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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) March 29, 1996
TERRITORIAL RESOURCES, INC.
(Exact name of registrant as specified in its charter)
Delaware 0-9617 84-0821158
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
1300 Main Street, Suite 1840, Houston, Texas 77002
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (713) 658-0850
................................................................................
(Former name or former address, if changed since last report.)
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ITEM 1. CHANGES IN CONTROL OF REGISTRANT.
None.
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On March 29, 1996, Territorial Resources, Inc. (the "Registrant" or the
"Company"), acquired an additional 11% interest in SOCO Tamtsag Mongolia, Inc.
("STMI") which owns and is the operator of the Contract Area XIX concession in
the Tamtsag Basin of Mongolia. By this acquisition, the Company has increased
its ownership interest from 1% to 12% of the outstanding capital stock of STMI.
The STMI interest acquired by the Registrant on March 29, 1996, was made
through an acquisition of TRI Mongolia, Inc., a privately-held Texas corporation
("TRI"), which became a wholly-owned subsidiary of the Registrant. The Company
acquired the outstanding shares of capital stock of TRI from TRI's shareholders,
William C. Penttila, Dennis M. Buck, Michael C. Nemec and Thomas B. Patrick,
each a Texas resident (collectively, the "Shareholders"), in exchange for
5,450,000 shares (the "Newly Issued Shares") of the Registrant's common stock,
no par value. The Newly Issued Shares remain subject to a pledge and security
interest in favor of the Company to secure certain obligations of the
Shareholders primarily relating to among other things the representations,
warranties and covenants of the Shareholders set out in the agreement pursuant
to which the acquisition by the Company was made. Mr. Penttila, who was (and
remains) an officer and director of TRI, is also a director of the Registrant,
and received 1,589,583 of the Newly Issued Shares in connection with the
acquisition of TRI.
In order to maintain its interest in STMI, the Company must timely raise
and contribute its share of STMI's capital budget, which budget is currently
expected by the Company to be approximately $6.5 million for 1996, 12% of which
must be raised and contributed by the Company as a result of the acquisition
described above. The Company is currently considering alternative means of
securing sufficient funds to meet such requirement, which may be dependent upon,
among other factors, the results of the well testing described below, and there
can be no assurance that such funds will be made available upon terms acceptable
to the Company.
Effective March 1, 1996, the Company and Asia Energy Ltd., a corporation
organized under the laws of the Province of Alberta, Canada ("AEL), entered into
an Option Agreement (the "Option Agreement") permitting AEL to acquire from the
Company up to 29 shares of common stock of STMI (representing approximately a 3%
interest in STMI) at a cash purchase price of US $50,000 per share, for a total
consideration of up to US$1,450,000. In the event AEL exercises such option in
full, the Company's interest in STMI will decrease from 12% to approximately 9%
of the outstanding capital stock of STMI. The option is exercisable, at the
election of AEL, in whole or in part, at any time on or before May 31, 1996,
unless such date is extended by the mutual agreement of both the Company and
AEL. AEL currently owns approximately 20% of the outstanding common stock of
the Company making AEL its largest shareholder. In addition, AEL is an
affiliate of Daniel A. Mercier, who was elected a director of the Company
subsequent to the execution, delivery and approval of the Option Agreement by
the Company.
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As previously announced by the Company, a well drilled and logged in
November 1995 in Contract Area XIX in the Tamtsag Basin of Mongolia reflected
the existence of 55 feet of what appears to be productive oil sands, with an
additional 144 feet of possible oil and gas sands identified. Testing of this
well was expected to resume in April 1996, depending upon equipment and
personnel mobilization, weather and other conditions. The Registrant has been
informed that such mobilization has been completed.
There can be no assurance as to the timing of the completion of the well
testing or the results thereof. In the event the results of such testing are
inconclusive or unfavorable, the value of the Company's investment in STMI could
be significantly adversely affected. The Company also believes that its ability
to raise additional equity or debt financing may be dependent upon the results
of such testing, among other things.
