<PAGE>
Securities and Exchange Commission
Washington, D.C. 20549
RULE 13e-3 TRANSACTION STATEMENT
(Pursuant to Section 13(e) of the Securities Exchange Act of 1934)
TERRITORIAL RESOURCES, INC.
(Name of the Issuer)
TERRITORIAL RESOURCES, INC.
(Name of Person(s) Filing Statement)
Common Stock, no par value, of TERRITORIAL RESOURCES, INC.
(Title of Class of Securities)
881469 20 9
(CUSIP Number of Class of Securities)
Michael P. Finch, Esq.
Vinson & Elkins L.L.P.
1001 Fannin, Suite 2300
Houston, Texas 77002
Telephone: (713) 758-2128
Facsimile (713) 615-5282
(Name, address, and telephone number of person authorized to receive notices
and communications on behalf of person(s) filing statement)
This statement is filed in connection with (check the appropriate box):
a. /X/ The filing of solicitation materials or an information statement
subject to Regulation 14A [17 CFR 240.14a-1 to 240.14b-1], Regulation 14C [17
CFR 240.14c-1 to 240.14c-101] or Rule 13e-3(c) [Section 240.13e-3(c)] under the
Securities Exchange Act of 1934.
b. / / The filing of a registration statement under the Securities Act of
1933.
c. / / A tender offer.
d. / / None of the above.
Check the following box if the soliciting material or information statement
referred to in checking box (a) are preliminary copies: /X/.
CALCULATION OF FILING FEE
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
TRANSACTION VALUATION * AMOUNT OF FILING FEE
- -------------------------------------------------------------------------------
<S> <C> <C>
$1,766,367 $354.00
</TABLE>
/ / Check box if any part of the fee is offset as provided by Rule 0-11(a)(2)
and identify the filing with which the offsetting fee was previously paid.
Identify the previous filing by registration statement number, or the Form or
Schedule and the date of its filing.
Amount Previously Paid:
Form or Registration No.:
Filing Party:
Date Filed:
NOTES:
* 1,261,691 shares of the Issuer's Common Stock, no par value, redeemed for
cash consideration of $1.40 per share.
<PAGE>
SUMMARY - THE SPECIAL MEETING
This Rule 13e-3 Transaction Statement is being filed by TERRITORIAL
RESOURCES, INC. (the "Company") with respect to the class of equity
securities of the Company that is subject to a Rule 13e-3 transaction. The
Company is submitting to the holders of the Company's common stock, no par
value (the "Common Stock"), a proposal to approve and adopt Articles of
Amendment to its Articles of Incorporation providing for (a) a one-for-36,000
reverse stock split of the Company's Common Stock and (b) a cash payment in
the amount of $1.40 per existing share of Common Stock (the "Cash
Consideration") in lieu of the issuance of any resulting fractional shares of
Common Stock to any shareholders who, after the reverse stock split, would
otherwise own a fractional share of Common Stock. Items (a) and (b) will be
considered as one proposal and will be referred to herein as the "Reverse
Stock Split." The Reverse Stock Split is upon the terms and subject to the
conditions set forth in the Company's Proxy Statement for the Company's
Special Meeting of Shareholders scheduled to be held on ____________, 1998, a
copy of which is filed as an exhibit hereto and is incorporated herein by
reference in its entirety.
The following Cross Reference Sheet is supplied pursuant to General
Instruction F to Schedule 13E-3 and shows the location in the Proxy Statement
filed by the Company with the Securities and Exchange Commission on February
9, 1998 (including all annexes and schedules thereto, the "Proxy Statement")
of the information required to be included in response to the items of this
Statement. The information in the Proxy Statement, a copy of which is
attached hereto as Exhibit (d)(1), is hereby expressly incorporated by
reference and the responses to each item are qualified in their entirety by
the provisions of the Proxy Statement.
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<PAGE>
CROSS REFERENCE SHEET SHOWING LOCATION
IN PRELIMINARY PROXY STATEMENT OF INFORMATION
REQUIRED BY ITEMS IN SCHEDULE 13E-3
SCHEDULE 13E-3 ITEM LOCATION IN PROXY STATEMENT
------------------- ---------------------------
1. Issuer and Class of Security Subject
to the Transaction.
