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UNITED STATES OMB APPROVAL
SECURITIES AND EXCHANGE COMMISSION -----------------------
Washington, D.C. 20549 OMB Number 3235-0145
Expires: October 31, 1997
SCHEDULE 13D Estimated average burden
hours per form.. 14.90
Under the Securities Exchange Act of 1934
(Amendment No. __)*
Territorial Resources, Inc.
(Name of Issuer)
Common Stock (no par value)
(Title of Class of Securities)
881469 10 0
(CUSIP Number)
Brian A. Lingard, 1300 Main Street, Suite 1840,
Houston, Texas 77002; (713) 658-0850
(Name, Address and Telephone Number of Person Authorized to Receive
Notices and Communications)
March 29, 1996
(Date of Event which Requires Filing of this Statement)
If the filing person has previously filed a statement on Schedule 13G to report
the acquisition which is the subject of this Schedule 13D, and is filing this
schedule because of Rule 13d-1(b)(3) or (4), check the following box / /.
Check the following box if a fee is being paid with the statement X. (A fee is
not required only if the reporting person: (1) has a previous statement on file
reporting beneficial ownership of more than five percent of the class of
securities described in Item 1; and (2) has filed no amendment subsequent
thereto reporting beneficial ownership of five percent or less of such class.)
(See Rule 13d-7.)
Note: Six copies of this statement, including all exhibits, should be filed with
the Commission. See Rule 13d-1(a) for other parties to whom copies are to be
sent.
*The remainder of this cover page shall be filled out for a reporting person's
initial filing on this form with respect to the subject class of securities, and
for any subsequent amendment containing information which would alter
disclosures provided in a prior cover page.
The information required on the remainder of this cover page shall not be deemed
to be "filed" for the purpose of Section 18 of the Securities Exchange Act of
1934 ("Act") or otherwise subject to the liabilities of that section of the Act
but shall be subject to all other provisions of the Act (however, see the
Notes).
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SCHEDULE 13D
CUSIP No. 881469 10 0 Page 2 of 2 Pages
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1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
MICHAEL C. NEMEC
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2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) / /
(b) / /
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3 SEC USE ONLY
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4 SOURCE OF FUNDS*
OO
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5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS
2(d) or 2(e) / /
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6 CITIZENSHIP OR PLACE OF ORGANIZATION
United States
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7 SOLE VOTING POWER
1,842,348
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NUMBER OF 8 SHARED VOTING POWER
SHARES
BENEFICIALLY OWNED ---------------------------------------------------------
BY EACH REPORTING 9 SOLE DISPOSITIVE POWER
PERSON
WITH 1,842,348
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10 SHARED DISPOSITIVE POWER
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11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
1,842,348
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12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* / /
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13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
7.07%
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14 TYPE OF REPORTING PERSON*
IN
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"SEE INSTRUCTIONS BEFORE FILLING OUT!
INCLUDE BOTH SIDES OF THE COVER PAGE, RESPONSES TO ITEMS 1-7
(INCLUDING EXHIBITS) OF THE SCHEDULE, AND THE SIGNATURE ATTESTATION.
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ITEM 1. SECURITY AND ISSUER
This Schedule 13D relates to shares of common stock, no par value (the
"Territorial Common Stock"), of Territorial Resources, Inc., a Colorado
corporation ("Territorial"). The principal executive offices and mailing
address of Territorial are 1300 Main Street, Suite 1840, Houston, Texas 77002.
ITEM 2. IDENTITY AND BACKGROUND
This Schedule 13D is filed on behalf of Michael C. Nemec ("Nemec"), whose
residence address is 7410 Eichler, Houston, Texas 77036. Nemec's current
principal occupation or employment is serving as a geologist in Cairo, Egypt,
for Apache Corporation, whose principal business is oil and gas exploration and
development and whose address is 2000 Post Oak Blvd., Houston, Texas 77056.
During the last five years, Nemec (a) has not been convicted in a criminal
proceeding (excluding traffic violations or similar misdemeanors) and (b) has
not been a party to a civil proceeding of a judicial or administrative body of
competent jurisdiction and as a result of such proceeding was or is subject to a
judgment, decree or final order enjoining future violations of, or prohibiting
or mandating activities subject to, federal or state securities laws or finding
any violation with respect to such laws.
Nemec is a citizen of the United States.
ITEM 3. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION
Pursuant to the terms and provisions of a Plan and Agreement of
Reorganization ("Acquisition Agreement"), dated as of March 12, 1996, by and
among William C. Penttila, Dennis M. Buck, Michael C. Nemec, Thomas B. Patrick
(collectively, the "Shareholders") and Territorial, Territorial acquired (the
"Acquisition") on March 29, 1996, all of the outstanding shares of capital stock
of TRI Mongolia, Inc., a Texas corporation ("TRI"). In exchange therefor,
Territorial issued on the date of such Acquisition an aggregate of 5,450,000
shares of Territorial Common Stock to the Shareholders, as the sole shareholders
of TRI as follows:
NUMBER OF SHARES
OF TERRITORIAL COMMON STOCK
William C. Penttila 1,589,583
Dennis M. Buck 1,589,583
Michael C. Nemec 1,589,583
Thomas B. Patrick 681,251
---------
Total 5,450,000
In exchange therefor, each such Shareholder delivered the following number
of shares of common stock of TRI to Territorial:
NUMBER OF SHARES
OF COMMON STOCK OF TRI
William C. Penttila 4,585
Dennis M. Buck 4,585
Michael C. Nemec 4,585
Thomas B. Patrick 1,966
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Total 15,721
In connection with the Acquisition Agreement, each Shareholder entered into
a separate Pledge and Security Agreement (the "Pledge Agreement") with
Territorial, pursuant to which among other things such Shareholder pledged all
of the shares of Territorial received by him in connection with the Acquisition
Agreement to secure certain indemnity and other obligations of such Shareholder
in favor of Territorial set out in the Acquisition Agreement.
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In connection with the dissolution in March 1996 of the predecessor of TRI,
each of the Shareholders received the following shares of Territorial Common
Stock previously held by such predecessor:
NUMBER OF SHARES
OF TERRITORIAL COMMON STOCK
William C. Penttila 300,180
Dennis M. Buck 300,180
Michael C. Nemec 252,765
Thomas B. Patrick 121,875
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Total 975,000
As a result of the two transactions described above, Nemec received an
aggregate of 1,842,348 shares (collectively the "Shares") of Territorial Common
Stock.
Prior to and after the consummation of the Acquisition Agreement
transactions, Mr. Penttila was, and remains, a director of Territorial. In
addition, Messrs. Penttila, Buck and Patrick also are continuing as directors
and officers of TRI.
Nemec believes that he may be entitled to receive an additional 31,610 of
the shares of Territorial Common Stock distributed to the other Shareholders in
connection with the dissolution of the predecessor of TRI. In such event, the
number of shares of Territorial Common Stock that will have been received by
Nemec in connection with such dissolution would be increased to 284,375, the
aggregate number of shares of Territorial Common Stock that will have been owned
by Nemec as described in the penultimate preceding paragraph would be increased
to 1,873,958 (which would represent approximately 7.19% of the outstanding
shares of Territorial Common Stock as of June 10, 1996), and the information
provided in items 7, 9, 11 and 13 appearing on page 2 of this Schedule would be
adjusted accordingly.
