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U. S. Securities and Exchange Commission
Washington, D. C. 20549
FORM 10-QSB
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
[X] SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
[ ] EXCHANGE ACT
For the transition period from to
Commission File No. 0-9617
TERRITORIAL RESOURCES, INC.
(Exact name of small business issuer as specified in its charter)
COLORADO 84-0821158
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
450 NORTH SAM HOUSTON PARKWAY EAST, SUITE 140
HOUSTON, TEXAS 77060
(Address of principal executive offices)
281-931-0604
(ISSUER'S TELEPHONE NUMBER)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No
---- ----
As of November 5, 1996, the issuer had 28,227,354 shares of Common Stock
issued and outstanding.
Transitional Small Business Disclosure Format Yes No X
---- ----
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PART I. FINANCIAL INFORMATION
TERRITORIAL RESOURCES, INC.
Balance Sheets
Assets
($1,000)
Unaudited
September March
30, 1996 31, 1996
--------- ---------
CURRENT ASSETS:
Cash $ 6 $ 39
Accounts Receivable:
Oil and Gas Sales 7 10
Other - -
Prepaids 9 -
--------- ---------
Total Current Assets 22 49
--------- ---------
NOTE RECEIVABLE 10 10
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INVESTMENT IN SOCO TAMTSAG
MONGOLIA, INC. 2,443 1,744
PROPERTY AND EQUIPMENT, AT COST:
Oil and Gas (full cost accounting) 7,934 7,934
Less: Accumulated depreciation,
depletion & amortization (7,803) (7,792)
--------- ---------
Total Property & Equipment 131 142
--------- --------
TOTAL ASSETS $ 2,606 $ 1,945
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See notes to condensed financial statements.
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PART I. FINANCIAL INFORMATION - continued
TERRITORIAL RESOURCES, INC.
Balance Sheets
Liabilities and Stockholders' Equity
($1,000)
Unaudited
September 30, March 31,
1996 1996
------------- --------
CURRENT LIABILITIES:
Accounts payable $ 224 15
Accrued liabilities and other - 49
Due to affiliated party 55 -
------- --------
Total Current Liabilities 279 64
------- --------
Total Liabilities 279 64
------- --------
STOCKHOLDERS' EQUITY:
Common stock, no par value, $.001
stated value; 30,000,000 shares
authorized; 28,084,854 and 26,066,112
shares issued at September 30, 1996
and March 31, 1996, respectively 28 26
Additional paid-in capital 5,895 5,399
Accumulated deficit, $5,121 deficit
eliminated in quasi-reorganization
effective March 31, 1986 (3,579) (3,527)
Treasury stock, 5,456 shares, at cost (17) (17)
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TOTAL STOCKHOLDERS' EQUITY 2,327 1,881
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TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 2,606 $ 1,945
------- -------
See notes to condensed financial statements.
3
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PART I. FINANCIAL INFORMATION - continued
TERRITORIAL RESOURCES, INC.
Income Statements - Unaudited
September 30, 1996 and 1995
($1,000)
Three Months Ended September 30,
--------------------------------
1996 1995
--------------- ---------------
REVENUES:
Oil & Gas Sales $ 7 $ 5
Other Income 1 1
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Total Revenues 8 6
----------- -----------
COSTS AND EXPENSES:
Production Costs 0 0
Depreciation, Depletion
and Amortization 5 6
General and Administrative 48 11
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Total Costs & Expenses 53 17
----------- -----------
NET INCOME (LOSS) BEFORE INCOME TAXES (45) (11)
----------- -----------
Income Tax Provision - -
----------- -----------
NET INCOME (LOSS) $ (45) $ (11)
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NET INCOME (LOSS) PER SHARE (.002) (.001)
=========== ===========
Average Common Shares Outstanding 27,448,987 20,570,656
=========== ===========
See notes to condensed financial statements.
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PART I. FINANCIAL INFORMATION - continued
TERRITORIAL RESOURCES, INC.
