HERE]
Confidential Information - Pinnacle Oil International Inc.
<PAGE>
Confidential Waveform Information
Eyes only
[GRAPH APPEARS HERE]
Wimborne Leduc & Nisku SFD Signature
North To South Traverse
SFD Profile 10
The Wimborne Leduc and Nisku pools were discovered in 1954 and 1956. The
Leduc pool has established reserves of 82 MMBbls and 522 BCF, and produces
from the eastern margin of an extensive Leduc carbonate complex. The Nisku
pool is 1 mile west and produces from a dolostone with proven reserves of 4
MMBbls. The pools are approximately 7,300 feet deep. The reservoirs have an
average porosity of 7 & 3% respectively and average pay thickness of 60 and
62 feet respectively. The SFD Profile of the Leduc indicates a much higher
gas content while the Nisku pool's signature indicates oil.
[MAP APPEARS HERE]
Confidential Information - Pinnacle Oil International Inc.
<PAGE>
Confidential Waveform Information
Eyes only
[GRAPH APPEARS HERE]
Jumping Pound West - SFD Signature
West to East Traverse
SFD Profile 11
The Jumping Pound West Rundle gas pool was discovered in 1961. The pool
boundaries have been fully delineated when this SFD Profile was recorded.
The pool is approximately 10,895 feet deep, with 6% average porosity and an
average pay thickness of 118 feet. Established reserves are 1.9 TCF of gas
in place. The pool is typical of the structural traps that are created
along the thrust belt of the eastern margin of the Rocky Mountains. Due to
the complex nature of the geology, seismic interpretation of these pools is
challenging.
[MAP APPEARS HERE]
Confidential Information - Pinnacle Oil International Inc.
<PAGE>
Confidential Waveform Information Eyes Only
[GRAPH APPEARS HERE]
Gadsby Cretaceous - SFD Signature
North To South Traverse
SFD PROFILE 12
This profile was recorded while driving on an unmarked secondary road.
Later examination of detailed maps identified the location of the
signature which was matched to an offsetting Cretaceous gas well that
has produced in excess of 9 BCF of gas. The producing zone is at 3,700
feet and is approximately 25 feet thick. Estimated reserves are 13-15
BCF which is 4 times higher than would be expected from this area. The
profile is important because it clearly demonstrates the ability of
the SFD to respond to hydrocarbons in both clastic and carbonate
reservoirs. Only very prolific clastic reservoirs produced noticeable
anomalous SFD reactions during the course of these field evaluations.
[GRAPH APPEARS HERE]
Confidential Information - Pinnacle Oil International Inc.
<PAGE>
Confidential Waveform Information
Eyes Only
[GRAPH APPEARS HERE]
Undrilled Prospect - SFD Signature
North To South Traverse
SFD PROFILE 13
The SFD Profile shown above was recorded September 18, 1996. The
anomaly has similar characteristics to the Elkton profiles recorded at
Chestermere, Airdrie and Crossfield. The map shown below indicates the
scale of the profile. Map details have been removed in order to retain
confidentiality. This anomaly will be profiled with more North - South
and East - West traverses by Pinnacle Oil International Inc.
[MAP APPEARS HERE]
Confidential Information - Pinnacle Oil International Inc.
<PAGE>
Confidential Waveform Information
Eyes Only
[GRAPH APPEARS HERE]
Undrilled Foothills - SFD Signature
West to East Traverse
SFD PROFILE 14
The Jumping Pound West Rundle gas pool, (illustrated in SFD Profile
11) was discovered in 1961 and has established reserves of 1.9 TCF of
gas in place.
The SFD Profile above is not from the Jumping Pound West pool, but
displays remarkable similarities. The map below indicates the width
of the anomaly. All location and surrounding well information have
been removed to retain confidentiality.
[GRAPH APPEARS HERE]
Confidential Information - Pinnacle Oil International Inc.
<PAGE>
EXHIBIT 10.29
LEASE AGREEMENT
Between
PHOENIX PLACE LTD.
(Landlord)
and
PINNACLE OIL INTERNATIONAL INC.
(Tenant)
for
PHOENIX PLACE
840 - 7TH AVENUE SW
CALGARY, Alberta
(Building)
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
ARTICLE II
1.00 Definitions................................................. 4
ARTICLE II
2.00 Demise...................................................... 7
ARTICLE III
3.00 Term........................................................ 7
3.01 Postponement of Term........................................ 7
3.02 Early Possession............................................ 7
ARTICLE IV
4.00 Rent........................................................ 7
4.01 Security Deposit............................................ 7
ARTICLE V
5.00 Tenant's Covenants.......................................... 8
5.01 Rent........................................................ 8
5.02 Operating Costs............................................. 8
5.03 Repair...................................................... 8
5.04 Notice of Accidents or Defect............................... 8
5.05 Assigning or Subletting..................................... 8
5.06 Business Tax................................................ 9
5.07 Tidiness.................................................... 9
5.08 Damage to Building.......................................... 9
5.09 Observe Rules and Reglulations.............................. 9
5.10 Use of Premises............................................. 10
5.11 No Prejudice Insurance...................................... 10
5.12 Premises Conform to Law..................................... 10
5.13 Use Conform to Law.......................................... 10
5.14 No Nuisance................................................. 10
5.15 Floor Load.................................................. 10
5.16 Escape of Water............................................. 11
5.17 Indemnify Landlord.......................................... 11
5.18 Release of Landlord......................................... 11
5.19 Notify Landlord............................................. 11
5.20 Not Permit Liens............................................ 11
5.21 Landlord Supply Electricity................................. 11
5.22 Tenant's Insurance.......................................... 12
5.23 Signs....................................................... 12
5.24 Name........................................................ 12
5.25 Blinds...................................................... 12
5.26 Tenant's Certificate........................................ 12
5.27 Application of Distress..................................... 12
5.28 Waiver Re Distress.......................................... 13
5.29 Not Register Lease.......................................... 13
5.30 Right of Entry.............................................. 13
5.31 Non-Waiver By Landlord...................................... 13
5.32 Additional Rent............................................. 13
5.33 Interest on Arrears......................................... 13
5.34 Access to Landlord.......................................... 14
5.35 Alterations by Landlord..................................... 14
5.36 Excavation.................................................. 14
5.37 Yield-Up.................................................... 14
5.38 Continuous Occupancy........................................ 14
5.39 Subordination............................................... 14
5.40 Relocation of Leased Premises............................... 14
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
ARTICLE VI
6.00 Landlord's Covenants........................................ 15
6.01 Quiet Possession............................................ 15
6.02 Pay Taxes................................................... 15
6.03 Insurance................................................... 15
6.04 Heat........................................................ 15
6.05 Air-Conditioning............................................ 16
6.06 Elevators................................................... 16
6.07 Repair of Apparatus......................................... 16
6.08 Access...................................................... 16
6.09 Washroom Facilities......................................... 16
6.10 Clean....................................................... 16
6.11 Repair Structure............................................ 16
6.12 Alterations By Tenant....................................... 17
6.13 Landlord's Certificate...................................... 17
ARTICLE VII
7.00 Mutual Covenants............................................ 17
7.01 Parking..................................................... 17
7.02 Tenant's Improvements....................................... 17
7.03 Destruction or Damage....................................... 18
7.04 Default..................................................... 18
7.05 Bankruptcy or Seizure....................................... 19
7.06 Force Majeure............................................... 19
7.07 Representations............................................. 19
7.08 Reservation to Landlord..................................... 19
7.09 Assignment by Landlord...................................... 19
7.10 Net Lease................................................... 20
7.11 Notices..................................................... 20
7.12 Landlord Not Unreasonably Interfere......................... 20
7.13 Headings.................................................... 20
7.14 Interpretation.............................................. 21
7.15 Governing Law............................................... 21
7.16 Overholding................................................. 21
7.17 Time of the Essence......................................... 21
7.18 Enurement................................................... 21
7.19 Acceptance.................................................. 21
</TABLE>
SCHEDULE "A" - Legal Description of the Lands
SCHEDULE "B" - Demised Premises
SCHEDULE "C" - Rules and Regulations
SCHEDULE "D" - Landlord and Tenant Work
SCHEDULE "E" - Special Provisions
Parking Agreement (If Applicable)
<PAGE>
L E A S E
---------
THIS INDENTURE made this 25/th/ day of November, 1997.
BETWEEN:
PHOENIX PLACE LTD. of the
City of Calgary, in the
Province of Alberta
(the "Landlord")
OF THE FIRST PART
AND:
PINNACLE OIL INTERNATIONAL INC.
(the "Tenant")
OF THE SECOND PART
ARTICLE I
---------
INTERPRETATION
1.00 DEFINITIONS
-----------
1.01 In this lease, unless the context otherwise requires:
(a) "Additional Rent" means any and all sums of money or charges required
---------------
to be paid by the Tenant under this lease (except Minimum Rent), whether or not
the same are designated "Additional Rent", whether or not the same are payable
to the Landlord or otherwise, and all such sums are payable in lawful money of
Canada without deduction, abatement, set-off or compensation whatsoever, except
as provided in this lease.
(b) "Architect" means the independent architect from time to time named by
---------
the Landlord. The decision of the Architect shall be final and binding on the
parties hereto, so long as such decisions are consistent with accepted
architectural standards in the Province of Alberta.
(c) "Building" means, collectively, the office tower situated on the
--------
Lands, together with all improvements, fixtures, facilities, installations,
equipment, systems, parking facilities, overhead, and plus fifteen walkways,
landscaping, and other necessities, now or at any time hereafter installed,
erected or placed upon the Lands as part of the Development, and all
appurtenances thereto.
(d) "Business Day" means the hours 7:00 a.m. through 6:00 p.m. on the days
------------
from Monday to Friday, inclusive, unless such day is a federal, provincial or
civic holiday observed in the City.
(e) "City" means the City of Calgary, a municipal corporation in the
----
Province of Alberta.
(f) "Commencement Date" means the 1/st/ day of February, 1998.
-----------------
(g) "Common Areas" means:
------------
(i) all foyers, lobbies, corridors, hallways, telephone rooms,
janitorial or storage rooms, electrical or air-conditioning rooms, and
washrooms in the Office Tower (except those within the premises of any
tenant that are restricted to the exclusive use of such tenant or tenants);
and
(ii) any sidewalks, yards, gardens, courtyards, patios, loading areas,
ramps or parking areas.
4
<PAGE>
(iii) "DEMISED PREMISES" means the premises in the Building shown
----------------
outlined in red on the floor plan attached hereto as Schedule "B",
containing approximately FIVE THOUSAND EIGHT HUNDRED (5,800) square feet of
rentable area as determined in accordance with the BOMA Standard Method of
Measuring Floor Area.
(h) "DEVELOPMENT" means, collectively, the Lands and Buildings, and all
-----------
appurtenances thereto from time to time belonging, installed thereon, or forming
a part thereof.
(j) "LANDS" means those lands in the City upon which the Buildings are
-----
being or have been constructed, and which are more particularly described in
Schedule "A" hereto.
(k) "MINIMUM RENT" means the sum of SIXTY THREE THOUSAND EIGHT HUNDRED
------------ ----------------------------------
DOLLARS ($63,800.00) annually payable in equal consecutive monthly installments
- --------------------
of FIVE THOUSAND THREE HUNDRED SIXTEEN DOLLARS AND SIXTY SEVEN CENTS ($5,316.67)
-----------------------------------------------------------------------------
each in advance on the first day of each and every calendar month during the
term of this lease, commencing, subject to postponement as provided in this
lease, on the 1/st/ day of FEBRUARY 1998 to and including the 31/st/ day of
----- ------------- ------
JANUARY 2003 without deduction, abatement, set-off or compensation whatsoever,
- ------------
except as provided in this lease. The foregoing rent is calculated on the basis
of ELEVEN DOLLARS ($11.00) p.s.f. for FIVE THOUSAND EIGHT HUNDRED (5,800) sq.ft,
----------------------- -----------------------------------
of leased space.
(l) "MORTGAGEE" means any mortgagee(s) for the time being of the
----------
Development or any part thereof.
(m) "OCCUPATION RENT" means the Minimum Rent plus estimated Additional
---------------
Rent on a day-to-day basis.
(n) "OPERATING COSTS AND TAXES" means, in any fiscal period designated by
-------------------------
the Landlord, all costs and expenses incurred by or on behalf of the Landlord,
with respect to and for complete operation, management, protection, security,
cleaning, repair and maintenance of the Development, and without in any way
limiting the generality of the foregoing, shall include:
(i) the salary and wages of all employees of the Landlord directly
employed in the operation, maintenance, repair and administration of the
Development (other than the Club Facilities);
(ii) the costs of goods, services, equipment and supplies (including
property taxes and insurance premiums) supplied or used or incurred
directly or indirectly in the operation, maintenance, repair and
administration of the Development, including common areas and parking
areas, including the heating and air-conditioning costs, elevator
maintenance, costs of providing hot and cold water, and electrical energy
supplied to the Development;
(iii) all taxes (including local improvement rates), rates, duties and
assessments that may be levied, rated, charged or assessed against the
Development and, without limiting the generality of the foregoing, every
tax, charge, rate, assessment or payment which may become a charge or
encumbrance upon or be levied or collected upon or in respect of the
Development, or any part thereof, whether charged by any municipal,
parliamentary or other authority; PROVIDED that the Tenant shall have the
right to contest by appropriate legal proceedings and validity of any tax
rate, including local improvement rate, assessment or other charge;
(iv) all charges for public services and utilities, including water,
gas, sewer, electrical power, steam or hot water used upon or in respect of
the Development and for fittings, machines, apparatus, meters, or other
things leased in respect thereof, and for all work or services performed by
any corporation or commission in connection with such utilities; and
but excluding:
(i) depreciation;
(ii) income taxes of the Landlord;
5
<PAGE>
iii) interest, on debt charges and legal fees and disbursements for debt;
iv) charges for the repair of damage to the Development only to the
extent the Landlord is entitled to reimbursement therefore by tenants or
from the proceeds of insurance;
v) expenses incurred by the Landlord in respect of the installation of
partitions and other tenants' improvements; or
vi) leasing commissions;
PROVIDED HOWEVER, that if, in any such fiscal period the Building is less than
Ninety Seven percent (97%) occupied during the whole of the fiscal period,
"Operating Costs" shall mean the amount obtained by adjusting the actual
Operating Costs for such fiscal period as if the Building had been Ninety-Seven
percent (97%) occupied during the whole of such fiscal period, such adjustment
to be made by adding to or subtracting from the actual Operating Costs during
such fiscal period, such additional costs as would have been incurred if the
Building had been Ninety-Seven percent (97%) occupied.
(p) "Proportionate Share" means being the Tenant's portion of Operating
-------------------
Costs and Taxes, and being the proportion that the rentable area of the
Demised Premises bears to the rentable area of the Building.
(q) "Rules and Regulations" means the rules and regulations adopted by
---------------------
the Landlord from time to time acting reasonably and in such manner as would a
prudent Landlord of a reasonably similar Building. The Rules and Regulations
existing as at the Commencement Date are those set out in Schedule "C".
ARTICLE II
----------
2.00 DEMISE
------
2.01 In consideration of the rents, covenants and agreements herein
contained on the part of the Tenant to be paid, observed and performed, the
Landlord leases to the Tenant and the Tenant leases from the Landlord the
Demised Premises for use and occupation as a business office and for no other
purpose.
ARTICLE III
-----------
3.00 TERM
----
TO HAVE AND TO HOLD the Demised Premises for the term of five (5)
--------
years commencing on the Commencement Date, subject to postponement in the manner
hereinafter set forth.
3.01 Postponement of Term
--------------------
The Landlord shall make all reasonable efforts to have the Demised
Premises ready for occupancy before the Commencement Date. If the Demised
Premises are not ready for occupancy by such time, because of reasons other than
the failure of the Tenant, its employees, agents or contractors to promptly
complete the Tenant's improvements to the Demised Premises, the Commencement
Date shall be postponed for a period equal to the duration of the occurrence or
delay. The Landlord shall not be liable for any loss, injury, damage or
inconvenience which the Tenant may sustain by reason of the inability of the
Landlord to deliver the Demised Premises ready for occupancy on the Commencement
Date.
3.02 Early Possession
----------------
The Tenant may, if it desires, but only with the Landlord's prior
written approval, begin to use and occupy the Demised Premises or portions
thereof prior to the Commencement Date; PROVIDED that the Tenant shall pay an
Occupation Rent to the Landlord for such use and occupancy until the
Commencement Date. Such Occupation Rent shall be proportionate to the relation
that the area of the Demised Premises, occupied from time to time bears to the
entire area of the Demised Premises. Possession shall be granted and taken
subject to the terms and conditions of this lease, except to the extent that
such terms and conditions are inconsistent with this clause.
6
<PAGE>
ARTICLE IV
----------
4.00 RENT
----
The Demised Premises are leased at the Minimum Rent plus Additional
Rent to be paid in advance, without deduction, on the first day of each and
every calendar month of the term to the office of the Landlord, or at such other
place as the Landlord may from time to time designate in writing.
4.01 Security Deposit
----------------
Payment of Minimum Rent for the last month of the term is acknowledged
as being received in the amount of SEVEN THOUSAND THREE HUNDRED THIRTY THREE
-----------------------------------------
DOLLARS AND THIRTY THREE CENTS ($7,333.33) from the Tenant upon the execution of
- ------------------------------------------
this lease; such payment shall be held by the Landlord, without liability for
interest, as security for the faithful performance by the Tenant of all the
terms, covenants and conditions of this lease, and if, at any time during the
term of this lease, the Minimum Rent, Additional Rent or other charges properly
payable to the Landlord hereunder are overdue and unpaid, then the Landlord may,
at its option, apply any portion of such security deposit toward the payment of
such overdue Minimum Rent, Additional Rent or other charge, without thereby
limiting or excluding any other rights which the Landlord may have hereunder or
at law, and if such security deposit is not so applied during the term hereof,
then such sum shall be applied as Minimum Rent for the FIRST ONE(1) AND THE LAST
-------------------------
ONE(1) MONTH of the term hereof.
- ------------
ARTICLE V
---------
5.00 TENANT'S COVENANTS
------------------
THE TENANT COVENANTS WITH THE LANDLORD AS FOLLOWS:
5.01 Rent
----
To pay the Minimum Rent and Additional Rent to the Landlord as
provided in this lease, without any deduction unless such deduction is provided
for in this lease.
5.02 Operating Costs
---------------
To pay monthly, in advance, to the Landlord as Additional Rent, along
with the Minimum Rent, an estimate of the Tenant's proportionate monthly share
of all Operating Costs, subject to adjustment, as may be required at the end of
each fiscal year.
5.03 Repair
------
To maintain and keep the Demised Premises and all improvements,
fixtures and things belonging thereto, or which at any time during the term
shall be erected, attached thereto, in good and substantial repair, order and
condition, except damage by perils and hazards covered by insurance, and the
Landlord and its agent, either alone or with workmen, servants or others, at all
reasonable times during the term, may enter upon the Demised Premises to inspect
the condition thereof, and if any repairs are required to be made to the Demised
Premises, and providing the Landlord delivers to the Tenant, in writing, a
notice setting forth the necessary repairs, then the Tenant shall repair the
Demised Premises in a good and workmanlike manner within the time period set
forth in the notice from the Landlord, and if there is not time period set forth
in the notice, then the repairs shall be done within a reasonable time and,
failing this, the Landlord and its agent, servants and employees may enter upon
the Demised Premises and have the same repaired in proper manner and to render
the account for such repairs to the Tenant, and the Landlord shall have the same
remedies to enforce payment thereof as the Landlord has in respect of arrears of
rent.
5.04 Notice of Accidents or Defect
-----------------------------
To give the Landlord prompt written notice of any accident to or
defect in the heating apparatus, electric light or other wires, or of any fire
in the Demised Premises of which the Tenant is aware but, unless otherwise
expressly provided, there shall be no obligation on the part of the Landlord to
repair or make good any such matters.
7
<PAGE>
5.05 Assigning or Subletting
-----------------------
(a) That the Tenant shall not pledge, mortgage, assign or sublet or part
with possession of the Demised Premises or any part thereof, directly or
indirectly, without the prior written consent of the Landlord, which consent
will not be unreasonably withheld.
(b) Any assignment approved by the Landlord hereunder shall be in writing
and a copy of the written assignment shall be provided to the Landlord within
Seven (7) days of the date of the assignment. No assignment or pledge of this
lease or sub-lease of the Demised Premises, or any part thereof, shall in any
manner relieve the Tenant from its responsibilities under all of the terms,
covenants and conditions of this lease. Any violation of any provision of this
lease, whether by act or omission, by any assignee or sub-tenant, shall be
deemed a violation of such provision by the Tenant.
(c) If a request is made to the Landlord to consent to an assignment of
this lease or a sub-letting of the whole or a part of the Demised Premises, then
the Landlord shall have the right, to be exercised within Fourteen (14) days
after the receipt of such request;
(i) if the request is to assign this lease or sublet the whole of
the Demised Premises, to cancel and terminate this lease; or
(ii) if the request is to sublet a part of the Demised Premises to
cancel or terminate this lease with respect to such part of the Demised
Premises;
and if the Landlord shall exercise any such right, then in each case, the
termination date shall be such date as is stipulated in the Tenant's notice,
which shall, in any event, be not less than Sixty (60) days and not more than
Ninety (90) days following the giving of such notice by the Tenant. If the lease
is so terminated with respect to a part of the Demised Premises, then rent
payable under this lease shall thereafter abate proportionately and all other
appropriate recalculations shall be made to recognize that the area of the
Demised Premises has been reduced. All of the foregoing rights of the Landlord
shall be alternative to, but not in substitution for, any other rights which the
Landlord may have to either consent or withhold its consent to any such
assigning or sub-letting.
(d) If at any time during the term of this lease any or all of the voting
shares of the Tenant, or of a parent corporation of which the Tenant is a direct
or indirect subsidiary, shall be transferred by sale, assignment, bequest,
inheritance, operation of law or other disposition so as to result in a change
in the present effective voting control of the Tenant or of such parent
corporation on the date of this lease, then the Tenant shall promptly notify the
Landlord in writing of such change, and the Landlord may terminate this lease at
any time after such change in control by giving the Tenant Forty-Five (45) days
written notice of such termination; PROVIDED, HOWEVER, that this provision shall
not apply to tenants which are public companies having more than Fifty (50)
shareholders at the date of this lease.
(e) If the Tenant is a partnership and if at any time during the term of
this lease any person, who at the time of the execution of this lease owns a
partner's interest, ceases to own such partner's interest, such cessation of
ownership shall constitute an assignment of the lease of all purposes of this
clause.