ITEM 4. PURPOSE OF TRANSACTION
Nemec acquired the Shares for investment purposes. See Item 3, above.
ITEM 5. INTEREST IN SECURITIES OF THE ISSUER
(a) Subject to the information described in the last paragraph of item 3
above, the aggregate number of shares of the class of securities identified
pursuant to Item 1, above beneficially owned by Nemec is 1,842,348 shares
(previously defined as the "Shares") of Territorial Common Stock, which
represents approximately 7.07% of the outstanding shares of Territorial Common
Stock as of April 19, 1996. To Nemec's best knowledge, the aggregate number of
shares of Territorial Common Stock beneficially owned by all of the Shareholders
is 6,425,000 shares, which represents approximately 24.65% of the outstanding
shares of Territorial Common Stock as of June 1, 1996. Subject to the
information described in the last paragraph of item 3 above, Nemec disclaims
beneficial ownership of any shares of Territorial Common Stock owned by any of
the other Shareholders.
(b) Subject to the terms and provisions of the Pledge Agreement with
respect to the 1,589,583 shares of Territorial Common Stock received by him in
connection with the Acquisition, Nemec has the sole power to vote and to dispose
of the Shares. Similarly, subject to the terms and provisions of such
Shareholder's Pledge Agreement with respect to the shares of Territorial Common
Stock received in connection with the Acquisition, each of the other
Shareholders has the sole power to vote and to dispose of the shares of
Territorial Common Stock acquired by him in connection with the Acquisition
Agreement.
(c) Not applicable.
(d) Not applicable, other than with respect to the Pledge Agreement to
which Nemec is a party as it relates to the 1,589,583 shares of Territorial
Common Stock received by Nemec in connection with the Acquisition, as described
in Item 3, above.
(e) Not applicable.
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ITEM 6. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT
TO SECURITIES OF THE ISSUER
Not applicable, other than with respect to the Pledge Agreement to which
Nemec is a party as it relates to the 1,589,583 shares of Territorial Common
Stock received by Nemec in connection with the acquisition, as described in Item
3, above.
ITEM 7. MATERIAL TO BE FILED AS EXHIBITS
Exhibit 99.1 Plan and Agreement of Reorganization, dated as of March
12, 1996, by and among William C. Penttila, Dennis M.
Buck, Michael C. Nemec, Thomas B. Patrick and
Territorial Resources, Inc.
Exhibit 99.2 Pledge and Security Agreement, dated March 29, 1996, by
and between Michael C. Nemec and Territorial Resources,
Inc.
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
Date: June 13, 1996
/s/ MICHAEL C. NEMEC
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MICHAEL C. NEMEC
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PLAN AND AGREEMENT OF REORGANIZATION
This Plan and Agreement of Reorganization ("Agreement") dated as of
March 12, 1996, is entered into by and among:
William C. Penttila, Dennis M. Buck,
Michael C. Nemec and Thomas B. Patrick
(collectively "Shareholders"); and
Territorial Resources, Inc.,
a Colorado corporation ("Territorial")
as follows:
I.
DEFINITIONS
1.1 As used in this Agreement:
(a) "Exploration Associates" means Exploration Associates, L.L.C., a Texas
limited liability company.
(b) "TRI Mongolia" means TRI Mongolia Inc., a corporation to be formed and
organized under the laws of the State of Texas.
(c) "TRI Shares" means all of the issued and outstanding shares of common
stock of TRI Mongolia, namely 15,721 shares of common stock with a par
value of $1.00 per share.
(d) "Territorial Shares" means 5,450,000 shares of common stock of
Territorial, no par value per share.
(e) "Territorial Warrants" means a warrant to purchase 1,000,000 shares of
common stock, no par value per share, of Territorial pursuant to the
terms and conditions of the warrant attached hereto as Exhibit A.
(f) "SOCO TAMTSAG" means SOCO Tamtsag Mongolia, Inc., a Delaware close
corporation.
(g) "SOCO Tamtsag Shares" means 112 shares of the issued and outstanding
shares of common stock, $.001 par value per share, of SOCO Tamtsag.
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(h) "Stockholders' Agreement" means that certain Stockholders' Agreement
dated November 7, 1994, by and among SOCO Tamtsag and its
shareholders.
(i) "Pledge and Security Agreement" means the Pledge and Security
Agreement in form and substance as set forth in Exhibit B.
(j) "Closing" shall mean the consummation of the exchange of the TRI
Shares for the Territorial Shares pursuant to this Agreement.
(k) "Exhibit" refers to an exhibit to this Agreement, each of which is
hereby fully incorporated by reference into this Agreement as though
fully set forth verbatim at the respective point of reference.
II.
EXCHANGE OF TRI SHARES AND TERRITORIAL SHARES
This Agreement specifies a reorganization within the meaning of Section
368(a)(1)(B) of the Internal Revenue Code of 1986, as amended. Territorial will
acquire the TRI Shares from the Shareholders in exchange solely for voting
Territorial Shares. Under this reorganization, TRI Mongolia will become a
subsidiary of Territorial.
2.1 In reliance upon and in consideration of the representations, warranties
and undertakings set forth in this Agreement, and subject to its
conditions, the Shareholders agree to sell, transfer, assign and deliver
the TRI Shares to Territorial.
2.2 In reliance upon and in consideration of the representations, warranties
and undertakings set forth in this Agreement, and subject to its
conditions, Territorial will issue and cause to be delivered the
Territorial Shares to each of the Shareholders, as follows:
NUMBER OF TERRITORIAL
NAME OF STOCKHOLDER SHARES TO BE DELIVERED
------------------- ----------------------
William C. Penttila 1,589,583
Dennis M. Buck 1,589,583
Michael C. Nemec 1,589,583
Thomas B. Patrick 681,251
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5,450,000
in exchange for the TRI Shares transferred to Territorial pursuant to
Section 2.1 above.
III.
CLOSING
3.1 The Closing shall take place at 1:30 p.m. at 1300 Main, Suite 1840,
Houston, Texas on March 29, 1996, or at such other time, date and place as
the Shareholders and Territorial shall mutually agree. Such time and date
are hereinafter referred to as the "Closing Date".
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3.2 At the Closing:
(a) The Shareholders shall deliver, or cause to be delivered to
Territorial, the certificates representing in the aggregate all of the
TRI Shares duly endorsed in blank by the Shareholders, or accompanied
by stock powers executed in blank, in proper form for transfer;
(b) Territorial shall issue and cause to be delivered the Territorial
Shares to the Shareholders as required under Section 2.2 above;
(c) Each of the Shareholders shall execute and deliver to Territorial a
Pledge and Security Agreement covering the Territorial Shares received
by each of the Shareholders under Section 2.2 above; and
(d) Each of the Shareholders shall deliver to Territorial the Territorial
Shares duly endorsed in blank by the Shareholder, or accompanied by
stock powers executed in blank, in proper form for transfer in
accordance with the terms of the Pledge and Security Agreement.