Income Statements - Unaudited
September 30, 1996 and 1995
($1,000)
Six Months Ended September 30,
------------------------------
1996 1995
-------------- --------------
REVENUES:
Oil & Gas Sales $ 16 $ 13
Other Income 1 1
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Total Revenues 17 14
----------- -----------
COSTS AND EXPENSES:
Production Costs 1 1
Depreciation, Depletion
and Amortization 10 12
General and Administrative 58 24
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Total Costs & Expenses 69 37
----------- -----------
NET INCOME (LOSS) BEFORE INCOME TAXES (52) (23)
----------- -----------
Income Tax Provision - -
----------- -----------
NET INCOME (LOSS) $ (52) $ (23)
----------- -----------
NET INCOME (LOSS) PER SHARE (.002) (.001)
=========== ===========
Average Common Shares Outstanding 26,761,328 20,570,656
=========== ===========
See notes to condensed financial statements.
5
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PART I. FINANCIAL INFORMATION - continued
TERRITORIAL RESOURCES, INC.
Statements of Cash Flows - Unaudited
For the Three Months Ended September 30, 1996 and 1995
($1,000)
Three Months Ended September 30,
--------------------------------
1996 1995
--------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (45) $ (11)
Adjustments to reconcile net income to
cash provided (used) by operations:
Depreciation, depletion and amortization 5 6
Changes in operating assets
and liabilities:
Accounts receivable (1) 2
Prepaid Expenses (1) -
Accounts payable 218 (3)
Accrued liabilities (95) (1)
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Cash provided by (used in) operations 81 (7)
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CASH FLOW FROM INVESTMENT ACTIVITIES:
Additional Investment in
SOCO Tamtsag Mongolia, Inc. (465) (3)
Additions to property and equipment - -
Proceeds from sales of oil and gas property - 23
---------- ----------
Cash provided (used in) from
investment activities (465) 20
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CASH FLOW FROM FINANCING ACTIVITIES:
Note receivable advances - (10)
Advances from affiliate - -
Issuance of debt - -
Issuance of common stock 498 -
Advance from affiliated party 55 -
Conversion of amount due to
affiliated party to equity (250) -
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Cash provided by (used in)
financing activities 303 (10)
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Change in cash balance (81) 3
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Cash balance - beginning 87 47
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Cash balance - ending $ 6 $ 50
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See notes to condensed financial statements.
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PART I. FINANCIAL INFORMATION - continued
TERRITORIAL RESOURCES, INC.
Statements of Cash Flows - Unaudited
For the Six Months Ended September 30, 1996 and 1995
($1,000)
Six Months Ended September 30,
------------------------------
1996 1995
-------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (52) $ (23)
Adjustments to reconcile net income to
cash provided (used) by operations:
Depreciation, depletion and amortization 10 12
Changes in operating assets
and liabilities:
Accounts receivable 3 18
Prepaid Expenses (9) (3)
Accounts payable 209 (18)
Accrued liabilities (48) (3)
--------- ----------
Cash provided by (used in) operations 113 (17)
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CASH FLOW FROM INVESTMENT ACTIVITIES:
Additional Investment in
SOCO Tamtsag Mongolia, Inc. (699) (2)
Additions to property and equipment - -
Proceeds from sales of oil and gas property - 29
--------- ----------
Cash provided (used in) from
investment activities (699) 27
--------- ----------
CASH FLOW FROM FINANCING ACTIVITIES:
Note receivable advances - (10)
Advances from affiliate - -
Issuance of debt - -
Issuance of common stock 498 -
Advance from affiliated party 55 -
--------- ----------
Cash provided by (used in)
financing activities 553 (10)
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Change in cash balance (33) 0
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Cash balance - beginning 39 50
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Cash balance - ending $ 6 $ 50
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See notes to condensed financial statements.
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PART I. FINANCIAL INFORMATION - continued
TERRITORIAL RESOURCES, INC.