5.06 Business Tax
------------
To pay all taxes with respect to all business carried on in the
Demised Premises, and any special franchise or other tax with relation to such
business as and when such taxes become due and payable, together with any taxes
levied on tenants' fixtures and improvements made in or to the Demised Premises
by or for the Tenant, and all taxes in the nature of business taxes and any
taxes levied on machinery or equipment of the Tenant assessed by any
governmental authority upon the Demises Premises whether levied against the
Landlord or the Tenant.
5.07 Tidiness
--------
To leave the Demised Premises in a reasonably tidy condition at the
end of each business day for performance of the cleaning services.
8
<PAGE>
5.08 Damage to Building
------------------
That if the Building, including the Demised Premises, elevators,
boilers, engines, pipes and other apparatus (or any of them) used for the
purpose of heating or air-conditioning the Building or operating the elevators,
or, if the water pipes, drainage pipes, electric lighting, windows or other
equipment of the Building get out of repair or become damage or destroyed
through the negligence, carelessness or, misuse by the Tenant, its servants or
employees or through it or them in any way stopping up or injuring the heating
apparatus, elevators, water pipes, drainage pipes or other equipment or any part
of the Building, the expense of the necessary repairs, replacements or
alterations shall be borne by the Tenant who shall pay the same to the Landlord
forthwith on demand, unless such damage is covered by the Landlord's insurance.
5.09 Observe Rules and Regulations
-----------------------------
That the Tenant, its servants and employees shall observe and comply
strictly with the rules and regulations. The Landlord shall have the right to
make reasonable changes in and additions to the rules and regulations; PROVIDED
such changes and additions do not unreasonably affect the conduct of the
Tenant's business, and shall promptly notify the Tenant thereof in writing. Any
failure by the Landlord to enforce any rules and regulations, now or hereafter
in effect, either against the Tenant or any other tenant in the Building, shall
not constitute a waiver of any of the rules and regulations.
5.10 Use of Premises
---------------
The Tenant shall use and occupy the Demised Premises for general
office purposes only and shall comply in respect of such used with the
requirement of federal, provincial and municipal laws and regulation. If a
government license or permit shall be required for the proper and lawful conduct
of the Tenant's business, and if the failure to secure such license or permit
would affect the Landlord, the Tenant, prior to occupying the Demised Premises,
shall procure the same for inspection by the Landlord. The Tenant shall at all
times comply with the terms and conditions of any such license or permit.
5.11 No Prejudice Insurance
----------------------
That the Tenant will not do or omit or permit to be done upon the
Demised Premises anything which shall cause the rate of insurance upon the
Building to be increased and that, if the rate of insurance upon the Building
shall be increased by reason of use made of the Demised Premises or by the
reason of anything done or committed or permitted to be done or omitted by the
Tenant or by anyone permitted by the Tenant to be upon the Demised Premises, the
Tenant will pay to the Landlord, on demand, the amount of such increase. The
Tenant will comply in every respect with the rules and regulations, if any, of
the Canadian Underwriters Association or any successor or substitute body, and
with the requirements communicated to the Tenant of the Landlord's insurance
company or companies having policies insuring the Building or the use thereof.
5.12 Premises Conform to Law
-----------------------
To comply with all provisions of law, including, without limitation,
federal, provincial and municipal legislative enactments, rules and regulations,
and by-laws, without limiting the generality of the foregoing, which relate to
the partitioning, equipment, operation and use of the Demised Premises, and to
the making of any repairs, replacements, alterations, additions, changes,
substitutions or improvements of or to the Demised Premises, and comply with all
police, fire and sanitary regulations or directive imposed or made by any
federal, provincial or municipal authorities or by fire insurance underwriters
or companies.
5.13 Use Conform to Law
------------------
The Tenant shall, at its expense, comply with all laws, orders,
ordinances and regulations of federal, provincial and municipal authorities and
with any direction made pursuant to law or by any public officer of officers
which shall, with respect to the use of the Demised Premises, or to the
abatement of nuisance, impose any violation, order or duty upon the Landlord or
the Tenant regarding the Demised Premises or the use or occupation thereof
arising from the Tenant's use of the Demised Premises or from conditions which
have been created by or at the instance of the Tenant or are required by reason
of a breach of any of the Tenant's covenants or agreements hereunder. If the
Tenant should desire to contest the validity of any such law, ordinance, rule,
order or regulation with which the Tenant is obligated to comply, it may, at its
expense, carry on such contest and non-compliance by it during such contest
shall not be deemed a breach of this covenant; PROVIDED that it shall, to the
satisfaction of the Landlord, indemnify and hold the Landlord harmless against
the cost thereof and against all liability for any damages, interest, penalties
and
9
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expenses (including reasonable legal expenses on a solicitor and client basis)
resulting from or incurred in connection with such contest or non-compliance,
except that noncompliance shall not continue so as to subject the Landlord to
prosecution for an offence or to cause the Building or any part thereof to be
condemned or vacated by order of public authority.
5.14 No Nuisance
-----------
Not to do or suffer any waste or damage, disfiguration or injury to
the Demised Premises or the fixtures and equipment thereof; and not to use or
permit to be used any part of the Demised Premises for any dangerous, noxious or
offensive trade, business or occurrence, and not to cause or maintain or permit
the occurrence or maintenance of any nuisance in, at or on the Demised Premises,
or the creation or emission of any noxious fumes thereon or therefrom.
5.15 Floor Load
----------
The Tenant shall not place or permit to be placed a load upon any
portion of any floor of the Demised Premises which exceeds the floor load which
the area of such floor being loaded was designed to carry having regard to the
loading of adjacent areas. The Landlord reserves the right to prescribe the
weight and position of all safes and heavy installations which the Tenant wishes
to place in the Demised Premises so as to properly distribute the weight
thereof, and the Tenant agrees to such reservation.
5.16 Escape of Water
---------------
The Tenant shall be responsible for any loss or damage whatsoever
caused in the Building owing to the leakage or escape of any water, gas or other
substance from any pipes, machinery or equipment installed by the Tenant and
used for the purposes of servicing the Demised Premises or any machinery or
equipment installed or put therein by the Tenant. The responsibility of the
Tenant is subject to the exception of loss or damage due to negligent acts or
omissions or wilful or wanton misconduct of the Landlord or its agents,
servants, employees, independent contractors or other persons for whom the
Landlord is responsible for at law.
5.17 Indemnify Landlord
------------------
To indemnify and save harmless the Landlord against and from any and
all claims by or on behalf of any person, firm or corporation arising from the
conduct of any work by or through any act of negligence of the Tenant or any
assignee, sub-tenant, agent, contractor, servant, employee, licensee, customer
or invitee of the Tenant, and against and from all costs, counsel fees, expenses
and liabilities incurred in or about any such claim or action or proceeding
brought thereon.
5.18 Release of Landlord
-------------------
That the Landlord shall not be responsible for injury to or the death
of any person in or about the Demised Premises or any damage to any merchandise,
goods, chattels, machinery, equipment, fixtures or tenant improvements located
within the Building with the express of implied consent of the Tenant or in
respect of the Tenant's business. The Landlord shall not be responsible for
insuring any trade fixtures, stock installed or located by the Tenant in any
part of the Demised Premises. The Tenant shall insure its own stock, furniture
and equipment and shall be solely responsible for the loss of or damage to
property of others kept or located in the Demised Premises during the term
hereof.
5.19 Notify Landlord
---------------
To immediately notify the Landlord or its representative in the
Building of any accidents or defects in the Building including, without
limitation, the Demised Premises, water pipes, plumbing and heating apparatus,
ventilation and air-conditioning equipment and electrical wiring and fixtures
and, as well, of any matter or condition which may cause injury or damage to the
Building or any person or property therein located.
10
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5.20 Not Permit Liens
----------------
The Tenant shall promptly pay, as and when the same falls due, all
accounts for labour or material done or supplied for all improvements,
installations, partitions and fixtures or work done by or for the Tenant on the
Demised Premises and will not cause, suffer or permit any encumbrance, lien or
charge to arise or exist or be claimed upon the Demised Premises in respect
thereof; PROVIDED that any such lien shall be permitted if and so long as it
does not embarrass or prejudice the Landlord and if the Tenant has agreed to
indemnify and save harmless the Landlord in respect of the same having given the
Landlord reasonable security to insure the due payment of the same, and the
Tenant proceeds with all due diligence to take whatever steps are properly open
to it cause the validity of such claim to be determined and any registration of
such claim against the title to the Lands to be extinguished or the lien to be
paid if found valid, notwithstanding the foregoing, the Landlord may require
that the Tenant remove the lien forthwith.
5.21 Landlord Supply Electricity
---------------------------
To allow the Landlord to supply to the Demised Premises all of the
electricity used therein for building standard lighting and the operation of
typewriters and other small equipment used for office purposes. If the Tenant's
electrical requirements appear to exceed the normal use of electricity, the
Landlord may, at its discretion and at the cost of the Tenant, have the Demised
Premises separately metered.
5.22 Tenant's Insurance
------------------
(a) The Tenant agrees to take out and keep in force during the term hereof
general public liability insurance on an occurrence basis with respect to, the
business carried on, in or from the Demised Premises and the use of occupancy
thereof by the Tenant in the sum of not less than ONE MILLION DOLLARS
($1,000,000.00), inclusive, which insurance shall include the Landlord as a name
insured and shall protect the Landlord in respect of claims by the Tenant as if
the Landlord were separately insured. The Tenant shall furnish to the Landlord,
if and whenever requested by the Landlord, certificates or other satisfactory
evidence as to such insurance.
(b) The Tenant shall, throughout the term of this lease, provide and keep
in force property damage insurance in respect of the Tenant's furniture and
trade fixtures and such other property in or forming part of the Demised
Premises, as the Landlord may from time to time require, against such perils and
in such amounts as are normally insured in the circumstances by prudent tenants,
and as the Landlord may require or approve. At the request of the Landlord, the
Tenant shall file with the Landlord such copies of current policies or
certificates from insurance agents and proof of their renewal and payment of
premium as the Landlord may require, and if the Tenant fails to insure or to
file satisfactory proof of insurance promptly when so required, the Landlord
may, without notice to the Tenant, effect such insurance and recover any
premiums paid therefor from the Tenant on demand. The Tenant shall promptly pay
all premiums due on the insurance required to be effected by it hereunder and
shall not do anything upon the Demised Premises which would impair or invalidate
the obligation of the insurer, whether of the Landlord or of the Tenant, and if
the insurance premiums of the Landlord shall increase because of anything done
or omitted by the Tenant of the Demised Premises, the amount of increase shall
be paid by the Tenant to the Landlord on demand.
The Tenant agrees to name the Landlord and the Landlord's manager of
the Development as additional insureds in all insurance policies placed pursuant
to this clause.
5.23 Signs
-----
The Tenant shall not cause or permit any sign, picture, advertisement,
notice, lettering, flag, decoration or direction to be painted, displayed,
inscribed, placed, affixed or maintained in or on any windows or doors of the
Building nor anywhere else on or in the Building.
5.24 Name
----
The Tenant may use the name of the Building for the business address
of the Tenant, but for not other purpose.
5.25 Blinds
------
The Tenant will not install any blinds, drapes, curtains, or other
windows coverings in the Demised Premises and will not remove, add to or change
the blinds, curtains, drapes or other window covering, installed by the Landlord
from time to time, and agrees to keep window coverings open or closed at
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various times as the Landlord may from time to time direct or as may be provided
from time to time by the rules and regulations.
5.26 Tenant's Certificate
--------------------
The Tenant agrees at any time and from time to time, upon not less
than Ten (10) days' prior notice, to execute and deliver to the Landlord a
statement in writing certifying that this lease is unmodified and in full force
and effect (or, if modified, stating the modifications and that the same is in
full force and effect as modified), the amount of the Minimum Rent plus
Additional Rent then being paid for hereunder and the dates to which the same,
by instalments or otherwise, and other charges hereunder, have been paid and
whether or not there is any existing default on the part of the Landlord of
which the Tenant has notice.
5.27 Application of Distress
-----------------------
The Tenant covenants and agrees that all of its furniture, trade
fixtures, partitions, installations, equipment and other moveables on the
Demised Premises, or wherever situated, shall be liable to distress and sale in
the usual manner for any arrears of rent owing with respect to the Demised
Premises and that none of the aforesaid goods and chattels upon the Demised
Premises shall be exempt from distress, and for the purposes of making such
distress, the Landlord by itself, its agents and baliffs may break open any door
or window and enter upon the Demised Premises at any time after rental shall
accrue due.
5.28 Waiver Re Distress
------------------
The Tenant waives and renounces the benefit of any present or future
statute taking away or limiting the Landlord's right of distress, and covenants
and agrees that, notwithstanding any such statute, none of the goods and
chattels of the Tenant on the Demised Premises at any time during that term
shall be exempt from levy by distress for rent in arrears.
5.29 Not Register Lease
------------------
That the Tenant will not register this lease in this form at the Land
Titles Office; PROVIDED that the Tenant shall be at liberty to register a caveat
in respect hereof which shall disclose only the existence, term and any renewal
of this lease.
5.30 Right of Entry
--------------
The Tenant further covenants and agrees that, on the Landlord becoming
entitled to cancel this lease under any of the provisions thereof, the Landlord
in addition to all other rights, shall have the right to re-enter the Demised
Premises or any portion or portions thereof as agent of the Tenant, either by
force or otherwise, without being liable for any prosecution therefor, and to
re-let the Demised Premises or any portion or portions thereof as agent of the
Tenant, to take possession of any furniture or other property on the Demised
Premises and to sell the same at a public or private sale without notice and to
apply the proceeds of such sale and any rent derived from reletting the Demised
Premises upon account of the rent under this lease, and the Tenant shall be
liable to the Landlord for any deficiency, if any.
The Tenant shall pay to the Landlord, on demand, such reasonable
expenses as the Landlord may incur in evicting the Tenant, re-letting the
Demised Premises, or collecting arrears of rent, including legal costs,
solicitors' fees (on a solicitor-client basis) and brokerage fees, and the
expenses of keeping the Demised Premises in good order and of preparing the
Demised Premises for re-letting.
5.31 Non-Waiver By Landlord
----------------------
That failure of the Landlord to insist upon strict performance of any
of the covenants or conditions of this lease or to exercise any right or option
herein contained shall not be construed as a waiver or relinquishment of any
such covenant, condition, right or option, but the same shall remain in full
force and effect. The acceptance by the Landlord of any rent from any person
other than the Tenant shall not be construed as a recognition of any rights
which are not herein expressly granted, or as a waiver of any of the Landlord's
rights, or as an admission that such person is, or as a consent that such
persons shall be deemed to be, any assignee of this lease or a sub-tenant of the
Demised Premises, or any portion thereof, irrespective of whether the Tenant or
said person claims that such person is a sub-tenant or assignee. The Landlord
may accept rent from any person occupying the Demised Premises at any time
without in any way waiving any right under this lease.
12
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5.32 Additional Rent
---------------
All sums paid or expenses incurred hereunder by the Landlord, which
ought to have been paid or incurred by the Tenant, or for which the Landlord
hereunder is entitled to reimbursement from the Tenant, and any interest owing
to the Landlord hereunder may be recovered by the Landlord as Additional Rent by
any and all remedies available to it for the recovery of rent in arrears, and
shall be deemed to be rent in arrears.
5.33 Interest On Arrears
-------------------
All rent in arrears and all sums paid or expenses incurred by the
Landlord, which ought to have been paid or incurred by the Tenant, or for which
the Landlord is entitled hereunder to reimbursement from the Tenant and which
under the preceding clause of this lease shall be deemed to be rent in arrears,
shall bear interest from the date the same became due and payable by the Tenant
to the Landlord until the date of payment or repayment to the Landlord; PROVIDED
that, in each such case the Landlord shall give written notice to the Tenant of
such sums due and payable, and the Tenant shall have Seven (7) days after
receipt of such written notice from the Landlord to pay such arrears and, if
such amounts are paid during such period, the aforesaid interest shall not be
chargeable. Such interest will be charged at the rate of Eighteen percent (18%)
per annum.
5.34 Access to Landlord
------------------
The Landlord may, at any time and without liability to the Tenant,
enter the Demised Premises to examine the same or for any purpose which it may
deem advisable for the operation and/or maintenance of the Building or its
equipment. During the last Six (6) months of the term of this lease, the Tenant
shall allow such person or persons as may be desirous of leasing the Demised
Premises to visit the same on business days, between the hours of 9:00 o'clock
in the morning and 5:00 o'clock in the evening; PROVIDED reasonable notice is
given to the Tenant.
5.35 Alterations by Landlord
-----------------------
The Landlord shall have the right at any time during the term to
repair, remodel, alter improve or add to the whole or any part of the Building
(or to change the location of the entrance or entrances to the Building, or to
change, alter, remodel, or improve or add to the common areas, elevators,
escalators, drains, pipes, heating and air-conditioning apparatus or any other
part of the Building) except the Demised Premises without compensation or
responsibility to the Tenant. For such purposes, the Landlord may, if necessary,
enter, pass through, work upon and attach scaffolds or other temporary
structures to the Demised Premises. The Landlord agrees to carry out such work
as quickly as possible causing as little disturbance as possible.
5.36 Excavation
----------
In the event that an excavation should be made for building or other
purposes upon land adjacent to the Development, or should be authorized to be
made, the Tenant shall, if necessary, afford to the person or persons causing or
authorized to cause such excavation, license to enter upon the Demised Premises
for the purpose of doing such work as shall reasonably be necessary to protect
or preserve the wall or walls of the Building, or the Building from injury or
damage and to support them by proper foundation, pinning and/or underpinning.
5.37 Yield-Up
--------
At the expiration or sooner termination of this lease, the Tenant will
peaceably surrender and give up the Demised Premises, without notice from the
Landlord, any right or notice to quit or vacate being hereby expressly waived by
the Tenant, any law, usage of custom to the contrary notwithstanding.
5.38 Continuous Occupancy
--------------------
The Tenant shall carry on business at the Demised Premises on a
regular basis and not leave the Demised Premises unoccupied for a period of
Fifteen (15) days or longer without the prior written consent of the Landlord.
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5.39 Subordination
-------------
In the event of registration of this lease (or caveat giving notice
thereof) in the Land Titles Office by the Tenant or agent, and in the further
event of a mortgage or mortgages being registered against title to the Lands, or
any part thereof, such mortgage or mortgages, at the election of the mortgagee
or mortgagees, shall take priority over this lease in every respect, and the
Lessee shall, without delay, execute and deliver to the Lessor any and all
documents required for such purpose, including postponements or instruments of
subordination under the appropriate legislation dealing with such matters;
PROVIDED, HOWEVER the Tenant and the said mortgagee shall enter into a
non-disturbance agreement.
5.40 Relocation of Leased Premises
-----------------------------
The Landlord shall have the right at any time upon sixty (60) days
notice to give the Tenant notice of relocation (the "Notice of Relocation") to
relocate the Tenant to other premises in the Building (hereinafter called the
"Relocated Premises") which premises shall contain the same as, or greater,
Rentable Area than the originally-leased Demised Premises.
The Landlord shall provide at its expenses leasehold improvements
(hereinafter called the "New Leasehold Improvements") in the Relocated Premises
substantially equivalent to the standard of the leasehold improvements in the
originally-leased Demised Premises which have been completed or which the
Landlord is obligated to provide in the originally-leased Demised Premises.
The Landlord shall pay for the reasonable moving costs (if any) from
the originally-leased Demised Premises to the Relocated Premises of the Tenant's
trade fixtures and furnishings which payment shall be deemed to be full and
complete compensation for all costs, expenses and damages which the Tenant may
suffer or incur in connections with the relocation including disruption and loss
of business. The Minimum Rent for the Relocated Premises for the period of the
first one (1) month of occupancy shall abate.
The Minimum Rent and Additional Rent for the Relocated Premises shall
be no greater than the Minimum Rent and Additional Rent for the originally-
leased Demised Premises, notwithstanding the Relocated Premises may contain a
greater Rentable Area.
All other terms and conditions of the Lease shall apply to the
Relocated Premises mutatis mutandis, and the Lease shall be deemed to be amended
------- --------
accordingly.
ARTICLE VI
----------
6.00 LANDLORD'S COVENANTS
--------------------
THE LANDLORD COVENANTS WITH THE TENANT AS FOLLOWS:
6.01 Quiet Possession
----------------
That upon the Tenant paying the rent hereby reserved at the time and
manner aforesaid and observing and performing each and every one of the
covenants, conditions, restrictions and stipulations by the Tenant to be
observed or performed under this lease, the Tenant shall and may peaceably and
quietly possess and enjoy the Demised Premises during the said term without
interruption from or by the Landlord, or by any persons lawfully claiming by,
through or under it.
6.02 Pay Taxes
---------
To pay all rates, charges and assessments and taxes which may be
rated, charged, assessed and taxed against the Demised Premises during the term
of this lease other than such obligations which the Tenant herein has expressly
agreed to pay.
6.03 Insurance
---------
The Landlord will maintain insurance against fire, "extended coverage"
perils and such other risks as are included in a standard additional perils
supplementary insurance in an amount equal to the full replacement value of the
Building, the equipment and leasehold improvements contained in the Building,
excluding the Tenant's furniture, equipment and trade fixtures (with respect to
which the Tenant is required to
14
<PAGE>
insure). The Landlord will place and maintain public liability insurance in
respect of all common areas of the Building with limits of not less than ONE
MILLION DOLLARS ($1,000,000) for any one occurrence. The Landlord will, in
addition, place and maintain pressure vessel and income protection insurance
(respecting rental abatement provided for in Clause 7.03) in respect of income
to the Landlord from the operation of the Building. The foregoing insurance
policies shall provide that the insurers waive any rights of subrogation against
the Tenant.
6.04 Heat
----
To furnish adequate heating to the Demised Premises at all times and
during the normal heating season as established by custom and practice for
similar buildings in the City; PROVIDED, HOWEVER, the Landlord may withhold the
supply of heat when necessary by reason of accident or breakdown or during
repairs or improvements which, in the opinion of the Landlord, are necessary.
6.05 Air-Conditioning
----------------
To operate (in accordance with standard office building procedures for
the City) the air-conditioning equipment during business days between the hours
of 7:00 a.m. and 6:00 p.m. in the manner appropriate to the season of the year,
except during the making of repairs; PROVIDED FURTHER, that the Landlord shall
not be responsible for the failure of air-conditioning equipment to perform its
function if such failure shall result from any arrangement of partitioning in
the Demised Premises or changes or alterations thereto, or failure on the part
of the Tenant to shade windows which are exposed to the sun, or from any
excessive use of electrical power by the Tenant.
6.06 Elevators
---------
To operate the elevators by electric or other power and, except when
prevented by a failure of electricity or other power or by reason of repairs or
other causes beyond the control of the Landlord, to operate at least one of the
elevators each day at all times for the reasonable use of the Tenant, and to
permit the Tenant, its agents, servants or employees, and all other persons
lawfully requiring communication with it, the free use of the elevators while
operating, in common with other persons lawfully using the same.