IV.
REPRESENTATIONS AND WARRANTIES OF SHAREHOLDERS
The Shareholders make the following representations and warranties to
Territorial as of the Closing Date, jointly and severally, except as set forth
in Section 9.4 below:
4.1 ORGANIZATION, STANDING AND POWER. TRI Mongolia is a corporation duly
organized, validly existing and in good standing under the laws of the
State of Texas, has all requisite corporate power and authority to own,
lease and operate its properties and to carry on its business as now being
conducted. The Shareholders have delivered to Territorial complete and
correct copies of: (i) the Articles of Incorporation of TRI Mongolia and
all amendments thereto to the Closing Date; (ii) the By-laws of TRI
Mongolia as amended to the Closing Date; and (iii) the resolutions adopted
by the shareholders and directors of TRI Mongolia to the Closing Date.
4.2 CAPITAL STRUCTURE. The authorized capital stock of TRI Mongolia consists
of One Hundred Thousand (100,000) shares of common stock, par value $1.00
per share. The TRI Shares represent all of the issued and outstanding
shares of common stock of TRI Mongolia. The TRI Shares are duly
authorized, validly existing and fully paid and nonassessable. The TRI
Shares are evidenced by certificates for the number of shares below set
forth opposite the names of the Shareholders, as follows:
NAME SHARES
---- ------
William C. Penttila 4,585
Dennis M. Buck 4,585
Michael C. Nemec 4,585
Thomas B. Patrick 1,966
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15,721
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No subscription, option, warrant, call or commitment of any kind obligating
TRI Mongolia to issue any of its common stock exists.
4.3 OWNERS OF THE TRI SHARES. Each Shareholder is the record and beneficial
owner of the number of shares of TRI Shares set opposite his name in
Section 4.2 above, free and clear of all liens, encumbrances, rights of
third parties and claims of every kind; each such Shareholder has full
legal right, power and authority to enter into this Agreement and to
transfer, assign and deliver to Territorial the shares of TRI Shares set
opposite his name in Section 4.2 above; and the delivery to Territorial of
the shares of TRI Shares set opposite his name in Section 4.2 above
pursuant to the provisions of this Agreement will transfer valid title
thereto, free and clear of all liens, encumbrances, rights of third parties
and claims of any kind.
4.4 OWNERSHIP INTERESTS IN OTHER ENTITIES. TRI Mongolia does not own any
interest or investment (whether equity or debt) in any corporation, limited
liability company, partnership, business, trust or other entity except for
TRI Mongolia's ownership interests in the following:
(a) SOCO Tamtsag Shares;
(b) Twenty-Five Thousand (25,000) shares of common stock of Territorial,
no par value per share; and
(c) Territorial Warrants.
The SOCO Tamtsag Shares are duly authorized, validly existing, free and
clear of all liens, encumbrances, rights of third parties and claims of any
kind subject only to the terms and conditions of (and are fully paid and
nonassessable except as provided in) the Stockholders' Agreement. All
assessments due under the Stockholders' Agreement with respect to the SOCO
Tamtsag Shares for the years prior to the 1996 calendar year have been paid
in full. Except as otherwise expressly provided in this Agreement,
immediately prior to the Closing, TRI Mongolia will be the sole record and
beneficial owner of the SOCO Tamtsag Shares, free and clear of all liens,
encumbrances, rights of third parties and claims of any kind other than as
may be provided in the Stockholders' Agreement.
4.5 CONDUCT OF BUSINESS. TRI Mongolia has not conducted any trade or business;
and TRI Mongolia's sole activity has been to own and hold the ownership
interests described in Section 4.4 above either directly or indirectly
through Exploration Associates.
4.6 TAXES AND RETURNS. TRI Mongolia has not been required to file any tax
returns and has not paid or made reserve for taxes of any kind, character
or description which may be due, owing
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or payable by TRI Mongolia after the Closing Date. No federal, state
or local tax, fee, charge or payment, will accrue, exist or be due or
payable, directly or indirectly, by TRI Mongolia as a result of:
(i) Any business or other activity of Exploration Associates or TRI
Mongolia occurring on or before the Closing Date;
(ii) The reorganization referred to in Article II hereof; or
(iii) The dissolution, winding up of the affairs of, or distribution of
the assets of Exploration Associates to TRI Mongolia.
If any such tax, fee, charge or payment accrues, exists, or becomes due or
payable as a result of the matters described in (i), (ii) or (iii), the
Shareholders agree to promptly pay, or cause to be paid, the amount of such
tax, fee, charge or payment, and any penalty or interest that may be
accrued or become due or payable as a result thereof.
4.7 TITLE TO PROPERTIES. TRI Mongolia has good title to all of its properties
and assets which consist solely of the ownership interests described in
Section 4.4 above. All such properties and assets are free and clear of
all liens, encumbrances, rights of third parties and claims of every kind,
except as reflected in Sections 4.8 and 4.13 below.
4.8 COMMITMENTS. TRI Mongolia is not a party to any contract, agreement or
commitment of any nature whatsoever, other than:
(a) An agreement to be entered into by and between Exploration Associates
and Bentley Blum and Simone Blum, Trustees of the Blum Family Trust, a
trust organized and existing under the laws of the State of Florida,
which became a commitment of TRI Mongolia upon the dissolution of
Exploration Associates. Pursuant to this commitment, TRI Mongolia's
sole obligations are to assign, transfer and deliver to Bentley Blum
and Simone Blum, Trustees three (3) shares of the SOCO Tamtsag Shares,
Twenty-Five Thousand (25,000) shares of common stock of Territorial
and a warrant to purchase 25,000 shares of Territorial common stock
out of the Territorial Warrants. In consideration of the foregoing
transfers, the Blum Family Trust has agreed to terminate certain
obligations of Exploration Associates under that certain letter
agreement dated May 20, 1993, by and among Springfield Oil Asia, Inc.,
a Delaware corporation, Exploration Associates International of Texas,
Inc., a Texas corporation, and the Blum Family Trust; and
(b) The Stockholders' Agreement. TRI Mongolia has not made any
Stockholder contribution assessments under the Stockholders' Agreement
due for the period beginning January 1, 1996.
4.9 LIABILITIES. Neither Exploration Associates nor TRI Mongolia has any
liabilities, obligations, claims or commitments, accrued or unaccrued,
contingent or non-contingent, except for those disclosed in Sections 4.7
and 4.8 above and Section 4.13 below, nor, to the knowledge of
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the Shareholders, is there any basis for any of the same.
4.10 INSURANCE POLICIES. TRI Mongolia has no insurance policies in force and
effect covering its assets and properties.
4.11 BANK ACCOUNTS. TRI Mongolia has no accounts with any bank or other
financial institutions.
4.12 EMPLOYEE ARRANGEMENTS. TRI Mongolia has no employment contracts, pension,
bonus, profit sharing or other agreements or arrangements providing for
employee remuneration or benefits and has no obligations of any kind with
respect thereto.