Item 1(a) Cover Page.
Item 1(b) Cover Page, "Summary - The
Special Meeting - Record Date;
Quorum."
Item 1(c) "Price Range of Common Stock;
Dividends; Book Value - Common
Stock Information."
Item 1(d) "Price Range of Common Stock;
Dividends; Book Value -
Dividends."
Item 1(e) Not applicable.
Item 1(f) Not applicable.
2. Identity and Background.
Items 2(a)-(d) and (g) "Directors and Executive
Officers" and "Security Ownership
of Certain Beneficial Owners and
Management."
Items (e) and (f) Not applicable.
3. Past Contracts, Transactions or
Negotiations.
Item 3(a)(1) Not applicable.
Item 3(a)(2) Not applicable.
Item 3(b) "Special Factors - Background and
Reasons for the Reverse Stock
Split and Merger."
4. Terms of the Transaction.
Items 4(a) - (b) "The Reverse Stock Split -
Amendment of the Articles of
Incorporation to Effect the
Reverse Stock Split", "The
Reverse Stock Split - Exchange of
Shares and Payment in Lieu of
Issuance of Fractional Shares"
and "Special Factors - Background
and Reasons for the Reverse Stock
Split and Merger."
5. Plans or Proposals of the Issuer or
Affiliate.
Items 5(a) - (g) "Special Factors - Background and
Reasons for the Reverse Stock
Split and Merger," "Special
Factors -Plans for the Company
after the Reverse Stock Split"
and "Special Factors - Certain
Effects of the Reverse Stock
Split."
-3-
<PAGE>
6. Source and Amounts of Funds or Other
Consideration.
Items 6(a) - (c) "Special Factors - Source and
Amounts of Funds for and Expenses
of the Reverse Stock Split."
Item 6(d) Not applicable.
7. Purpose(s), Alternatives, Reasons and
Effects.
Item 7(a) "Special Factors - Background and
Reasons for the Reverse Stock
Split and Merger."
Item 7(b) "Special Factors - Background and
Reasons for the Reverse Stock
Split and Merger."
Item 7(c) "Special Factors - Background and
Reasons for the Reverse Stock
Split and Merger."
Item 7(d) "Special Factors - Certain
Effects of the Reverse Stock
Split," "Special Factors -
Certain United States Federal
Income Tax Consequences" and
"Special Factors - Opinion of
Financial Advisor."
8. Fairness of the Transaction.
Item 8(a) "Special Factors - Background and
Reasons for the Reverse Stock
Split and Merger," "Special
Factors -Recommendation of the
Board of Directors" and "Special
Factors -Opinion of Financial
Advisor."
Item 8(b) "Special Factors - Opinion of
Financial Advisor."
Item 8(c) "Summary - The Special Meeting
-Required Vote" and "The Reverse
Stock Split - Voting; Vote
Required."
Item 8(d) "Special Factors - Recommendation of
the Board of Directors."
Item 8(e) "Special Factors - Background and
Reasons for the Reverse Stock
Split and Merger" and "Special
Factors -Recommendation of the
Board of Directors."
Item 8(f) Not applicable.
9. Reports, Opinions, Appraisals and
Certain Negotiations.
Item 9(a) - (c) "Special Factors - Background and
Reasons for the Reverse Stock
Split and Merger" and "Special
Factors -Opinion of Financial
Advisor."
10. Interest in Securities of the Issuer.
Item 10(a) "Security Ownership of Certain
Beneficial Owners and Management."
Item 10(b) "Security Ownership of Certain
Beneficial Owners and Management."
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<PAGE>
11. Contracts, Arrangements or "Special Factors - Background and
Understandings with Respect to the Reasons for the Reverse Stock
Issuer's Securities. Split and Merger," "Summary - The
Special Meeting - Required Vote" and
"The Reverse Stock Split - Voting;
Vote Required."
12. Present Intention and Recommendation
of Certain Persons with Regard to the
Transaction.