6.07 Repair of Apparatus
-------------------
In case the apparatus, or any part thereof, used in the elevators,
heating, air-conditioning or caretaking of the Demised Premises becomes
inoperable, damaged, malfunctioning or destroyed, the Landlord shall have a
reasonable time within which to repair the damage or replace or repair the
apparatus, and the Landlord shall not, in any event, be liable to the Tenant,
its officers or employees for any indirect or consequential damage or damages
for personal discomfort or illness arising by reason of the interruption of such
services or any of them.
6.08 Access
------
To permit the Tenant and the employees of the Tenant and all persons
attending on them to have the use during normal business hours on business days
in common with others of the main entrance and the stairways, corridors and
elevators leading to the Demised Premises. At times other than during normal
business hours, the Tenant and the employees or the Tenant and persons attending
on them shall have access to the Building and to the Demised Premises and use of
the elevators only in accordance with the rules and regulations.
6.09 Washroom Facilities
-------------------
The Landlord agrees to permit the Tenant, its agents, officers,
employees, invitees and licensees, the right of access and the use in common
with other tenants of the Building to the washroom facilities in the Building,
other than those provided exclusively for the use of other tenants, and to keep
the said facilities in good working order and to have the same repaired with all
reasonable diligence whenever such repairs are necessary.
6.10 Clean
-----
To provide cleaning and janitorial services, including window
cleaning, to the Demised Premises and Building, to standards consistent with the
maintenance of similar office buildings in the City; PROVIDED, HOWEVER, the
Landlord shall not be liable for acts of omission or commission on the part of
any person employed to perform such work.
15
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6.11 Repair Structure
----------------
To make structural repairs, at his expense, to the perimeter walls
(excluding plate glass windows and doors), roof bearing structure and
foundation. In the event that any such repairs shall be required to be made by
the Landlord by reason of the negligence of the Tenant, its agents or employees,
the Landlord shall be entitled to recover the cost thereof from the Tenant, and
if the Tenant shall fail to pay the same, on demand, the Landlord may recover
the amounts so due by all remedies available to it for the recovery of rent in
arrears.
6.12 Alterations By Tenant
---------------------
The Tenant may, with the prior written consent of the Landlord, from
time to time improve, alter or change the fixtures and/or tenant's improvements
or equipment in the Demised Premises; PROVIDED THAT:
a) The Tenant shall have supplied the Landlord with plans and
specifications for such improvements, alterations or changes;
b) The Tenant shall cause all work done in connection with any
improvement, alteration or change to be done promptly and in a good and
workmanlike manner and in accordance with the plans and specifications
therefor which have been approved by the Landlord;
c) That any or all work to be done and material to be supplied in
connection with such improvements, alterations or changes shall, unless
otherwise agreed by the Landlord, be done or supplied only by contractors
or sub-contractors and workmen engaged by the Tenant but first approved by
the Landlord, and the Landlord shall have the right to grant such approval
conditionally or to withdraw the same at any time with cause; and
d) In any event, any work performed by or for the Tenant shall be
performed by competent workmen whose labour union affiliations are not
incompatible with those of any workmen who may be employed on the
Development by the Landlord, its contractors or subcontractors.
6.13 Landlord's Certificate
----------------------
The Landlord shall furnish to the Tenant, upon written demand, as soon
as possible after the end of each fiscal year of this lease, a certificate of
the Landlord or his agent specifying the Operating Costs for such fiscal year.
ARTICLE VII
-----------
7.00 MUTUAL COVENANTS
----------------
IT IS HEREBY MUTUALLY AGREED BETWEEN THE LANDLORD AND THE TENANT AS
FOLLOWS:
7.01 Parking
-------
Tenant parking is available within the Building and shall be
negotiated separately by the Tenant with the Landlord and shall be available
only on such terms and conditions as are agreed to in writing between the Tenant
and the Landlord.
7.02 Tenant's Improvements
---------------------
The Tenant covenants and agrees that it will not install or construct
any partitions, fixtures, floor coverings, light fixtures, heavy equipment,
safes or machinery upon the Demised Premises, nor undertake or permit any
removal, change, alteration or addition therein or thereto, nor affix or attach
any article thereto without the prior written consent of the Landlord, which
consent shall not be unreasonably withheld. On termination of this lease, the
Tenant shall be entitled to remove any office machines and equipment and
furniture installed by it, making good any damage occasioned to the Demised
Premises by reason of such installation and removal. Further, the Tenant
covenants and agrees that, on termination of this lease, it will, at the request
of the Landlord, remove any or all partitions, fixtures, floor coverings, light
fixtures, office machines and equipment, and furniture installed by the Tenant
and make good any damage
16
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occasioned to the Demised Premises by reason of such installation, construction
and removal.
Any removal of equipment, fixtures, partitions and the like which is
undertaken pursuant to this clause, and the restoration of the Demised Premises
to good order and condition, shall be completed prior to the expiry of the
term.
The Tenant shall not remove any trade fixtures, goods or chattels or
any kind from the Demised Premises until all rent and other monies due by the
Tenant to the Landlord are paid.
7.03 Destruction or Damage
---------------------
If during the term hereof the Building shall be damaged by fire,
lightning, tempest, impact of aircraft, acts of God or the Queens' enemies,
riots, insurrections, explosions or other casualty, the following provisions
shall have effect:
(a) If the Demised Premises are rendered partially unfit for occupancy by
the Tenant and remain so for at least Ten (10) days, then the Minimum Rent shall
abate from the date of the damage in part only in the proportion that the part
of the Demised Premises so rendered unfit is of the whole of the Demised
Premises until the Demised Premises have been repaired or restored;
(b) If the Demised Premises are rendered wholly unfit for occupancy by the
Tenant and remain so for at least Ten (10) days, then the Minimum Rent shall be
suspended from the date of the damage until the Demised Premises have been
repaired or restored;
(c) Notwithstanding the provisions of sub-clause (a) and (b) hereof, if
the Demised Premises or Building shall be incapable of being repaid or restored
with reasonable diligence within One Hundred Eighty (180) days of the happening
of the damage, then either the Landlord or the Tenant may, at its option,
terminate this lease by notice in writing to the other given within Sixty (60)
days of the date of the damage, and if such notice is given, this lease shall
cease and become null and void from the date of the damage, and the Tenant shall
immediately surrender the Demised Premises and all of its interest therein to
the Landlord, and the Minimum Rent and Additional Rent shall be apportioned and
shall be payable by the Tenant only to the date of such damage or the date the
Tenant ceases to occupy the Demised Premises, whichever last occurs, and the
Landlord may renter and repossess the Demised Premises, but if within the said
period of Sixty (60) days neither the Tenant nor the Landlord shall give notice
terminating this lease as aforesaid, or if within the said period the Landlord
and Tenant shall agree not to give such notice, then upon the expiration of the
said period of Sixty (60) days or upon the Landlord and Tenant agreeing as
aforesaid, whichever shall be the sooner, the Landlord shall begin to repair and
restore the Demised Premises;
(d) The Landlord shall determine within Thirty-Five (35) days whether or
not the Demised Premises are capable, with reasonable diligence, of being
repaired or restored within the One Hundred Eighty (180) day period as
aforementioned, and the Landlord shall be entitled to rely upon the opinion of a
professional independent architect licensed to carry on business in the Province
of Alberta in making such determination; and
(e) If the Demised Premises are capable with reasonable diligence of being
repaired or restored within One Hundred Eighty (180) days of the happening of
such damage, then the Landlord shall restore or repair the Demised Premises.
It is expressly understood and agreed that the obligation of the
Landlord to rebuild and restore the Demised Premises shall not extend to or be
deemed to include the rebuilding and restoration of any alterations, partitions,
equipment or installations made by the Tenant to the Demised Premises.
7.04 Default
-------
That in the event default is made in payment of rent, or any part
thereof, and such default continues for Seven (7) days after notice of such
non-payment has been delivered to the Tenant, or in the case of non-performance
or non-observance on the part of the Tenant of any covenant, condition,
restriction or stipulation herein contained, expressed or implied, which ought
to be observed or performed by the Tenant, and which has not been expressly
waived in writing by the Landlord, and such non-performance or non-observance
continues for Seven (7) days after notice of such default has been delivered to
the Tenant, then the Landlord may at its option in addition to exercising any
other remedy available to it in law, remedy and defect or default by the Tenant
and charge to the Tenant as Additional Rent such cost and/or cancel this lease
by written notice to the Tenant and, in any one or more of such cases, all
rights and interest hereby created or then existing in favour of the Tenant or
derived under this lease, shall thereupon cease and determine, and the
17
<PAGE>
Landlord may re-enter into and upon the Demised Premises and to repossess and
enjoy the same of its former estate, anything herein to the contrary
notwithstanding, or the Landlord may re-let the Demised Premises as agent for
the Tenant; PROVIDED, HOWEVER, that in case of such cancellation and re-entry,
the Tenant shall continue to be liable to pay and the Landlord shall have the
same remedy for the recovery of any rent then due or accruing due as if this
lease had not been cancelled, together with interest at the rate of Eighteen
percent (18%) per annum on any overdue rent, but remained in full force and
effect, and further, that any right of action of the Landlord against the Tenant
in respect of any antecedent breach of any of the said covenants, conditions,
restrictions and stipulations shall not thereby be prejudiced; PROVIDED FURTHER,
the Landlord reserves any and all legal remedies and rights of action for
damages against the Tenant for breach of the lease.
7.05 Bankruptcy or Seizure
---------------------
In the event that the Demised Premises shall, without the prior
written consent of the Landlord, remain vacant or not used for a period of
Fifteen (15) days, or the Demised Premises shall not be occupied by the Tenant
within Fifteen (15) days of the Commencement Date or shall be used by any person
other than the Tenant or for any other purpose than that for which the same were
let, or in case the term or any of the goods and chattels of the Tenant shall be
at any time seized in execution or attachment by any creditor of the Tenant or
the Tenant shall make any assignment for the benefit of creditors or any bulk
sale or become bankrupt or insolvent or take the benefit of any act now or
hereafter in force for bankrupt or insolvent debtors or any order shall be made
for the winding up of the Tenant, then in any such case, this lease shall, at
the option of the Landlord, cease and determine and the term shall immediately
become forfeited and void and the ten current month's rent and the next ensuring
Three (3) month's rent shall immediately become due and payable, and the Lessor
may re-enter and take possession of the Demised Premises as though the Tenant or
other occupant of the Demised Premises was holding over after the expiration of
the term without any right whatsoever.
7.06 Force Majeure
-------------
Save and except for the obligations of the Tenant as set forth in this
lease to pay Minimum Rent, Additional Rent, increased rent or other monies to
the Landlord, if either party shall fail to meet its obligations hereunder
within the time prescribed, and such failure shall be caused or materially
contributed to by force majeure (and for the purpose of this lease, force
majeure shall mean any acts of God, strikes, lockouts, or other industrial
disturbances, acts of the Queen's enemies, sabotage, war, blockades,
insurrections, riots, epidemics, lightning, earthquakes, floods, storms, fires,
washouts, nuclear and radiation activity or fallout, arrests and restrains of
rules and people, civil disturbances, explosions, breakage of or accident to
machinery or stoppage thereof for necessary maintenance or repairs, inability to
obtain labour, materials or equipment, any legislative, administrative or
judicial action which has been resisted in good faith by all reasonable legal
means, any act, omission or event, whether of the kind herein enumerated or
otherwise, not within the control of such party, and which by the exercise of
due diligence such party could not have prevented, but lack of funds on the part
of such party shall be deemed not to be a force majeure), such failure shall be
deemed not to be a breach of the obligations of such party hereunder, but such
party shall use diligence to put itself in a position to carry out its
obligations hereunder.
7.07 Representations
---------------
The Tenant hereby acknowledges that the Demised Premises are taken
without representation of any kind on the part of the Landlord or its agent
other than as set forth herein. No representative or agent of the Landlord or
Tenant is or shall be authorized or permitted to make any representation with
reference thereto, or to vary or modify this Lease in any way, and this Lease
contains all the agreements and conditions made between the parties hereto, and
any addition to or alteration of or changes in this Lease, or other agreement
hereafter made or condition created to be binding, must be made in writing and
signed by both parties.
7.08 Reservation to Landlord
-----------------------
All outside walls of the Demised Premises and any space in the Demised
Premises used for stairways and passageways to other adjoining premises, shafts,
stacks, pipes, conducts, ducts or other building facilities, heating,
electrical, plumbing, air-conditioning and other building systems, and the use
thereof, as well as access thereto through the Demised Premises for the purpose
of use, operation, maintenance and repair are expressly reserved to the
Landlord.
18
<PAGE>
7.09 Assignment by Landlord
----------------------
In the event of the sale by the Landlord of the Development, or any
part thereof, or the assignment by the Landlord of this Lease or any interest of
the Landlord hereunder, and to the extent that such purchaser or assignee
assumes the covenants and obligations of the Landlord hereunder, the Landlord
shall, thereupon and without further agreement, be freed and relieved of all
liability with respect to such covenants and obligations.
7.10 Net Lease
---------
The Tenant acknowledges and agrees that this Lease is a completely
carefree net Lease to the Landlord, except as expressly herein set out, that the
Landlord is not responsible during the term for any costs, charges, expenses and
outlays of any nature whatsoever arising from or relating to the Demised
Premises, or the use and occupancy thereof, or the contents thereof or the
business carried on therein, and the Tenant shall pay all charges, impositions,
costs and expenses of every nature and king relating to the Demised Premises, or
the use and occupancy thereof, or the contents thereof or the business carried
on therein, and the Tenant shall pay all charges, impositions, costs and
expenses of every nature and kind relating to the Demised Premises, except as
expressly herein set out.
7.11 Notices
-------
Any notice herein provided or permitted to be given by the Tenant to
the Landlord shall be sufficiently given if delivered or if mailed, by
registered mail, postage prepaid, in writing and addressed to the Landlord at:
PHOENIX PLACE LTD.
c/o Colliers Property Management
3700 Bankers Hall
855 - 2/nd/ Street SW
Calgary, Alberta T2P 4J8
Any notice herein provided or permitted to be given by the Landlord to
the Tenant shall be sufficiently given if delivered or if mailed, by registered
mail, postage prepaid, in writing and addressed to the Tenant at:
PINNACLE OIL INTERNATIONAL INC.
#750, Phoenix Place
840 - 7/th/ Avenue S.W.
Calgary, Alberta T2P 3G2
10
<PAGE>
Notice mailed as aforesaid shall be conclusively deemed to have been
received on the third business day following the day on which such notice is
mailed. Notice delivered as aforesaid shall be conclusively deemed to have been
delivered if required to be made under the Rules of the Court of Queen's Bench
of Alberta. Either party may, at any time, give notice in writing in the manner
hereinbefore provided to the other of any change of address of the party giving
such notice, and from and after giving of such notice, the address therein
specified shall be deemed to be the address of such party for the giving of
notice hereunder. The word "notice" in this clause shall be deemed to include
any request, statement or other writing in this Lease provided or permitted to
be given by the Landlord to the Tenant or by the Tenant to the Landlord.
7.12 Landlord Not Unreasonably Interfere
-----------------------------------
Except as expressly provided otherwise in this Lease, there shall be
no allowance to the Tenant by way of diminution of rent or otherwise and no
liability on the part of the Landlord by reason of inconvenience, annoyance or
injury to business arising from the happening of the event which gives rise to
the need for any repairs, alterations, additions or improvements or from the
making of any repairs, alterations, additions or improvements in or to any
portion of the Building or the Demised Premises or in and to the fixtures,
appurtenances and equipment thereof. The Landlord agrees to use its best efforts
to do any work done by it in such manner as not to unreasonably interfere with
or impair the Tenant's use of the Demised Premises.
7.13 Headings
--------
The parties hereto agree that the headings herein form no part of this
Lease and shall be deemed to have been inserted for convenience of reference
only.
7.14 Interpretation
--------------
The terms "Landlord" and "Tenant" and the pronouns relating thereto,
where used herein, shall, where the context makes it appropriate, include the
heirs, executors, administrators, successors and assigns of the parties hereto
and shall include the feminine and plural and a body corporate where the context
or the party or parties hereto so require and where there is more than one
Tenant, all covenants shall be deemed joint and several.
7.15 Governing Law
-------------
This Lease and the rules and regulations adopted hereunder, and the
use and occupation of the Demised Premises by the Tenant under this Lease, shall
all be governed by the laws of the Province of Alberta. Should any provision of
this Lease and/or of its conditions be illegal or not enforceable under the laws
of the Province of Alberta, it or they shall be considered severable, then this
Lease and its conditions shall remain in full force and be binding upon the
parties as though such unenforceable provision or provisions had never been
included.
7.16 Overholding
-----------
Upon expiration or other termination of the term of this Lease, the
Tenant shall quit and surrender the Demised in good order and condition,
ordinary wear and tear excepted and shall remove all its property therefrom,
except as otherwise provided in this Lease. If the Tenant shall continue to
occupy the Demised Premises after the expiration of the term without any further
written agreement, or in the absence of such an agreement, without any further
written agreement, or in the absence of such an agreement, without objection by
the Landlord, the Tenant shall be a monthly tenant at the rate and on the terms
herein contained, except as to length of tenancy.
7.17 Time of the Essence
-------------------
Time is of the essence of this Lease.
7.18 Enurement
---------
This Lease and the terms and provision hereof shall enure to the
benefit of and be binding upon the parties hereto and their respective permitted
successors, assigns and personal representatives and executors.
20
<PAGE>
7.19 Acceptance
----------
hereby accepts this Lease of the Demised Premises to be held by him as
Tenant, and subject to the conditions, restrictions and covenants above set
forth.
IN WITNESS WHEREOF, the parties hereto have executed this Lease as of
the day and year first above written.
PHOENIX PLACE LTD.
LANDLORD
/s/ Jeanne D. Bogle [SIGNATURE ILLEGIBLE]
- ------------------------------- -----------------------------------
WITNESS
PINNACLE OIL INTERNATIONAL INC.
TENANT
[SIGNATURE ILLEGIBLE] [SIGNATURE ILLEGIBLE]
- ------------------------------- -----------------------------------
WITNESS PRESIDENT
21
<PAGE>
SCHEDULE "A"
LEGAL DESCRIPTION
-----------------
Plan A1 Calgary
Block Thirty Four (34)
Lots Twenty Nine (29) to Thirty Four (34) inclusive
22
<PAGE>
SCHEDULE "B"
DEMISED PREMISES
----------------
[FLOOR PLAN OF SUNIC INVESTMENTS INC. APPEARS HERE]
840
7th FLOOR SUNIC INVESTMENTS INC. SEVENTH AVENUE
23
<PAGE>
SCHEDULE "C"
RULES AND REGULATIONS
---------------------
1. The definitions set forth in the lease have the same meaning in these rules
and regulations.
2. No cooking or preparation of food or beverages shall be permitted in the
Demised Premises, and no electrical apparatus likely to cause an
overloading of electrical circuits will be used therein.
3. The sidewalks, entries, passages, elevators and staircases in the Building
shall not be obstructed or used by the Tenant, its agents, servants,
contractors, invitees or employees for any purpose other than ingress to
and egress from the offices. The Landlord reserves unrestricted control of
all parts of the Building employed for the common benefit of the tenants,
including without limitation, the sidewalks, entries, corridors and
passages not within the Demised Premises, washrooms, lavatories,
airconditioning closets, fan rooms, janitor's rooms electrical rooms and
other rooms, stairs, elevator shafts, flucs, stacks, pipe shafts and ducts
and shall have the right to place such signs and appliances therein, as it
may deem advisable, provided that ingress and egress from the Demised
Premises is not unduly impaired thereby.
4. The Tenant, its agents, servants, contractors, invitees or employees, shall
not bring in or take out, position, construct, install or move any safe,
business machine or other heavy office equipment without the prior written
consent of the Landlord who shall have the absolute right to withhold
consent or to prescribe the maximum weight permitted and the position
thereof, and the use and design of the planks, skids, or platforms to
distribute the weight of such equipment. All damage done to the Building by
the moving or use of any such heavy equipment or other office equipment or
furniture shall be repaired at the expense of the Tenant. The moving of all
heavy equipment or other office equipment shall occur only between 6:00
p.m. and 8:00 a.m. or other time consented to by the Landlord, and the
persons employed to move the same in and out of the Building must be
acceptable to the Landlord. Safes and other heavy office equipment will be
moved through the halls and corridors only upon steel bearing plates. No
deliveries requiring the use of an elevator for freight purposes will be
received in the Building or carried in the elevators, except during hours
approved by the Landlord.
5. All persons entering and leaving the Building at any time other than during
normal business hours shall register in the books kept by the Landlord at
or near the night entrance and the Landlord will have the right to prevent
any person from entering or leaving the Building unless provided with a key
to the premises to which such person seeks entrance or a pass in a form to
be approved by the Landlord. Any persons found in the Building at such
times without such keys or passes will be subject to surveillance or
eviction by the employees and agents of the Landlord without recourse. The
Landlord shall be under no responsibility for failure to enforce this rule.
6. The Tenant shall not place or cause to be placed any additional or
substitute locks upon any doors of the Demised Premises without the
approval of the Landlord and subject to any conditions imposed by the
Landlord. Additional keys may be obtained from the Landlord at cost of the
Tenant.
7. The water sinks, basins, urinals, toilets, sewers, and other water
apparatus shall not be used for any purpose other than those for which they
were constructed, and no sweepings, rubbish, rags, ashes or other
substances shall be thrown therein. Any damage resulting from misuse shall
be borne by the Tenant by whom or by whose agents, servants, employees,
licensees or invitees the same is caused. Tenants shall not let the water
run unless it is in actual use and shall not deface or mark any part of the
Building or drive nails, spikes, hooks or screws into the walls or woodwork
of the Building.
8. No one shall use the Demised Premises for sleeping apartments or
residential purposes, or for the storage or personal effects or articles
other than those required for business purposes.
9. Canvassing, soliciting and peddling in the Building are prohibited.
10. Any hand trucks, carryalls or similar appliances used in the Building shall
be equipped with rubber tires, side guards and such other safeguards as the
Landlord shall require.
24
<PAGE>
11. No animals or birds shall be brought into the Building.
12. The Tenant shall not install or permit the installation or use of any
machine dispensing goods for sale in the Demised Premises or the Building
or permit the delivery of any food or beverage to the Demises
Premises without the approval of the Landlord or in contravention of any
regulation fixed or to be fixed by the Landlord. Only persons authorized by
the Landlord shall be permitted to deliver or to use the elevators in the
Building for the purpose of delivering food or other beverages to the
Demised Premises.