Notes to Condensed Financial Statements
September 30, 1996 (Unaudited)
(1) The information presented in this report on Form 10-QSB is condensed from
what would appear in annual financial statements. Accordingly, the
financial statements included herein should be read in conjunction with
the consolidated financial statements and notes thereto contained in the
Territorial Resources, Inc., March 31, 1996 Form 10-KSB. The financial
statements included herein include all adjustments that in the opinion of
management are necessary in order to make the financial statements not
misleading.
(2) The results for the interim period are not necessarily indicative of
results to be expected of the Company for the fiscal year ended March 31,
1997, due to seasonal or other factors. The Company believes that the
interim period reports filed on Form 10-Q are representative of its
financial position, changes in financial position and results of operations
for the periods covered thereby.
(3) There is no provision for income taxes for the six-month period ended
September 30, 1996.
(4) Subsequent Transactions. In October 1996, Territorial issued to certain
non-U.S. persons 112,500 shares (the "Series B Preferred Shares") of its
newly designated voting Preferred Stock, Series B, $0.10 par value each, a
majority of which were acquired by affiliates of the Company. Each Series
B Preferred Share is convertible, after March 31, 1997, following certain
events, into five shares of Common Stock. In early November 1996,
Territorial also issued, again to non-U.S. persons, an aggregate of 142,500
shares of Common Stock. The Company received an aggregate of approximately
(US) $206,300 in connection with the sale of such Common Stock and such
Series B Preferred Shares, and these proceeds were used to reduce the
outstanding amounts payable balance (see Item 2 - Management's Discussion
and Analysis or Plan of Operations).
Item 2. Management's Discussion and Analysis or Plan of Operation
During the second quarter ended September 30, 1996, the primary focus of
operations of Territorial Resources, Inc. ("Territorial" or the "Company")
continued to be its varying direct and indirect interests in certain oil and gas
related rights which it holds in the Tamtsag Basin of northeastern Mongolia. A
portion of those interests are owned indirectly by Territorial as a result of
its interests in SOCO Tamtsag Mongolia, Inc., a Delaware close corporation
("SOTAMO").
Results of Drilling Program. In mid-October 1996, Territorial announced
the results of the 1996 drilling program in the Tamtsag Basin. The SOTAMO 19-2
well, located in a contract area in which Territorial owns approximately a
13.22% interest, was drilled in late 1995 and suspended for the winter of 1995-
96, and is being completed as a low rate producing oil well. The well was
stimulated and swabbed during the summer of 1996 in efforts to clean out
drilling mud and lost circulation material. The well produced 41 degrees API oil
at various rates by swabbing from perforations between 8,865 feet and 8,944 feet
and will be placed on production by pump. Production rates are yet to be
determined. The oil pay zone was severely damaged due to lost circulation when
the well was drilled. A number of seismically-controlled structures have been
identified in close proximity to the 19-2 well. The Company intends to drill a
delineation well in early 1997.
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The SOTAMO 22-1 well, located in a contract area in which Territorial again
owns approximately a 13.23% interest, was drilled in the summer of 1996 to a
total depth of approximately 8,589 feet. No oil shows were encountered in the
Lower Cretaceous-Upper Jurassic interval penetrated; however, approximately
2,100 feet of reservoir quality sands with porosities as high as 28% were
encountered above basement.
The SOTAMO 21-1 well, located in a contract area in which Territorial owns
approximately an 11.24% interest, was also drilled in the summer of 1996 and
penetrated approximately 26 feet of oil saturated sand with approximately 18
percent porosity in the upper part of the Lower Cretaceous-Upper Jurassic
Tsagaantsav Formation. A drill-stem test of the interval between 6,272.6 feet
and 6,307.4 feet recovered 886 feet of medium gravity oil. The well has been
suspended until completion and production equipment can be installed. A number
of prospects and well locations have been identified offsetting 21-1 which are
expected to be drilled after the well is evaluated.
