<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[X] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[_] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
TERRITORIAL RESOURCES, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
-------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
-------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-------------------------------------------------------------------------
(5) Total fee paid:
-------------------------------------------------------------------------
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
-------------------------------------------------------------------------
(3) Filing Party:
-------------------------------------------------------------------------
(4) Date Filed:
-------------------------------------------------------------------------
Notes:
<PAGE>
PRELIMINARY PROXY MATERIALS
TERRITORIAL RESOURCES, INC.
April 4, 1997
Dear Shareholder:
You are cordially invited to attend the Annual Meeting of Shareholders (the
"Meeting") of Territorial Resources, Inc., a Colorado corporation
("Territorial" or the "Company"), which will be held at The Metropolitan
Centre, 333 Fourth Avenue S.W., Calgary, Alberta, Canada on Wednesday, April
30, 1997, at 10:00 A.M., Calgary time.
At the Meeting, Shareholders will be asked to approve certain actions to
reclassify the shares of Common Stock of the Company by (a) approving of an
amendment to the Articles of Incorporation (the "Articles of Incorporation")
of the Company increasing to 200,000,000 the number of shares of Common Stock
the Company is authorized to issue at the Board of Directors' discretion and
(b) approving of an amendment to the Articles of Incorporation effecting a
one-for-three reverse stock split of the outstanding shares of Common Stock of
the Company (the "Reverse Stock Split"). Shareholders will also be asked to
elect seven directors, to ratify the appointment of Price Waterhouse, Calgary,
Alberta, Canada, as the Company's independent auditors and to consider such
other matters as may properly come before the Meeting or at any adjournment(s)
thereof. These matters are also discussed in greater detail in the
accompanying Proxy Statement.
Your Board of Directors recommends a vote FOR the amendment to the Articles
of Incorporation increasing to 200,000,000 the number of authorized shares of
Common Stock, FOR the amendment to the Articles of Incorporation effecting the
Reverse Stock Split, FOR the election of directors and FOR the ratification of
Price Waterhouse as the Company's independent auditors.
Regardless of the number of shares you own or whether you plan to attend, it
is important that your shares be represented and voted at the Meeting. You are
requested to sign, date and mail the enclosed proxy promptly.
We wish to thank you, our Shareholders, for your participation and support.
Sincerely,
Daniel A. Mercier
Chairman of the Board
and Chief Executive Officer
<PAGE>
PRELIMINARY PROXY MATERIALS
TERRITORIAL RESOURCES, INC.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD APRIL 30, 1997
----------------
TO THE SHAREHOLDERS OF TERRITORIAL RESOURCES, INC.
Notice is hereby given that the Annual Meeting of Shareholders of
Territorial Resources, Inc., a Colorado corporation ("Territorial" or the
"Company"), will be held at The Metropolitan Centre, 333 Fourth Avenue S.W.,
Calgary, Alberta, Canada on Wednesday, April 30, 1997, at 10:00 A.M., Calgary
time, for the following purposes:
(1) To approve and adopt an amendment to the Company's Articles of
Incorporation, as amended (the "Articles of Incorporation"), that would
effect an increase in the number of authorized shares of Common Stock from
30,000,000 to 200,000,000 shares, without having any effect upon the issued
and outstanding shares of Common Stock;
(2) To approve and adopt an amendment to the Articles of Incorporation
effecting a one-for-three reverse stock split (the "Reverse Stock Split")
of the Company's outstanding Common Stock;
(3) To elect seven directors to serve on the Board of Directors of the
Company, to serve until the next succeeding annual meeting of Shareholders
and until their successors shall have been elected and qualified;
(4) To ratify the appointment of Price Waterhouse, Calgary, Alberta,
Canada, as independent auditors for the Company; and
(5) Any and all other business that may come before the Meeting or any
adjournments thereof.
The Board of Directors has fixed the close of business on April 2, 1997, as
the record date for the determination of Shareholders entitled to notice of,
and to vote at, the Meeting. Accordingly, any Shareholder of record at the
close of business on that date is entitled to vote at the Meeting or at any
adjournment or adjournments thereof.
Enclosed is a Proxy Statement, a form of proxy and an addressed return
envelope. All Shareholders, whether or not they expect to be present at the
Meeting, are requested to date and sign the proxy, and return it in the
enclosed envelope promptly. The return of the proxy will not affect your right
to vote if you attend the Meeting.
By Order of the Board of Directors,
Daniel A. Mercier
Chairman of the Board and
Chief Executive Officer
Calgary, Alberta
Canada
April 4, 1997
IMPORTANT
IT IS IMPORTANT THAT YOUR STOCK BE REPRESENTED AT THE MEETING REGARDLESS OF
THE NUMBER OF SHARES YOU HOLD. PLEASE COMPLETE, SIGN AND MAIL THE ENCLOSED
PROXY IN THE ACCOMPANYING ENVELOPE PROMPTLY, WHETHER OR NOT YOU INTEND TO BE
PRESENT AT THE MEETING. THIS PROXY IS REVOCABLE AT ANY TIME PRIOR TO ITS USE.
<PAGE>
PRELIMINARY PROXY MATERIALS
TERRITORIAL RESOURCES, INC.
450 SAM HOUSTON PARKWAY EAST, #140
HOUSTON, TEXAS 77060
----------------
PROXY STATEMENT
FOR THE ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON APRIL 30, 1997
----------------
SOLICITATION OF PROXIES
This Proxy Statement and the accompanying proxy card are furnished in
connection with the solicitation of proxies by the Board of Directors of
Territorial Resources, Inc., a Colorado corporation ("Territorial" or the
"Company"), to be voted at the Annual Meeting of Shareholders of the Company
on April 30, 1997, and at any adjournment or adjournments of the meeting (the
"Meeting") for the purposes described in the accompanying Notice. Proxies that
are validly executed by Shareholders and that are received by the Company no
later than the business day preceding the Meeting will be voted in accordance
with the instructions contained thereon. Unless contrary instructions are
given, a proxy will be voted FOR the amendment to the Company's Articles of
Incorporation, as amended (the "Articles of Incorporation"), to increase the
number of authorized shares of Common Stock, FOR the amendment to the Articles
of Incorporation effecting a one-for-three reverse stock split (the "Reverse
Stock Split") of the Company's outstanding Common Stock, FOR the election of
directors, FOR the ratification of Price Waterhouse as the Company's
independent auditors and in the discretion of the persons named in the proxy,
if granted, on all other matters presented to the Meeting.
The execution of a proxy will not affect a Shareholder's right to attend the
Meeting or vote in person. A Shareholder who has given a proxy may revoke it
at any time before it is exercised at the Meeting by filing with the Secretary
of the Company a written notice of revocation or a proxy bearing a later date
or by attendance at the Meeting and voting in person. Attendance at the
Meeting will not, by itself, revoke a proxy.