4.13 LITIGATION. There are no actions, suits, arbitrations or legal,
administrative or other proceedings or investigations pending or, to the
knowledge of the Shareholders, threatened against either TRI Mongolia or
Exploration Associates affecting its business, assets or financial
condition, except as follows:
TRI Mongolia issued the TRI Shares to the Shareholders in
exchange for the transfer, assignment and delivery of all of
the member interests owned by the Shareholders in
Exploration Associates. Exploration Associates is a named
defendant in pending litigation styled Leo T. Metcalf, III
vs. Amgol, Inc., SOCO International Inc., Exploration
Associates International, Inc. a/k/a Exploration Associates
International of Texas, Inc., C P & G Company, Samuel R.
Cammack, Ed Story, Thomas B. Patrick, Exploration Associates
International of Texas, Inc., SOCO Mongolia, Inc., William
Penttila, SOCO Tamtsag Mongolia, Inc., Snyder Oil
Corporation, Exploration Associates, L.L.C. and Dennis
Michael Buck, Cause No. 94-029503, In the District Court of
Harris County, Texas, 113th Judicial District (hereinafter
referred to as the "Litigation"). Upon TRI Mongolia's
receipt of all of the member interests of Exploration
Associates, TRI Mongolia liquidated and dissolved
Exploration Associates. As a result of this liquidation and
dissolution, TRI Mongolia has a liability exposure from the
Litigation and may be added as an additional named
defendant. Territorial has reviewed the causes of action
alleged by the plaintiff in the Litigation and has had the
opportunity to discuss the liability exposure, if any, as
result thereof, with Barry G. Flynn, counsel to Exploration
Associates in the Litigation;
and to the knowledge of Shareholders, there is no basis for any of the
same.
4.14 POWERS OF ATTORNEY AND AGENTS. TRI Mongolia has not given any power of
attorney or any other authority which is outstanding or effective as of the
Closing Date to any person other than officers of TRI Mongolia to enter
into any contract or commitment or do anything on its behalf.
4.15 NO BROKER. The Shareholders have not retained, consented to, or authorized
any broker,
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investment banker or third party to act on Shareholders'
behalf, directly or indirectly, as a broker or finder in connection with
this Agreement or the transactions contemplated by this Agreement.
4.16 INVESTMENT REPRESENTATIONS.
(a) Each Shareholder is an "accredited investor" as that term is defined
in Regulation D, promulgated by the Securities Exchange Commission
under the Securities Act of 1933, as amended to date (the "Act"); and
(b) Each Shareholder is acquiring the Territorial Shares to be acquired by
him in connection with this Agreement solely for such Shareholder for
investment purposes, and not for any other person or party; and
(c) Each Shareholder acknowledges that the Territorial Shares to be
received by the Shareholders in connection with this Agreement have
not been registered under the Act or under applicable state securities
laws (together with the 1933 Act "Securities Laws"); and
(d) Each Shareholder acknowledges that the Territorial Shares to be
received by the Shareholders are exempt from applicable Securities
Laws that are predicated, in part, on the representations, warranties
and agreements of the Shareholders contained herein; and
(e) Each Shareholder acknowledges that each Shareholder's right to
transfer the Territorial Shares to be received by such Shareholder in
connection with this Agreement will be restricted by such Securities
Laws, and that, in addition to any other limitations with respect
thereto, neither such shares nor any interest therein shall be sold,
transferred or otherwise disposed of without registration under
applicable Securities Laws or an exemption therefrom; and
(f) Each Shareholder acknowledges that each Shareholder must bear the
economic risk of an investment in the Territorial Shares to be
received by such Shareholder in connection with this Agreement for an
indefinite period of time because such shares have not been registered
under applicable Securities Laws and therefore cannot be sold unless
they are subsequently registered under such Securities Laws or an
exemption from such registration is available, and that such shares
must be held indefinitely unless the transfer thereof is so registered
or such an exemption exists with respect thereto; and
(g) Each Shareholder is an experienced and sophisticated investor in
investments, including investments similar to the Territorial Shares,
and such Shareholder either alone or with his purchaser
representative(s), has such knowledge and experience in financial and
business matters that such Shareholder is, either alone or together
with such purchaser representative(s), capable of evaluating the
merits and risks, and has evaluated the merits and risks, of the
prospective acquisition of the Territorial Shares
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and has the capacity to protect his interests in connection with
the acquisition of such shares pursuant to the terms and provisions
of this Agreement; and
(h) Each Shareholder acknowledges that a legend will be placed on the
certificate or certificates evidencing the Territorial Shares to be
received by each Shareholder in connection with this Agreement to the
effect that, among other things, the shares evidenced thereby have not
been registered under the 1933 Act and may not be sold, transferred,
pledged, hypothecated or otherwise disposed of, unless registered or
unless Territorial receives an opinion of counsel satisfactory to
Territorial that such registration is not required; and
(i) None of the information supplied or to be supplied by TRI Mongolia or
any Shareholder insofar as it relates to the SOCO Tamtsag Shares,
Exploration Associates, TRI Mongolia, a Shareholder or the
transactions contemplated by this Agreement will contain any untrue
statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which there
are made, not misleading.
(j) Each Shareholder acknowledges that he has received and reviewed with
such investment, legal, financial and other advisors as he has elected
a copy of Territorial's Annual Report on Form 10-K (or 10-KSB, as
appropriate) for the fiscal years ending March 31, 1994 and 1995, and
each of Territorial's Quarterly Reports on Form 10-Q (or 10-QSB, as
appropriate) for each of the quarterly periods ended June 30, 1995,
September 30, 1995 and December 31, 1995, and Territorial's Form 8-K
dated on or about November 7, 1995. In addition each Shareholder has
had an opportunity to ask questions and receive answers from
Territorial, and obtain any additional information requested by such
Shareholder, regarding such documents and the matters described
therein, the Territorial Shares to be received by him in connection
with this Agreement and the terms and conditions of this Agreement.
4.17 LIMITATION OF REPRESENTATIONS AND WARRANTIES. Except for the
representations and warranties of the Shareholders set forth in Sections
4.1-4.16 above, the Shareholders make no representations or warranties,
express or implied, with respect to the suitability of any of the
properties and assets owned by TRI Mongolia for any particular business or
investment purpose.
V.
REPRESENTATIONS AND WARRANTIES OF TERRITORIAL
Territorial hereby represents and warrants to each of the Shareholders as
of the Closing Date as follows:
5.1 ORGANIZATION. Territorial is a corporation duly organized, validly
existing and in good standing under the laws of the State of Colorado and
is duly authorized, qualified and licensed under all applicable laws and
regulations to carry on its business in the manner as
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now conducted.
5.2 AUTHORITY. Territorial has full power and authority to execute, deliver
and consummate this Agreement subject to the conditions of Closing set
forth in this Agreement. All necessary corporate action has been taken by
Territorial to authorize the execution and delivery of this Agreement.
Territorial is not subject to any agreement which would be violated by the
consummation of the transactions contemplated by this Agreement. No
consent, approval, order or authorization of any governmental authority is
required in connection with the execution and delivery of this Agreement by
Territorial, or the consummation by Territorial of the transactions
contemplated herein.