ITEM 3. BANKRUPTCY OR RECEIVERSHIP.
None.
ITEM 4. CHANGES IN REGISTRANT'S CERTIFYING ACCOUNTANT.
None.
ITEM 5. OTHER EVENTS.
None.
ITEM 6. RESIGNATIONS OF REGISTRANT'S DIRECTORS.
None.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial statements of business acquired
Any financial statements, if required to be filed by Item 7(a) of
Form 8-K, are not being filed herewith inasmuch as it is
impracticable to file the same at the time this Form 8-K is
filed. The Registrant contemplates that such financial
information, if any is required, will be available in a
reasonable amount of time following the filing of this Form 8-K,
and will endeavor to file such information promptly (and in no
event later than 60 days after this Form 8-K is required to be
filed) upon its availability.
(b) Pro forma financial information
Any pro forma financial information, if required to be filed by
Item 7(b) of Form 8-K, is not being filed herewith inasmuch as it
is impracticable to file the same at the time this Form 8-K is
filed. The Registrant
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contemplates that such financial information, if any is required,
will be available in a reasonable amount of time following the
filing of this Form 8-K, and will endeavor to file such
information promptly (and in no event later than 60 days after
this Form 8-K is required to be filed) upon its availability.
(c) Exhibits
Number Description
2.0 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 the
Registrant
10.1 Option Agreement, dated March 1, 1996, by and between
Asia Energy Ltd. and the Registrant
ITEM 8. CHANGE IN FISCAL YEAR.
None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunder duly authorized.
TERRITORIAL RESOURCES, INC.
Date: April 12, 1996 /s/Brian A. Lingard
---------------------------------------------
Brian A. Lingard
President
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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
---------
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
------
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
10
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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
11
<PAGE>
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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<PAGE>
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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<PAGE>
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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<PAGE>
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
16
<PAGE>
OPTION AGREEMENT
MEMORANDUM OF AGREEMENT made the 1st day of March, 1996,
BETWEEN:
TERRITORIAL RESOURCES, INC. a corporation duly incorporated under and
governed by the laws of the State of Colorado and having its head
office in the City of Houston, in the State of Texas (hereinafter
referred to as "Territorial")
OF THE FIRST PART,
- and -
ASIA ENERGY LTD. a corporation duly incorporated under and governed
by the laws of the Province of Alberta and having its head office in
the City of Calgary, in the Province of Alberta (hereinafter referred
to as "Asia Energy")
OF THE SECOND PART.
WHEREAS Territorial has, approved and authorized the granting to Asia
Energy of an irrevocable option, exercisable by Asia Energy at any time prior to
May 31, 1996, to purchase up to 29 shares in the capital of SOCO Tamtsag
Mongolia, lnc. held in the name of Territorial for cash consideration of
US$50,000 per share.
NOW THEREFORE THIS AGREEMENT WITNESSETH THAT for and in consideration of
the mutual covenants and agreements herein contained, it is agreed by and
between the parties hereto as follows:
ARTICLE I
INTERPRETATION
1.1 Where used herein or in any amendments hereto, the following terms shall
have the following meanings respectively:
"agreement", "this agreement", "hereto", "herein", "hereby", hereunder",
"hereof" and similar expressions refer to this agreement and not any particular
Article, Section, subsection, clause, subdivision or other portion hereof and
include any and every amending agreement and agreement supplemental or ancillary
hereto;
"Business Day" means any day excepting a Saturday, Sunday or statutory holiday
in the Province of Alberta;
"Exercise Price" shall have the meaning attributed thereto in Section 2.1;
"Expiry Date" shall have the meaning attributed thereto in Section 2.3;
"Option" shall have the meaning attributed thereto in Section 2.1;
"SOTAMO" means SOCO Tamtsag Mongolia, Inc., a corporation registered in and
governed by the laws of the State of Delaware; and
"SOTAMO Shares" shall have the meaning attributed thereto in Section 2.1.