The securities entitled to vote at the Meeting consist of shares of common
stock, no par value ("Common Stock"), of the Company. The number of
outstanding shares of Common Stock at the close of business on April 2, 1997,
was 28,824,854. Each share of Common Stock is entitled to one vote and
nominees receiving a plurality of the votes cast will be elected as directors.
Only holders of record at the close of business on April 2, 1997, will be
entitled to vote at the Meeting.
A majority of the shares entitled to vote, represented in person or by
proxy, constitutes a quorum at the Meeting. Assuming a quorum is present, (i)
the affirmative vote of the holders of a majority of the shares of Common
Stock outstanding will be required to approve the amendment to the Company's
Articles of Incorporation in which the number of authorized shares of Common
Stock is increased from 30,000,000 to 200,000,000, and the amendment to the
Company's Articles of Incorporation to effect the Reverse Stock Split; (ii)
the seven (7) persons having the highest number of votes cast at the Meeting
by the holders of the shares of Common Stock in favor of their election will
be elected to the Board of Directors; and (iii) the votes cast at the Meeting
by the holders of the shares of Common Stock approving the ratification of
Price Waterhouse must exceed the votes cast at the Meeting by holders of such
shares in opposition thereto in order to authorize such ratification.
Abstentions and broker "non-votes" will be counted for the purpose of
determining a quorum for the transaction of business; however, abstentions
will have the effect of a negative vote on the proposals regarding the
amendments to the Articles of Incorporation to increase the number of
authorized shares of Common Stock and to effect the Reverse Stock Split.
Abstentions may be specified on all proposals. A broker "non-vote" will have
no effect on the outcome of any of the proposals.
<PAGE>
A copy of the Company's Annual Report on Form 10-KSB for the fiscal year
ended March 31, 1996, and its Quarterly Report on Form 10-QSB for the
quarterly period ended December 31, 1996, accompany this Proxy Statement. No
material contained in either such report is to be considered a part of the
proxy solicitation material. The mailing address of the Company's executive
office is 450 Sam Houston Parkway East, # 140, Houston, Texas 77060. The
approximate date on which this Proxy Statement and the form of proxy were
first mailed or given to Shareholders was April 4, 1997.
PROPOSAL ONE--PROPOSED AMENDMENT TO THE ARTICLES OF INCORPORATION TO INCREASE
THE AUTHORIZED SHARES OF COMMON STOCK FROM 30,000,000 TO 200,000,000
At the Meeting, Shareholders will vote on a proposal to amend the Company's
Articles of Incorporation to increase the number of shares of Common Stock the
Company is authorized to issue. On March 6, 1997, the Board of Directors of
the Company adopted a resolution recommending to the Shareholders of the
Company an amendment to the Company's Articles of Incorporation that would
increase the number of shares of Common Stock the Company is authorized to
issue from 30,000,000 to 200,000,000. The proposed amendment (the "Proposal
One Amendment") amends Article IV of the Company's Articles of Incorporation
as provided in Exhibit A to this Proxy Statement.
The Articles of Incorporation of the Company currently authorize the
issuance of up to 30,000,000 shares of Common Stock, no par value. At April 2,
1997, there were 28,824,854 shares of Common Stock issued and outstanding. As
a result, as of April 2, 1997, only approximately 1,175,146 shares of Common
Stock remain authorized and available for issuance. The Proposal One Amendment
will not affect the number of shares of Common Stock issued and outstanding,
but will affect the total number of shares of Common Stock authorized for
issuance by the Company.
The Company has outstanding options that are exercisable or exchangeable for
shares of Common Stock that, in the event all such securities were so
exercised or exchanged, could require the issuance of approximately 1,000,000
shares of Common Stock.
PURPOSES AND EFFECTS OF THE PROPOSAL ONE AMENDMENT
The Board of Directors believes that in order to meet the Company's
continued capital needs, it is likely that offerings of Common Stock or other
securities convertible into or exchangeable for Common Stock will be
desirable. Further, the Company intends to make acquisitions in the future
that may involve the issuance of Common Stock of the Company. While the
Company has not made definitive arrangements to engage in an offering or
acquisition of this type, it is likely that the Company will seek to raise
capital by offering and selling securities during 1997 and thereafter.
Territorial entered into a letter agreement in March 1997 with McDermid St.
Lawrence Securities Ltd., Calgary, Alberta, Canada ("McDermid"), pursuant to
which McDermid will act as the exclusive agent in connection with the proposed
offer and sale by the Company of up to 1,500,000 units, each unit consisting
of one share of New Common Stock, as defined herein (which assumes that the
Reverse Stock Split as described below will have been consummated prior to the
proposed offering), and a warrant to purchase one additional share of New
Common Stock. The Company intends to conduct the offering during 1997
exclusively to non-U.S. persons, as defined in Regulation S, promulgated by
the Securities and Exchange Commission under the Securities Act of 1933, as
amended to date. If consummated, the Company currently intends to use the net
proceeds of such proposed offering for additional working capital.
Increasing the authorized number of shares of Common Stock the Company may
issue will provide the Company with the ability and flexibility to take prompt
advantage of market conditions and avoid the expense and delay, and possible
loss of opportunity, that could result if a need for additional authorized
Common Stock arose but a special meeting of Shareholders had to be held prior
to the issuance of the stock. The Board of
2
<PAGE>
Directors also believes that adoption of this Proposal will increase
acceptance of the Company's Common Stock by the financial community and the
investing public and, accordingly, should enhance Shareholder value, although
there can be no assurance that such effects will occur. The Board of Directors
further believes that if the Proposal One Amendment to the Company's Articles
of Incorporation is not approved by the Shareholders, the Company's ability to
raise capital will be unduly restricted.
Shareholders should note that certain disadvantages may result from the
adoption of this Proposal One. In such event, the number of authorized shares
of Common Stock would be increased. The Company would therefore have the
authority to issue a greater number of shares of Common Stock without the need
to obtain Shareholder approval to authorize additional shares. Any such
additional issuance may have the effect of significantly reducing the interest
of the existing Shareholders of the Company with respect to earnings per
share, voting, liquidation value and book and market value per share. Such
effects could be made even greater as a result of the approval of Proposal Two
pursuant to which the outstanding shares of Common Stock would be subject to a
Reverse Stock Split, thereby making available for issuance additional shares
of Common Stock without further Shareholder approval. See "Proposal Two,"
below.
VOTE REQUIRED
The affirmative vote of the holders of a majority of the shares of Common
Stock outstanding will be required to approve the Proposal One Amendment. As a
result, failure to vote has the same effect as a negative vote. Accordingly,
if Shareholders are in favor of Proposal One and do not vote their shares,
either in person or by proxy, such Shareholders will have effectively voted
against the proposal.