25
<PAGE>
SCHEDULE "D"
LANDLORD AND TENANT WORK
------------------------
1. Leasehold Improvements to Premises - By Landlord
------------------------------------------------
a) The Landlord will co-ordinate the design, supervision, and
construction of the leasehold improvements to level consistent with
the show suite on the 14/th/ floor of the building (all of which is
herein called the "Improvements") to the Premises.
b) The Landlord will contribute a maximum of $20.00 per rentable square
foot of the Premises toward the improvements including design fees and
permits (the estimated total Landlord contribution being $116,000.00).
c) If the Landlord's full contribution is not required to complete the
Improvements, the saving will accrue to the Tenant and applied to the
initial months of minimum rent due under the Lease.
d) If the total cost of the Improvements exceeds the Landlord's maximum
contribution, the Tenant will be obliged to pay the excess directly to
the contractor(s) in a timely manner.
e) The Landlord will carry out the Improvements in accordance with the
design plan and specifications and in accordance with the lawful
requirements of all Government Bodies having jurisdiction.
The Landlord will not be obliged to commence the Improvements, except for
any preliminary layout design which the Landlord has authorized in writing,
until the Lease has been fully and unconditionally executed and delivered
by all parties.
2. Common Lobby Upgrades
---------------------
In addition the Landlord agrees to upgrade the common area lobby and
washrooms on this floor to a level of quality and finishes as provided on
the 14/th/ floor of the Building.
3. Tenant Improvements
-------------------
The Tenant shall be responsible for the installation of any leasehold
improvements in the Leased Premises which are over and above the Landlord's
Improvements and Common Area Upgrades (the "Tenant Improvements").
26
<PAGE>
SCHEDULE "E"
SPECIAL PROVISIONS
------------------
1. RIGHT OF FIRST REFUSAL
----------------------
The Tenant shall have the Right of First Refusal to match any bona fide
third party Offer to Lease on contiguous premises on the 7/th/ floor which
becomes vacant during the term of this Lease with two (2) business days
notice of being presented with same by the Landlord.
2. OPTION TO RENEW
---------------
Provided the Tenant has during the Term of this Lease paid the Rent at the
time and in the manner therein required to be paid and has otherwise
performed the obligations and covenants on its part to be performed, then
the Landlord shall grant to the Tenant the option to renew this Lease and
the Parking Agreement for a further term of five (5) years (hereinafter
referred to as the "Renewal Period") with the commencement date being the
day following the expiration of the initial Term.
Provided, in order to exercise its option for the Renewal Period, the
Tenant shall be required to give to the Landlord notice thereof in writing
not less than six (6) months before the date of the expiry of the Term of
this Lease. Any renewal pursuant to this proviso shall be on the terms and
conditions in the Landlord's then current standard office lease for the
Building except that:
a. there shall be no additional right of renewal;
b. the Minimum Rent payable by the Tenant during the Renewal Period
(hereinafter referred to as the "New Minimum Rent") shall be equal to
the current market rent at the expiration of the Term for comparable
space in the Building or if there is no such comparable space, for
comparable space in buildings or office complexes similar in quality
and location to the Building with such New Minimum Rent to be agreed
upon between the Landlord and the Tenant.
If any dispute arises as to the amount of the New Minimum Rent the issue
shall be resolved by Arbitration in accordance the Arbitration Act of
Alberta.
27
<PAGE>
PARKING
-------
PARKING AGREEMENT
-----------------
THIS INDENTURE made in duplicate the 25/th/ day of November, 1997.
BETWEEN:
PHOENIX PLACE LTD, a body
corporate having an office
in the City of Calgary,
in the Province of Alberta
(hereinafter called "the Licensor")
AND:
PINNACLE OIL INTERNATIONAL INC.
#750, Phoenix Place
840 - 7/th/ Avenue SW
Calgary, Alberta
T2P 3G2
(hereinafter called "the Licensee")
WHEREAS the Landlord has available for lease parking stalls in the
underground heated parking facility (the "Parkade") in the building complex
municipally located at 840 - 7/th/ Avenue SW, Calgary, Alberta (the "Building").
AND WHEREAS the Landlord has agreed to allow the Tenant the use of certain
of these parking stalls subject to the terms and conditions of this Agreement;
NOW THEREFORE THIS AGREEMENT WITNESSETH that in consideration of the
covenants herein, the parties agree as follows:
1. The Landlord will, during the term of this Agreement, provided three (3)
parking stall(s) in the Parkade for the use of persons designated by the Tenant
("Designated Users").
2. a) The term of the Agreement will commence on February 1998 and expire
January 31, 2003. The Tenant will pay a monthly fee on the first day of each
month during the term hereof, which sum has been calculated on the basis of a
rate of One Hundred and Forty Dollars and Zero Cents ($140.00) per month per
parking stall. Such rental shall be payable to the Landlord at:
PHOENIX PLACE LTD.
c/o Colliers Property Management
3700 Bankers Hall
855 - 2/nd/ Street SW
Calgary, AB T2P 4J8
or at such other address as the Tenant may hereafter be advised in writing by
the Landlord from time to time.
The monthly fee will be subject to increase from time to time upon 30 days
written notice from the Landlord based upon prevailing market rents for
comparable parking stalls in similar locations in downtown Calgary.
3. The Tenant and the Designated Users of the parking stall(s) shall observe
and obey all regulations or instructions which may from time to time be
established for the proper operation of the parkade by the Landlord, or any
manager, or managers, which may be appointed by it (the "Parkade Operator"), and
such regulations and instructions shall be deemed to form a part of this
Agreement.
28
<PAGE>
4. The Tenant shall register with the Landlord the names of the Designated
Users using the Parkade together with the names and license plate numbers of all
vehicles to be parked therein. The parking stalls shall only be used for
passenger motor vehicles permitted by fire regulations to park in underground
parkades. No substitute vehicles may park in the Parkade without the prior
written approval of the Landlord.
5. The Landlord and the Parkade Operator shall not be liable for any loss or
damage, however caused, to any vehicle or its contents while in the Parkade,
even if such loss or damage results from the negligence of the Landlord or the
Parkade Operator, or their respective servants, agents or employees, and the
Tenant shall indemnify and hold harmless with respect to any such loss or
damage, the Landlord, any Parkade Operator and their respective servants, agents
and employees together with their successors and assigns.
6. The Tenant hereby acknowledges receipt of Three (3) parking access card(s)
which permits vehicular access to the Parkade. Loss of parking access cards must
immediately be reported to the Landlord and replacement parking access cards
may be obtained at an additional charge then prevailing, which at the
commencement date of this License Agreement is TWENTY FIVE DOLLARS ($25.00) per
parking access card.
7. Insurance for loss of or damage to vehicles using the parking stall
pursuant to this Agreement shall be the responsibility of the Tenant or its
Designated User. The Tenant shall ensure that any insurance held by it or any of
its Designated Users for vehicles which are parked in the parkade by virtue of
this Agreement contains a waiver of subrogation against the Landlord, the
landlord any Parkade Operator and their respective servants, agents and
employees, in respect of any loss of or damage to the vehicle.
8. Insurance for loss of or damage to vehicles using the parking stall
pursuant to this Agreement shall be the responsibility of the Tenant or its
Designated User. The Tenant shall ensure that any insurance held by it or any of
its Designated Users for vehicles which are parked in the parkade by virtue of
this Agreement contains a waiver or subrogation against the Landlord, the
Landlord any Parkade Operator and their respective servants, agents and
employees, in respect of any loss or damage to the vehicle.
9. The Tenant and its Designated Users using the Parkade shall not create any
nuisance or hazard within the Parkade nor use the Parkade in any matter
detrimental to the use of the Parkade by other persons.
10. The Tenant and its Designated Users shall not park in driving lanes or in
any other area not designated as a parking stall.
11. The Tenant shall ensure that its Designated Users are familiar with and
comply with all of the terms of this Agreement including all of the regulations
and instructions referred to in paragraph 3 hereof. Vehicles parked in breach of
any of the terms of this Agreement or regulations and instructions referred to
in paragraph 3 may be ticketed, removed from the parkade and impounded at the
cost and expense of the Tenant and the Designated Users.
12. If the Tenant or any of its Designated Users are in breach or default of
any of the terms of this Agreement or any regulations or instructions made
pursuant to paragraph 3, and such breach or default is not cured within two (2)
business days notice of such breach or default to the Tenant, then, the Landlord
may terminate this Agreement forthwith upon written notice to the Tenant.
13. In the event of damage to the Parkade, or Building resulting in the closure
of the Parkade, the Landlord's obligations hereunder shall be suspended during
such period and the monthly fee shall abate for the period of the closure.
14. This Agreement and the license herein granted shall not be assigned by the
Tenant except with the prior written approval of the Landlord. An assignment or
transfer, or surrender of the Landlord's leasehold estate shall be deemed not to
be a termination of the Landlord's leasehold estate provided that such
assignment, transfer or surrender is made subject to the assumption by the
assignee or transferee of the obligations of the Landlord hereunder and in such
event the Tenant agrees to execute a notation agreement providing for a release
of the Landlord from its obligations hereunder and an assumption of those
obligations by the assignee, transferee or person to whom the surrender is made.
29
<PAGE>
IN WITNESS WHEREOF the parties have executed this Agreement as of the day
and year first above written.
PHOENIX PLACE LTD.
Licensor
[SIGNATURE ILLEGIBLE]
-------------------------------------
PINNACLE OIL INTERNATIONAL INC.
Licensee
[SIGNATURE ILLEGIBLE]
-------------------------------------
PRESIDENT
[SIGNATURE ILLEGIBLE]
- ------------------------------- _____________________________
Witness
30
<PAGE>
EXHIBIT 16
Direct Line: (604) 443-4706
E-mail:[email protected]
June 26, 1998
Securities and Exchange Commission
Washington, DC 20549 USA
Dear Sirs:
RE: Pinnacle Oil International Inc.
We have reviewed the information contained in Item 4 to the Registration
Statement on Form 10 and we do not disagree with the information contained in
Item 14 relating to BDO Dunwoody.
Yours truly,
Chartered Accountants
DdJ/ap
<PAGE>
EXHIBIT 18
INEPENDENT PETROLEUM CONSULTANTS' CONSENT
The undersigned firm of Independent Petroleum Consultants of Calgary, Alberta,
Canada has prepared an interim report documenting observations made by this firm
with respect to certain exploration and evaluation activities conducted by
Pinnacle Oil International Inc. utilizing a proprietary technology call the
Stress Field Detector and hereby gives consent to the use of its name.
- --------------------------------------------
PERMIT TO PRACTICE
GILBERT LAUSTSEN JUNG ASSOCIATES LTD.
Signature /s/ Keith [ILLEGIBLE]
---------------------------
Date June 24, 1998
--------------------------------
PERMIT NUMBER: P 2066
The Association of Professional Engineers,
Geologists and Geophysicists of Alberta
- --------------------------------------------
/s/ [ILLEGIBLE]
-------------------------------------
Gilbert Laustsen Jung Associates Ltd.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the inclusion as an exhibit to that Registration
Statement on Form 10 (the "Registration Statement") of Pinnacle Oil
International, Inc. (the "Company"), to be filed by the Company with the
United States Securities and Exchange Commission on or about June 26, 1998, of
our Report of Independent Auditors dated March 13, 1998 (the "Report"),
relating to the Consolidated Balance Sheets of the Company and its
subsidiaries as of December 31, 1997, and the related Consolidated Statements
of Loss, Consolidated Statements of Shareholders' Equity (Deficit), and
Consolidated Statements of Cash Flow of the Company and its subsidiaries for
each of the year ended December 31, 1997, and the notes to the Consolidated
Financial Statements, and further consent to the references in the
Registration Statement to our Report.
/s/ Deloitte & Touche
CHARTERED ACCOUNTANTS
Vancouver, Canada
April 3, 1998
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the references in that Registration Statement on Form
10 (the "Registration Statement") of Pinnacle Oil International, Inc. (the
"Company"), to be filed by the Company with the United States Securities and
Exchange Commission on June 26, 1998, to our Independent Auditors Report dated
March 15, 1997 (the "Report"), relating to the Consolidated Balance Sheets of
the Company as of December 31, 1995 and 1996, and the related Consolidated
Statements of Loss, Consolidated Statements of Shareholders' Equity (Deficit),
and Consolidated Statements of Cash Flow of the Company for each of the two
fiscal periods ended December 31, 1995 and 1996 (collectively, the
"Consolidated Financial Statements"), and we hereby further consent to the
inclusion of the Report in the Registration Statement.
/s/ BDO Dunwoody
Vancouver, Canada
April 14, 1998
<PAGE>
EXHIBIT 99.1
==============================================================
Evaluation of Stress Field
Detector Technology
Implications for Oil and Gas Exploration
in Western Canada
--------------------------------------------------------------
This report has been prepared as an independent evaluation for Pinnacle Oil
International Inc. The evaluation is based upon field trials of their
proprietary SFD Technology conducted between September 16-28, 1996, over known
oil and gas accumulations in central Alberta, Canada.
Report Prepared By
Rod Morris
P. Geologist, A.P.E.G.G.A
September 30, 1996
--------------------------------------------------------------
<PAGE>
Evaluation of Stress Field Detector Technology
Implications for Oil and Gas Exploration in Western Canada
Rod Morris, P. Geologist
September 30, 1996
Abstract
- --------------------------------------------------------------------------------
A field evaluation of the Pinnacle Oil International Inc.'s Stress Field
Detector technology (SFD) was conducted in southern Alberta between September
16-28/th/, 1996. The evaluation involved over 1,000 miles and 27 hours of SFD
recordings. Field tests were designed to assess the applicability and
reliability of the SFD technology in detecting significant oil and gas
accumulations over a variety of hydrocarbon trap types and reservoirs.
Discussions with Mr. George Liszicasz regarding performance of the SFD indicated
that the technology is currently more conclusive when looking for hydrocarbons
in Limestone and Dolostone reservoirs. Therefore, for the purposes of these
field tests, SFD Profiles were specifically directed at Mississippian and
Devonian age carbonate reservoirs. During the course the field trips a number
of Cretaceous clastic reservoirs were also traversed. Although they were not
intended to be evaluated in this report, one traverse is included as an example.
Six oil and gas trap types representing the primary hydrocarbon trapping
mechanisms of Mississippian and Devonian reservoirs in central Alberta were
evaluated by selecting and traversing 20 specific oil and gas pools. During the
evaluations the vehicle used to transport the SFD was driven by the author. The
SFD operator did not have any prior notice of the intended route nor the oil and
gas accumulations that were traversed. Several observations were made during the
field evaluations:
. The SFD system records an anomalous response over known oil and gas
accumulations;
. The SFD appears to become more definitive in proportion to the size and
quality of the hydrocarbon accumulation;
. Pools within the boundaries of larger regional hydrocarbon reservoirs were
detected substantiating the ability of the SFD to detect multiple horizon oil
and gas accumulations;
. Oil versus gas accumulations can be successfully differentiated as experience
is gained in an area;
. Existing boundaries of fully developed pools were delineated with accuracies
approaching several hundred meters;
. The SFD only appears to become saturated over large hydrocarbon pools which
can extend their apparent size. Multiple traverses from opposing directions
must be conducted to minimize this effect;
. Signal saturation appears to be cumulative, decreasing instrument sensitivity
during extended use;
The field tests were directed at Devonian Leduc, Nisku and Wabamun formations;
and Mississippian Pekisko and Elkton formations. Oil pools evaluated ranged in
size from 6.6 million to 88 million barrels in place and from 0.25 to 6 square
miles in aerial extent at depths ranging from 5,200 to 7,300 ft. Gas pools
evaluated ranged in size from 25 billion to 1.9 trillion cubic feet of natural
gas in place and 2 to 112 sq. miles in aerial extent at depths ranging from
5,000 to 11,700 feet.
Definite anomalous SFD responses were recorded over 19 of the 20 targeted known
pools representing all of the six trap types surveyed. These responses clearly
demonstrate the effectiveness of the SFD to detect significant hydrocarbon
accumulations. Although SFD technology is in its infancy, it adds an entirely
new dimension to oil and gas exploration. This technology complements and
significantly enhances the conventional tools of seismic, subsurface geology and
airborne geophysical surveys that are currently in widespread use by the oil and
gas industry world wide.
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
Evaluation of Stress Field
Detector Technology
Implications for Oil and Gas
Exploration in Western Canada
- --------------------------------------------------------------------------------
Introduction
- --------------------------------------------------------------------------------
Mississippian and Devonian aged reservoirs in central Alberta are well known for
containing large accumulations oil and gas. Over a period of seven days three
field trips with the Stress Field Detector technology (SFD) were undertaken to
survey 20 known oil and gas pools. The purpose of the surveys were to test the
applicability and reliability of the SFD in Alberta, as well as assess current
limitations of the technology. The field tests were not designed or intended to
find new exploration prospects. The SFD surveys and routes were designed and
selected solely by the author. The principals of Pinnacle Oil International had
no input in, or prior knowledge of, the objectives of the study.
Subsurface fluids are found in porous rocks geologists and engineers call
"aquifers". Over time portions of aquifers can become locally sealed to create
"traps" or "reservoirs". Initially, all reservoirs are filled with water. As oil
and gas are generated from the surrounding shale's called "source rocks", they
accumulate in the aquifers. Since hydrocarbons are lighter than the water, they
migrate upward within the aquifer until the aquifer terminates or a local trap
is created. If enough hydrocarbons collect in a trap an oil or gas pool or
reservoir is created. Therefore, in order to create an economic accumulation of
hydrocarbons three things must occur:
1. The trap must be sufficiently large;
2. The reservoir must be porous and permeable enough to store and transmit
fluids;
3. Enough hydrocarbons had to be generated and accumulated in the trap to
create an economic deposit.
To evaluate the SFD technology the field tests were designed to profile six
primary trap styles, as well as known water versus hydrocarbon filled aquifers
and reservoirs.
<PAGE>
. Figure 1. illustrates a subcrop or
erosional edge trap and is
representative of typical Elkton and
Pekisko reservoirs evaluated in [GRAPH]
central Alberta. These traps are Figure 1. Subcrop Edges and Outliers
profiled by SFD traverses of the
Chestermere Elkton oil pool; and the
Carstairs and Crossfield Elkton gas
pools.
. Figure 2. is typical of Nisku pools
that develop behind the Leduc reef
margins in Alberta. These traps are a [GRAPH]
combination of structural highs and Figure 2. Drape over Structures or
facies changes. SFD traverses of the Reefs
Wayne-Rosedale and Drumheller Nisku
"B" oil pools are included.
. Figure 3. represents a typical
pinnacle reef development in the Leduc
and Nisku formations. SFD traverses of
Nisku patch reefs at Mikwan; and Leduc [GRAPH]
pinnacles at Fenn West are Figure 3. Isolated Pinnacle or Patch
illustrated. At Fenn West drape of the Reefs
Nisku formation over the underlying
Leduc Pinnacles creates multizone
pools.
. Figure 4. depicts a porosity pinch out
and is the type of trap that contains
oil in the Nisku Fm. at Joffre and gas [GRAPH]
in the giant Wabamun pools found in Figure 4. Porosity Lenses or Pinch
the Crossfield area of Alberta. A Outs
traverse of the Crossfield East pool
is illustrated.
. Figure 5. illustrates a typical large
Devonian atoll in which hydrocarbons
are trapped along the updip margins of
the reef complex. Or in overlying
formations that drape over the reef [GRAPH]
margins creating a structural high. Figure 5. Large Reef Complexes and
SFD Profiles of the Wimborne Leduc and Atolls
Nisku oil pools; and West Drumheller
Nisku "A" are representative of this
type of trap.
. Figure 6. is a simplified diagram of
thrust faulted structural traps that
develop along the foothills of the
Rocky Mountains. These traps are very
complex but can contain significant [GRAPH]
hydrocarbon accumulations in Figure 6. Thrust Faults
Mississippian and Devonian reservoirs.
A traverse of the Jumping Pound west
pool is illustrated.
Hydrocarbon accumulations in the above trap types were selected to document the
- --------------------------------------------------------------------------------
Evaluation of SFD Technology Page 2 CONFIDENTIAL
<PAGE>
performance of the SFD over a cross section of pool sizes and trapping
mechanisms.
The SFD field evaluations were made during three separate trips on
September 18, 22 and 28, 1996. The trips were conducted on primary and secondary
roads covering a total of 1,000 miles and 27 hours of SFD sampling throughout
central Alberta. The author, Mr. George Liszicasz and Mr. Dirk Stinson were the
only people involved in the evaluations. Table 1 summarizes the SFD Profiles
detailed in this report. These pools were deliberately traversed in order to
evaluate the SFD technology.
Table 1.
<TABLE>
<CAPTION>
====================================================================================================================================
SFD Profile # Oil/ Depth Avg. Pay, Proven SFD SFD Anomaly
Pool Name Gas feet porosity area Reserves Profile
(sq. mi.) Repeated
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
1) Chestermere Oil unknown new pool 2, E to W Excellent, repeatable oil signature.
Elkton and W to E
- ------------------------------------------------------------------------------------------------------------------------------------
2) Wayne Oil 5,800 up to 65', 12%, new pool 2, E to W Excellent, repeatable oil signature
Rosedale D2 "A" (greater than) 3.5 and W to E
- ------------------------------------------------------------------------------------------------------------------------------------
3) Drumheller Oil 5,430 31', 7.6%, 4.7 36 MMBbls 2, S to N Excellent, repeatable oil signature
Nisku B and N to S
- ------------------------------------------------------------------------------------------------------------------------------------
4) Drumheller W Oil 5,500 46', 7%, 6.7 63 MMBbls 1, N to S Excellent oil signature
Nisku A
- ------------------------------------------------------------------------------------------------------------------------------------
5) Carstairs Gas 7,600 unknown est. 50 BCF 1, N to S Good gas signature
Elkton NGL + NGL's
- ------------------------------------------------------------------------------------------------------------------------------------
6) Crossfield East, Gas 8,526 31', 7%, 112 1.3 TCF 1, E to W Strong repeatable gas signature
Wabamun 3, N to S
- ------------------------------------------------------------------------------------------------------------------------------------
7) Crossfield East, Gas 7,520 34', 6%, 3.7 70 BCF & 3, N to S Excellent, repeatable gas signature
Elkton 6.6 MMBbls
- ------------------------------------------------------------------------------------------------------------------------------------
8) Mikwan Nisku Oil 7,000 area 1.6 MMBbls 1, N to S Distinctive SFD Signature
D2-1 (less than) 0.25
- ------------------------------------------------------------------------------------------------------------------------------------
9) Fen West Nisku Oil 5,800 area 9 pools up 1, N to S SFD profile questionable, requires further
& Leduc (less than) 0.25 to 9 MMBbls field work.