<PAGE>
2
1.2 Words importing the singular number only shall include the plural, and
vice-versa, words importing the masculine gender shall include the feminine
gender and neuter gender and vice-versa, and words importing persons shall
include a natural person, firm, trust, partnership, association, corporation,
joint venture or government (including any governmental board, agency or
instrumentality thereof).
1.3 The division of this agreement into Articles and Sections and the insertion
of recitals and Article headings are for convenience of reference only and shall
not affect the interpretation or construction of this agreement. Unless
something in the subject matter or context is inconsistent therewith, references
herein to Articles and Sections are to Articles and Sections of and to this
agreement.
1.4 Unless otherwise specified in this agreement, when calculating the period
of time within which or following which any act is to be done or step taken
pursuant to this agreement, the date which is the reference day in calculating
such period shall be excluded and the day upon which such act is to be done or
step taken shall be included. If the last day of such period is not a Business
Day, the period in question shall end on the next Business Day.
1.5 In the event that any date on which any action is required to be taken
hereunder by any of the parties hereto is not a Business Day, such action shall
be required to be taken on the next succeeding day which is a Business Day.
1.6 This agreement shall be construed and enforced in accordance with and the
rights of the parties hereto shall be governed by the laws of the Province of
Alberta and the laws of Canada applicable therein and the parties do hereby
irrevocably attorn to the jurisdiction of the Courts of the Province of Alberta.
ARTICLE II
OPTION
2.1 Subject to the terms and conditions hereof, Territorial hereby grants to
Asia Energy the sole and exclusive option (the "Option") to purchase a minimum
of 10 and a maximum of 29 shares in the capital of SOTAMO registered in the name
of Territorial (the "SOTAMO Shares") for cash consideration of $50,000 per share
in lawful money of the United States (the "Exercise Price") payable, subject as
hereinafter provided, to Territorial.
2.2 The consideration payable by Asia Energy for the Option shall be $20,000 in
lawful money of the United States payable on or before March 31, 1996. The
consideration payable for the Option shall be applied toward the consideration
payable for the SOTAMO Shares.
2.3 The Option shall be irrevocable and may be exercised at any time prior to
4:30 o'clock in the afternoon (Calgary time) on May 31, 1996 (the "Expiry Date")
by Asia Energy giving written notice to Territorial in accordance with Section
6.1 stating the number of shares of SOTAMO which Asia Energy is acquiring
pursuant to the Option.
2.4 The Option is expressly subject to, and conditional upon, the completion of
the acquisition by Territorial of 109 shares of SOTAMO held by Exploration
Associates, L.L.C.
2.5 The Option shall expire at 4:30 o'clock in the afternoon (Calgary time) on
the Expiry Date and terminate and be of no further force and effect whatsoever,
provided, however that such Expiry Date may be extended by mutual consent of the
parties to this agreement.
<PAGE>
3
ARTICLE III
REPRESENTATIONS AND WARRANTIES
Territorial represents and warrants as follows to Asia Energy and
acknowledges and confirms that Asia Energy is relying on such representations
and warranties in connection with the grant of the Option and the purchase by
Asia Energy of the SOTAMO Shares upon exercise of the Option:
3.1 Territorial has the corporate power and capacity to enter into and has
taken all necessary corporate action to authorize the execution, delivery and
performance of this agreement and the transactions contemplated herein. This
agreement, when duly executed and delivered by Territorial, will be a valid and
binding obligation of Territorial enforceable against it in accordance with its
terms, subject only to the effect of any applicable bankruptcy and other laws of
general application affecting the enforcement of creditors' rights and the
effect of general principles of equity. Not withstanding the foregoing, the
grant of the Option is conditional upon the approval of the directors of
Territorial, such approval to be obtained prior to March 22, 1996.