Item 12(a) "Special Factors - Background and
Reasons for the Reverse Stock
Split and Merger," "Summary - The
Special Meeting - Required Vote"
and "The Reverse Stock Split -
Voting; Vote Required."
Item 12(b) "Summary - The Special Meeting -
Purpose of the Special Meeting" and
"Special Factors - Recommendation of
the Board of Directors."
13. Other Provisions of the Transaction.
Item 13(a) "The Reverse Stock Split -
Dissenting Shareholders' Rights,"
"Annex B" to Proxy Statement
Items 13(b) and (c) Not applicable.
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<PAGE>
14. Financial Information.
Item 14(a) "Index to Financial Statements;"
"Price Range of Common Stock;
Dividends; Book Value."
Item 14(b) Not applicable.
15. Persons and Assets Employed, Retained
or Utilized.
Item 15(a) "Summary - The Special Meeting -
Solicitation of Proxies.
Item 15(b) "Summary - The Special Meeting
- Solicitation of Proxies" and
"Special Factors - Opinion of
Financial Advisor."
16. Additional Information. Proxy Statement in its entirety.
17. Material to be Filed as Exhibits. Separately included herewith.
Item 1. Issuer and Class of Security Subject to the Transaction.
(a) The name of the issuer is TERRITORIAL RESOURCES, INC., a
Colorado corporation, and the address of its executive offices is 734 7th
Avenue S.W., Suite 1345, Calgary, Alberta, Canada T2P 3P8.
(b) The exact title of the class of equity securities to which
this statement relates is Common Stock, no par value. The information set
forth under the caption "Summary - The Special Meeting - Record Date; Quorum
" of the Proxy Statement is incorporated herein by reference.
(c) The information set forth under the caption "Price Range of
Common Stock; Dividends; Book Value - Common Stock Information" of the Proxy
Statement is incorporated herein by reference.
(d) The information set forth under the caption "Price Range of
Common Stock; Dividends; Book Value - Dividends" of the Proxy Statement is
incorporated herein by reference.
(e) Not applicable.
(f) Not applicable.
Item 2. Identity and Background.
(a) - (d) and (g) This Statement is filed by TERRITORIAL RESOURCES,
INC., a Colorado corporation, with its executive offices at 734 7th Avenue
S.W., Suite 1345, Calgary, Alberta, Canada T2P 3P8. The information set
forth under the captions "Directors and Executive Officers" and "Security
Ownership of Certain Beneficial Owners and Management" of the Proxy Statement
is incorporated herein by reference.
(e) and (f) To the best of the Company's knowledge, during the last
five years no person described under the captions "Directors and Executive
Officers" and "Security Ownership of Certain Beneficial Owners and
Management" of the Proxy Statement has been convicted in a criminal
proceeding (excluding traffic violations or similar misdemeanors), and during
the last five years no such person was a party to a civil proceeding of a
judicial or administrative body of competent jurisdiction as a result of
which he was or is subject to a judgment, decree, or final order enjoining
future violations of, or prohibiting activities subject to, federal or state
securities law or finding any violation of such laws.
Item 3. Past Contracts, Transactions or Negotiations.
(a)(1) Not applicable.
(a)(2) Not applicable.
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<PAGE>
(b) The information set forth under the caption "Special Factors -
Background and Reasons for the Reverse Stock Split and Merger" of the Proxy
Statement is incorporated herein by reference.
Item 4. Terms of the Transaction.
(a)-(b) The information set forth under the captions "The Reverse
Stock Split - Amendment of the Articles of Incorporation to Effect the Reverse
Stock Split," "The Reverse Stock Split - Exchange of Shares and Payment in
Lieu of Issuance of Fractional Shares" and "Special Factors - Background and
Reasons for the Reverse Stock Split and Merger" of the Proxy Statement is
incorporated herein by reference.
Item 5. Plans or Proposals of the Issuer or Affiliate.
(a)-(g) The information set forth under the captions "Special Factors
- -Background and Reasons for the Reverse Stock Split and Merger," "Special
Factors - Plans for the Company after the Reverse Stock Split" and "Special
Factors - Certain Effects of the Reverse Stock Split" of the Proxy Statement
is incorporated herein by reference.