- ------------------------------------------------------------------------------------------------------------------------------------
10) Wimborne Oil 7,300 26, 5%, 6 & 620 BCF & 88 1, W to E Excellent gas and oil signature
Nisku B & Leduc 60, 8%, 24 MMBbls Total
- ------------------------------------------------------------------------------------------------------------------------------------
11) Jumping Pound Gas 9,400- 180, 8%, 7 & 874 BCF & 1, E to W Strong, repeatable signature
Area, Rundle 11,240 120, 6%, 30 2.76 TCF 2 W to E
- ------------------------------------------------------------------------------------------------------------------------------------
12) Gadsby Gas 3,700 24', 20-25%, 15 BFC 1, N to S Excellent gas signature
Cretaceous (less than) 1.5
====================================================================================================================================
</TABLE>
- --------------------------------------------------------------------------------
Evaluation of SFD Technology Page 3 CONFIDENTIAL
<PAGE>
Discussion
- --------------------------------------------------------------------------------
Each of the 20 pools traversed were selected and profiled for specific reasons.
The traverses were designed to test the response, reliability and repeatability
of the SFD to various trap types, pool sizes, reservoir fluids and reservoir
quality.
In the Crossfield area natural gas is produced from wells that have encountered
multiple carbonate horizons. This area was profiled to test for the ability of
the SFD to detect smaller pools either above or below a regionally extensive gas
bearing carbonate reservoir.
Twelve of the 20 pools traversed are detailed in this report.
SFD Profile 1. Chestermere Elkton
The Chestermere Elkton pool is a recent discovery that produces 36 degree oil
from an Elkton Fm. erosional subcrop edge or outlier. This trap type is shown in
Figure 1. and is typical of the majority of Elkton Reservoirs that produce oil
or gas in southern Alberta. The Chestermere traverse clearly demonstrated that
an erosional edge filled with oil could be detected. The proven boundaries of
this pool have yet to be defined. It is important to note that the detection of
hydrocarbons is best when done in a real time setting. Mr. Liszicasz was not
told of the pools existence until after he had emphatically stated, without
prompting, "There is oil here, it must be here!". When informed that we were
deliberately traversing a new oil discovery his response was a good natured,
"you are trying to trick me!". However, the SFD Profile and Mr. Liszicasz's
immediate interpretation of a strong oil signature established strong
credibility for the SFD technology. This particular oil pool was traversed twice
and successfully identified in both directions. Subcrop plays can be difficult
to interpret using conventional seismic techniques, but if seismic and the SFD
Profiles were to be combined along known subcrop plays, the oil industry would
have a very powerful set of tools.
SFD Profile 2. Wayne / Rosedale Nisku Oil
The Wayne / Rosedale oil pool was selected as the second pool to be traversed
for three reasons. First, the pool is a recent discovery that is being developed
with directionally drilled wells from central pads. Second, the pool does not
appear to be draped over a Leduc reef margin like other surrounding Nisku pools.
The third reason was that the Nisku Fm. is a blanket carbonate that extends over
hundreds of square miles in this area and is approximately 100 kilometers from
the Chestermere Elkton pool discussed above. There are no known hydrocarbon
accumulations in carbonate pools along the route that was taken between these
two pools. Furthermore the route was designed to remain on the continuous Leduc
and Nisku Fm carbonate complex. The purpose was to observe how the SFD reacted
in an area which has not produced any known carbonate pools, but has numerous
shallow gas pools and fields. In this situation many weak signals and changes in
the SFD recording were observed but, there were no violent or drastic changes
similar to the Chestermere profile.
Due to the nature of the development of the Wayne / Rosedale Nisku Pool the pool
boundaries are not obvious to the casual observer. Most of the surface equipment
is located at central pads with directional wells that are deviated up to 0.5
miles laterally. Although the terrain is open prairie the rolling land also
obscures any vision of the limited surface equipment as the pool is approached
from the southwest. Once again there was no prior warning that a significant oil
pool was being approached. At the south western margin of the pool the SFD
produced a strong anomalous reading that continued until 300m past the
northeastern most wells in the pool. Dramatic variations in the amplitude of the
signal were also observed which may indicate changes in the reservoir quality,
pay thickness or continuity. However, more comprehensive studies must be
undertaken to determine if detailed SFD profiling can be used in reservoir
characterization studies. The characteristics of the SFD waveform are very
similar to those
- --------------------------------------------------------------------------------
Evaluations of SFD Technology Page 4 CONFIDENTIAL
<PAGE>
recorded over the West Drumheller Nisku "A" pool shown in SFD Profile 4.
The Wayne / Rosedale Nisku oil pool was profiled on two separate field trips
from opposing directions. Both traverses recorded powerful SFD signatures.
These traverses strongly support the ability of the SFD to detect localized
hydrocarbon accumulations within regionally extensive carbonate banks.
SFD Profile 3. Drumheller Nisku "B" Pool
The Drumheller Nisku "B" oil pool is approximately 7 miles north of the Wayne /
Rosedale Nisku pool and was discovered in 1961. It is interesting to not that 34
years elapsed before the next major Nisku oil pool was discovered only 7 miles
to the south in this area.
The Drumheller Nisku "B" pool is formed by a combination of drape along the
underlying Leduc carbonate bank margin, structural highs and patch reef
development. This is similar to the trap shown in Figure 2. but with elements of
the traps shown in Figure 5. This pool is thought to be very similar to the
Wayne / Rosedale pool.
A traverse across this pool was done to observe how the SFD would profile a
very complex reservoir. The Drumheller Nisku "B" pool is well known for being
heterogeneous in geographic, as well as reservoir development. Especially along
its eastern flank, oil wells that produce hundreds of thousands of barrels of
oil can be offset by 200m and encounter water filled reservoir.
The SFD Profile of this pool is very abrupt with sharp boundaries. The full
meaning of this signature will require detailed waveform analysis and
comprehensive study of future surveys. However, there is no doubt that the SFD
reacted very dramatically when traversing this pool. The northern boundary of
the pool can be matched to within 200m of the SFD Profile.
SFD Profile 4. West Drumheller Nisku "A"
The West Drumheller Nisku "A" pool is located 5 kilometers west of the
Drumheller Nisku "B" pool discussed above. This pool is typical of the trap type
illustrated in Figure 5. The trap is created by drape over the underlying margin
of the Leduc carbonate complex. In portions of the pool, both the Leduc and
Nisku Formations contain oil. This pool was traversed in order to compare its
SFD Profile with that of the more irregularly shaped and heterogeneous
Drumheller Nisku "B" pool discussed above. As shown in the SFD Profile the two
pools have dramatically different SFD signatures, even though they produce from
the same formation and are only 5 kilometers apart. These two profiles indicate
that like seismic, SFD Profiles are not unique signatures of the subsurface.
Further study is required to determine the significance of the Drumheller and
West Drumheller SFD Profiles. However, the SFD produced strong anomalous
readings over both pools.
SFD Profile 5. Carstairs Elkton
The Carstairs Elton Gas pool was discovered in September 1995. The author was
directly involved in the exploration and approval process leading up to this
discovery. The pool is typical of the trap type illustrated in Figure 1. and is
essentially the same play type as the Chestermere Elkton pool in SFD Profile 1.
The major difference is that Chestermere is an oil pool and Carstairs is a gas
and natural gas liquids (NGL) pool.
The Carstairs pool was discovered using a combination of 2 - dimensional (2-D)
seismic and subsurface geological information from surrounding well bores. The
original 2-D seismic interpretation indicated that there was a potential
erosional remnant of the Elkton formation that had not been previously drilled.
The Elkton Fm. to the west of Carstairs had been producing natural gas for over
35 years. The seismic over the prospect was tied to the older Elkton "A" gas
pool and surrounding wells that had not encountered the Elkton reservoir.
Subsequent reprocessing of a key seismic line over the prospect indicated that
the proposed exploration well would not encounter any Elkton Fm. and would
likely result in a dry hole. The reprocessed seismic data was ultimately
ignored and the prospect was drilled based upon the original
- --------------------------------------------------------------------------------
Evaluation of SFD Technology Page 5 CONFIDENTIAL
<PAGE>
interpretation. The well is currently producing 20-25 MMCF and 1000 Bbls of NGL
per day.
The key lesson in the above history is for the reader to understand that seismic
does not provide a unique interpretation of the subsurface. After fifty plus
years of development, the geophysical industry is still learning how to acquire,
process and interpret seismic data. Furthermore, only in very specific
circumstances can seismic make any indication of the type of reservoir fluids.
The purpose of the SFD traverse was three fold; to compare the signature with
that of the Chestermere oil discovery; determine if the SFD could detect
relatively small carbonate gas pools; and examine the potential size of the
Carstairs discovery. The SFD Profile of the Carstairs Elkton pool clearly
produced a strong anomalous reading. North and south boundaries of the pool were
well defined by the SFD. The profile is similar in character to that of
Chestermere Elkton (SFD Profile 1), except the profile is much tighter,
indicating gas.
SFD Profile 6. Crossfield East Wabamun
Crossfield Alberta is famous for the giant Wabamun and Elkton formation gas
pools that have been producing in this area since the late 1950's. The Wabamun
Crossfield member reservoir is a porous dolomite sandwiched between tight
limestone and sealed updip by anhydrite and salts. The trap is illustrated in
Figure 4. The traverse of this reservoir was designed to determine if the SFD
could detect pools that did not have a significant structural component, or a
major change in reservoir thickness that controlled the development of the
reservoir. The blanket like nature of the Crossfield reservoir and tremendous
aerial extent would also indicate to what degree saturation of the SFD can
become a factor. Finally, the Crossfield east pool has several overlying Elkton
pools that are completely enclosed within the boundaries of the Wabamun pool.
This would allow a perfect opportunity to observe SFD signatures over
multi-formation carbonate pools.
SFD Profile 6 is an extremely compressed representation of the SFD signals
recorded in the Crossfield area. The horizontal scaling is 350 to 1 versus 10 to
1 for most of the other profiles illustrated in this report. At the left or
northern end of the profile, a sharp drop is recorded just before the SFD
entered the Crossfield East pool. This drop represents the area separating the
Lone Pine Wabamun pool from the Crossfield East Wabamun pool. South of this
point the traverse clearly shows an elevated SFD signature that extends off the
profile to the south and east. The sharp drops in the profile were recorded in
areas where the Crossfield reservoir is not productive. On the north end of the
profile numerous oil signatures were also noted. In some instances these
coincided with shallow oil pools producing from the Cretaceous age Cardium fm.,
others have not been drilled as of this report. The southern half of the profile
has a very strong, high amplitude signature that occurred as the shallower
Crossfield East Elkton "A" pool was traversed. This high amplitude zone weakens
slowly to the south rather than forming an abrupt drop as seen at Carstairs.
This may be the result of saturation of the SFD. The salient points of this
profile are:
. Elevated base level of the overall SFD Profile,
. Sharp increases in amplitude across known Elkton accumulations,
. Oil signals observed across shallower Cretaceous oil pools,
. significant drops in the SFD signal amplitude in areas where the Crossfield
member of the Wabamun is known to be tight and non productive.
The SFD Profile shown is not complete across the southern portion of the map
between Airdrie and the portion of the route traveled along Highway 566. This
was due to space and resolution limitations. However, the SFD recorded anomalous
gas signatures over the southern pools as well.
The results of three traverses of the Crossfield area were very encouraging.
They clearly showed repeatability of an SFD anomaly signature. They also
substantiate the ability of the SFD to detect multiple zone pools and their
boundaries, possibly with a high degree
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Evaluation of SFD Technology Page 6 CONFIDENTIAL
<PAGE>
of accuracy and repeatability in areas where regionally extensive hydrocarbon
reservoirs are known.
SFD Profile 7. Crossfield East Elkton "A"
The Crossfield East Elkton "A" profile is included in the Crossfield East
Wabamun SFD Profile. This SFD Profile is included to show the type of SFD
signature that was obtained from a pool within a pool. The pool is an Elkton
formation outlier that is typical of the trap type shown in Figure 1.
The Elkton "A" pool traverse is important because it demonstrates the ability of
the SFD to detect smaller pools within the boundaries of larger pools. The SFD
recorded an abrupt increase in readings entering the Elkton "A" pool despite the
elevated background levels of the underlying Wabamun reservoir. The change in
signal strength closely matches the proven limits of the pool and demonstrates
the credibility of the technology. This ability to detect the Elkton "A" pool
was demonstrated on three separate field excursions.
A further implication is that the SFD could also be used to detect sweet spots
within regional reservoirs. Matching SFD signal characteristics with detailed
mapping of known reservoir production profiles, may expand the usefulness of SFD
profiling to reservoir characterization studies.
SFD Profile 8. Mikwan Nisku
The Mikwan Nisku D2-1 pool was traversed to determine whether small patch reefs
could be detected with the SFD. The reservoir trap type is illustrated in Figure
3. It is a single well pool with less than 160 acres of aerial extent. The patch
reefs are encased in a tight anhydrite off reef facies that provides the lateral
and vertical seals. Although these pools are small they are very prolific
producers capable of producing hundreds of BOPD. These pools are very difficult
to detect, even on 3-D seismic.
Several Nisku tests that did not encounter any reservoir were passed en route to
the D2-1 pool. These holes provided added credibility for the SFD in the area
by confirming the background signature of the SFD.
SFD Profile 8 illustrates the signature that was recorded approximately 300'
feet west of the producing well on a north to south traverse. The signature
shows an abrupt increase in amplitude and activity of the SFD recording
There were other anomalous signals recorded in the Mikwan area that are
essentially identical to the Mikwan Nisku D2-1. pool. These anomalies have not
been drilled as of the date of this report.
SFD Profile 9 Fenn West Nisku and Leduc
The Fenn West area has several prolific Leduc pinnacle reefs that were
discovered in the early 1980's. After the initial discovery the area was the
target of intense exploration efforts by the oil and gas industry. However, the
reefs have proven to be a difficult and expensive target to explore for. This is
primarily due to the small aerial size of the pools. Figure 3 is a schematic
diagram typical of pinnacle reef traps.
The reefs are usually less than 320 acres (0.5 sq. mi.) in size and several have
been found that are believed to be less than 35 acres in size. Despite the small
aerial extent, these pools can hold significant oil reserves with the larger
reefs capable of producing several million barrels of oil.
The problem is in locating the reefs without having to shoot large grids of
closely spaced 2-D or 3-D seismic surveys. Therefore the purpose of the
traverses in the Fenn West area were to determine whether the SFD could detect
these small targets. Several producing Leduc reefs were profiled during the
field evaluations. The results were mixed and further work is required before a
conclusion may be reached as to the validity of SFD sampling for this play type.
SFD Profile 9 is the most interesting of the traverses done on this play type.
The SFD did not record any signals across an area that has three known Leduc
pinnacles within 1.5 square miles. However, closer inspection revealed that
three wells were directionally drilled virtually directly under the road that
was used to traverse the area. Two of these wells were dry holes and the third
did not produce enough oil to justify the cost of drilling. The producing
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Evaluation of SFD Technology Page 7 CONFIDENTIAL
<PAGE>
wells that were the target of the traverse can be seen 1000 feet east and west
of the roadway and therefore they were not directly traversed.
This profile raises many questions, especially after the success encountered in
detecting equally small Nisku patch reefs in the Mikwan area. The Fenn West area
requires further field work to compare SFD profiles over other Leduc pinnacle
reefs before any conclusions can be reached regarding SFD Profile 9. It should
be noted that this was the only planned SFD traverse of a known hydrocarbon pool
that did not record an anomalous SFD reading.
SFD Profile 10 Wimborne Leduc and Nisku
The Wimborne Leduc and Nisku pools were selected to test the lateral resolution
of the SFD. These two pools represent the trap type illustrated in Figure 5.
They are situated along the updip margin of a Leduc reef complex that covers
several hundred square miles. These pools are different in fluid composition in
that the Leduc reservoir has a substantial associated gas column (45') above a
relatively thinner oil column (15'); while the Nisku D2-A pool does not have an
associated gas column.
During the traverse the Nisku pool was correctly identified as an oil pool,
furthermore the limits of the pool were very precisely defined.
As the Leduc pool was traversed Mr. Liszicasz correctly identified the limits of
the pool, but also made remarks regarding the signal that indicated a much more
gassy reservoir. These remarks were made without any prior knowledge of either
the producing zone, fluid type, or surface facilities in the area.
The results of this traverse lend credibility to claims that SFD Profiling can
provide further indication regarding the nature of the hydrocarbons in a given
reservoir.
SFD Profile 11 Jumping Pound West Rundle
The Jumping Pound and Jumping Pound West pools are giant gas reservoirs found
along the eastern margin of the Rocky Mountains. The pools are contained in
traps similar to Figure 6, although this is an extremely simplified
representation of these complex traps. These pools were traversed on three
separate road trips with anomalous signatures recorded each time. The geology of
these pools is very complex due to the thrust faulting that has created the
traps. The reservoir and surrounding formations are often inclined at steep
angles or tightly folded, which makes seismic imaging of these reservoirs very
challenging. Thrust faulting creates fractures and fault planes that can enhance
the productivity of the reservoir, but also scatter seismic reflections.
These pools were selected for two reasons. First, to evaluate the ability of the
SFD to detect hydrocarbons in purely structural traps. Second to evaluate the
horizontal resolution of the SFD in heavily structured areas. The later would
provide clues as to whether the SFD would detect the pools at the surface
expression of the thrust faults, or actually above the underlying pool.
For this test the SFD was calibrated to acquire only high energy signals. This
was due to the SFD's propensity to react to strong faulting in the region. The
SFD traverse recorded the strong anomalous signatures directly above the Jumping
Pound and Jumping Pound West pools. Both of the signatures are comparable in
character, however, the larger Jumping Pound West anomaly is stronger and wider
than the signature of the smaller Jumping Pound pool.
These signatures add further credibility to claims, that the SFD not only
detects hydrocarbon reservoirs, but inferences can be made to the relative size
of two adjacent anomalies. Examination of the magnitude of two proximal SFD
signatures may allow geologists to place a relative ranking on the size of
separate prospects.
The clarity of the SFD response over these large structural gas pools was very
impressive.
SFD Profile 12 Gadsby Cretaceous gas.
- --------------------------------------------------------------------------------
Evaluation of SFD Technology Page 8 CONFIDENTIAL
<PAGE>
Although the field evaluations of the SFD were targeted at carbonate reservoirs
in central Alberta, many Cretaceous age oil and gas pools were traversed over
the 1,000 miles of surveys. Most of these pools were shallow gas pools (greater
than 1,500 - 2,000 feet). However, several significant anomalies were
encountered that when examined in Calgary and were clearly recorded over
Cretaceous age clastic reservoirs. These reservoirs had one common
characteristic: they have all produced abnormally high volumes of gas in
comparison to surrounding wells.
A more in-depth study is required before any more detailed conclusions can be
drawn regarding the SFD's effectiveness in clastic reservoirs. SFD Profile 12 is
included as an example of one of these anomalies that were encountered over
significant Cretaceous age clastic reservoirs.
Exploration potential of SFD Technology
During the course of conducting field evaluations of the SFD, several major
anomalous reactions were observed that have not been drilled at this time. Each
of these anomalies requires further investigation before it would be selected as
a drilling prospect. Ultimately, subsurface geology and seismic would have to be
evaluated in conjunction with multiple SFD traverses from various directions.
These anomalous SFD recordings are both very intriguing and promising.
SFD Profile 13. Undrilled Plains Area Anomaly
This anomaly was recorded in the plains area of central Alberta. The anomaly
displays typical characteristics of a major gas, or gas and NGL's pool. Similar
SFD signatures were recorded in the Chestermere, Airdrie and Crossfield areas
where several large Elkton Fm. pools have been producing for up to 30 years.
It is noteworthy that this anomaly extends for over 2 miles in length, and is
untested.
SFD Profile 14. Undrilled Potential Foothills Structure Anomaly
This SFD anomaly was recorded in the foothills of Alberta. Readers are
encouraged to compare this anomaly to the SFD signature of the Jumping Pound
West pool, illustrated in SFD Profile 11, which has established reserves of 1.8
TCF of natural gas.
The above examples are two of the six promising anomalies that were encountered
during the field evaluations. These undrilled anomalies were documented to
illustrate the exploration potential of the SFD.
Summary Notes
SFD profiling produced a 95% success ratio in identifying known oil and gas
accumulations within carbonate reservoirs. Only one profile produced
questionable results. This profile was taken along a north south road which had
three wells drilled directionally under it. One of these wells encountered the
D-3 reef but was a marginal producer. The other two wells were abandoned, yet
300m. east and 300m west of the road two D-3 pinnacles are currently producing
oil and have produced in excess of 2 MMBbls of oil to date. If the SFD is
accurate in locating pinnacle reefs with an error of less than 250m, then this
apparent failure to produce an anomaly becomes an exceptional example of the
lateral definition of the SFD. The SFD Profile for this traverse was discussed
in SFD Profile 9 above.
The immediate question that comes to mind is "what does the SFD actually
measure?". The answer to this question is unknown to the author, but several
possible answers can be immediately ruled out.
. The SFD does not react to surface or airborne hydrocarbons. There would be a
massive reaction every time you approached a gas station if this was the
case, and the SFD does not detect gas stations!
- --------------------------------------------------------------------------------
Evaluation of SFD Technology Page 9 CONFIDENTIAL
<PAGE>
. The SFD does not appear to output a signal and read the reflection or
reaction from that signal. It is a passive receiver of signals.
. The SFD does not appear to be influenced by high voltage power lines. Dozens
of high voltage lines were crossed during the field tests with no reactions
recorded.
. The SFD does not appear to react to the noise generated by surface or
underground oil and gas field operations. Identical SFD signatures can be
found where one anomaly is directly attributed to an existing oil or gas well
and the next anomaly one mile away has yet to be drilled.
. SFD signals are not influenced by input from the computer operator monitoring
the SFD signals, I tried.
. The SFD does not appear to react to, radio signals, microwave signals,
cellular phones or any obvious electrical / electronic interference outside
of the instrument.
Furthermore during the field tests:
. The SFD was not linked to a GPS system during data acquisition.
. Time and date information was recorded automatically with the SFD signals.
This information cannot be altered without access to the software developers
source code. I confirmed this through an independent source that the software
developer will not, and did not, supply the source code to anyone.
. Large portions of the SFD field excursions did not record any exceptional SFD
anomalies. A review of these areas was conducted using AccuMap and knowledge
of the regional geology. The findings indicated that significant hydrocarbon
bearing carbonate reservoirs were not expected.
The SFD field tests were conducted in all types of weather conditions (not on
purpose). During the tests weather ranged from plus 25 degrees C to freezing,
brilliant sunshine to heavy snow and light overcast to heavy rain (all on the
same day!). After all this was Alberta. The weather conditions did not appear to
have any adverse affect on the performance of the SFD.
Advantages of SFD Profiling
- ---------------------------
SFD Profiling of oil and gas reservoirs has many advantages over currently
accepted remote sensing exploration and development tools.