Administrative Expenses. During the quarter ended September 30, 1996, the
Company incurred additional administrative expenses primarily as a result of its
establishment of an office in Calgary, Alberta, Canada, and certain related
costs and expenses incurred in order to attract management and administrative
personnel at the Calgary office.
Transaction with Asia Energy Ltd. In mid-July 1996, Territorial issued to
Asia Energy Ltd. ("AEL") 1,918,750 shares of common stock, no par value ("Common
Stock"), of Territorial primarily in exchange for approximately $223,000 in
cash, five shares of SOTAMO, the elimination of a payable to AEL of $25,000, and
the cancellation of an option agreement pursuant to which AEL had been granted
the right to acquire certain shares of SOTAMO from Territorial. Territorial
also agreed to pay certain administration-related costs and expenses on behalf
of AEL in the future.
Subsequent Transactions. In October 1996, Territorial issued to certain
non-U.S. persons 112,500 shares (the "Series B Preferred Shares") of its newly
designated voting Preferred Stock, Series B, $0.10 par value each, a majority of
which were acquired by affiliates of the Company. Each Series B Preferred Share
is convertible, after March 31, 1997, following certain events, into five shares
of Common Stock. In early November 1996, Territorial also issued, again to non-
U.S. persons, an aggregate of 142,500 shares of Common Stock. The Company
received an aggregate of $206,300 in connection with the sale of such Common
Stock and such Series B Preferred Shares.
Other. Management does not anticipate revenues to be generated from the
Company's Mongolian operations in the short term. As a result, the Company will
seek additional, outside sources of working capital in order to fund its
operations and commitments, including its mandatory financial contributions
arising under an agreement among the shareholders of SOTAMO.
Management currently estimates that Territorial's minimum working capital
commitments through the end of the current fiscal year will require it to secure
additional funds of approximately $200,000. Such estimate is subject to change
based on a number of factors, including among other additional costs that may be
incurred in connection with its investment in SOTAMO. Such additional working
capital funds may be sought through the sale of direct or indirect interests in
Territorial's projects and assets or, when appropriate, the sale of Territorial
securities or borrowing (or a combination of one or more of the foregoing).
There can be no assurance, however, that such additional funds will be available
to the Company upon terms deemed acceptable to management. In the event such
funds are not secured, Territorial may be required to forfeit all or a portion
of its interests in SOTAMO.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
In September 1996, a summary judgment was entered in favor of TRI
Mongolia, Inc., a subsidiary of Territorial, and certain other parties in a
previously reported action styled, Leo T. Metcalf, III vs. Amgol, Inc., SOCO
International, Inc., Exploration Associates International, Inc., et al, Cause
No. 94-29503, in the 113th Judicial District Court of Harris County, Texas. It
is not clear at this time whether or not the plaintiff will appeal the summary
judgment.
Item 5. Other Information
Jimmy M. McCarroll, President of McCarroll Energy, Inc., an independent
oil and gas operator on the Texas Gulf Coast, was appointed an additional
director of Territorial in October 1996. Mr. McCarroll resides in Houston,
Texas.
Subsequent to September 30, 1996, Territorial issued an aggregate of
142,500 shares of its Common Stock and 112,500 of its newly designated Preferred
Stock, Series B. See "Subsequent Transactions" under Item 2 above.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
3.1 Amendment to the Articles of Incorporation of Territorial, dated
October 30, 1996.
27. Financial Data Schedule
(b) Report on Form 8-K
On August 1, 1996, a Report on Form 8-K reporting under item 5 thereof the
issuance to Asia Energy Ltd. of the 1,918,750 shares of Territorial common
stock on July 19, 1996, and the related transactions, was filed with the
Securities and Exchange Commission.
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
TERRITORIAL RESOURCES, INC.
Dated: November 13, 1996 By: /s/ Daniel A. Mercier
-----------------------
Daniel A. Mercier
Chairman of the Board and
Chief Executive Officer
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Exhibit 99.1 to Territorial Resources, Inc. Form 10QSB
for the Quarter ended 09/30/96
ARTICLES OF AMENDMENT
TO THE
ARTICLES OF INCORPORATION
OF
TERRITORIAL RESOURCES, INC.