5.3 NO BROKER. Territorial has not retained, consented to, or authorized any
broker, investment banker or third party to act on Territorial's behalf,
directly or indirectly, as a broker or finder in connection with this
Agreement or the transactions contemplated by this Agreement.
5.4 ACCESS TO INFORMATION. Territorial has had access to whatever information
and documentation (financial or otherwise) regarding TRI Mongolia and
Exploration Associates which Territorial deems relevant, including without
limitation the Stockholders' Agreement; that Territorial is fully satisfied
with the results of Territorial's investigation with respect thereto; and
that Territorial is not relying upon any representation or warranty of
Shareholders with respect thereto other than the Shareholders'
representations and warranties set forth in Section IV above.
5.5 ABSENCE OF CLAIMS. There are no actions, suits, proceedings or
governmental investigations pending, or to the best of its knowledge,
threatened against Territorial, at law, in equity, in arbitration, or
otherwise, in, before, or by any court or governmental agency or authority,
which, individually or in the aggregate, could, if determined adversely,
have a material and adverse effect on the successful consummation of the
transactions contemplated hereby.
5.6 TERRITORIAL SHARES. When delivered at the Closing, the Territorial Shares
shall be validly issued, fully paid and nonassessable.
VI.
ADDITIONAL AGREEMENTS
6.1 The Shareholders shall use all reasonable efforts to take, or cause to be
taken, all action, and to do, or cause to be done, all things necessary,
proper or advisable to consummate and make effective the transaction
contemplated by this Agreement and to cause the representations and
warranties contained in Section IV above to be true in all material
respects as of the Closing Date.
6.2 Territorial covenants and agrees as follows:
(a) RIGHTS IN CONNECTION WITH A PUBLIC OFFERING. If, at anytime after the
later to occur of (i) one year after the Closing Date or (ii) the date
that the Litigation is either settled without any liability, cost or
expense to Territorial, either directly or indirectly
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through its acquisition of TRI Mongolia, or Territorial, TRI
Mongolia and Exploration Associates are all permanently (as
determined in the reasonable, good faith discretion of Territorial)
removed, withdrawn or dismissed from the Litigation (or any related
cause of action or claim) without liability, cost or expense to
Territorial (either directly or indirectly through its acquisition
of TRI Mongolia) Territorial intends to make a public offering of
its securities under any form of registration statement suitable
for secondary offering, Territorial shall so notify each Shareholder
in writing, no less than 30 days before the intended filing of such
registration statement, and shall permit each Shareholder to include
any or all of his Territorial Shares in such offering (limited only
by the provisions of paragraph (d) of this Section 6.2), provided
the Shareholder notifies Territorial in writing within 15 days of
the date of such notice of his desire to be included in such offering.
Thereafter, Territorial shall use its best effects to (i) file with
all due promptness and endeavor to make effective, as soon as
reasonably practicable, a registration statement under the Act
covering any and all shares proposed (the number being limited only
by the provisions of paragraph (d) of this Section 6.2) to be sold
or otherwise disposed of by each Shareholder; (ii) qualify such
shares under the Blue Sky laws of the jurisdiction(s) in which the
offers and sales or other dispositions are proposed to be made;
(iii) qualify such shares under the rules of any appropriate
self-regulatory organization or stock exchange; (iv) maintain the
effectiveness of the registration statement for a reasonable period
of time but in no event to exceed 30 days and from time to time
(within any such period of effectiveness) advise any Shareholder
whose securities are being registered of any stop order or any
event or development requiring amendment of the registration
statement and prospectus or rendering it inadvisable to use the
prospectus until it is supplemented or amended; and (v) with
reasonable promptness prevent the issuance or cause to be removed any
stop order, and amend or supplement the registration statement and
prospectus used in connection therewith to the extent necessary or
appropriate in order to comply with the Act.
(b) EXPENSES. All expenses (including, but not limited to, all
registration fees paid to the Securities and Exchange Commission, fees
and expenses of accountants, fees and expenses of counsel, printing
and engraving expenses, transfer agent fees, escrow fees, N.A.S.D.
registration or exchange listing fees, (other than underwriting
discounts and commissions relating to the Territorial Shares of any
Shareholder being offered thereby and fees and expenses of any special
counsel of any selling Shareholder, which special counsel fees and
expenses shall be borne by the Shareholder engaging such special
counsel) of any registration(s) made pursuant to paragraph (a) hereof
shall be borne and paid by Territorial. Underwriting discounts and
commissions shall be borne pro rata by any selling Shareholder in
proportion to the number of Territorial Shares being offered by such
selling Shareholder.
(c) INDEMNIFICATION. Territorial shall indemnify and hold harmless each
Shareholder against any claim, liability, loss, damage, cost or
expense (including attorneys' fees) arising out of any violation of
federal or state securities laws or any alleged material misstatement
or omission in any registration statement filed pursuant to paragraph
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(a) hereof, or in documents incorporated therein by reference, unless
such misstatement or omission is contained in, or relates to
information furnished or to have been furnished by the Shareholder,
provided Territorial receives prompt written notice of any claim of
any such misstatement or omission and is afforded a reasonable
opportunity, if it so elects, to participate in or control the defense
of such claim.
(d) UNDERWRITING. If any registration is intended to be an underwritten
public offering, Territorial shall so advise each Shareholder as a
part of the written notice given pursuant to paragraph (a) hereof. In
such event, the right to the Shareholder to registration, pursuant to
paragraph (a) hereof, shall be conditioned upon the Shareholders
participation in such underwriting and the inclusion of the
Shareholder's Territorial Shares in the underwriting to the extent
provided herein. The Shareholder proposing to distribute his
Territorial Shares through such underwriting (together with
Territorial and any other persons distributing their securities
through such underwriting) shall enter into an underwriting agreement
in customary form with the underwriter or underwriters or
representative thereof, selected for such underwriting by Territorial
(hereinafter the "Underwriter"). Notwithstanding any other provision
of paragraph (a), if the Underwriter determines that marketing factors
require a limitation of the number of shares to be underwritten, the
Underwriter may exclude some of the Shareholder's Territorial Shares
from such registration and underwriting, provided that shares of stock
proposed to be sold by stockholders other than Shareholder are also
excluded pro rata, based on the number of shares that from all
stockholders that were to be included in such registration or in any
other reasonable manner selected by the Underwriter. The number of
Territorial Shares that may be included in the registration and
underwriting shall be allocated to each Shareholder proposing to sell,
in proportion, as nearly as practicable, to the number of shares of
common stock of Territorial held by such Shareholder at the time of
filing of the registration statement. If any Shareholder disapproves
of the terms of any such underwriting, he may elect to withdraw
therefrom by written notice to Territorial and the Underwriter. Any
securities excluded or withdrawn from such underwriting shall be
withdrawn from such registration.
(e) ASSIGNMENT OF REGISTRATION RIGHTS. The rights to cause to register
securities granted Shareholders under this Section 6.2 may be assigned
to a transferee or assignee, provided that Territorial shall be
notified of any such transfer within thirty (30) days of the date such
transaction is effected, and provided further that: (i) such assignee
or transferee agrees to be bound by the terms of this Section 6.2; and
(iii) such assignee or transferee is unable to publicly transfer such
stock without registration.