Item 6. Source and Amounts of Funds and Other Consideration.
(a)-(c) The information set forth under the caption "Special Factors -
Source and Amounts of Funds for and Expenses of the Reverse Stock Split" of
the Proxy Statement is incorporated herein by reference.
(d) Not applicable.
Item 7. Purpose(s), Alternatives, Reasons and Effects.
(a) The information set forth under the caption "Special Factors -
Background and Reasons for the Reverse Stock Split and Merger" of the Proxy
Statement is incorporated herein by reference.
(b) The information set forth under the caption "Special Factors -
Background and Reasons for the Reverse Stock Split and Merger" of the Proxy
Statement is incorporated herein by reference.
(c) The information set forth under the caption "Special Factors -
Background and Reasons for the Reverse Stock Split and Merger" of the Proxy
Statement is incorporated herein by reference.
(d) The information set forth under the captions "Special Factors
- - Certain Effects of the Reverse Stock Split," "Special Factors - Certain
United States Federal Income Tax Consequences" and "Special Factors - Opinion
of Financial Advisor" of the Proxy Statement is incorporated herein by
reference.
Item 8. Fairness of the Transaction.
(a) The information set forth under the caption "Special Factors -
Background and Reasons for the Reverse Stock Split and Merger," "Special
Factors - Recommendation of the Board of Directors" and "Special Factors -
Opinion of Financial Advisor" of the Proxy Statement is incorporated herein
by reference.
(b) The information set forth under the caption "Special Factors -
Opinion of Financial Advisor" of the Proxy Statement is incorporated herein
by reference.
(c) The information set forth under the captions "Summary - The
Special Meeting - Required Vote" and "The Reverse Stock Split - Voting; Vote
Required" of the Proxy Statement is incorporated herein by reference.
(d) The information set forth under the caption "Special Factors
- - Recommendation of the Board of Directors" of the Proxy Statement is
incorporated herein by reference.
(e) The information set forth under the captions "Special Factors
- - Background and Reasons for Reverse Stock Split and Merger" and "Special
Factors - Recommendation of the Board of Directors" of the Proxy Statement is
incorporated herein by reference.
(f) Not applicable.
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<PAGE>
Item 9. Reports, Opinions, Appraisals and Certain Negotiations.
(a)-(c) The information set forth under the captions "Special Factors
- - Background and Reasons for the Reverse Stock Split and Merger" and "Special
Factors - Opinion of Financial Advisor" of the Proxy Statement is
incorporated herein by reference.
Item 10. Interest in Securities of the Issuer.
(a) The information with respect to the ownership of and
transactions in Common Stock set forth under the caption "Security Ownership
of Certain Beneficial Owners and Management" of the Proxy Statement is
incorporated herein by reference.
(b) The information with respect to the ownership of and
transactions in Common Stock set forth under the caption "Security Ownership
of Certain Beneficial Owners and Management" of the Proxy Statement is
incorporated herein by reference.
Item 11. Contracts, Arrangements, or Understandings with Respect to the
Issuer's Securities.
The information set forth under the captions "Special Factors -
Background and Reasons for the Reverse Stock Split and Merger," "Summary
- The Special Meeting - Required Vote" and "The Reverse Stock Split -
Voting; Vote Required" of the Proxy Statement is incorporated herein by
reference.
Item 12. Present Intention and Recommendation of Certain Persons with
Regard to the Transaction.
(a) The information set forth under the captions "Special Factors
- - Background and Reasons for the Reverse Stock Split and Merger," "Summary -
The Special Meeting - Required Vote" and "The Reverse Stock Split - Voting;
Vote Required" of the Proxy Statement is incorporated herein by reference.
(b) The information set forth under the captions "Summary - The
Special Meeting - Purpose of the Special Meeting" and "Special Factors -
Recommendation of the Board of Directors" of the Proxy Statement is
incorporated herein by reference.
Item 13. Other Provisions of the Transaction.
(a) The information set forth under the caption "The Reverse Stock
Split - Dissenting Shareholders' Rights" and "Annex B" of the Proxy Statement
is incorporated herein by reference.
(b)-(c) Not applicable.
Item 14. Financial Information.