(a) The name of the corporation (sometimes referred to hereinafter as
the "corporation") is TERRITORIAL RESOURCES, INC.
(b) An amendment (the "Amendment") to the Articles of Incorporation of
the corporation was adopted, the text of which Amendment is set forth on Exhibit
A, attached hereto and made a part hereof, and is to be added as an addition to
the end of Article IV of the Articles of Incorporation following the portion of
Article IV thereof entitled, "Remaining Preferred Stock".
(c) The date the Amendment was adopted was October 23, 1996.
(d) The Amendment was duly adopted by the Board of Directors of the
corporation.
Executed this 29th day of October, 1996.
TERRITORIAL RESOURCES, INC.
By:/s/William C. Penttila
----------------------
William C. Penttila,
As Its President
<PAGE>
EXHIBIT A
TO ARTICLES OF AMENDMENT
TO THE
ARTICLES OF INCORPORATION
OF
TERRITORIAL RESOURCES, INC.
Series B Preferred Stock
There is hereby created a series of Preferred Stock of the corporation
consisting of one hundred twelve thousand five hundred (112,500) shares and
designated as "Preferred Stock, Series B" (hereinafter referred to as the
"Series B Preferred Stock"). The Series B Preferred Stock shall have the
following designations, preferences, limitations, and relative rights:
1. Dividend Provisions. The holders of Series B Preferred Stock
shall be entitled to participate with holders of the Common Stock in any
dividends declared and paid with respect to the Common Stock on the basis that
the amount of such dividend paid in respect of each outstanding share of Series
B Preferred Stock will equal the amount of the dividend in respect of each share
of Common Stock times the Conversion Rate (as defined in Paragraph 3 below) as
of the record date for determining stockholders entitled to such dividend.
2. Liquidation Provisions. In the event of any liquidation,
dissolution or winding up of the corporation, whether voluntary or involuntary,
and after the full preferential liquidation amount has been paid to, or
determined and set apart for, all other series of Preferred Stock hereafter
authorized and issued, if any, the remaining assets of the corporation available
for distribution to stockholders shall be distributed ratably to the holders of
Common Stock and the holders of Series B Preferred Stock on the basis that the
amount of such distribution paid in respect of each outstanding share of Series
B Preferred Stock will equal the amount of the distribution in respect of each
share of Common Stock times the Conversion Rate (as defined in Paragraph 3
below) as of the record date for determining stockholders entitled to such
distribution. In the event the assets of the corporation available for
distribution to its stockholders are insufficient to pay the full preferential
liquidation amount per share required to be paid on the corporation's various
other series of Preferred Stock that may then be outstanding, the entire amount
of assets of the corporation available for distribution to stockholders shall be
paid up to their respective full liquidation amounts first to the such other
series of Preferred Stock with a liquidation preference, which amounts shall be
distributed ratably among holders of each such series of Preferred Stock, and
the holders of Common Stock and the Series B Preferred Stock shall receive
nothing. A reorganization or any other
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consolidation or merger of the corporation with or into any other corporation,
or any other sale of all or substantially all of the assets of the corporation,
shall not be deemed to be a liquidation, dissolution or winding up of the
corporation within the meaning of this Section, and the Series B Preferred Stock
shall be entitled only to (a) the right provided in any agreement or plan
governing the reorganization or other consolidation, merger or sale of assets
transactions, (b) the rights contained in the Colorado Business Corporation Act
and (c) the rights contained in other numbered Paragraphs of this "Series B
Preferred Stock" section.
3. Conversion Provisions. The Series B Preferred Stock shall be subject to
the following conversion provisions:
(a) Conversion.