If approved, Proposal One will become effective upon the filing of Articles
of Amendment to the Articles of Incorporation of the Company by the Secretary
of State of Colorado, which is expected to follow shortly after the approval,
if at all, of Proposal One. A copy of the Proposal One Amendment is set forth
on Exhibit A, attached to this Proxy Statement and incorporated herein by
reference; provided, however, that the text of the Proposal One Amendment is
subject to change as may be required by the Colorado Secretary of State, and
the Board may make any and all changes to the Certificate of Amendment to the
Articles of Incorporation relating to the Proposal One Amendment that it deems
necessary to file the document with the Colorado Secretary of State, and give
effect to the Proposal One Amendment described in Proposal One.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF AN AMENDMENT TO
THE ARTICLES OF INCORPORATION TO INCREASE THE AUTHORIZED SHARES OF COMMON
STOCK FROM 30,000,000 SHARES TO 200,000,000 SHARES.
PROPOSAL TWO--PROPOSED AMENDMENT TO THE ARTICLES OF INCORPORATION TO EFFECT A
ONE-FOR-THREE REVERSE STOCK SPLIT
At the Meeting, Shareholders will also vote on a proposal to amend the
Articles of Incorporation to effect a one-for-three reverse stock split (the
"Reverse Stock Split"). If the Reverse Stock Split is approved by the
Shareholders at the Meeting, the Reverse Stock Split will be effected only
upon a determination by the Board of Directors that the Reverse Stock Split is
in the best interests of the Company and the Shareholders. In such event, the
Reverse Stock Split would become effective upon the date (the "Effective
Date") of the filing of an amendment to the Articles of Incorporation
effecting the Reverse Stock Split, which amendment is set forth on Exhibit B
hereto.
The Board of Directors has authorized, subject to Shareholder approval, a
one-for-three Reverse Stock Split of the Company's outstanding Common Stock.
The Board selected a one-for-three Reverse Stock Split based on its
determination that such a Reverse Stock Split would result in greater
marketability and liquidity of the Common Stock, based upon prevailing and
anticipated market conditions and other relevant factors.
3
<PAGE>
Any Shareholder entitled to a fraction of a share of Common Stock as a
result of the Reverse Stock Split will, in lieu thereof, receive one whole
share.
PURPOSES AND EFFECTS OF THE REVERSE STOCK SPLIT
The intent of the Reverse Stock Split is to increase the marketability and
liquidity of the Common Stock. The Reverse Stock Split could enhance the
acceptability of the Common Stock by the financial community and the investing
public.
The Board believes that the current per-share price of the Common Stock has
limited the effective marketability of the Common Stock because of the
reluctance of many brokerage firms and institutional investors to recommend
lower-priced stocks to their clients or to hold them in their own portfolios,
among other reasons. Certain policies and practices of the securities industry
may tend to discourage individual brokers within those firms from dealing in
lower-priced stocks. Some of those policies and practices involve time-
consuming procedures that make the handling of lower-priced stocks
economically unattractive. The brokerage commission on a sale of lower-priced
stock may also represent a higher percentage of the sale price than the
brokerage commission on a higher-priced issue. Any reduction in brokerage
commissions resulting from the Reverse Stock Split may be offset, however, in
whole or in part, by increased brokerage commissions required to be paid by
shareholders selling "odd lots" created by such Reverse Stock Split.
There can be no assurance that any positive effects will occur with respect
to the shares of Common Stock as a result of the Reverse Stock Split,
including without limitation that the market price per share of New Common
Stock after the Reverse Stock Split will either exceed or remain in excess of
the current market price. Further, there can be no assurance that the market
for the Common Stock will be improved. Shareholders should note that the Board
of Directors cannot predict what effect the Reverse Stock Split will have on
the market price of the Common Stock.
The Company does not anticipate that any Reverse Stock Split will result in
a significant reduction in the number of holders of Common Stock, and does not
currently intend to effect any Reverse Stock Split that would result in a
reduction in the number of holders large enough to jeopardize listing of the
Common Stock on National Association of Securities Dealers' Electronic
Bulletin Board, or the Company's being subject to the periodic reporting
requirements of the Securities and Exchange Commission under the Securities
Exchange Act of 1934, as amended to date.
After giving effect to the settlement of fractional shares of Common Stock
as described herein, there will be no material differences between the rights
of the shares of Common Stock outstanding prior to the Reverse Stock Split and
those to be outstanding after the Reverse Stock Split is effected.
Shareholders have no right under Colorado law to dissent from the Reverse
Stock Split.
Consummation of the Reverse Stock Split will not alter the number of
authorized shares of Common Stock, which will remain at 200,000,000 shares
(assuming the approval of Proposal One increasing the number of authorized
shares of Common Stock from 30,000,000 shares to 200,000,000 shares), or the
number of authorized shares of Preferred Stock, which will remain at
5,000,000. Proportionate voting rights and other rights of the holders of
Common Stock will not be altered by the Reverse Stock Split (other than as a
result of the issuance of one additional share for fractional shares, as
described herein).
The proposed Reverse Stock Split would not change the Shareholders' equity
or interest in the Company, except as a result of the issuance of additional
shares for fractional shares, and the book value of the number of shares
outstanding immediately after the Reverse Stock Split would be equal to the
book value of the number of shares outstanding immediately prior to the
Reverse Stock Split, subject to the treatment of fractional shares. Total
Shareholders' equity would therefore remain unchanged, again subject to the
treatment of fractional shares.
4
<PAGE>
Shareholders should note that certain disadvantages may result from the
approval of this Proposal Two and the effectuation of the Reverse Stock Split.
In such event, the number of outstanding shares of Common Stock would be
decreased as a result of the Reverse Stock Split, but the number of authorized
shares of Common Stock would not be so decreased. The Company would therefore
have the authority to issue a greater number of shares of Common Stock
following the Reverse Stock Split without the need to obtain Shareholder
approval to authorize additional shares. Any such additional issuance may have
the effect of significantly reducing the interest of the existing Shareholders
of the Company with respect to earnings per share, voting, liquidation value
and book and market value per share. Such effects could be made even greater
as a result of the approval of Proposal One pursuant to which the number of
authorized shares of Common Stock would be increased from 30,000,000 to
200,000,000. See "Proposal One," above.
The Reverse Stock Split would have the effect of decreasing the number of
shares of Common Stock outstanding from 28,824,854 to approximately 9,608,285
(assuming that no additional shares of Common Stock are issued by the Company
after the record date of the Meeting). In addition, assuming approval of
Proposal One increasing the number of authorized shares of Common Stock from
30,000,000 to 200,000,000, the Reverse Stock Split would further increase the
number of authorized but unissued shares of Common Stock from 171,175,146 to
190,391,715. The Common Stock will continue to be no par value common stock
following any Reverse Stock.