The Key Current Advantages are:
1. Remote indication of Reservoir fluid content, i.e. oil, gas or water.
2. Potential for very precise lateral definition of hydrocarbon accumulations.
3. Speed of acquisition and interpretation of the data dramatically reduces the
amount of time and cost required to conduct wide area evaluations.
4. Interpretations can be made in the field on a real time basis.
5. Portability of the SFD instrumentation allows for rapid deployment.
6. Future development will allow for conducting airborne SFD surveys.
7. Large crews and expensive support equipment are not required to operate the
SFD unlike Geophysical Surveys.
8. SFD Profiling is a non-intrusive, environmentally friendly technology.
Current Limiations of the SFD
The field evaluations have raised questions and highlighted current limitations
regarding the applicability of SFD profiling in the Canadian oil and gas
industry.
The key current limitations are:
1. Surface access. The SFD is currently transported by a specially equipped
- --------------------------------------------------------------------------------
Evaluation of SFD Technology Page 10 CONFIDENTIAL
<PAGE>
vehicle that requires smooth roads and speeds in excess of 10-20 kph. At
higher speeds better resolution appears to be obtained. The SFD appeared to
perform best at highway speeds.
2. The SFD has not evolved to the point where the anomaly can be tied to a
specific depth interval or formation.
3. Pool signatures change depending upon saturation levels of the SFD.
4. The SFD does not record a unique signature for identical reservoirs.
5. Oil and gas have different SFD signatures, but the interpretation of these
signatures is a combination of both science and art.
6. Areas with complex, multi-layered oil and gas accumulations are more
difficult to interpret with the SFD. However, every known major oil or gas
pool that was traversed during the field tests was matched to an anomalous
SFD profile.
7. Direct well ties for evaluation purposes are impossible in most pools due
to the spacing regulations in Alberta. Given the apparent resolution of the
SFD this becomes a factor in field testing.
The above limitations are a combination of the following factors.
. The SFD is still in the early stages of development.
. Surface constraints are a physical barrier to the operation of the vehicle.
. Insufficient testing has been undertaken to determine whether the SFD can
be calibrated to convey information from specific depth ranges, formations
or hydrocarbon types.
Recommendations
The biggest limitation to the operation of the SFD at this time is surface
restrictions. The current method of transporting the SFD and conducting surveys
is by vehicle and reasonable quality road surfaces are required.
In order for the SFD to become more versatile and effective it must learn to
fly!
This will open large ares, that lack surface access, to be surveyed using the
SFD. This will also allow the technology to be utilized in remote basins,
frontier areas and ultimately in offshore surveys.
Further testing should be undertaken to investigate the applicability of this
technology to reservoir characterization studies.
Work should also be initiated to develop the technology to combine 2-D profiles
into three dimensional representations of the SFD data.
Conclusions
Based upon the field trips conducted and empirical results obtained from this
evaluation, it is clear that the SFD technology has excellent potential. The
technology cannot, and is not anticipated to be used in isolation from other
conventional oil industry tools and methods. However, this technology
introduces a new and powerful tool that should improve the industry's ability to
discover significant new hydrocarbon reserves.
Only through further research, field application and integration with current
exploration tools, will the full potential of the SFD ever be achieved.
However, the above noted potential can only be realized if the oil and gas
industry accepts the challenge of embracing this technology.
. It would be a tragic mistake to dismiss this technology simply because the
industry does not understand it.
About the Author
- ----------------
Mr. Morris is an independent geologist with 15 years of multidisciplinary
experience in oil and gas exploration in western Canada. He has been involved
in oil and gas exploration and development; seismic acquisition, processing, and
interpretation research; and new venture developments. He is currently a minor
shareholder in Pinnacle Oil International Inc. through participating in the
March 1995 public offering of Regulation D shares on the OTC NASDAQ Exchange.
- --------------------------------------------------------------------------------
Evaluation of SFD Technology Page 11 CONFIDENTIAL
<PAGE>
At the time of undertaking this evaluation Mr. Morris did not have any direct
affiliation with Pinnacle Oil International, Inc. or any of its principles. The
report was prepared with the cooperation of the principals of Pinnacle Oil.
However, the design and planning of the field trip routes, selection of pools to
be evaluated, findings and conclusions are entirely those of the author.
The author accepts no responsibility for the actions or financial decisions of
third parties that are based upon the information or conclusions provided
herein.
- --------------------------------------------------------------------------------
Evaluation of SFD Technology Page 12 CONFIDENTIAL
<PAGE>
[CHESTERMERE - ELKTON SFD SIGNATURE GRAPH]
Confidential Waveform Information
Eyes Only
Chestermere - Elkton SFD Signature
West To East Traverse
SFD Profile 1
The Chestermere Elkton oil pool was discovered in 1995. The pool
boundaries had not been fully delineated when this SFD profile
was recorded. Wells within the pool can produce up to 800 BOPD.
Older Elkton wells 1.5 miles north have produced in excess of
950,000 barrels of oil and are currently producing approximately
135 BOPD each. Both pools are approximately 7,000 feet deep. The
reservoir is a dolostone with 8-11% porosity and an average
thickness of 40-50 feet.
[SFD PROFILE 1 GRAPH]
Confidential Information - Pinnacle Oil International, Inc.
<PAGE>
[WAYNE ROSEDALE NISKU - SFD SIGNATURE GRAPH]
Confidential Waveform Information
Eyes Only
Wayne Rosedale Nisku - SFD Signature
South To North Traverse
SFD PROFILE 2
The Wayne Rosedale Nisku "A" and "B" pools were discovered in
1994. The pool boundaries had not been fully delineated when this
SFD Profile was recorded. The pool was traversed on two separate
occasions from opposing directions with comparable results. Oil
is drawn from a dolostone reservoir at 5,800 feet and individual
wells are capable of producing up to 1,200 BOPD.
[SFD PROFILE 2 GRAPH]
Confidential Information - Pinnacle Oil International Inc.
<PAGE>
[DRUMHELLER - NISKU SFD SIGNATURE GRAPH]
Confidential Waveform
Information
Eyes Only
Drumheller - Nisku SFD Signature
South To North Traverse
SFD Profile 3
The Drumheller Nisku "B" oil pool was discovered in 1961. The pool boundaries
have been well delineated when this SFD profile was recorded. Wells within the
pool have produced at rates of up to 1,000 BOPD. The pool has proven reserves of
36 million barrels of oil in place. The reservoir is a dolomite with an average
7.6% porosity and 30 ft of pay thickness at a depth of 5,291 ft. The pool was
surveyed twice along the same route, but from opposing directions on separate
field trips. On both traverses the SFD produced an anomalous reading.
[SFD PROFILE 3 GRAPH]
Confidential Information - Pinnacle Oil International Inc.
<PAGE>
[W. DRUMHELLER - NISKU SFD SIGNATURE GRAPH]
Confidential Waveform
Information
Eyes Only
W. Drumheller - Nisku SFD Signature
North To South Traverse
SFD Profile 4
The West Drumheller Nisku oil pool was discovered in 1952. The pool boundaries
have been fully delineated when this SFD profile was recorded. Wells within the
pool have produced at up to 800 BOPD. The pool has established reserves of
63 MMBbls of oil in place. The reservoir produces from a dolostone with 7-8%
porosity and an average thickness of 46 feet at a depth of 5.500 feet.
[SFD PROFILE 4 GRAPH]
Confidential Information - Pinnacle Oil International Inc.
<PAGE>
[CARSTAIRS-ELKTON SFD SIGNATURE GRAPH]
Confidential Waveform Information
Eyes Only
Carstairs - Elkton SFD Signature
North To South Traverse
SFD Profile 5
The Carstairs Elkton gas pool was discovered in 1995. The pool boundaries had
not been fully delineated when this SFD profile was recorded. Wells within the
pool can produce up to 25 MMcf/d and 1,000 barrels of natural gas liquids per
day. The reservoir is a dolostone at a depth of 7,600 feet.
[SFD PROFILE 5 GRAPH]
Confidential Information - Pinnacle Oil International Inc.
<PAGE>
[CROSSFIELD E. - WABAMUN SFD SIGNATURE GRAPH]
Confidential Waveform Information
Eyes Only
Crossfield E. - Wabamun SFD Signature
North To South Traverse
SFD Profile 6
The Crossfield East Wabamun "A" pool was discovered in 1954. Recent drilling in
the area indicates that the pool boundaries have not been fully delineated.
Established reserves are 1.3 TCF of sour gas,(33% H/2/S). The reservoir
produces from a porous dolomite sandwiched between tight limestones. The trap is
created by facies change to tight anhydrides and salts to the east. The average
thickness of the reservoir is 32' with 7% porosity at a depth of 8,500 feet.
[SFD PROFILE 6 GRAPH]
Confidential Information - Pinnacle Oil International Inc.
<PAGE>
[CROSSFIELD E. - ELKTON "A" SFD SIGNATURE GRAPH]
Confidential Waveform Information
Eyes Only
Crossfield E. - Elkton "A" SFD Signature
North To South Traverse
SFD Profile 7
The Crossfield East Elkton "A" pool was discovered in 1960. The pool boundaries
have been fully delineated. Established reserves are 70 BCF gas and 6.6 MMBbls
of oil. The reservoir produces from a porous dolostone subcriop outlier. The
average thickness of the reservoir is 34' with 6% porosity at a depth of 7,520
feet. The pool covers an area of 3.7 sq. mi. and lies 1,000 feet above the
Crossfield East Wabamun gas pool.
[SFD PROFILE 7 GRAPH]
Confidential Information - Pinnacle Oil International Inc.
<PAGE>
[MIKWAN - NISKU SFD SIGNATURE GRAPH]
Confidential
Waveform
Information
Eyes Only
Mikwan - Nisku SFD Signature
North To South Traverse
SFD Profile 8
The Mikwan Nisku D2-I oil pool was discovered in 1994. The pool is a single well
patch reef that is encased in anhydrite. The well was producing at 170 BOPD
when this SFD profile was recorded. It is approximately 7,000 feet deep and
produces from a dolostone with an average porosity of 9%. Estimated reserves
are 1.6 MMBbls in place. These patch reefs are less than 160 acres in size and
are very difficult to detect on 2-D and 3-D seismic.
[SFD PROFILE 8 GRAPH]
Confidential Information - Pinnacle Oil International
<PAGE>
[FENN W. - LEDUC, NISKU SFD SIGNATURE GRAPH]
Confidential Waveform
Information
Eyes only
Fenn W. - Leduc, Nisku SFD Signature
South To North Traverse
SFD Profile 9
The seven Fenn West Leduc (D3) and Nisku (D2) oil pools were discovered in 1982.
The pools produce from Leduc pinnacle reefs that cover 34-160 acres, as well as
from the overlying Nisku. Wells within the pools can produce up to 1,000 BOPD
and have produced in excess of 2 MMBbls of oil. The reservoir is a dolostone
with an average porosity of 7%. Pay thickness varies from 60-180 feet at a depth
of 5,800 feet. This small cluster of pools was not detected by the SFD. However,
only one very marginal pool, the "D2-D/D3-G", was directly traversed with the
SFD.
[SFD PROFILE 9 GRAPH]
Confidential Information - Pinnacle Oil International Inc.
<PAGE>
[WIMBORNE LEDUC & NISKU SFD SIGNATURE GRAPH]
Confidential Waveform Information
Eyes Only
Wimborne Leduc & Nisku SFD Signature
North To South Traverse
SFD Profile 10
The Wimborne Leduc and Nisku pools were discovered in 1954 and 1956. The Leduc
pool has established reserves of 82 MMBbls and 522 BCF, and produces from the
eastern margin of an extensive Leduc carbonate complex. The Nisku pool is 1 mile
west and produces from a dolostone with proven reserves of 4 MMBbls. The pools
are approximately 7,300 feet deep. The reservoirs have an average porosity of 7
& 3% respectively and average pay thickness of 60 and 62 feet respectively. The
SFD Profile of the Leduc indicates a much higher gas content while the Nisku
pool's signature indicates oil.
[SFD PROFILE 10 GRAPH]
Confidential Information - Pinnacle Oil International Inc.
<PAGE>
[JUMPING POUND WEST - SFD SIGNATURE GRAPH]
Confidential Waveform Information
Eyes Only
Jumping Pound West - SFD Signature
West to East Traverse
SFD Profile 11
The Jumping Pound West Rundle gas pool was discovered in 1961. The pool
boundaries have been fully delineated when this SFD Profile was recorded. The
pool is approximately 10,895 feet deep, with 6% average porosity and an average
pay thickness of 118 feet. Established reserves are 1.9 TCF of gas in place. The
pool is typical of the structural traps that are created along the thrust belt
of the eastern margin of the Rocky Mountains. Due to the complex nature of the
geology, seismic interpretation of these pools is challenging.
[SFD PROFILE 11 GRAPH]
Confidential Information - Pinnacle Oil International Inc.
<PAGE>
[GADSBY CRETACEOUS - SFD SIGNATURE GRAPH]
Confidential
Waveform
Information
Eyes Only
Gadsby Cretaceous - SFD Signature
North To South Traverse
SFD Profile 12
The profile was recorded while driving on an unmarked secondary road. Later
examination of detailed maps identified the location of the signature which was
matched to an offsetting Cretaceous gas well that has produced in excess of 9
BCF of gas. The producing zone is at 3,700 feet and is approximately 25 feet
thick. Estimated reserves are 13-15 BCF which is 4 times higher than would be
expected from this area. The profile is important because it clearly
demonstrates the ability of the SFD to respond to hydrocarbons in both clastic
and carbonate reservoirs. Only very prolific clastic reservoirs produced
noticeable anomalous SFD reactions during the course of these field evaluations.
[SFD PROFILE 12 GRAPH]
Confidential Information - Pinnacle Oil International Inc.
<PAGE>
[UNDRILLED PROSPECT - SFD SIGNATURE GRAPH]
Confidential Waveform
Information
Eyes Only
Undrilled Prospect - SFD Signature
North To South Traverse
SFD Profile 13
The SFD Profile shown above was recorded September 18, 1996. The anomaly has
similar characteristics to the Elkton profiles recorded at Chestermere, Airdrie
and Crossfield. The map shown below indicates the scale of the profile. Map
details have been removed in order to retain confidentiality. This anomaly will
be profiled with more North-South and East-West traverses by Pinnacle Oil
International Inc.
[SFD PROFILE 13 GRAPH]
Confidential Information - Pinnacle Oil International Inc.
<PAGE>
[UNDRILLED FOOTHILLS - SFD SIGNATURE GRAPH]
Confidential Waveform Information
Eyes Only
Undrilled Foothills - SFD Signature
West to East Traverse
SFD Profile 14
The Jumping Pound West Rundle gas pool, (illustrated in SFD Profile 11) was
discovered in 1961 and has established reserves of 1.9 TCF of gas in place.
The SFD Profile above is not from the Jumping Pound West pool, but displays
remarkable similarities. The map below indicates the width of the anomaly. All
location and surrounding well information have been removed to retain
confidentiality.
[SFD PROFILE 14 GRAPH]
Confidential Information - Pinnacle Oil International Inc.
<PAGE>
EXHIBIT 99.2
[LETTERHEAD OF ENCAL ENERGY LTD.]
Calgary, Alberta, Canada.
May 22, 1998.
Re: Stress Field Detector Technology
This report presents a synopsis of Encal Energy Ltd's involvement and experience
with Stress Field Detector (SFD) technology and Pinnacle Oil International Inc.,
as at May 22, 1998. The information, observations, and results contained
herein, while believed to be accurate at this time, are subject to change as
more SFD information, data, and interpretations become available.
This document was prepared as an internal document for the use of Encal Energy
Ltd. and is not an independent report, evaluation or review.
This document was written by individuals who are unfamiliar with the principles
of SFD operation and the underlying design physics of the SFD instrument and do
not have any knowledge or understanding regarding how SFD technology works.
This document states only the observations of such individuals made under
non-controlled conditions. As a result thereof, this document should not be
considered or relied upon by any person as report, endorsement, evaluation,
confirmation, opinion or approval of SFD Technology.
This document does not express any conclusion or opinion regarding SFD
Technology, its use, interpretation or value and none should be implied hereby.
LAND AGREEMENTS
On December 13, 1996, Encal Energy Ltd. ("Encal") and Pinnacle Oil International
Inc. ("Pinnacle") entered into their first joint venture agreement. The purpose
of this original agreement was to field test the stress field detector (SFD)
technology. The basic terms were:
. Pinnacle to survey using ground-based SFD technology on specific Encal
lands within the Swalwell area of southern Alberta.
. Encal agreed to provide seismic data over SFD anomalies that Pinnacle had
identified.
. If Encal elected to drill an SFD anomaly, Pinnacle would have the right to
back in at well casing point to acquire and assume 5% of Encal's interest
in the respective well.
On February 19, 1997, Encal and Pinnacle signed a new exploration joint venture
agreement for the purpose of exploring large tracts of undeveloped lands. The
basic terms were:
1
<PAGE>
. Exploration areas (pre-selected regions that Encal and Pinnacle would
jointly explore) were to be up to 384 square miles in size.
. Pinnacle was to provide SFD technology, SFD prospects and interpretations
while Encal was to provide the standard expertise of a conventional oil and
gas exploration and production company.
. Pinnacle's participation rights were increased from the prior agreement to
a maximum of 30% of Encal's interest or, as an alternative, Pinnacle could
elect to receive a gross overriding royalty.
. Pinnacle would use their SFD technology for Encal in British Columbia, and
Alberta.
. Although Pinnacle was entitled to obtain two other joint venture partners
in Canada, Encal was granted exclusivity in British Columbia.
During the summer of 1997, Pinnacle modified the SFD data acquisition system
from ground-based to air-based capability and incorporated a Global Positioning
System (GPS). In recognition of these substantial improvements by Pinnacle to
data acquisition, all previous agreements were superseded by the current
agreement dated September 15, 1997. The major enhancements contained within the
September 15, 1997 agreement are:
. Maximum size of the exploration areas has been increased to 2400 square
miles.
. The collection of SFD data is no longer restricted to the three western
Canadian provinces. Encal may request that Pinnacle collect SFD data
worldwide.
. Encal has been granted 50% of Pinnacle's worldwide SFD data acquisition and
interpretation time whenever Encal's SFD prospect inventory is below 18
qualified prospects, during the tree year term of the agreement.
. Pinnacle's participation rights in the drilling of SFD-generated prospects
have been increased to a maximum of 45% of Encal's interest, or as an
alternative Pinnacle may elect to receive a gross overriding royalty.
. Encal continues to retain exclusivity of Pinnacle's SFD data acquisition
activities in British Columbia for the term of the agreement.
SFD DATA OWNERSHIP & VIEWING
All SFD signal data remains the sole property of Pinnacle. Encal has view-only
rights for the SFD signal data, and only when Mr. Liszicasz of Pinnacle
personally supervises the viewing. Encal is not entitled to receive or retain
any form of SFD signal data. Pinnacle provides Encal with written reports and
maps documenting the location of SFD anomalies. Encal is allowed to retain
these reports and maps in its own files for use under the joint venture
agreement.
SFD DATA ACQUISITION
In December of 1996, while using a ground based data acquisition system,
Pinnacle acquired several hundred miles of SFD data in the Swalwell area of
Southern Alberta in accordance with the December 13, 1996 agreement. Encal
personnel were not present during the recording of these data. After
interpretation by Pinnacle, the data was shown to Encal staff with the location
of SFD anomalies marked on topographic maps.
3
<PAGE>
Pinnacle conducted the first airborne SFD data acquisition for Encal on August
2/nd/, 1997, near Grande Prairie, Alberta. Between August and October 1997,
approximately 8300 miles of airborne SFD data was acquired by Pinnacle for Encal
during 22 flights throughout Alberta and British Columbia. An Encal geologist
was present on the aircraft and witnessed the recording of SFD signal data for
most of these flights.
SFD DATA INTERPRETATION
The interpretation of all SFD data is performed by Pinnacle. Mr. Liszicasz
examines the SFD data on several computers and decides which of the
characteristics of the SFD signal are anomalous ("SFD anomaly"). Encal personnel
have been present for the interpretation and may assist Mr. Liszicasz by
providing the geological input needed to calibrate the SFD signals.
Mr. Liszicasz reports numerous types of SFD anomalies. In the process of
qualifying these anomalies, he will describe the shape, size, strength and
significance of each. Based on these descriptions, Mr. Liszicasz provides Encal
with an interpretation of the potential size and commercial viability of any
undrilled SFD anomalies.
According to Pinnacle, an SFD anomaly must be surveyed and interpreted on at
least three separate flights before it can be confirmed and described as a
qualified SFD anomaly.
OBSERVATIONS MADE DURING SFD SURVEYING
Encal geologists made the following observations during the acquisition of
airborne SFD data:
. The SFD device is mounted on a motion stabilization platform inside the
aircraft and is usually not touched during surveying.
. The SFD output is converted to a digital signal and saved to computer disc
during surveying.
. The SFD output is also displayed on a laptop computer screen in real time
during surveying.
. The SFD device is not directly connected to anything on the outside of the
airplane.
. The SFD surveys are normally conducted at altitudes ranging from 400 to
1000 feet above ground.
. SFD survey lines are generally more than 50 miles long and the turns at the
ends of lines are kept very gradual.
. In may instances during SFD surveying, Mr. Liszicasz predicted, from the
real time SFD output, the imminent crossing of existing oil or gas pools
before the pools were actually encountered.
POST SFD SURVEY OBSERVATIONS
Encal geologists have made the following observations concerning SFD output and
interpretation:
. Pinnacle processes the SFD data and displays it on computer screens in
graphical format with time on the X axis and the SFD signal displayed on
the Y axis.
3
<PAGE>
. The characteristics of the SFD output can be very different from one survey
to the next and can even change within individual surveys. According to
Pinnacle these differences are due to different "modes of operation" of the
SFD tool.
. The SFD data recorded during turbulence or turning of the aircraft is
generally unreliable.
. Numerous geologic faults, major stratigraphic changes and known oil and
gas pools have SFD anomalies associated with them.
. Larger oil and gas pools have more obvious SFD anomalies associated with
them than smaller oil and gas pools.
. SFD anomalies obtained over gas fields appear different than those obtained
over oil fields.
. Man-made electromagnetic conductors such as power lines, pipelines,
railroads or well casings generally do not correlate with SFD anomalies.
. Some SFD anomalies appear to coincide with rivers, but not all rivers have
an associated SFD anomaly.
. Pinnacle's confidence in the interpretation of the SFD signal and ranking
of SFD anomalies improves when the signal has been calibrated to nearby oil
and gas pools and known geologic features.
. The azimuth of the flight line, in relation to the orientation of the
subsurface feature surveyed, influences the characteristics of the SFD
anomalies to the point where, in extreme cases, no SFD anomalies are
detected.
. By examining the SFD signal over a known oil or gas field, Mr. Liszicasz
could, in many cases, predict the location of the more productive wells
within that field.