(1) Subject to the terms and provisions of this Paragraph 3, each
share of Series B Preferred Stock shall be convertible and shall be
deemed to have been converted (the "Conversion"), without further
action, into five (5) shares of Common Stock (which number of shares of
Common Stock shall be subject to adjustment as provided in this
Paragraph 3) of the corporation immediately following the close of
business on the first day (the "Conversion Date") after March 31, 1997,
that the corporation shall have a sufficient number of authorized but
unissued shares of Common Stock so as to permit all shares of Series B
Preferred Stock then issued to be so converted. For purposes of the
preceding sentence, the number of shares of authorized but unissued
shares of Common Stock shall not include any shares of Common Stock that
are subject to issuance upon either (a) the exercise of any then
outstanding stock option, warrant or other right to acquire shares of
Common Stock or (b) the conversion or exchange of any debenture or other
security (other than the Series B Preferred Stock) convertible into or
exchangeable for shares of Common Stock. The ratio of the number of
shares of Common Stock into which each share of Series B Preferred Stock
shall be convertible is sometimes referred to herein as the "Conversion
Rate."
(2) Not later than thirty (30) days following the Conversion Date,
the corporation shall deliver to each Holder of shares of Series B
Preferred Stock a written notice (the "Conversion Notice") of such
conversion, identifying the shares of Series B Preferred Stock (and the
certificate number or numbers thereof) that have been so converted;
provided, however, that failure of the corporation to provide such
notice shall not affect the validity of the Conversion.
(3) No fractional shares of Series B Preferred Stock may be
converted. No fractional shares of Common Stock shall be issued upon
conversion of the Series B Preferred Stock. However, in lieu of the
corporation's causing or permitting the conversion into fractional
shares of Common Stock, it shall pay a cash adjustment in respect of
such fractional interest in an amount equal to such fractional interest
multiplied
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by the then Current Market Value (as defined in Paragraph 6
below) determined by the corporation as of the Conversion Date.
(4) The corporation shall pay in cash the cash payment, if any, due
as provided in clause (a)(3) above, which cash payment shall be due on
the date that the certificate or certificates representing the shares of
Common Stock to be issued in connection with such conversion are due to
be issued.
(5) The corporation shall have no responsibility to pay any taxes
with respect to the Series B Preferred Stock or the shares of Common
Stock into which the Series B Preferred Stock is to be converted.
(6) The Holder of each certificate representing shares of Series B
Preferred Stock, following the corporation's delivery of the Conversion
Notice to such Holder in accordance with the provisions of this
Paragraph 3, shall promptly return such certificate for cancellation to
the corporation at its principal place of business (currently located at
450 Sam Houston Parkway East, Suite 140, Houston, Texas 77060, U.S.A.,
Attention: Corporate Secretary). Whether or not returned, such
certificate or certificates shall be deemed canceled, and no longer
representing outstanding shares of Series B Preferred Stock, effective
as of the Conversion Date (other than with respect to the right to
receive accrued and unpaid dividends, if any, on the Series B Preferred
Stock up to and including the Conversion Date, the right to receive the
proper number of shares of Common Stock or other consideration upon the
conversion thereof, and all rights of a holder of Common Stock with
respect to such shares of Common Stock immediately after the conversion
of such shares of Series B Preferred Stock). Within thirty (30) days of
its receipt of such certificate for cancellation, the corporation shall
complete the issuance of the shares of Common Stock and deliver the same
to and in the name of the Holder thereof.
(b) Adjustments to the Conversion Rate.
(1) If the Common Stock issuable on conversion of the Series B
Preferred Stock shall be subdivided into a greater number or combined
into a lesser number of shares of Common Stock, the holders of Series B
Preferred Stock shall, upon its conversion, be entitled to receive, in
lieu of the Common Stock which the Holders would have become entitled to
received but for such change, a number of shares of Common Stock that
would have been subject to receipt if such shares of Series B Preferred
Stock had been converted immediately before that change.