At the Effective Date of the Reverse Stock Split, each share of Common Stock
issued and outstanding prior thereto (the "Old Common Stock"), will be
reclassified as and changed into one-third ( 1/3rd) of a share of the
Company's Common Stock, no par value per share (the "New Common Stock"),
subject to the treatment of fractional interests as described below. Shortly
after the Effective Date, the Company will send transmittal forms to the
holders of the Old Common Stock to be used in forwarding their certificates
formerly representing shares of Old Common Stock for surrender and exchange
for certificates representing whole shares of New Common stock. No
certificates or scrip representing fractional share interests in the New
Common Stock will be issued, and no such fractional share interest will
entitle the holder thereof to vote, or to any rights of a Shareholder of the
Company. In lieu of such fractional share interest, each holder of Old Common
Stock who would otherwise be entitled to receive a fractional share of New
Common Stock will in lieu thereof receive one full share upon surrender of
certificates formerly representing Old Common Stock held by such holder.
FEDERAL INCOME TAX CONSEQUENCES OF THE REVERSE STOCK SPLIT
The Company has not sought and will not seek an opinion of counsel or a
ruling from the Internal Revenue Service of the United States regarding the
United States federal income tax consequences of the Reverse Stock Split. The
following is a summary of the material United States federal income tax
consequences of the proposed Reverse Stock Split. This summary does not
purport to be complete and does not address the tax consequences to holders
who are subject to special tax rules, such as banks, insurance companies,
regulated investment companies, personal holding companies, foreign entities,
nonresident alien individuals, broker-dealers and tax-exempt entities. This
summary is based on the Internal Revenue Code of 1986, as amended (the
"Code"), of the United States, the U.S. Treasury regulations and proposed
regulations, court decisions and current administrative rulings and
pronouncements of the Internal Revenue Service of the United States ("IRS"),
all of which are subject to change, possibly with retroactive effect, and
assumes that the New Common Stock will be held as a "capital asset"
(generally, property held for investment) as defined in the Code. Holders of
Old Common Stock are advised to consult their own tax advisers regarding the
federal income tax consequences of the proposed Reverse Stock Split in light
of their personal circumstances and the consequences under state, local and
foreign tax laws.
1. The Reverse Stock Split will qualify as a recapitalization described in
Section 368(a)(1)(E) of the Code.
2. No gain or loss will be recognized by the Company in connection with the
Reverse Stock Split.
3. No gain or loss will be recognized by a Shareholder who exchanges all of
his or her shares of Old Common Stock solely for shares of New Common
Stock.
5
<PAGE>
4. The aggregate basis of the new shares of New Common Stock to be received
in the Reverse Stock Split (including any whole shares received in lieu
of fractional shares) will be the same as the aggregate basis of the
shares of Old Common Stock surrendered in exchange therefor.
5. For tax purposes, the holding period of the shares of New Common Stock
to be received in the Reverse Stock Split (including any whole shares
received in lieu of fractional shares) will include the holding period
of the shares of Old Common Stock surrendered in exchange therefor.
THE FOREGOING SUMMARY IS INCLUDED FOR GENERAL INFORMATION ONLY. ACCORDINGLY,
EACH HOLDER OF COMMON STOCK OF THE COMPANY IS URGED TO CONSULT WITH HIS OWN
TAX ADVISOR WITH RESPECT OT THE TAX CONSEQUENCES OF THE PROPOSED REVERSE STOCK
SPLIT, INCLUDING THE APPLICATION AND EFFECT OF THE LAWS OF ANY STATE,
MUNICIPAL, FOREIGN OR OTHER TAXING JURISDICTION.
VOTE REQUIRED
The affirmative vote of the holders of a majority of the shares of Common
Stock outstanding will be required to approve the Reverse Stock Split. As a
result, failure to vote has the same effect as a negative vote. Accordingly,
if Shareholders are in favor of Proposal Two and do not vote their shares
either in person or by proxy, such Shareholders will have effectively voted
against the proposal.
If approved, Proposal Two will become effective upon the filing of Articles
of Amendment to the Articles of Incorporation of the Company by the Secretary
of State of Colorado, which is expected to follow shortly after the approval,
if at all, of Proposal Two. A copy of the proposed amendment to the Articles
of Incorporation effecting the Reverse Stock Split is set forth on Exhibit B,
attached to this Proxy Statement and incorporated herein by reference;
provided, however, that the text of the proposed amendment is subject to
change as may be required by the Colorado Secretary of State, and the Board
may make any and all changes to the Certificate of Amendment to the Articles
of Incorporation relating to the amendment that it deems necessary to file the
document with the Colorado Secretary of State, and give effect to the Reverse
Stock Split described in Proposal Two. The Board of Directors will be
authorized, without a further vote of the Shareholders, to abandon the Reverse
Stock Split and determine not to file the Amendment to the Articles of
Incorporation effecting the Reverse Stock Split if the Board concludes that
such action would be in the best interests of the Company and its
Shareholders.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF AN
AMENDMENT TO THE ARTICLES OF INCORPORATION TO EFFECT A
ONE-FOR-THREE REVERSE STOCK SPLIT
PROPOSAL THREE--ELECTION OF DIRECTORS
The seven persons identified below have been nominated by the Board of
Directors to serve as directors of the Company until the next annual meeting
of Shareholders of the Company and until their successors have been elected
and shall qualify. Directors are elected by a plurality of votes cast at the
Meeting.
Unless contrary instructions are set forth in the proxies, it is the
intention of the persons named in the accompanying form of proxy to vote such
proxy for the election as directors of the following nominees. In the event
that any nominee is unable to serve or will not serve as a director, it is
intended that the proxies solicited hereby will be voted for such other person
or persons as may be nominated by management. Vacancies in the Board of
Directors may be filled by the Board of Directors. Management has no reason to
believe that any of the nominees will be unable or unwilling to stand for
election or to serve if elected. Any director chosen to fill a vacancy would
hold office until the next election of directors or until his successor is
duly elected and qualified.
6
<PAGE>
<TABLE>
<CAPTION>
YEAR IN WHICH
NAME AND AGE OF SERVICE AS A
DIRECTOR OR OFFICER PRINCIPAL OCCUPATION DIRECTOR BEGAN
-------------------- -------------------- --------------
<C> <S> <C>
Daniel A. Mercier (42)................ Chairman of the Board, 1996
Director and Chief
Executive Officer of
Territorial Resources,
Inc.
William C. Penttila (63).............. Vice-President, 1995
Exploration Associates,
Inc.
Donald L. Oliver (54)................. Professional Engineer, 1987
Forrest Oil Associates,
Inc.
Richard A. N. Bonnycastle (62)........ Chairman of the Board 1996
and President, Harvest
Fund Inc.
Jimmy M. McCarroll (54)............... President, McCarroll 1996
Energy, Inc.
Douglas N. Baker (43)................. Vice President, Finance, 1997
Treasurer and Chief
Financial Officer of
Territorial Resources,
Inc.
Lamont C. Tolley (61)................. Chairman, Starvest 1997
Capital Inc.,
President, Pencor
Petroleum Limited, and
President, Canadian
Pencrown Resources
Limited
</TABLE>
Executive officers of Territorial hold office at the pleasure of the Board
of Directors.