(f) The rights and privileges granted by Territorial in this Section 6.2
shall expire on the date that is ten (10) years from the Closing Date.
6.3 Territorial acknowledges that, solely to permit the Shareholders to
evaluate their investment in the Territorial Shares, the Shareholders may
desire to obtain certain information regarding
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Territorial's indirect interest or proposed indirect interest in Contract
Areas XIX, XXI and XXII in the Tamtsag Basin of Mongolia. The Shareholders
acknowledge that such information is highly confidential and is proprietary
to Territorial, and agree, in addition to any other agreement or covenant
contained herein, that each Shareholder shall use his best efforts to
preserve the proprietary and confidential nature of such information, and
shall not use such information in any manner that could be adverse to the
interests of Territorial. As a result, and subject to the execution and
delivery by each Shareholder of a confidentiality agreement
("Confidentiality Agreement") in form and substance mutually satisfactory
to Territorial and such Shareholder, upon consummation of the transactions
contemplated to occur at the Closing, Territorial agrees to provide to each
such Shareholder (at the request of such Shareholder) for a period of three
(3) years following the Closing Date and so long as such requesting
Shareholder then owns of record not less than 500,000 shares of Territorial
common stock and such Shareholder is not in violation of any covenant or
agreement contained in this Agreement or the Pledge and Security Agreement,
access to all proprietary data owned and possessed by Territorial relating
exclusively to the Contract Areas referred to above. Such information
shall include, to the extent then owned and possessed by Territorial, all
geological and geophysical data, well logs, test information, technical
reports, maps, models and interpretations relating to, or derived from,
operations under the relevant production sharing contract. Such access
shall be provided subject to the following conditions: (a) in the event
Territorial is subject to any confidentiality agreement with respect to
such information, the requesting Shareholder agrees to execute and deliver
a copy of the same and to abide by the obligations thereof, (b) such access
shall be provided exclusively in the offices of Territorial and at the
expense of the requesting Shareholder and shall be limited to an aggregate
of 10 hours for such requesting Shareholder per year, and (c) such
Shareholder shall agree that no documents or other information may be
removed by the Shareholder from Territorial's office, nor may copies
thereof or notes relating thereto be made by or for the benefit of the
Shareholder. Each Shareholder hereby agrees that any such information
received by him, or any analyses, facts or information derived based in
whole or in part thereon, shall not be disclosed by such Shareholder
(except as required by the law pursuant to an enforceable court order) to
any other person or party, nor may any of the same by used by such
Shareholder (or any other person or party through such Shareholder)
directly or indirectly in any manner that could reasonably be deemed to be
against the best interests of Territorial or in competition with
Territorial. None of the provisions of this section shall act as a
limitation on the obligations that may be imposed upon such a Shareholder
in the Confidentiality Agreement.
VII.
CONDITIONS TO TERRITORIAL'S OBLIGATION TO CLOSE
The obligation of Territorial to close under this Agreement is subject to
the following condition:
7.1 Each of the representations and warranties of the Shareholders set forth in
Section IV above shall be true and correct in all material respects at and
as of the Closing Date.
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VIII.
CONDITIONS TO SHAREHOLDERS' OBLIGATION TO CLOSE
The obligation of the Shareholders to close under this Agreement is subject
to the following condition:
8.1 Each of the representations and warranties of Territorial set forth in
Section V above shall be true and correct in all material respects at and
as of the Closing Date.
IX.
SURVIVAL/INDEMNIFICATION
9.1 All of the representations and warranties and indemnities contained in this
Agreement shall survive the Closing and remain operative and in full force
and effect for a period of 5 years after the Closing Date.
9.2 Each of the Shareholders (jointly and severally except as set forth in
Section 9.4 below), on the one hand, and Territorial, on the other hand,
hereby agrees to indemnify, defend and hold harmless the other party hereto
from and against any and all claims, liabilities, losses, costs, damages
and reasonable or actual expenses (including reasonable attorney's fees)
(collectively, "Indemnification Costs") arising out of, or sustained by the
other party, directly or indirectly, due to any breach of representation,
warranty or agreement contained in this Agreement by such indemnifying
party or the failure of such indemnifying party to fulfill any agreement or
covenant of such indemnifying party contained in this Agreement.
9.3 Without limiting the generality of the foregoing, the Shareholders agree to
indemnify, defend and hold harmless Territorial from and against any and
all Indemnification Costs arising out of, or sustained, directly or
indirectly, including without limitation any of the same sustained by TRI
Mongolia or Exploration Associates, from the Litigation, subject to the
provisions of this Section 9.3 and Sections 9.4, 9.5 and 9.6. With respect
to the Litigation, the Shareholders shall, at the sole cost and expense of
the Shareholders, assume or, at the election of Territorial, participate in
the defense of Exploration Associates and/or TRI Mongolia (excluding,
however, Territorial, if named as an additional named defendant). In
connection therewith, the Shareholders shall engage counsel reasonably
satisfactory to Territorial, which counsel shall be instructed to meet with
Territorial and its representatives at such reasonable times as Territorial
shall request and to keep Territorial informed of all developments in the
Litigation. No settlement that imposes any damage, fine or settlement
payment or other obligation or liability on Territorial, TRI Mongolia or
Exploration Associates shall be agreed to without the express prior written
consent of Territorial; provided, however, that Territorial agrees, at the
written request of a majority of the Shareholders, to agree to any such
settlement so long as all such damage, fine or settlement payment,
obligation or liability is paid by, or assumed to the satisfaction of
Territorial by the Shareholders without further liability or obligation to
Territorial, directly or indirectly. Territorial shall cause TRI Mongolia
to cooperate with the Shareholders in such defense.
9.4 Notwithstanding anything contained in Section 9.3 to the contrary:
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(i) all obligations of the Shareholders under Section 9.3 shall not be
joint and several but shall instead be borne by each of the
Shareholders in the proportion that the number of Territorial shares
received by each such Shareholder under this Agreement bears to the
total number of Territorial Shares; and
(ii) as between Territorial, TRI Mongolia and Exploration Associates, on
the one hand, and the Shareholders, on the other hand, the maximum
amount of liability under Section 9.3 for each Shareholder for any
damage, fine or settlement assessed or judgment rendered, directly or
indirectly, against Territorial, TRI Mongolia or Exploration
Associates in connection with the Litigation shall be limited to one
hundred percent (100%) of the Territorial Shares received by each
Shareholder under this Agreement without personal liability for any
damage, fine, settlement or judgment in excess thereof; provided;
however, that the foregoing limitation shall not apply to legal fees
and expenses related to the Litigation to be paid by the Shareholders
pursuant to Section 9.3 above.
9.5 To guarantee the indemnification obligations of the Shareholders under this
Section IX, each Shareholder shall pledge and grant a security interest to
Territorial in and to all of the Territorial Shares received by each
Shareholder at the Closing pursuant to the terms and conditions of the
Pledge and Security Agreement.