(2) If the Common Stock issuable on conversion of the Series B
Preferred Stock shall be changed into the same or a different number of
shares of any other class or classes of stock, whether by capital
reorganization, reclassification, or otherwise
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(other than a subdivision or combination of shares provided for above),
the holders of Series B Preferred Stock shall, upon its conversion, be
entitled to receive, in lieu of the Common Stock which the Holders would
have become entitled to receive but for such change, a number of shares
of such other class or classes of stock that would have been subject to
receipt if such shares of Series B Preferred Stock had been converted
immediately before that change.
(3) If at any time there shall be a capital reorganization of the
corporation's Common Stock (other than a subdivision, combination,
reclassification or exchange of shares provided for elsewhere in this
subsection (b)) or merger of the corporation into another corporation,
or the sale of the corporation's properties and assets as, or
substantially as, an entirety to any other person, then, as a part of
such reorganization, merger or sale, lawful provision shall be made so
that the Holders of the Series B Preferred Stock shall thereafter be
entitled to receive upon conversion of the Series B Preferred Stock, the
number of shares of stock or other securities or property of the
corporation, or of the successor corporation resulting from such merger,
to which holders of the Common Stock deliverable upon conversion of the
Series B Preferred Stock would have been entitled on such capital
reorganization, merger or sale if the Series B Preferred Stock had been
converted immediately before that capital reorganization, merger or sale
to the end that the provisions of this paragraph (b)(3) (including
adjustment of the Conversion Rate then in effect and number of shares
purchasable upon conversion of the Series B Preferred Stock) shall be
applicable after that event as nearly equivalently as may be
practicable.
(4) Any adjustments made pursuant to this paragraph (b) shall become
effective at the close of business on the day upon which such capital
reorganization, reclassification, reorganization, merger, consolidation,
sale of assets or other event becomes effective.
(c) Certificate as to Adjustments. Upon the occurrence of each
adjustment or readjustment of the Conversion Rate for any shares of Series B
Preferred Stock, the corporation at its expense shall promptly compute such
adjustment or readjustment in accordance with the terms hereof and prepare and
furnish to each Holder affected thereby a certificate setting forth such
adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based. The corporation shall, upon the written
request at any time of any Holder, furnish or cause to be furnished to such
Holder a like certificate setting forth (i) such adjustment and readjustments,
(ii) the Conversion Rate at the time in effect and (iii) the number of shares of
Common Stock and the amount, if any, of other property which at the time would
be received upon the conversion of such Holder's shares of Series B Preferred
Stock.
(d) Notices of Record Date. In the event of the establishment by the
corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof
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who are entitled to receive any distribution, the corporation shall mail to each
Holder of Series B Preferred Stock at least twenty (20) days prior to the date
specified therein, a notice specifying the date on which any such record is to
be taken for the purposes of such distribution and the amount and character of
such distribution.
(e) Reservation of Stock Issuable Upon Conversion. At all times on and
after the Conversion Date, the corporation shall make available, reserve and
keep available out of its authorized but unissued shares of Common Stock solely
for the purpose of effecting the conversion of the shares of Series B Preferred
Stock such number of its shares of Common Stock as shall from time to time be
sufficient to effect the conversion of all then outstanding shares of the Series
B Preferred Stock; and if at any such time following the Conversion Date the
number of authorized but unissued shares of Common Stock shall not be sufficient
to effect the conversion of all then outstanding shares of Series B Preferred
Stock, the corporation will take such corporate action as may, in the opinion of
its counsel, be necessary to increase its authorized but unissued shares of
Common Stock to such number of shares as shall be sufficient for such purpose.
(f) Notices. Any notices required by the provisions of this Paragraph 3 to
be given to the Holders of shares of Series B Preferred Stock shall be deemed
given if deposited in the United States mail, postage prepaid, and addressed to
each Holder at such Holder's address appearing on the books of the corporation.