Daniel A. Mercier. Mr. Mercier became a Director of the Company in 1996 and
became its Chairman of the Board and Chief Executive Officer on June 20, 1996.
He has been President and a Director of Asia Energy Ltd. ("AEL"), a private
oil and gas company since its inception in December 1995. AEL is the Company's
largest shareholder. Mr. Mercier was President and Chief Executive Officer of
Canadian Conquest Exploration Inc. ("Canadian Conquest"), a publicly-held
Canadian oil and gas company listed on the Toronto Stock Exchange, until
November 1995. He resigned as an officer of Canadian Conquest as part of a
refinancing. Mr. Mercier was a director of Canadian Conquest until October
1996. Mr. Mercier is a mechanical engineer with over twenty years of
experience in the oil and gas industry in Canada and the United States.
William C. Penttila. Mr. Penttila became a Director of the Company in 1995
and became its President and Chief Operating Officer on June 20, 1996. Mr.
Penttila is Vice President of Exploration Associates, Inc., an international
oil and gas exploration consulting firm, of which he has been an officer since
1989. He was a consultant between 1984 and 1989, and held management positions
at Weeks Petroleum and affiliates from 1980 to 1984. He held various technical
positions at ARCO and its predecessors from 1962 until 1980. He holds both
Geological Engineering and Master of Science degrees from the Colorado School
of Mines.
Donald L. Oliver. Mr. Oliver joined the Company as President and Director in
December 1987, and served as President until November 1994. Mr. Oliver spent
fifteen years with Cities Service Company, where he held various engineering
and managerial positions in exploration and production. Subsequently, he held
the positions of Vice President and General Manager of the Texas division for
Bawden Drilling and Vice President of Operations for Conquest Exploration
Company.
Richard A. N. Bonnycastle. Mr. Bonnycastle became a Director of the Company
on June 20, 1996. Mr. Bonnycastle is Chairman and President of Harvest Fund
Inc., an investment banking company, Chairman and President of Patheon Inc., a
publicly-traded Canadian pharmaceuticals custom manufacturing and packaging
company and Chairman and President of Cavendish Investing Ltd., a private
investment company. Mr. Bonnycastle is also a Director of AEL. Mr. Bonnycastle
serves on the Boards of a number of other publicly listed companies.
7
<PAGE>
Jimmy M. McCarroll. Mr. McCarroll became a Director of the Company in
October 1996. Mr. McCarroll is the President of McCarroll Energy, Inc., an
independent oil and gas operator on the Texas Gulf Coast, a position he has
held for more than ten years. Mr. McCarroll also serves as a Director of SLN
Ventures Corp., a Vancouver, Canada-based corporation whose shares are traded
on the Vancouver Stock Exchange. Mr. McCarroll has been the Managing Partner
of McCarroll and Young Energy Funds since 1980. Mr. McCarroll has also
assisted SOCO International, Inc. in their farmout endeavors for the past four
years.
Douglas N. Baker. Mr. Baker became a Director of the Company in February
1997 and became its Vice President Finance, Treasurer and Chief Financial
Officer on June 20, 1996. Mr. Baker is also Vice President Finance and Chief
Financial Officer of AEL. Mr. Baker has over 13 years of experience in senior
financial positions with Canadian public oil and gas companies. From November
1993 to March 1996, Mr. Baker served as Vice President Finance and Chief
Financial Officer of Chancellor Energy Resources, Inc. From February 1991 to
August 1993, Mr. Baker served as Vice President Finance and Corporate
Secretary for American Eagle Petroleum Ltd. Prior thereto Mr. Baker was Vice
President Finance of Canadian Conquest.
Lamont C. Tolley. Mr. Tolley became a Director of the Company in March 1997.
For more than 10 years, Mr. Tolley has served as the Chairman and a Director
of Starvest Capital Inc., a private Canadian oil and gas management
corporation, and as President, CEO and a Director of Pencor Petroleum Limited,
a Canadian corporation that acquires and manages oil and gas properties. He is
also the President and a Director of Canadian Pencrown Resources Limited, a
private Canadian exploration corporation which has invested over $100 million
in oil and gas exploration programs and is wholly owned by a group of
institutional investors.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors held four telephone conference meetings during the
fiscal year ended March 31, 1997. No incumbent director attended fewer than
75% of the meetings held by the Board and the Committees on which he served
during such fiscal year.
The Board of Directors has an Audit Committee and had a Special Committee,
but does not have any other committees. The Audit Committee was established in
June 1996 and currently consists of Messrs. Oliver, Bonnycastle and Baker. The
Audit Committee is charged with the duties of taking all actions and
exercising all powers and authority of the Board of Directors in connection
with the preparation of the Company's financial statements. The Audit
Committee has held one meeting (in March 1997) to date.
The Special Committee was established in June 1996 and consisted of Messrs.
Edward T. Story, Jr., A. Andrew Davis (each a former director of the Company)
and Oliver. The Special Committee was responsible for certain obligations in
connection with the acquisition by the Company of certain assets from Asia
Energy Ltd., the largest shareholder of the Company and an affiliate of
Messrs. Mercier and Bonnycastle. The Special Committee met one time in 1996,
and no longer exists.
COMPENSATION OF DIRECTORS
Directors currently receive no fees or other compensation in their
capacities as Directors or members of Committees of the Board of Directors of
the Company, but are reimbursed for reasonable travel expenses for each Board
or Committee meeting attended in person.
8
<PAGE>
CURRENT DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth information regarding the current directors and
executive officers of the Company:
<TABLE>
<CAPTION>
NAME AND AGE OF YEAR ELECTED YEAR ELECTED
DIRECTOR OR OFFICER AS DIRECTOR AS OFFICER POSITION WITH COMPANY
------------------- ------------ ------------ ---------------------
<S> <C> <C> <C>
Daniel A. Mercier (42).... 1996 1996 Chairman of the Board,
Director and Chief
Executive Officer
William C. Penttila (63).. 1995 1996 Director and President
Donald L. Oliver (54)*.... 1987 -- Director
Richard A. N. Bonnycastle* Director
(62)...................... 1996 --
Jimmy M. McCarroll (54)... 1996 -- Director
Douglas N. Baker (43)*.... 1997 1996 Director, Vice President
Finance, Treasurer and
Chief Financial Officer
Lamont C. Tolley (61)..... 1997 -- Director
Dennis M. Buck (50)....... -- 1996 Vice President Exploration
</TABLE>
- --------
* Member of the Audit Committee.
Dennis M. Buck. Mr. Buck became Vice President Exploration of Territorial on
June 20, 1996. Mr. Buck is also President of Exploration Associates, Inc. and
was one of its original founders in 1984. Mr. Buck was Chief Geophysicist for
Weeks Petroleum from March 1981 to June 1984. Mr. Buck has a B.S. Degree in
Geology from the New Mexico Institute of Mining and Technology.