RESULTS
SFD Anomalies over Oil and Gas Fields
- -------------------------------------
Encal designed a series of SFD flights for the purpose of evaluating the
response of the SFD tool to existing oil and gas pools. The following
statistics reflect preliminary interpretations that Pinnacle provided for nine
SFD flights conducted over Central Alberta during August 1997.
. A total of 1992 "pool crossings" were tabulated from the 9 test flights. A
"pool crossing" occurs when a flight line passes within 500 meters of a
producing well or group of wells in the same known pool. Pool designations
were provided by the Alberta Energy Utilities Board (AEUB).
. 129 of the 192 pool crossings were interpreted by Pinnacle.
. SFD anomalies were identified by Pinnacle on 67% of the 129 interpreted
pool crossings.
. 23 pools had more than one flight crossing. Pinnacle's interpretations of
these multiple crossings were consistent 75% of the time.
. The AEUB Pool Reserve Data was reviewed for 64 separate pools on which
Pinnacle has provided Encal with SFD interpretation. Analysis of this data
showed that larger reserve pools are more likely to have an SFD anomaly
associated with them than smaller reserve pools. SFD anomalies are
associated with 91% of pools with more than 5 million barrels or 50 BCF in-
place and 63% of pools with less than 5 million barrels or 50 BCF in-place.
<PAGE>
Seismic Evaluation of SFD Anomalies
- -----------------------------------
To date, Encal staff have acquired, reviewed and completed the interpretation of
seismic data for the purpose of evaluating 9 different undrilled SFD anomalies.
For 8 of these 9 SFD anomalies, the location of changes in seismic amplitude or
time structure correspond to the geographic location of the SFD anomalies. For 1
of the SFD anomalies, no seismic anomaly was mapped, however Mr. Liszicasz also
classified this SFD anomaly as being weak. It should be noted that the
occurrence of a seismic amplitude or time structure anomaly does not necessarily
confirm or imply the presence of commercial hydrocarbons in the subsurface.
Well Predictions
- ----------------
During the late summer of 1997, Encal drilled and evaluated three wells over
which Pinnacle had conducted airborne SFD surveys. All three wells were located
in Alberta and were selected for drilling by Encal's technical staff based on
conventional geological and geophysical data and interpretations. These wells
were selected for drilling prior to any SFD surveys being conducted. Pinnacle's
predictions regarding the outcome of these three wells were verbally
communicated by Pinnacle to Encal prior to each well reaching its primary target
objective.
These three wells, Pinnacle's outcome predictions, and the drilling results
were:
1) Encal #1 West Central Alberta was drilled between August 24 and September 15,
1997, to 2978 m in the Devonian Beaverhill Lake Formation. This well was
targeting a seismically defined Leduc Formation pinnacle reef buildup, and
was expected to discover light conventional crude within this interval. SFD
survey data was acquired over the location on five separate, valid flights
flown between August 02 - 22, 1997. Pinnacle's well outcome prediction was
that "no reef buildup or economic hydrocarbons would be encountered in this
well". The well results confirm this prediction. A Leduc reef buildup was not
found, and no other potentially commercially hydrocarbon zones were
identified from borehole information. No drillstem or production testing was
performed on this well and the well was declared dry and abandoned.
2) Encal #2 West Central Alberta was drilled between August 26 and September 27,
1997, to 3375 m in the Devonian Winterburn Formation. This well was targeting
a seismically defined Wabamun stratigraphic porosity development, and was
expected to discover natural gas within this porosity interval. SFD survey
data was acquired over the location on three separate valid flights flown
between August 19 - 23, 1997. Pinnacle's well outcome prediction was that
"the Wabamun interval would be dry, but that a shallower zone would produce
hydrocarbons at a gross rate not exceeding 2 million cubic feet per day". The
well results confirm this prediction in that the well failed to encounter any
significant porosity development within the Wabamun Formation, and the lower
portion of this wellbore was declared dry and abandoned. However, the well
did encounter a significant hydrocarbon show in the Cardium Formation at an
approximate drilling depth of 1925 m. This zone was subsequently completed,
frac'd, and production tested to yield conventional light oil at an initial
rate of 75 barrels per day. During December 1997, the well produced clean oil
a gross average rate of 30 barrels per day and flared gas at approximately
5
<PAGE>
80Mcf/d. No other zones in this well are considered capable of commercial
hydrocarbon production.
3) Encal #3 West Central Alberta was drilled between September 11 and September
27, 1997, to 1965 m in the Lea Park Formation. This well was targeting a
basal Belly River Formation sandstone reservoir, and was expected to discover
natural gas within this interval. SFD survey data was acquired over the
location on two separate, valid flights flown on September 20, 1997.
Pinnacle's well outcome prediction was that "this well would not be a
commercially viable new hydrocarbon discovery". The well results confirm this
prediction. The basal Belly River sand was not well developed and therefore
did not warrant completion or testing. However, the well did encounter a
well-developed upper Belly River sand. This sand was perforated, but produced
only water on production tests. Therefore, the Belly River interval was
declared non-commercial and the well has been suspended. No other zones in
this well are considered capable of commercial hydrocarbon production.
6
<PAGE>
EXHIBIT 99.3
CamWest, Inc.
- --------------------------------------------------------------------------------
INTEROFFICE MEMORANDUM
- --------------------------------------------------------------------------------
TO: Rick Turner
CC: Kim Eubanks; Gordon Smale; Ken Grubbs
FROM: Jim Ehrets
DATE 19 January 1998
SUBJECT: SFD Data Summary
I have completed a more in-depth review of SFD test flight data in conjunction
with evaluation of the Exploration Geosciences Northwest Montana Exploration
Evaluation which we recently acquired. During our test flight, we traversed 14
known oil and gas fields in southeastern Alberta and the adjacent portion of
northwestern Montana. These fields are denoted by letters A through P on the
test flight overlays and summary below. I have yet to acquire specific field and
production data for the Canadian fields traversed during the flight (including
fields A through II), such that reserve figures listed below are only estimates
based on my involvement in the area several years ago. The test flight data were
reviewed with Gordon, Kim, Doug, John and Ken at our Denver office on 13
January. Field data and SFD responses are summarized as follows:
<TABLE>
<CAPTION>
Field Reservoir System Trap Type Oil/Gas Reserves SFD Response
- ----- ---------------- --------- ------- -------- ------------
<S> <C> <C> <C> <C> <C>
A Cretaceous Stratigraphic Oil/Gas less than 1 MMBO Offset, Anomaly
B Devonian Structural Oil 2 MMBO Offset, Anomaly
C Devonian Structural Oil 5 MMBO Offset, Anomaly
D Devonian Structural Oil 5 MMBO Offset, Fault, Anomaly
E Cretaceous Stratigraphic Oil less than 1 MMBO Offset, Anomaly?
F Cretaceous Stratigraphic Oil 5 MMBO Offset, Anomaly
G Cretaceous Stratigraphic Oil less than 1 MMBO None; Turning
H Cretaceous Stratigraphic Oil less than 1 MMBO Offset, Anomaly?
I Mississippian/Cretaceous Structural Oil less than 1 MMBO None
J Mississippian/Cretaceous Combined Oil 150 MMBO Offset, Anomaly, Q2(x3)
K Cretaceous Stratigraphic Oil (S part of "J") Anomaly
L Mississippian Structural Oil 30 MMBO Offset, Anomaly
M Cretaceous Structural Oil less than 1 MMBO Offset, Anomaly
N Devonian Stratigraphic Oil/Gas 1 MMBO Offset, Anomaly, Q2
O Mississippian Structural Oil/Gas 100 MMBO Offset, Anomaly, Q1, Q2
P Cretaceous Stratigraphic Oil (crossing of "J") Offset, Anomaly
</TABLE>
Including the SFD "miss" of Field "G" crossed during a turn, the SFD recorded
negative "offset" ("which usually indicates the structural beginning of a
field") and "anomalies" for 12 of the 14 fields traversed, representing a
coincidence rate of 85%. Altogether, traversed fields contain about 300 MMBOE of
proven reserves. The largest of these accumulations were characterized as having
better than average SFD anomalies as well having other "indicators" denoted as
Q1 (hydrocarbons) and Q2 (accumulation area). Consequently, the SFD appears to
have some capability in qualifying accumulation size. Also, the SFD appears to
relatively accurately delineate the edges of both structural and stratigraphic
hydrocarbon-bearing traps of a wide range of size (less than 1-150 MMBOE).
- --------------------------------------------------------------------------------
2500 BLUE HERON CIRCLE . LAFAYETTE, CO 80026 . (303) 666-7473 .
FAX (303) 655-6536
<PAGE>
CAMWEST, INC.
- --------------------------------------------------------------------------------
INTEROFFICE MEMORANDUM
- --------------------------------------------------------------------------------
page two
As discussed during our 13 January meeting, SFD anomalies recorded during our
test flight do not appear to result from gravity or magnetic phenomena except
---
where coincident with structures and hydrocarbon accumulations. Our test flight
also took us over a variety of terrain, and we traversed several river valleys
(certain of which were coincident with SFD anomalies), numerous pipelines (a
couple of which were coincident with SFD anomalies), and other surface phenomena
(including ranches and towns) which were "transparent" to the SFD.
The SFD also recorded other types of responses which appeared to be different
in some respects from offsets and anomalies associated with hydrocarbon
accumulations. Twenty such responses were reported by Pinnacle (most confirmed
by my flight log) as follows:
<TABLE>
<CAPTION>
No. SFD Response Comments
- --- ------------ --------
<S> <C> <C>
1 Offset? edge of shallow gas field
2 Offset, Anomaly between two shallow oil fields; dry holes present
3 Offset dry holes present; shallow gas in vicinity; near end of turn
4 Offset dry holes present; shallow oil in vicinity
5 Offset, Anomaly dry holes present; 2 miles from shallow oil wells; turning
6 Offset, Anomaly, Faults? dry holes present; 2 miles from shallow oil wells; turning
7 Offset? dry holes present
8 Offset, Fault dry holes present; river valley
9 Fault? dry holes present
10 Anomaly no well control; turning
11 Offset, Anomaly dry hole with gas show
12 Change no well control; pipelines; Scapegoat-Bannatyne Trend
13 Offset, Anomaly no well control; 4 miles from shallow oil wells
14 Change no well control; Scapegoat-Bannatyne Trend
15 Anomaly, Fault no well control; river valley
16 Offset? dry hole in vicinity
17 Drop dry holes with gas shows in vicinity; turning
18 Offset, Anomaly edge of shallow gas field
19 Drop edge of oil and gas field; SFD in "saturating" mode
20 Anomalies, Faults eastern front of Disturbed Belt
</TABLE>
Certain of these responses were clearly associated with turns in the flight
path. I recorded a couple of other SFD responses during turns which Pinnacle
apparently disregarded (it is their normal practice to discard all turn data).
Others were coincident with river valleys (fault controlled?), possible faults,
and known structural lineaments barren of hydrocarbons. Of these 20 recorded
"minor" responses, none would be considered as potential drilling prospects. I
plan on acquiring specific data on the Canadian fields traversed, with the
objective of competing test flight files.
- --------------------------------------------------------------------------------
2500 BLUE HERON CIRCLE . LAFAYETTE, CO 80026 . (303) 666-7473 .
FAX (303) 665-6536
<PAGE>
Pinnacle SFD Test Flight Log
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
Elapsed Time Recording
h:m:s Seconds* SFD Comments
- ------------ --------- --- --------
<S> <C> <C> <C>
0:00:00 0.3995 take off from Calgary International
0:08:00 0.4005 SFD fairly "tight" (saturated); gradually increase
0:16:00 0 0.4029 begin recording at river; moderately bumpy air
0:19:00 170 0.4032 begin descent to 1000' altitude; possible anomaly
0:21:30 320 0.4015 start anomaly; relatively calm air
0:22:15 365 0.4033 end anomaly
0:23:00 410 0.4033 oil wells to northeast
0:26:30 620 0.4034 turn to SE; @ 1300' above ground level
0:32:30 980 0.4035 increase
0:32:30 980 0.4019 start of anomaly
0:33:00 1010 0.4036 end of anomaly
0:38:30 1340 0.4037 increase
0:38:30 1340 0.4021 start of anomaly; oil wells to southeast
0:38:50 1360 0.4037 end of anomaly
0:39:45 1415 0.4021 start of anomaly; oil wells to northeast
0:39:55 1425 0.4037 end of anomaly
0:41:10 1500 0.4021 start of anomaly; oil wells to southeast
0:41:30 1520 0.4037 end of anomaly
0:43:00 1610 0.4037 Point #1
0:43:15 1625 0.4020 start of anomaly; cross river; begin turn to south
0:44:00 1670 0.4037 end of anomaly; turning south
0:49:15 1985 0.4020 start of anomaly; oil well to east
0:49:20 1990 0.4034 end of anomaly; moderately bumpy air
0:53:20 2230 0.4034 correction turn to southwest
0:53:50 2260 0.4034 possible anomaly; still turning
0:53:55 2265 0.4034 end possible anomaly
0:54:55 2325 0.4017 start of anomaly
0:55:00 2330 0.4030 end of anomaly
0:55:25 2355 0.4017 start of anomaly
0:55:30 2360 0.4030 end of anomaly
0:56:25 2415 0.4019 start of anomaly
0:57:10 2460 0.4033 end of anomaly
0:59:45 2615 0.4033 cross highway; moving map malfunction
1:02:00 2750 0.4031 cross Milk River
1:02:00 2750 0.4017 start of anomaly; possible fault
1:02:30 2780 0.4031 end of anomaly
1:03:00 2810 0.4031 correction turn to southwest; 5 km east of flight line
1:04:00 2870 0.4031 turn back to south
1:05:00 2930 0.4031 3 km east of flight line
1:07:50 3100 0.4031 Point #2
1:08:00 3110 0.4013 start of anomaly
1:08:45 3155 0.4031 end of anomaly
1:11:45 3335 0.4031 bumpy air
1:13:30 3440 0.4013 start of anomaly
1:14:10 3480 0.4031 end of anomaly
1:15:00 3530 0.4031 town of Cut Bank to east; airport to west
1:17:00 3650 0.4029 decrease
1:19:20 3790 0.4011 start of anomaly
- ----------------------------------------------------------------------------------------------
</TABLE>
CamWest Limited Partnership Page 1 12/20/1997
<PAGE>
Pinnacle SFD Test Flight Log
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Elapsed Time Recording
h:m:s Seconds* SFD Comments
------------ --------- --- --------
<S> <C> <C> <C>
1:20:00 3830 0.4029 end of anomaly
1:23:00 4010 0.4029 Point #3; GPS system not in agreement
1:25:00 4130 0.4013 start of anomaly
1:25:30 4160 0.4030 end of anomaly
1:26:30 4220 0.4032 increase
1:28:00 4310 0.4033 increase
1:29:30 4400 0.4034 increase
1:29:30 4400 0.4019 start of anomaly
1:29:50 4420 0.4035 end of anomaly
1:30:00 4430 0.4036 Point #4; GPS indicates we are 10 km southeast; begin turn
1:33:30 4640 0.4038 increase
1:33:30 4640 0.4015 start of anomaly; still turning
1:34:50 4720 0.4038 end of anomaly; still turning
1:35:45 4775 0.4040 increase
1:36:00 4790 0.4042 increase; end of turn
1:37:00 4850 0.4044 increase
1:38:30 4940 0.4044 cross river
1:39:00 4970 0.4028 start of anomaly
1:39:30 5000 0.4046 end of anomaly
1:40:00 5030 0.4047 increase
1:40:30 5060 0.4047 correction turn to east
1:41:00 5090 0.4047 end turn
1:42:00 5150 0.4048 increase
1:42:45 5195 0.4048 bumpy air
1:44:30 5300 0.4031 start of anomaly
1:45:00 5330 0.4048 end of anomaly
1:45:30 5360 0.4048 begin turn to north
1:47:00 5450 0.4048 Point #5
1:49:30 5600 0.4031 start of anomaly; possible fault or fractures
1:50:10 5640 0.4048 end of anomaly
1:51:15 5705 0.4047 decrease; rapid changes; possible gas; cross river
1:53:15 5825 0.4047 small change
1:54:00 5870 0.4029 start of anomaly
1:54:30 5900 0.4047 end of anomaly
1:55:00 5930 0.4048 increase
1:56:00 5990 0.4047 decrease; town of Chester to east
1:58:15 6125 0.4029 start of anomaly; start turn to west
1:58:35 6145 0.4047 end of anomaly; still turning
1:59:30 6200 0.4047 Point #6
2:01:00 6290 0.4045 decreasing; end turn
2:02:15 6365 0.4027 start of anomaly
2:02:30 6380 0.4045 end of anomaly
2:04:50 6520 0.4027 start of anomaly; deep signature
2:05:05 6535 0.4045 end of anomaly
2:07:00 6650 0.4046 increase
2:08:00 6710 0.4029 start of anomaly; oil wells to south; East Kevin Field
2:08:30 6740 0.4046 end of anomaly
2:10:00 6830 0.4047 increase
</TABLE>
- --------------------------------------------------------------------------------
CamWest Limited Partnership Page 2 12/20/97
<PAGE>
Pinnacle SFD Test Flight Log
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Elapsed Time Recording
h:m:s Seconds* SFD Comments
- ------------ --------- --- --------
<S> <C> <C> <C>
2:12:00 6950 0.4049 increase; hydrocarbon signature
2:12:45 6995 0.4050 increase; probable large accumulation
2:13:15 7025 0.4052 increase
2:13:45 7055 0.4034 start of anomaly; possible shallow light oil or gas signature
2:14:20 7090 0.4050 end of anomaly
2:16:00 7190 0.4052 increase
2:17:00 7250 0.4053 increase
2:18:30 7340 0.4054 increase
2:18:40 7350 0.4037 start of anomaly; possible fault
2:18:45 7355 0.4054 end of anomaly
2:19:00 7370 0.4055 increase
2:19:30 7400 0.4056 increase
2:20:00 7430 0.4039 start of anomaly; possible deep reef
2:20:10 7440 0.4056 end of anomaly
2:21:00 7490 0.4057 increase
2:21:30 7520 0.4058 increase
2:22:00 7550 0.4044 start of anomaly
2:22:20 7570 0.4059 end of anomaly
2:22:45 7595 0.4060 increase
2:23:30 7640 0.4061 increase
2:24:30 7700 0.4062 increase
2:25:15 7745 0.4044 start of anomaly
2:25:45 7775 0.4062 end of anomaly
2:26:00 7790 0.4063 increase
2:27:00 7850 0.4064 increase
2:28:00 7910 0.4065 increase
2:29:30 8000 0.4066 increase
2:30:00 8030 0.4067 increase
2:31:00 8090 0.4068 increase
2:31:45 8135 0.4055 start of anomaly; possible faults
2:31:50 8140 0.4069 end of anomaly
2:32:00 8150 0.4070 increase; probably past Point #7
2:32:45 8195 0.4053 start of anomaly; begin turn
2:37:00 8450 0.4070 end of anomaly; still turning; stop recording
3:00:00 arrive back at Calgary International
</TABLE>
* Recording start time adjusted to match actual SFD start time
- --------------------------------------------------------------------------------
CamWest Limited Partnership Page 3 12/20/97
<PAGE>
EXHIBIT 99.4
PINNACLE OIL INTERNATIONAL INC.
STRESS FIELD DETECTOR
DOCUMENTATION OF CERTAIN
EXPLORATION AND EVALUATION
ACTIVITIES
973598
<PAGE>
February 27, 1998
Project 973598
Mr. Dirk Stinson
PINNACLE OIL INTERNATIONAL INC.
750, 840 - 7th Avenue S.W.
Calgary, Alberta
T2P 3G2
Dear Sir:
RE: STRESS FIELD DETECTOR
DOCUMENTATION OF CERTAIN
EXPLORATION AND EVALUATION ACTIVITIES
-------------------------------------
As requested, Gilbert Laustsen Jung Associates Ltd. has completed an interim
report documenting observations made by this firm with respect to certain
exploration and evaluation activities conducted by Pinnacle Oil International
Inc. (Pinnacle) utilizing a proprietary technology called the Stress Field
Detector (SFD).
The report details the SFD exploration program conducted in southwest
Saskatchewan for Renaissance Energy Ltd. (Renaissance). Included are the results
of five wells drilled offsetting SFD defined anomalies in this area. In
addition, seven well predictions made by Pinnacle, at the request of Encal
Energy Ltd. (Encal) and Renaissance are detailed. The drill results of these
seven wells are also summarized.
We are independent with respect to Pinnacle Oil International Inc. in that we do
not currently hold nor expect to receive any interest in the securities of
Pinnacle.
Should you have any questions concerning this report, please contact either of
the undersigned.
Regards,
GILBERT LAUSTSEN JUNG
ASSOCIATES LTD.
T. Mark Jobin, P. Geol.
David G. Harris, P. Geol.
Vice-President, GeoSciences
<PAGE>
INTRODUCTION
Gilbert Laustsen Jung Associates Ltd. was requested by Pinnacle Oil
International Inc. to provide independent observation and documentation of
certain exploration and evaluation activities conducted by Pinnacle, utilizing
its Stress Field Detector (SFD) technology. These activities were conducted
within two separate programs supported by Renaissance Energy Ltd. and Encal
Energy Ltd.
The two programs are described as follows:
. A general survey conducted for Renaissance over a large area of Southwest
Saskatchewan.
. Specific surveys of several exploration well locations in Alberta
previously identified by Renaissance and Encal utilizing conventional
methods.
The scope of this report is primarily one of observation and documentation and
specifically does not address the scientific theory behind the SFD technology.
The two major areas of focus were as follows:
. Observation and documentation of the process involved in survey design,
collection of data, analysis of data and identification and ranking of SFD
anomalies.
. Observation and documentation of Pinnacle's pre-drill predictions and
subsequent post-drill results for a total of twelve wells drilled in the
two programs.
Pinnacle holds exclusive rights to the use the data generated by the SFD
Technology for hydrocarbon exploration. Pinnacle considers the SFD Technology
and the SFD data proprietary. Therefore, neither the operational principles of
the SFD technology nor the SFD data were shared with Gilbert Laustsen Jung.
Pinnacle does state that the SFD sensor is a passive transducer capable of
detecting changes in stress within the subsurface. According to Pinnacle, SFD
technology detects stress built up due to mechanical forces and/or the presence
of mineral deposits, and that the SFD is based on quantum-mechanical principles
and is a non-electro-magnetic sensing device. Further, Pinnacle states that
there is a stronger SFD reaction in Devonian aged reservoirs which are largely
carbonates, than in younger reservoirs (Cretaceous to Triassic) which are mainly
found in sandstones. While Pinnacle believes the SFD is a "wide-area-exploration
tool," which can identify new oil and gas fields, it should be utilized with
conventional oil field tools to define well locations.