4. Voting Provisions. The holders of shares of Series B Preferred Stock
shall have the right, voting as a single class together with the holders of
Common Stock, to a number of votes equal to the Conversion Rate for each share
of Series B Preferred Stock held by them on each matter submitted to a vote of
the stockholders of the Corporation. Except to the extent otherwise expressly
provided or required by law, the Series B Preferred Stock shall not entitle the
holders thereof to any voting rights as a separate class, and the consent of the
Holders thereof as a class shall not be required for the taking of any corporate
action.
5. Retired Shares. Any shares of Series B Preferred Stock converted,
purchased or otherwise acquired by the corporation in any manner whatsoever
shall be retired and canceled promptly after the acquisition thereof, and, if
necessary, to provide for the lawful purchase of such shares, the capital
represented by such shares shall be reduced in accordance with the Colorado
Business Corporation Act. All such shares upon their cancellation shall become
authorized but unissued shares of Preferred Stock, $0.10 par value each, of the
corporation and may be reissued as part of another series of Preferred Stock,
$0.10 par value each, of the corporation.
6. Certain Definitions. For the purposes of this "Series B Preferred
Stock" section, the term "Current Market Value" per share of Common Stock shall
mean either (i) if shares of Common Stock are then traded over-the-counter in
the U.S., the value shall be deemed to be the
5
<PAGE>
average of the closing bid prices over the thirty (30) day period ending three
(3) days prior to the Conversion Date, (ii) if shares of Common Stock are then
traded on a U.S. national securities exchange or the NASDAQ's National Market
System, the value shall be deemed to be the average of the closing prices on
such exchange or National Market System over the thirty (30) day period ending
three days prior to the Conversion Date, or (iii) if no such trading as
described in clauses (i) and (ii) above then exists, then the Current Market
Value shall be determined in good faith by the corporation.
7. U.S. Currency. Unless expressly provided herein to the contrary, all
payments of cash referred to herein shall be paid in United States Dollars, and
all dollar (or $) amounts referred to herein refer to United States Dollars.
6
<PAGE>
ANNEX I
FORM OF CONVERSION NOTICE
[Please Type or Print]
Territorial Resources, Inc. Date:________________________
450 Sam Houston Parkway East, Suite 140
Houston, Texas 77060
USA
Attention: Corporate Secretary
Name: ______________________________________________________
Address: ______________________________________________________
______________________________________________________
______________________________________________________
Telephone: _________________ Telecopier: _________________
U.S. Taxpayer Identification No. or
Social Security No. (if applicable): ____________________________
The undersigned holder of the following shares of Series B Preferred Stock
of Territorial Resources, Inc., a Colorado corporation (the "corporation"),
hereby requests that such shares be converted into __________ shares of Common
Stock of the corporation in accordance with the terms of such Series B Preferred
Stock.
SHARES OF SERIES B PREFERRED STOCK TO BE CONVERTED
Number of Shares of Series B Convertible Preferred Stock to be
Converted:______________
Certificate Number (or Numbers):________________________________________________
Name and Address for Issuance of Shares of Common Stock (if different from
above):
_________________________________
_________________________________
_________________________________
_________________________________
Printed or Typed
Name of Holder: ________________________________ (Must be signed by
By (execute here): ________________________________ registered holder)
Title: ________________________________
(If signature is by a spouse, administrator, guardian, attorney-in-fact, officer
of a corporation or other officer or capacity, please specify such capacity.)
7
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial informatin extracted from Quarter Ended
September 30, 1996 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 6
<SECURITIES> 0
<RECEIVABLES> 7
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 22
<PP&E> 7,934
<DEPRECIATION> (7,803)
<TOTAL-ASSETS> 2,606
<CURRENT-LIABILITIES> 279
<BONDS> 0
0
0
<COMMON> 28
<OTHER-SE> 2,299
<TOTAL-LIABILITY-AND-EQUITY> 2,606
<SALES> 16
<TOTAL-REVENUES> 17
<CGS> 1
<TOTAL-COSTS> 1
<OTHER-EXPENSES> 68
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (52)
<INCOME-TAX> 0
<INCOME-CONTINUING> (52)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (52)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