EXECUTIVE COMPENSATION
During the three fiscal years ended March 31, 1997, all executive officers
of Territorial served without cash compensation. The only compensation
received from the Company during such periods by its executive officers in
such capacities include options to acquire the following number of shares of
Common Stock, which options were granted in June 1996:
<TABLE>
<CAPTION>
NUMBER OF SHARES
OF COMMON STOCK
----------------
<S> <C>
Daniel A. Mercier........................................ 270,000
William C Penttila....................................... 270,000
Dennis M. Buck........................................... 270,000
Douglas N. Baker......................................... 100,000
Stephen L. Gray.......................................... 30,000
</TABLE>
One-third of the options vested in June 1996 and one-third vest in June 1997
and in June 1998; provided, however, that all of Mr. Gray's options vested in
June 1996. The options entitle the holder thereof to purchase such shares of
Common Stock at an exercise price of $0.30 per share. Assuming the Reverse
Stock Split is effected, such options will be automatically adjusted so as to
entitle the holders thereof instead to acquire one-third of the number of
shares set out above, at an exercise price of $0.90 per share.
9
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Security Ownership of Certain Beneficial Owners. The following table sets
forth certain information concerning each person known by the Company to own
beneficially more than 5% of the shares of common stock ("Common Stock") of
the Company as of April 2, 1997. Except as otherwise indicated, the persons
listed below have sole voting power and investment power over the shares
beneficially held by them.
<TABLE>
<CAPTION>
NAME AND ADDRESS AMOUNT AND NATURE OF
OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP PERCENT OF CLASS (1)
------------------- --------------------- -------------------
<S> <C> <C>
A. Andrew Davis................. 1,982,555(2) 6.88
Alan Davis Media Limited, Level
10,
35 York Street
Sidney, NSW 2000
Australia
Edward T. Story, Jr............. 1,413,182 4.90
1100 Louisiana Street
Houston, Texas 77002
Brian A. Lingard................ 3,592,418(3) 12.46
450 N. Sam Houston Parkway E.,
#140
Houston, Texas 77060
Dennis M. Buck.................. 1,979,763(4) 6.84
450 N. Sam Houston Parkway E.,
#140
Houston, Texas 77060
William C. Penttila............. 1,979,763(4) 6.84
450 N. Sam Houston Parkway E.,
#140
Houston, Texas 77060
Michael C. Nemec ............... 1,852,348 6.43
The Phoenix Resource Companies
6525 N. Meridian Ave.
Oklahoma City,
Oklahoma 77116
Asia Energy Ltd................. 7,218,500(5) 25.04
734 7th Ave. S.W.
Suite 1345
Calgary, Alberta
Canada T2P 3B8
</TABLE>
- --------
(1) Based upon 28,824,854 shares outstanding as of April 2, 1997.
(2) Consists of 1,179,423 shares either owned by Mr. Davis or by companies
controlled by him, with the remaining 803,132 shares owned by three
sisters of Mr. Davis but with voting proxy held by him.
(3) Includes 100,000 shares held by Mr. Lingard's fiancee and 100,000 shares
owned by his minor son with Mr. Lingard named as custodian. Mr. Lingard
disclaims beneficial ownership of these 200,000 shares.
(4) Includes options to acquire 90,000 shares. Does not include options to
acquire 180,000 shares that commence vesting in June 1997.
(5) All shares reported are owned by AEL. See footnotes 4, 5 and 6 to table
below.
10
<PAGE>
Security Ownership of Management. The table below sets forth the beneficial
ownership of shares of Common Stock as of April 2, 1997, by the Company's
directors and by all directors and officers of the Company as a group and the
percent of class represented by the outstanding shares of Common Stock
beneficially owned by each person or group.
<TABLE>
<CAPTION>
NAME OF BENEFICIAL AMOUNT AND NATURE OF
OWNER BENEFICIAL OWNERSHIP (1) PERCENT OF CLASS (2)
------------------ ------------------------ -------------------
<S> <C> <C>
Donald L. Oliver.............. 1,099,385 3.81
William C. Penttila........... 1,979,763(3) 6.84
Dennis M. Buck................ 1,979,763(3) 6.84
Daniel A. Mercier............. 7,496,000(4) 25.92
Richard A. N. Bonnycastle..... 7,343,500(5) 25.47
Douglas N. Baker.............. 7,251,833(6) 25.13
Jimmy M. McCarroll............ -0- -0-
Lamont C. Tolley.............. 250,000 0.87
Directors and Officers as a
Group........................ 12,963,244 44.50
</TABLE>
- --------
(1) The information as to beneficial ownership has been furnished by the
respective persons. Unless otherwise specified, each person or group has
sole voting and investment power with respect to the shares, except with
respect to the shares identified above relating to Messrs. Mercier,
Bonnycastle and Baker. See footnotes below.
(2) Based upon 28,824,854 shares outstanding as of April 2, 1997.
(3) Includes options to acquire 90,000 shares. Does not include options to
acquire 180,000 shares that commence vesting in June 1997.
(4) Includes 187,500 shares and options to acquire 90,000 shares owned
directly by Mr. Mercier. All other shares reported are owned by AEL. Does
not include options to acquire 180,000 shares that commence vesting in
June 1997. Mr. Mercier is a Director and the President of AEL and
(together with shares held by his wife) owns approximately 9.0% of the
outstanding shares of capital stock of AEL. Mr. Mercier's father and
siblings own an additional 10.3% of the outstanding shares of capital
stock of AEL. Mr. Mercier disclaims beneficial ownership of all shares of
capital stock of AEL owned by his father and siblings, and all shares of
Territorial Common Stock owned by AEL.
(5) Includes 125,000 shares owned directly by Mr. Bonnycastle. All other
shares reported are owned by AEL. Mr. Bonnycastle is a Director of AEL and
owns approximately 11.4% of the outstanding shares of capital stock of
AEL. Mr. Bonnycastle disclaims beneficial ownership of all shares of
Territorial Common Stock owned by AEL.
(6) Includes options to acquire 33,333 shares. Does not include options to
acquire 66,667 shares that commence vesting in June 1997. All other shares
reported are owned by AEL. Mr. Baker is the Vice President Finance and
Chief Financial Officer of AEL and (together with shares held by his wife)
owns approximately 1.7% of the outstanding shares of capital stock of AEL.
Mr. Baker disclaims beneficial ownership of all shares of Territorial
Common Stock owned by AEL.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Indebtedness of Management. No director or officer of the Company, nominee
for election as a director, or any associate of any such director, officer or
nominee, was indebted to the Company or its subsidiary at any time since the
beginning of the Company's last fiscal year.
Transactions with Shareholders and Management. On September 30, 1994,
certain shareholders agreed to convert principal and interest on debt owed
them into common stock of the Company. This resulted in the
11
<PAGE>
issuance of 700,000 additional common shares, and the reclassification of
$48,471 of debt to common stock and additional paid-in capital as of September
30, 1994.