3.2 Territorial, as of closing shall own beneficially and of record the SOTAMO
Shares and, except as previously disclosed, the SOTAMO Shares shall, to the best
knowledge and belief of Territorial, be free and clear of all mortgages, liens,
charges, security interests, adverse claims, pledges, encumbrances and demands.
Asia Energy hereby acknowledges the disclosure by Territorial of:
a) A litigation in which Exploration Associates, L.L.C. is involved as a
defendant and the possible impact of this litigation on this
agreement; and
b) The various agreements among the shareholders of SOTAMO which provide
for, among other things, financial support of SOTAMO by its
shareholders.
3.3 Except for this agreement, no person, firm or corporation has any written
or oral agreement, option, understanding or commitment, or any right or
privilege (whether by law, pre-emptive or contractual) capable of becoming an
agreement or option for the purchase of any of the SOTAMO Shares.
3.4 No authorization, consent or approval from, or filing, registration,
declaration or qualification with, or before, or giving notice to, any person is
required to be obtained, given or made for the execution and delivery by
Territorial of this agreement the performance of the terms hereof or the
consummation of the transactions contemplated hereby except for those which have
been duly and unconditionally obtained and are in full force and effect.
3.5 Territorial is granting the Option and selling the SOTAMO Shares owned by
it pursuant to exemptions from prospectus and securities registration
requirements available under applicable securities legislation and shall deliver
to Asia Energy such further particulars of the exemptions and Territorial's
qualification thereunder as Asia Energy may reasonably request.
3.6 The entering into of this agreement by Territorial and the transactions
contemplated hereby will not result in the violation of any of the terms and
provisions of the constating documents or by-laws of Territorial or of any
indenture or other agreement, written or oral, to which Territorial may be a
party or by which it is bound or of any law or regulation applicable to
Territorial.
3.7 Territorial has disclosed to Asia Energy all material information known to
it respecting SOTAMO and the valuation of the SOTAMO Shares.
<PAGE>
4
ARTICLE IV
CLOSING
4.1 The Closing of the sale of the SOTAMO Shares shall take place on or before
the 5th business day following the Expiry Date. The closing shall take place at
10:00 o'clock in the morning at the offices of Territorial or as may be
otherwise agreed by Territorial and Asia Energy.
4.2 In the event of and upon exercise of the Option, Territorial shall prepare
and execute all documents and take all such steps and proceedings as are
reasonably necessary to enable Territorial to vest a good and marketable title
in Asia Energy to the SOTAMO Shares, free and clear of all mortgages, liens,
charges, security interests, adverse claims, pledges, encumbrances and demands
whatsoever.
4.3 At closing:
(a) Asia Energy shall pay the Exercise Price to Territorial or as
Territorial may direct by way of certified cheque or bank draft;
(b) Territorial shall deliver the share certificates for the SOTAMO
Shares to Asia Energy duly endorsed in blank for transfer, together
with other conveyancing documentation in connection with the sale of
the SOTAMO Shares by Territorial as Asia Energy may reasonably
require; and
(c) Territorial shall deliver to Asia Energy its certificate under its
corporate seal duly executed by its President that the representations
and warranties of Territorial contained in this date with the same
force and effect as if such covenants, representations and warranties
were made at and as of such time.
ARTICLE V
SURVIVAL OF REPRESENTATIONS AND WARRANTIES
5.1 The representations and warranties of Territorial contained in this
agreement and contained in any document or certificate given pursuant hereto
shall survive the exercise of the Option herein provided for and,
notwithstanding such exercise or any investigation made by or on behalf of Asia
Energy, shall continue in full force and effect for the benefit of Asia Energy.
ARTICLE VI
GENERAL
6.1 Any notice or other instrument required or permitted to be given hereunder
shall be in writing and may be given by mailing (postage prepaid) or delivering
the same addressed:
(a) to Territorial at:
Territorial Resources, Inc.