9.6 The covenants, agreements and obligations of each Shareholder under this
Article IX shall be joint and several except as set forth in Section 9.4
above.
X.
GENERAL PROVISIONS
10.1 Any notice, demand, or other communication required or permitted to be
given under this Agreement by either party to the other party shall be in
writing and the same shall be given and shall be deemed to have been served
and given if delivered in person to the party to whom the notice is given,
or is placed in the United States mail, postage prepaid, by United States
registered or certified mail, return receipt requested, addressed to the
party at the address hereinafter specified and shall be deemed given on the
fifth (5th) day after mailing regardless of whether or not received. The
addresses of the parties hereto for all purposes under this Agreement and
for all notices hereunder shall be:
Shareholders: William C. Penttila
450 Sam Houston Parkway E. #140
Houston, Texas 77060
Dennis M. Buck
450 Sam Houston Parkway E. #140
Houston, Texas 77060
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Michael C. Nemec
c/o Phoenix Resource Companies
6525 North Meridian Ave. Suite 102
Oklahoma City, Oklahoma 73116
Thomas B. Patrick
27 Fernglen Drive
The Woodlands, Texas 77380
Territorial: Territorial Resources, Inc.
1300 Main, Suite 1840
Houston, Texas 77002
Attn: Brian A. Lingard
Chief Executive Officer
From time to time any party may designate another address within the United
States of America by giving to the other party hereto not less than five
(5) days' advance written notice of such change of address in accordance
with the provisions hereof.
10.2 Each of the parties hereto agrees to execute and deliver, or cause to be
executed and delivered, such other instruments and documents, or cause to
be done such other acts or things as shall be reasonably necessary or
appropriate to effectuate and carry out the provisions of this Agreement
and to fully accomplish its purposes and intents.
10.3 Each of the parties hereto shall be responsible for its own expenses
(including, without limitation, legal fees) incurred in connection with the
negotiation, preparation, execution and delivery of this Agreement.
10.4 Section headings contained in this Agreement are for convenience only and
shall not affect in any way the meaning or interpretation of this
Agreement.
10.5 THE VALIDITY OF THIS AGREEMENT AND THE INTERPRETATION OF THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HERETO SHALL BE GOVERNED BY THE LAWS OF THE
STATE OF TEXAS. TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, EACH OF
THE PARTIES HERETO HEREBY IRREVOCABLY AND UNCONDITIONALLY CONSENTS TO THE
NON-EXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF TEXAS FOR THE
PURPOSE OF ANY ACTION OR PROCEEDING ARISING OUT OF THIS AGREEMENT.
10.6 All parties and their respective legal counsel have reviewed and
participated in the preparation of this Agreement. Accordingly, no
presumption will apply in favor of any party in the interpretation of this
Agreement or in the resolution of the ambiguity of any provision hereof.
10.7 This Agreement may be executed in two or more counterparts, each of which
shall be an original, and all of which together shall constitute but one
and the same instrument. It shall not be necessary that any single
counterpart hereof shall be executed by all parties hereto so long as a
counterpart is executed by each party hereto.
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10.8 This Agreement contains the entire understanding of the parties with
respect to the transactions contemplated herein; supersedes all prior
agreements, arrangements and understandings, whether oral or written,
relating to the subject matter of this Agreement, including without
limitation, the letter offer of Territorial to Exploration Associates dated
February 15, 1996, and the letter of intent signed by the parties hereto on
March 6 and 7, 1996; and may only be modified by a written agreement
entered into subsequent to the date hereof and signed by each of the
parties hereto.
IN WITNESS WHEREOF, the parties have executed, or caused to be executed,
this Agreement as of the day and year first above written.
Shareholders: WILLIAM C. PENTTILA
---------------------------------------
William C. Penttila
DENNIS M. BUCK
---------------------------------------
Dennis M. Buck
---------------------------------------
Michael C. Nemec
---------------------------------------
Thomas B. Patrick
Territorial: TERRITORIAL RESOURCES, INC.
By: BRIAN A. LINGARD
---------------------------------
Brian A. Lingard
President
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PLEDGE
AND
SECURITY AGREEMENT
ARTICLE 1
GENERAL RECITALS
Identification of the Parties
1.01 This is a pledge and security agreement ("Agreement") between
____________________________________________, whose address is
____________________________________, referred to in this Agreement as
Debtor, and TERRITORIAL RESOURCES, INC., a Colorado corporation whose
address is 1300 Main, Suite 1840, Houston, Texas 77002, referred to in
this Agreement as Secured Party.
Debt
1.02. Debtor has indemnified Secured Party under Sections IX of that certain
Plan and Agreement of Reorganization dated as of March 12, 1996,
entered into by and among Secured Party, Debtor and the other
shareholders of TRI Mongolia Inc., a Texas corporation, referred to in
this Agreement as the "Indemnity".
Nature of Agreement
1.03. Debtor and Secured Party desire that Debtor grant to the Secured Party
a pledge of, lien on, and a security interest in the Collateral
described in Paragraph 2.02 of this Agreement as Collateral for
Debtor's performance of the terms and conditions of the Indemnity and
other obligations set forth in this Agreement.
THEREFORE, in consideration of the mutual covenants and conditions contained
in this Agreement and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the Debtor and Secured Party agree
as follows:
ARTICLE 2
PLEDGE
Security Interest
2.01. Debtor hereby creates and grants to the Secured Party a pledge of, lien
on, and a security
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interest in the Collateral described in Paragraph 2.02 of this
Agreement to secure the payment and performance of the obligations of
Debtor to the Secured Party set forth in Paragraph 2.03 of this
Agreement.
Description of Collateral
2.02. This Agreement creates a pledge of, lien on, and a security interest in
favor of Secured Party in _________shares of common stock, without par
value, of Secured Party, represented by certificate number ______.
Obligations Secured
2.03 The pledge, lien and security interest created by this Agreement
secures the following:
(a) Performance and discharge of every covenant, condition, and
agreement contained in the Indemnity; and
(b) Performance and discharge of every obligation, covenant, and
agreement of Debtor contained in this Agreement.
Warranties and Representations of Debtor
2.04. Debtor warrants and represents that the Collateral is free and clear of
any security interests, liens, restrictions, encumbrances or claims of
any third parties, other than the pledge, lien and security interest
created by this Agreement, and that Debtor has full right and power to
transfer the Collateral to the Secured Party free and clear of any
interests described in this paragraph, and to enter into and carry out
this Agreement.
ARTICLE 3
DEFAULT
Occurrence of Default
3.01. As used in this Agreement, "Occurrence of Default" shall be any or all
of the following:
(a) The failure of Debtor punctually and completely to observe, keep, or
perform any covenant, agreement, or condition required by this
Agreement.
(b) The failure of Debtor to pay within twenty (20) days of demand by
Secured Party of all obligations covered by the Indemnity.
(c) Consent by Debtor to the appointment of a receiver or liquidator of
himself or of any
2
<PAGE>
substantial portion of his assets.