On February 7, 1995, the Company acquired a 4% reversionary working interest
in Brazos Block 398 in the Gulf of Mexico (the "Block") from two directors,
Brian A. Lingard and Edward T. Story, Jr., in exchange for the issuance of
4,331,250 and 618,750 shares, respectively, of the Company's common stock.
This interest had significant potential based upon enhancement work which was
to be undertaken by the operator, Falcon Seaboard Oil Company. This work was
subsequently completed and has been unsuccessful. Lingard and Story agreed to
serve as President of, and as a consultant to, the Company, respectively,
without compensation through March 31, 1996.
On March 29, 1996, the Company acquired an approximate 12% interest (in
addition to its previously held approximate 1% interest) in SOTAMO in exchange
for the issuance of 5,450,000 shares of the Company's Common Stock. The
acquisition of this interest was consummated through the acquisition by the
Company of a privately held corporation, of which each of William C. Penttila
and Dennis M. Buck was a director, officer and a significant shareholder. Each
of Messrs. Penttila and Buck received 1,589,583 shares of Territorial Common
Stock in connection therewith. At the time of the transaction, Mr. Penttila
was a Director of the Company. Subsequent to such transaction, Mr. Penttila
also became the President and Chief Operating Officer of the Company and Mr.
Buck became Vice President-Exploration of the Company.
On March 31, 1996, Territorial entered into an Option Agreement (the
"Option") with Asia Energy Ltd., Territorial's largest shareholder ("AEL").
The Option, as amended, granted to AEL the right to purchase up to 29 of the
119 shares of SOTAMO owned by Territorial at a per share price of $50,000. AEL
paid Territorial $20,000 cash in consideration for the granting of the Option.
Daniel A. Mercier, the President, a Director and a shareholder of AEL, was
appointed a Director of Territorial on April 12, 1996. On May 9, 1996, AEL
purchased five SOTAMO shares from Territorial for $250,000 cash. On June 20,
1996, Mr. Mercier was appointed Chairman of the Board and Chief Executive
Officer of the Company. Messrs. Bonnycastle and Baker are also affiliates of
AEL. See "Security Ownership of Certain Beneficial Owners and Management."
In mid-July 1996, Territorial issued to AEL 1,918,750 shares of Common Stock
primarily in exchange for approximately $223,000 in cash, the five shares of
SOTAMO referred to above, the elimination of a payable to AEL of $25,000 and
the cancellation of the Option. Territorial also agreed to pay certain
administration-related costs and expenses on behalf of AEL in the future.
In October 1996, Territorial issued 112,500 shares (the "Series B Preferred
Shares") of its newly designated voting Preferred Stock, Series B, $0.10 par
value each, 37,500 of which Series B Preferred Shares were acquired by Mr.
Mercier, 25,000 of which Series B Preferred Shares were acquired by Mr.
Bonnycastle and the remaining 50,000 of which Series B Preferred Shares were
acquired by Mr. Tolley, for a cash purchase price equal to (Cdn)$2.00 per
share. Each Series B Preferred Share was converted into five (5) shares of
Common Stock effective April 1, 1997.
During the second half of 1996, Mr. Mercier loaned to Territorial an
aggregate of (Cdn)$100,000 and Mr. Bonnycastle loaned to Territorial an
aggregate of (Cdn)$85,000. Such loans bear interest at an annual rate equal to
the floating prime rate announced from time to time by the Alberta Treasury
Branch, Okotoks, Alberta, Canada. The loans, together with all accrued and
unpaid interest thereon, are payable by Territorial upon demand. In the first
quarter of 1997, Territorial repaid the loan to Mr. Bonnycastle, together with
interest thereon in the amount of (Cdn)$486.71, and borrowed an additional
(Cdn)$210,000 from Mr. Mercier on the same terms as the previous loans made to
Territorial. It also entered into a line of credit with Canadian Western Bank
permitting the Company to borrow up to (Cdn)$350,000, the repayment
obligations with respect to which were personally guaranteed by Mr. Mercier.
As of March 31, 1997, the Company had drawn down approximately (Cdn)$100,000
from such line of credit.
12
<PAGE>
On June 20, 1996, the Board of Directors approved the granting of options to
acquire the following numbers of shares of Common Stock to the persons
identified below:
<TABLE>
<CAPTION>
NUMBER OF SHARES
OF COMMON STOCK
----------------
<S> <C>
William C. Penttila......................................... 270,000
Dennis M. Buck.............................................. 270,000
Daniel A. Mercier........................................... 270,000
Douglas N. Baker............................................ 100,000
Lois S. Milard.............................................. 30,000
Dawna Allinson.............................................. 30,000
Stephen L. Gray............................................. 30,000
---------
1,000,000
</TABLE>
The options vest as to one-third immediately, one-third on June 20, 1997,
and one-third on June 20, 1998, in all cases except Mr. Gray's which vest
immediately. The options are exercisable at $0.30 per share. Assuming the
Reverse Stock Split is effected, such options will be automatically adjusted
so as to entitle the holders thereof instead to acquire one-third of the
number of shares set out above, at an exercise price of $0.90 per share.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Based solely upon a review of Forms 3 and 4 and amendments thereto furnished
to the registrant under Rule 16a-3(d) during its most recent fiscal year and
Form 5 and amendments thereto furnished to the registrant with respect to its
most recent fiscal year, or upon written representations from certain
reporting persons that no Form 5 reports were required for those persons, the
Company believes that during the year ended March 31, 1997, no officer,
director or beneficial owner of more than 10 percent of its Common Stock has
failed to file on a timely basis reports required by Section 16(a).
PROPOSAL FOUR--APPOINTMENT OF THE COMPANY'S INDEPENDENT AUDITORS
The Board of Directors desires to appoint Price Waterhouse, Calgary,
Alberta, Canada, to serve as the Company's independent auditors for the fiscal
year ended March 31, 1997. The firm of Hein + Associates L.L.P., Houston,
Texas, has audited the Company's financial statements for more than three
years. The Board of Directors has selected Price Waterhouse as independent
auditors for the fiscal year ended March 31, 1997, primarily due to such
firm's experience in international accounting matters. The Board of Directors
shall consider the selection of another accounting firm to serve as the
Company's independent auditors in the event that the Shareholders do not
approve the selection of Price Waterhouse as the Company's independent
auditors.
Representatives of Price Waterhouse are expected to be present at the
Meeting to make a statement if they so desire and will be available to respond
to appropriate questions. The Company does not anticipate that representatives
of Hein + Associates L.L.P., will be available for or will attend the Meeting.
VOTE REQUIRED FOR APPROVAL
The affirmative vote of a majority of the shares present in person or by
proxy is required for the appointment of Price Waterhouse as the Company's
independent auditors for the fiscal year ended March 31, 1997.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPOINTMENT OF PRICE
WATERHOUSE AS THE COMPANY'S INDEPENDENT AUDITORS FOR THE 1997 FISCAL YEAR.