Observations and conclusions provided herein are believed to be reasonably
accurate at this time but remain subject to change as more experience with the
technology is obtained.
Page 1
<PAGE>
SUMMARY OF OBSERVATIONS AND CONCLUSIONS
OBSERVATIONS RE: SOUTHWEST SASKATCHEWAN SURVEY
. The initial ground based survey yielded 38 SFD anomalies, which were
considered for further evaluation by Renaissance.
. Five anomalies were selected by Renaissance as proposed tests of SFD
technology (anomalies). In addition to the ground surveys, airborne surveys
were conducted on all five locations at the request of Renaissance. These
air surveys were conducted both during and after drilling. According to
Renaissance, drill results were kept confidential prior to Pinnacle's
analysis of the additional SFD data.
. The Pinnacle analysis confirmed SFD anomalies at all five well locations
but according to Pinnacle's ranking system, all were considered marginal
with low probability of commercial viability.
. Drill results at all five wells proved none to be commercially viable.
OBSERVATIONS RE: ALBERTA WELL LOCATION SURVEYS
. Seven exploration well locations identified by conventional geological and
geophysical methods were surveyed by Pinnacle, three of which had been
drilled prior to the survey and Pinnacle's subsequent analysis. According
to Pinnacle and Renaissance drill results were kept confidential prior to
Pinnacle's analysis of the SFD data.
. Pinnacle conducted detailed analyses on six of these locations and a
cursory analysis on a seventh. These analyses indicated that none of the
seven were likely to be commercially viable in the primary zone.
. Drill results indicate that the primary zone of interest in all cases was
abandoned. According to the operator, two wells may be capable of
commercial production from secondary zones. The cursory analysis was
conducted on one of these wells.
CONCLUSIONS
The drill results of the twelve wells are consistent with the predictions
resulting from SFD surveys in the primary zone of interest.
The critical issue of course, concerns the ability of SFD technology to
continuously identify undrilled exploration prospects that result in commercial
discoveries. Although the SFD predictions reported here are accurate with
respect to the primary zone of interest, they do not yet provide the ultimate
test of the technology because no highly ranked anomalies identified by SFD
technology have been drilled yet.
Page 2
<PAGE>
SOUTHWEST SASKATCHEWAN EXPLORATION PROGRAM (RENAISSANCE)
The following stages of Pinnacle's SFD exploration program in Southwest
Saskatchewan have been observed by Gilbert Laustsen Jung.
Initial presentation of Pinnacle's SFD findings in the exploration area to
Renaissance
Pinnacle conducted a SFD survey in an area of southwest Saskatchewan with the
purpose of identifying anomalies on Renaissance lands. This survey took place
from April 24 to May 18, 1997. SFD surveys were conducted from a vehicle and
were therefore restricted to the roadways. According to Pinnacle, ground based
SFD surveys can identify anomalies directly under the road being traversed.
Pinnacle presented the findings to Renaissance in a meeting on May 26, 1997 and
in a detailed report dated June 6, 1997. This report contained maps and
discussions on 34 anomalies identified by the SFD in the exploration area. The
initial report states that the majority of these anomalies were surveyed, and
were positively identified a minimum of three times. Pinnacle believes that a
target area must be surveyed a minimum of three times in order to be fully
evaluated. Also, in this report Pinnacle explains that the reason for providing
all anomalies (large or small) "is that it is not clear what degree of
resolution the industry can achieve with seismic application in this area". An
additional four anomalies (Piapot area) were forwarded to Renaissance in a
report dated June 26, 1997.
Each of the anomalies identified is rated by Pinnacle. This is done using two
values; the first value (A) rates the size and strength of the anomaly itself
and the second value (CV) rates the commercial viability of the anomaly. Both
factors are rated out of five; with five being the highest rating. Typically,
the rating of an anomaly is expressed as the sum of the A and CV ratings.
Pinnacle's interpretation and rating of SFD anomalies is somewhat subjective.
According to Pinnacle, a more accurate evaluation can be obtained when the
anomaly is compared to producing pools in the area. These offset producing
anomalies are assigned A and CV ratings of 5. In a report dated June 6, 1997,
Pinnacle states that if the A or CV rating of an anomaly is below 2, neither the
type of hydrocarbon nor the existence of a hydrocarbon-bearing structure can be
reliably determined. In a later report to Renaissance, dated July 18,1997,
Pinnacle stated that it would not participate in a well it had rated with an A
of below 3.5 or a CV of below 3.5.
Page 3
<PAGE>
Renaissance evaluation of the Pinnacle ground survey defined anomalies
Renaissance reviewed existing seismic and well data in the area in order to
provide technical confirmation of the potential exploration targets defined by
Pinnacle. In meetings held between June 12, 1997 and July 18, 1997 Renaissance
outlined its evaluation of the SFD anomalies. Renaissance indicated that there
were thirteen anomalies which were not reviewed or were dismissed due to;
surface problems in the area of the some anomalies, or the fact that some
anomalies occurred on Crown land or on land not held by Renaissance, or in areas
of little interest to Renaissance. Five SFD anomalies identified by Pinnacle
were not confirmed by seismic or well data (i.e. the anomaly occurred in a
seismic low, or was evaluated with an abandoned well). The seismic information
and well control was inconclusive in confirming an additional six SFD anomalies.
Fourteen SFD anomalies appear to be confirmed by Renaissance's review of
existing seismic and well data. Tables 1 through 5 summarize Pinnacle's comments
and Renaissance's review of the 38 SFD anomalies.
Renaissance's Selection of well locations based on SFD ground surveys
Based on the seismic review conducted by Renaissance and on the Pinnacle ranking
of defined anomalies, five well locations were selected by Renaissance to
evaluate the SFD technology. The chosen well locations were 0.5 of a mile to 1.8
miles away from the SFD road anomalies. The following is a brief description of
these five locations:
. Southwest Saskatchewan Well #1 (10-36-16-20 W3M) and Well #2 (12-35-16-20
W3M) are located 0.5 mile and 0.75 miles, respectively, from the southern
edge of the Hazlet #2 SFD anomaly. This anomaly is rated 4.5 out of 10
(A=2.5, CV=2.0) by Pinnacle and is described as a structurally extensive
anomaly with both oil and gas detected. Pinnacle states that the SFD
indicated that the commercial viability rating is better in the sections of
the proposed wells (sections 35 and 36). Renaissance states the proposed
well is a stratigraphic play targeting a seismically defined Basal
Mannville channel.
. Southwest Saskatchewan Well #3 (01-22-14-21 W3M) is located approximately
1 mile from the Hazlet #7 SFD anomaly. Pinnacle describes this anomaly as
very strong and is rated 5 out of 10 (A=3.0, CV=2.0). The anomaly consists
of two parts, with water suggested in the northern part. Pinnacle states
that the anomaly may represent a deep deposit and recommended further
evaluation. The anomaly is covered by two seismic lines with the well
located on one of these lines.
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The well is targeting a seismically defined Basal Mannville channel. While
no reservoir facies were present in deeper horizons in an offsetting well
(10-21), the well was drilled deep enough to evaluate the deeper Devonian
Birdbear Formation.
. Southwest Saskatchewan Well #4 (11-05-14-21 W3M) is located approximately
1.8 miles from the Hazlet #8 SFD anomaly. The anomaly was rated 5 out of 10
(A=3.0, CV=2.0) and was identified 8 times by Pinnacle. The anomaly is
described as a gas or oil anomaly coupled with a major geological change.
Pinnacle recommended that seismic be utilized to determine a test location
for this possible deep deposit. The anomaly is covered by an east-west and
north-south seismic line. The well was drilled on the east-west line,
targeting a seismically defined Basal Mannville channel.
. Southwest Saskatchewan Well #5 (10-09-06-22 W3M) is located approximately
1.5 miles to the north of Eastend SFD anomalies #9 and #10. This well
location was proposed by Renaissance prior to Pinnacle presenting these
anomalies. The well was drilled as a test of a seismically defined high in
the Devonian Birdbear Formation. The Eastend #9 anomaly is rated 4.5 out of
10 (A=2.5, CV=2.0) by Pinnacle while the Eastend #10 anomaly is a strong
anomaly and rated 5.5 out of 10 (A=3.5, CV=2.0). The anomalies are
interpreted to be continuous, and the SFD data indicates the presence of
both oil and gas. Pinnacle recommended further evaluation of these
anomalies.
In addition to the above wells, Renaissance confirmed they had drilled a well
offsetting the Eastend #11 SFD anomaly prior to Pinnacle conducting a road
survey. The well finished drilling on November 28, 1996, however, at the time
Pinnacle was conducting its SFD surveys, the drill results of this location were
kept confidential by Renaissance. The well is currently a shut-in Belly River
gas well. The Eastend #11 anomaly is rated at 5 out of 10 by the SFD (A=2.5,
CV=2.5). Based on its rating system Pinnacle would not have participated in this
well. It is noted that the well had a CV rating of 2.5, which is higher than the
rating of 2.0 assigned to the five test locations. Pinnacle states that oil and
gas are detected at the anomaly but the formation is tighter at the point of
traverse. This anomaly was recommended for seismic evaluation by Pinnacle. No
logs or test data on this well have been reviewed by Gilbert Laustsen Jung.
Gilbert Laustsen Jung notes other anomalies identified by Pinnacle had similar
rankings to the drilled locations but were not considered for drilling because;
Renaissance had no land (Hazlet #9 and #10); the anomaly defined by Pinnacle
occurred in a seismically defined low (Hazlet #6); or the seismic data in the
area of the anomaly was inconclusive (Dollard #1, #2 and Sidewood #5); or
Renaissance had not completed its geological/geophysical review (Piapot #1,
Piapot #4).
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Only the Dollard #5 anomaly meets Pinnacle's drilling criteria. This SFD anomaly
corresponds to the Rapdan Upper Shaunavon Pool. Pinnacle, however, believes the
anomaly may also represent the existence of a deeper pool. Renaissance states
that this anomaly follows a ridge in the Shaunavon Formation and that there may
be a possible development location associated with this anomaly. However, no
location was proposed.
Airborne SFD surveys over the five well locations
By the third quarter of 1997, the SFD data acquisition had been redesigned for
use in an aircraft and had incorporated a Global Positioning System (GPS) into
the acquisition process. Pinnacle was concerned that since the initial well in
this exploration program was drilled approximately 1.8 miles from the SFD
anomaly defined from the road survey, the well may not be a valid test of the
anomaly. Therefore, it was decided that Pinnacle would conduct SFD airy surveys
over the five locations. SFD surveys conducted from the air allow the actual
well location to be directly surveyed and provide a better definition of the
areal extent and quality of an anomaly. The initial well was drilled and
abandoned on August 23, 1997. The Renaissance well locations were flown on
August 30, 1997 and again on September 11, 1997. The air surveys were conducted
to predict if the proposed locations would be successful wells. The flights were
also designed to determine if the SFD anomaly identified in the earlier road
survey extended to the well locations. A report, dated November 7, 1997,
detailed Pinnacle's interpretation of the SFD data over the well locations. The
following is a brief summary of this report.
. Two flights flown over Well #1 and Well #2 on August 30,1997 indicate an
SFD anomaly at these locations, however, the best part of the anomaly was
east of Well #1 (10-36). The two flights flown September 11, 1997 were
designed to cross the location of Well #2 (12-35) and the road anomaly. The
results of the two flights were similar, with the SFD data indicating a
structural change at the well location and under the road. The SFD signal
does not indicate a hydrocarbon accumulation in commercial quantities. The
Well #1 (10-36) location is rated 4.5 out of 10 (A=2.5, CV=2.0) while the
Well #2 location (12-35) is rated 3.5 out of 10 (A=2.0, CV=1.5).
. Only the second flight on September 11, 1997 over the Well #3 location
(1-22) provided meaningful SFD data. Pinnacle states there is definitely an
anomaly at the location. The SFD indicates a fault to the southwest of the
location, and that the road anomaly appears to be part of the fault. Fault
related anomalies are identified continuously to an offsetting dryhole to
the northwest. Pinnacle believes the structure looks like a channel. Low
quality hydrocarbon signals were indicated at the anomalies. Pinnacle rated
the Well #3 location 3.0 out of 10 (A= 2, CV=1).
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. Two flights were made over the Well #4 location and the road defined
anomaly on September 11, 1997. No anomaly was detected on the first flight.
The SFD data indicates a structural change at the location; however, the
SFD signal indicating the presence of a reservoir had poor response at the
location. Pinnacle therefore interprets that the anomaly at the drill site
will not be commercially viable. Pinnacle interprets that the original SFD
signals at the road anomaly are related to faulting. The rating for this
location is 3.5 out of 10 (A=2.5, CV=1.0).
. Two flights were made over the Well #5 location on August 30, 1997. SFD
signals at the location did not provide a good hydrocarbon response;
however, they did confirm the existence of a structural anomaly. The two
flights over the location made September 11, 1997 confirmed the presence of
a structural anomaly with poor hydrocarbon signals at the location.
Pinnacle states that the commercial viability of this location is low, and
interprets the road anomaly to be a better hydrocarbon anomaly than the
well location. A stronger hydrocarbon anomaly is also identified a half
mile to the northeast of the drill location. Pinnacle's rating for this
location is 3.75 out of 10 (A=2.25, CV=1.5).
Well Results
Well #1 - This well was licensed as an outpost well and had a rig release date
of September 20, 1997. After testing heavy oil in the target Basal Mannville
channel sand, the well was suspended (it is not capable of commercial
production).
Well # 2 - This well was licensed as an outpost location. The well had a rig
release date of September 5, 1997 and was declared dry and abandoned. The target
Basal Mannville sand is developed, but is tight.
Well #3 - This location was licensed as a New Field Wildcat. The well was
drilled to the Devonian Birdbear Formation and had a rig release date of
September 13, 1997. The well was declared dry and abandoned. The target Basal
Mannville channel and the Birdbear Formations were interpreted to be wet on
logs. No tests were run in the well.
Well #4 - This well was licensed as a New Field Wildcat. Well #4 had a rig
release date of August 23, 1997 and is dry and abandoned. The target Basal
Mannville channel sand was developed at this location, but is interpreted from
well log data to be wet. No tests were run in this well.
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Well #5 - This location was licensed as a New Field Wildcat and was drilled to
test a seismically defined high in the Devonian Birdbear Formation. The well had
a rig release date of September 6, 1997 and is dry and abandoned. The Birdbear
is wet based on well log interpretation and the uphole section appears to be
tight or wet on logs. No tests were run on this well.
In summary, Pinnacle provided Renaissance with a detailed report of its SFD
exploration program in southwest Saskatchewan. The report identified a number of
SFD anomalies. Based on Renaissance's review of existing seismic, well data and
consideration of Pinnacle's ranking of SFD anomalies, five well locations were
proposed as tests of offsetting SFD defined marginal anomalies. Subsequently,
Pinnacle conducted airborne SFD surveys over the Renaissance well locations and
concluded that although anomalies were present at the locations, none of the
five wells would be commercially viable. Four of the five wells were drilled and
abandoned. The fifth well tested some heavy oil and is currently suspended as
the well is not capable of commercial production.
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SFD WELL PREDICTIONS
Pinnacle was requested by both Renaissance and Encal to make predictions from
SFD surveys on a number of well locations, as part of the companies evaluation
of the SFD technology. All the well locations were located in the Western Canada
Sedimentary Basin and were selected by Encal or Renaissance technical staff
based on conventional geological and geophysical data and interpretations. All
test flight lines were designed and witnessed during flights by Encal technical
personnel. Renaissance technical staff were present during the September 24-25
flights.
The following documents the well locations, Pinnacle's predictions with respect
to the outcome of these wells, and the subsequent drilling results.
Encal #1 West Central Alberta, was drilled between August 24 and September 15,
1997 to a depth of 2978 metres in the Devonian age Beaverhill Lake Group. The
well was targeting a Leduc pinnacle reef buildup off the main Leduc reef in the
area. The zone was expected to contain light conventional crude oil.
Pinnacle conducted three ground surveys and according to Encal crossed the
location five times on four separate flight surveys. Pinnacle used two locations
as templates in evaluating the location; one was a high quality Leduc pinnacle
reservoir and the other a lower quality Leduc pinnacle reservoir. Only one
survey had a slight SFD signal at the Encal #1 location, which showed no
structural buildup or hydrocarbon signal. Therefore Pinnacle concluded this well
would not be successful.
Drill results indicated a Leduc reef was not developed at this location, and no
other potentially commercial hydrocarbon zones were identified from borehole
information. No tests were performed on the well, and it was declared dry and
abandoned.
Encal #2 West Central Alberta, was drilled between August 26 and September 27,
1997 to a depth of 3375 metres in the Devonian Winterburn Formation. The well
was targeting a Wabamun stratigraphic porosity development that was evaluated by
seismic data. The well was expected to discover gas within the porous interval.
Pinnacle conducted airborne surveys over this location in early August 1997,
before the well was spudded, and while the well was being drilled. Pinnacle
interprets the well to be in a flank position and concluded that the well would
not be economic in the target zone. Pinnacle did
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identify the possibility of a small, shallower pool, capable of production but
not in quantities that would justify its participation on this deep test.
The well did not encounter any significant porosity development in the Wabamun
and the deeper portion of the well was abandoned. A significant hydrocarbon show
was encountered in the Cardium Formation in this well. The Cardium was
completed, fractured and production tested at an initial production rate of 75
barrels of oil per day. During December 1997, the zone produced at an average
rate of 30 barrels of oil per day. No other zones in the well are considered
capable of commercial production. Cardium reserves are relatively low and the
well is not considered to have resulted in a commercial discovery.
Encal #3 West Central Alberta, was drilled between September 11 and September
27, 1997 to a depth of 1965 metres in the Lea Park Formation. The well was
targeting natural gas in the Basal Belly River sandstone. The location has an
offsetting well which was interpreted to have by-passed pay in the target zone.
A single airborne SFD survey was conducted over this location on September 20,
1997. Pinnacle reported SFD data from this flight was poor, but suggested the
well would not be commercially viable.
The Basal Belly River sandstone was not well developed, therefore was not tested
or completed. The well encountered a developed upper Belly River sandstone which
was perforated but produced only water on production testing. The well has been
suspended and no other zones in the well are considered capable of commercial
production.
Renaissance #1 East Central Alberta, was drilled as a development well between
July 9, 1997 and July 20, 1997 to a depth of 1950 metres. The well targeted a
seismically defined Devonian age Nisku Formation pinnacle reef buildup.
Pinnacle's evaluation of this location was detailed in a report to Renaissance
dated July 18, 1997. Pinnacle surveyed this location from a vehicle while the
well was being drilled. Ratings assigned to this location by Pinnacle were based
upon SFD signals acquired on the road (not at the wellsite) and two traverses
near the location. At this time, Pinnacle did not have airborne survey
capability, therefore the exact drilling location was not surveyed. Pinnacle
stated that two anomalies were present, one structure over the other. Pinnacle
reported that the SFD indicated structure and hydrocarbons at the well but not
in commercial quantities. The anomaly at the wellsite appears tighter and with a
less intense hydrocarbon signal than possible locations to the south and west.
The location was rated at 5.5 out of 10 (A=3, CV=2.5) by Pinnacle.
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The Nisku was developed at the location but appears tight on logs. No tests were
performed over the target zone and the deeper portion of the well was abandoned.
The well did encounter a gas-bearing Mannville sandstone. Renaissance has
indicated that it has been unable to fully test the zone, but believe it to be
capable of producing at commercial rates. The well is currently classified as
standing.
Renaissance Well #2 Northwest Alberta, was spudded February 14, 1997 and drilled
to a depth of 2275 metres in the Devonian Muskeg Formation. The well was
targeting the Devonian age Slave Point Formation and is adjacent to a known
Slave Point pool.
Airborne surveys of this location were not conducted until September 24 and
September 25, 1997, however, the well was still confidential at that time.
Pinnacle's evaluation of the location was detailed in a report to Renaissance
dated November 12, 1997. Pinnacle interpreted that the well was structurally
separate from the Chinchaga Slave Point A Pool, and that the SFD porosity signal
recorded at the well site is from a new zone. Pinnacle believes that any
production from this new zone would be minimal. Pinnacle rate the well location
4 out of 10 (a=2.0, CV=2.0) and state they would not have participated in the
well.
The well did not encounter any porosity development in the Slave Point. No tests
were reported for Slave Point or in any uphole horizons.
Renaissance Well #3 Northwest Alberta, was drilled between February 21, 1997 and
March 22, 1997 to a depth of 2607 metres. The well was drilled as a Slave Point
gas test. Airborne surveys of this location were not conducted until September
24 and September 25, 1997, however, the well was still confidential at the time
it was surveyed. Pinnacle's evaluation of the location was detailed in a report
to Renaissance dated November 12, 1997. Pinnacle states that the SFD data
indicates a small structural anomaly and that the well will not be commercially
viable. The well location is given a rating of 3 out of 10 (A=2.0, CV=1.0) by
Pinnacle and they state they would not have participated in the well.
No porosity was encountered in the Slave Point Formation and no other
potentially commercial hydrocarbon zones were identified from borehole
information. No tests were performed on the well and the well was plugged and
abandoned.
Renaissance Well #4 Northwest Alberta, was licensed as a new pool wildcat and
was spudded August 24, 1997. This well was targeting the Devonian Slave Point
Formation. The well was surveyed by Pinnacle September 24 and September 25,
1997, but an evaluation of this location
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was not included in the November 12 report to Renaissance. The location was
reviewed in a meeting held October 22, 1997 with Renaissance to discuss the
results of the September 24 and 25, airborne surveys. When asked to comment on
the location, Pinnacle stated that there may be a small structure at the
location, but that the SFD did not indicate the presence of hydrocarbons in the
Slave Point Formation. Pinnacles review is not considered a full detailed review
of the location and as such no rating was assigned to the location.
On drilling, the well did not encounter any significant porosity development in
the primary target (Slave Point). The well did encounter gas in a secondary
zone, the Mississippian age Debolt Formation. Renaissance has indicated that an
initial production test flowed at a rate of 65,000 m3/d, and that the well is
expected to be placed on production in the near future.
In summary, Pinnacle predicted that all seven of the documented wells would not
be commercially viable in the primary zone, and stated that it would not
participate in the wells. Pinnacle comments and the drill results of these seven
locations are summarized in Table 6.
Drilling results indicate that the primary zone of interest was abandoned in all
the wells. Three of the seven wells have been tested and/or are producing from a
secondary target. Gilbert Laustsen Jung has reviewed the Encal #2 well and,
based on the oil production rate and the well cost, do not consider this
location to be an economic success. Gilbert Laustsen Jung has not reviewed any
data from the Renaissance well #1 or Renaissance well #4 because of the
confidential nature of these locations. Renaissance, however, has indicated that
both these locations are capable of commercial production from a secondary zone.
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