(d) The seizure by a receiver, trustee, or other officer appointed by any
court, or by any sheriff, marshal, or other similar governmental
officer, under color of legal authority, of any substantial portion of
the assets of Debtor and holding possession of the assets for a period
of thirty (30) days.
(e) The assumption of jurisdiction, custody, or control of any of the
assets of Debtor under the provisions of any presently existing or
future law providing for reorganization, dissolution, liquidation, or
winding up of corporations or other legal entities, if Debtor has not
been restored to custody and control of the assets within thirty (30)
days after the date of the assumption.
(f) If a final judgment for the payment of money shall be rendered against
Debtor and, within twenty (20) days after the entry of the judgment, it
has not been discharged or execution of the judgment has not been
stayed pending appeal, or if, within twenty (20) days after the
expiration of any stay, the judgment has not been discharged.
Rights of Secured Party Upon Occurrence of Default
3.02 On an Occurrence of Default, the Secured Party may foreclose the
pledge, lien and security interest in any manner permitted by
applicable law (all of which shall be cumulative), and shall expressly
include one or more of the following (as selected by Secured Party):
Retention of Collateral
(a) Provided that the Secured Party gives notice to the Debtor, the Secured
Party may retain in satisfaction of Debtor's obligations that portion
of the Collateral that has a "fair value", as defined in Paragraph
3.03, equal to the amount of indebtedness that the Debtor has failed to
pay in accordance with the terms of the Indemnity and this Agreement.
Sale of Collateral
(b) Subject to the provisions of Section 9.504 of the Texas Business and
Commerce Code, the Secured Party may offer the Collateral at a public
or private sale after ten (10) days' written notice to Debtor, upon
such terms as Debtor shall deem appropriate (in its sole discretion).
Fair Value of Collateral
3.03. As used in this Agreement, "fair value" of the Collateral shall be the
fair market value per share of the Collateral, multiplied by the number
of shares of such stock constituting the
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Collateral, or $.75 multiplied by the number of such shares, WHICHEVER IS
GREATER.
As used in this Paragraph 3.03, "fair market value" means the average
closing bid prices, as reported in the over-the-counter market, for a
share of common stock of Territorial Resources, Inc. during either: (a)
the fifteen business-day period immediately preceding the date of the
Occurrence of Default; or (b) the fifteen business-day period immediately
following the date of the Occurrence of Default, WHICHEVER IS LOWER.
ARTICLE 4
OTHER AGREEMENTS
Initial Delivery of Collateral
4.01. Concurrently with the execution and delivery of this Agreement, Debtor
shall deliver the Collateral together with stock powers executed in
blank in proper form for transfer of the Collateral in order to
evidence the pledge, lien and security interests in the Collateral.
Return of Collateral
4.02 When Debtor's obligations under the Indemnity have been fully
performed, Secured Party shall redeliver the Collateral to Debtor and
this Agreement shall terminate.
Voting
4.03. For as long as the certificates of stock constituting the Collateral
are held by the Secured Party, and until the date of an Occurrence of
Default, if any, the Debtor shall have the right to vote the stock for
all purposes. If requested by the Debtor, the Secured Party shall
execute and deliver to the Debtor any proxies and authorizations
reasonably required to confirm the voting rights of the Debtor during
this period.
Dividends
4.04. For as long as the certificates of stock constituting the Collateral
are held by Secured Party, all dividends paid upon the stock
constituting Collateral shall constitute Collateral and shall be
subject to the terms and provisions of this Agreement.
ARTICLE 5
GENERAL
4
<PAGE>
No Waiver of Right of Remedies
5.01. No failure or delay by Secured Party in exercising any right, power, or
privilege given by any provision of this Agreement shall operate as a
waiver of the provision. Additionally, no single or partial exercise
of any right, power, or privilege shall preclude any other or further
exercise of that or any other right, power, or privilege.
Severability
5.02. Should any one or more of the provisions of this Agreement be
determined to be illegal or unenforceable, all other provisions of this
Agreement shall be valid, binding, and effective as if the illegal or
unenforceable provisions had never been included in this Agreement
Notices
5.03 Any notices or other communications required or permitted by this
Agreement shall be delivered personally or sent by registered or
certified mail, postage prepaid, to the respective addresses of Debtor
and Secured Party set forth above, or at any other address within the
United States of America furnished in writing by either party to the
other, and shall be deemed to have been given as of the date the notice
is personally delivered or deposited in the United States mail. Except
as expressly provided in this Agreement, Secured Party waives demand,
notice of protest and all other notices relating be to this Agreement.
Assignment
5.04. This Agreement, the obligations hereunder and the pledge, lien and
security interest created by this Agreement shall not be assignable by
Debtor without the prior written consent of Secured Party, and, subject
to the foregoing, shall inure to the benefit of Secured Party's
successors and assigns, and shall be binding upon the Debtor and his
heirs, executors, administrators, legal representatives, and assigns.
No Third Party Beneficiaries
5.05 This Agreement is intended for the sole and exclusive benefit of the
parties hereto and, with the exception of the rights herein expressly
conferred, nothing expressed or mentioned in, or to be implied from,
this Agreement is intended or shall be construed to give any person
other than the parties hereto any legal or equitable right, remedy or
claim under or in respect of this Agreement, or any covenants,
conditions or provisions herein contained.
Choice of Law
5.06. THE VALIDITY OF THIS AGREEMENT AND THE INTERPRETATION OF THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HERETO SHALL BE GOVERNED BY THE LAWS OF THE
STATE OF TEXAS. TO THE FULLEST
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<PAGE>
EXTENT PERMITTED BY APPLICABLE LAW, EACH OF THE PARTIES HERETO HEREBY
IRREVOCABLY AND UNCONDITIONALLY CONSENTS TO THE NON-EXCLUSIVE
JURISDICTION OF THE COURTS OF THE STATE OF TEXAS FOR THE PURPOSE OF ANY
ACTION OR PROCEEDING ARISING OUT OF THIS AGREEMENT.
Paragraph Headings
5.07. Paragraph and other headings contained in this Agreement are for
purposes of reference and convenience only and shall not affect in any
way the meaning of this Agreement or its interpretation.
Certain Filings and Obligations of Debtor
5.08 Debtor authorizes the Secured Party to file, in jurisdictions where
this authorization will be given effect, any financing statement or
other document or instrument of any kind evidencing the security
interest, pledge and/or lien granted hereunder, and at the request of
Secured Party, from time to time, Debtor will join the Secured Party in
executing one or more of such financing statements and other documents
or instruments in form and substance satisfactory to Secured Party.
Until all obligations of Debtor hereunder are satisfied in full,
Debtor: (i) shall keep the Collateral free form any and all superior or
equal adverse claims, pledges, mortgages, liens, charges, security
interests and encumbrances, and (ii) shall not sell or grant to any
other party any ownership or other interest in any of the Collateral.
Integrated Agreement
5.09. This Agreement constitutes the entire Agreement between the parties
with respect to the Collateral.
Dated: March 29, 1996
SECURED PARTY: TERRITORIAL RESOURCES, INC.
BY:
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Brian A. Lingard
Chief Executive Officer
DEBTOR:
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6