13
<PAGE>
EXPENSES OF SOLICITATION
The cost of this proxy solicitation will be borne by the Company. In
addition to the use of mail, proxies may be solicited in person or by
telephone by employees of the Company without additional compensation. The
Company will reimburse brokers and other persons holding stock in their names
or in the names of nominees for their expenses incurred in sending proxy
material to principals and obtaining their proxies.
OTHER MATTERS
Management knows of no other matter that is intended to be brought before
the Meeting other than the matters referred to in the accompanying notice and
at this date has not been informed of any matters that may be presented to the
Meeting by others. If, however, any other matters properly come before the
Meeting, it is intended that the persons named in the accompanying proxy will
vote, pursuant to the proxy, in accordance with their best judgment on such
matters.
1998 SHAREHOLDERS PROPOSALS
Any proposal by a Shareholder to be presented at the Company's Annual
Meeting of Shareholders in 1998 must be received by the Company at its
principal office in Houston, Texas, no later than September 30, 1997, in order
to be eligible for inclusion in the Company's Proxy Statement and form of
proxy used in connection with such meeting.
By Order of the Board of Directors
Daniel A. Mercier
Chairman of the Board and
Chief Executive Officer
Dated: April 4, 1997
14
<PAGE>
EXHIBIT A
AMENDMENT TO THE ARTICLES OF INCORPORATION OF TERRITORIAL RESOURCES, INC. TO
INCREASE THE AUTHORIZED SHARES OF COMMON STOCK FROM 30,000,000 TO 200,000,000
The first sentence of Article IV of the Articles of Incorporation of the
corporation shall be deleted in its entirety and shall be replaced by the
following:
The aggregate number of shares which this corporation shall have
authority to issue is (a) two hundred million (200,000,000) shares of
common stock, no par value each, which shares shall be hereinafter referred
to as the "Common Stock", and (b) five million (5,000,000) shares of
preferred stock, $0.10 par value each, which shares shall be hereinafter
referred to as the "Preferred Stock".
15
<PAGE>
EXHIBIT B
PROPOSED AMENDMENT TO THE ARTICLES OF INCORPORATION OF TERRITORIAL RESOURCES,
INC. TO EFFECT A ONE-FOR-THREE REVERSE STOCK SPLIT
The following provision shall be added to Article IV of the Articles of
Incorporation of the corporation:
Simultaneously with the effective date of this amendment (the "Effective
Date"), each share of the corporation's Common Stock, no par value each,
issued and outstanding immediately prior to the Effective Date (the "Old
Common Stock") shall automatically and without any action on the part of
the holder thereof be reclassified as and changed, pursuant to a reverse
stock split, into one-third ( 1/3rd) of a share of the corporation's
outstanding Common Stock, no par value each (the "New Common Stock"),
subject to the treatment of fractional share interests as described below.
Each holder of a certificate or certificates which immediately prior to the
Effective Date represented outstanding shares of Old Common Stock (the "Old
Certificates," whether one or more) shall be entitled to receive upon
surrender of such Old Certificates to the corporation's transfer agent for
cancellation, a certificate or certificates (the "New Certificates,"
whether one or more) representing the number of whole shares of the New
Common Stock into which and for which the shares of the Old Common Stock
formerly represented by such Old Certificates so surrendered, are
reclassified under the terms hereof. From and after the Effective Date, Old
Certificates shall represent only the right to receive New Certificates
pursuant to the provisions hereof. No certificates or scrip representing
fractional share interests in New Common Stock will be issued, and no such
fractional share interest will entitle the holder thereof to vote, or to
any rights of a shareholder of the corporation. Any fraction of a share of
New Common Stock to which the holder would otherwise be entitled will be
adjusted upward to the nearest whole share. If more than one Old
Certificate shall be surrendered at one time for the account of the same
Shareholder, the number of full shares of New Common Stock for which New
Certificates shall be issued shall be computed on the basis of the
aggregate number of shares represented by the Old Certificates so
surrendered. In the event that the corporation's transfer agent determines
that a holder of Old Certificates has not tendered all his or her
certificates for exchange, the transfer agent shall carry forward any
fractional share until all certificates of that holder have been presented
for exchange such that payment for fractional shares to any one person
shall not exceed the value of one share. If any New Certificate is to be
issued in a name other than that in which the Old Certificates surrendered
for exchange are issued, the Old Certificates so surrendered shall be
properly endorsed and otherwise in proper form for transfer. From and after
the Effective Date the amount of capital represented by the shares of the
New Common Stock into which and for which the shares of the Old Common
Stock are reclassified under the terms hereof shall be the same as the
amount of capital represented by the shares of Old Common Stock so
reclassified, until thereafter reduced or increased in accordance with
applicable law.
16
<PAGE>
PRELIMINARY PROXY MATERIALS
TERRITORIAL RESOURCES, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Daniel A. Mercier and Douglas N. Baker, or
either of them, each with full power to appoint his substitute, as proxies of
the undersigned, and authorizes them to represent and vote, as designated
below, all the shares of Common Stock of Territorial Resources, Inc. which the
undersigned would be entitled to vote if personally present, and to act for the
undersigned at the Annual Meeting to be held Wednesday, April 30, 1997, or any
adjournment thereof.
1. Approval of amendment to the Articles of Incorporation to increase the
authorized shares of Common Stock from 30,000,000 to 200,000,000.
FOR [_] AGAINST [_] ABSTAIN [_]
2. Approval of amendment to the Articles of Incorporation to effect a one-for-
three reverse stock split of the Common Stock.
FOR [_] AGAINST [_] ABSTAIN [_]
3. Election of Directors
[_] FOR all nominees [_] WITHHOLD AUTHORITY
listed below to vote for all
(except as marked nominees listed below
to the contrary)
Nominees: Douglas N. Baker, Richard A. N. Bonnycastle, Jimmy M. McCarroll,
Daniel A. Mercier, Donald L. Oliver, William C. Penttila, Lamont
C. Tolley
FOR, except vote withheld from the following nominee(s):_____________________
4. Ratification of the appointment of Price Waterhouse, Calgary, Alberta,
Canada, as auditors for the Company:
FOR [_] AGAINST [_] ABSTAIN [_]
5. In accordance with their discretion upon such other business as may properly
come before the meeting or any adjournment thereof.
SEE REVERSE SIDE
THIS PROXY WILL BE VOTED IN THE MANNER DIRECTED HEREIN AND IN ACCORDANCE WITH
THE ACCOMPANYING PROXY STATEMENT. RECEIPT OF THE PROXY STATEMENT IS HEREBY
ACKNOWLEDGED. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR PROPOSALS
1, 2, 3 AND 4.
Dated:____________________________, 1997
----------------------------------------
----------------------------------------
Signature(s) of Shareholder(s)
(Please sign exactly as shown hereon.
Executors, administrators, guardians,
trustees, attorneys, and officers
signing for corporations or other
organizations should give full title.
If a partnership or jointly owned, each
owner should sign.)
PLEASE MARK, DATE AND SIGN THIS PROXY