1300 Main, Ste. 1840
Houston, Texas 77002
Attention: Mr. Brian A. Lingard
Telephone: (713) 658-0850
Facsimile: (713) 658-0539
<PAGE>
5
(b) Asia Energy at:
Asia Energy Ltd.
C/o Chancellor Energy Resources Inc.
950 333 5 Avenue SW
Calgary, Alberta
T2P 3B6
Attention: Mr. Daniel A. Mercier
Telephone: (403) 233-8426
Facsimile: (403) 265-6032
Any notice, direction or other instrument aforesaid if delivered shall be
deemed to have been given or made on the date on which it was delivered or if
mailed shall be deemed to have been given or made on the fifth Business Day
following the date on which its was mailed.
Territorial or Asia Energy may change their address for service from time
to time by notice given in accordance with the foregoing.
6.2 Time shall be of the essence of this agreement.
6.3 This agreement may be executed in one or more counterparts, each of which
when so executed shall constitute an original and both of which together shall
constitute one and the same agreement.
6.4 This agreement constitutes the entire agreement between the parties hereto.
This agreement may not be amended or modified in any respect except by written
instrument signed by the parties hereto.
6.5 This agreement shall enure to the benefit of and be binding upon the
parties hereto, the heirs, executors, administrators and assigns of Asia Energy
and the successors and assigns of Territorial, but shall not be assignable by
either of the parties hereto without the written consent of the other party
hereto. Notwithstanding the foregoing, the rights of Asia Energy hereunder and
the benefit of this agreement are assignable to any corporation which is an
associate (as such term is defined in the SECURITIES ACT (Alberta)) of Asia
Energy provided that upon such assignment such corporation shall be novated into
this Agreement and all its provisions shall enure to the benefit of and be
obligatory upon such corporation and Asia Energy shall, to the extent of such
assignment, be released and discharged from all obligations and liabilities
hereunder. Asia Energy shall deliver to Territorial such documents as it may
reasonably require to substantiate such assignee's status as an associate of
Asia Energy.
6.6 In the event of the exercise of the Option by Asia Energy, Territorial will
from time to time on and after the closing date referred to in section 4.1
execute and deliver at its cost all such other and additional instruments,
notices and other documents and shall do such other acts and things as may be
reasonably requested by Asia Energy to fully effect the transfer of the SOTAMO
Shares to Asia Energy and otherwise to assure the carrying out of the intent and
purpose of this agreement.
6.7 It is understood and agreed that in executing this agreement, Asia Energy
assumes no responsibility, obligation or liability to exercise the Option or
purchase the SOTAMO Shares and in the event Asia Energy shall fail to give the
notice referred to in section 2.3, this agreement shall at the Expiry Date be
and become absolutely null, void and of no effect and the parties hereto shall
be released from all obligations contracted hereunder to the same extent at if
this agreement had not been executed. In the event that the Option is not
exercised by Asia Energy, the consideration paid by Asia Energy for the Option
shall be retained by Territorial with no obligation to refund or repay the funds
to Asia Energy.
<PAGE>
6
6.8 The grant of the Option by Territorial is conditional upon the approval of
the shareholders of SOTAMO, such approval to be obtained prior to March 22,
1996.
6.9 Upon closing, Asia Energy shall assume its proportionate share of
obligations as a shareholder of SOTAMO effective January 1, 1996.
7.0 In the event of a failure to close the contemplated acquisition of the
SOTAMO shares resulting from a failure on the part of Territorial or SOTAMO,
including but not limited to a failure to obtain the approvals specified under
Section 3.1 or 6.8, or a failure arising from the litigation referred to in
Section 3.2 a) hereof, all of the consideration paid for the Option shall
immediately be refunded to Asia Energy.
IN WITNESS WHEREOF this agreement has been executed by the parties hereto
as of the date and year first above written.
TERRITORIAL RESOURCES, INC.
Per:____________________________
ASIA ENERGY LTD.
Per:____________________________