(a)(1) The audited financial statements and supplemental information
listed under the caption "Index to Financial Statements" of the Proxy
Statement is incorporated herein by reference.
(a)(2) The unaudited financial statements listed under the caption
"Index to Financial Statements" of the Proxy Statement is incorporated herein
by reference.
(a)(3) Not applicable because the Registrant is a Small Business issuer.
(a)(4) The information set forth under the caption "Price Range of
Common Stock; Dividends; Book Value - Book Value" is incorporated herein by
reference.
(b) Not applicable.
Item 15. Persons and Assets Employed, Retained or Utilized.
(a) The information set forth under the caption "Summary - The
Special Meeting - Solicitation of Proxies" of the Proxy Statement is
incorporated herein by reference.
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<PAGE>
(b) The information set forth under the caption "Summary - The
Special Meeting - Solicitation of Proxies" and "Special Factors - Opinion of
Financial Advisor" of the Proxy Statement is incorporated herein by reference.
Item 16. Additional Information.
All of the information set forth in the Proxy Statement is
incorporated herein by reference.
Item 17. Material to be Filed as Exhibits.
(a) Form of Loan Facility to be entered into between Territorial
Resources, Inc. and Societe Generale, London Branch.
(b)(1) Report of Sayer Securities Limited.
(b)(2) Opinion of Sayer Securities Limited (incorporated by reference
to Annex C to the Proxy Statement filed as Exhibit (d)(1) hereto).
(c) Reorganization Agreement and Plan of Merger dated January 28,
1998 by and among SOCO International plc, SOCO Resources (Colorado), Inc. and
Territorial Resources, Inc. (incorporated by reference to Exhibit 99.2 to
Form 8-K Current Report of Territorial Resources, Inc. dated January 28,
1998).
(d)(1) Proxy Statement of Territorial Resources, Inc. for the Special
Meeting of Shareholders to be held on ___________, 1998.
(d)(2) Proxy Card.
(e) Statement of appraisal rights (incorporated by reference to
Annex B to the Proxy Statement filed as Exhibit (d)(1) hereto).
After due inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete
and correct.
TERRITORIAL RESOURCES, INC.
Dated: February 5, 1998 /s/ DANIEL A. MERCIER
---------------------------------------
Name: Daniel A. Mercier
Title: Chairman of the Board and
Chief Executive Officer
-9-
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION PAGE
- ------- ----------- ----
(a) Form of Loan Facility to be entered into between
Territorial Resources, Inc. and Societe Generale,
London Branch.
(b)(1) Report of Sayer Securities Limited.
(b)(2) Opinion of Sayer Securities Limited (incorporated by
reference to Annex C to the Proxy Statement filed as
Exhibit (d)(1) hereto).
(c) Reorganization Agreement and Plan of Merger dated
January 28, 1998 by and among SOCO International plc,
SOCO Resources (Colorado), Inc. and Territorial
Resources, Inc. (incorporated by reference to
Exhibit 99.2 to Form 8-K Current Report of Territorial
Resources, Inc. dated January 28, 1998).
(d)(1) Proxy Statement of Territorial Resources, Inc. for the
Special Meeting of Shareholders to be held on
_______________, 1998.
(d)(2) Proxy Card.
(e) Statement of appraisal rights (incorporated by reference
to Annex B to the Proxy Statement filed as Exhibit (d)(1)
hereto).
<PAGE>
EXHIBIT (a)
THIS AGREEMENT is made the day of , 1998
BETWEEN
(1) SOCIETE GENERALE, a company incorporated in France with limited
liability whose UK head office is at Exchange House, Primrose Street,
London EC2A 2HT (the "Bank");
(2) TERRITORIAL RESOURCES INC., a company incorporated in the State of
Colorado, USA with limited liability whose registered office is at 450
North Sam Houston Parkway, Suite 140, Houston, Texas 77060 USA
("TRI"); and
(3) SOCO INTERNATIONAL PLC, a company incorporated in England with limited
liability whose registered office is at Swan House, 32/33 Old Bond
Street, London W1X 3AD ("Soco").
WHEREAS
(A) By a facility letter dated [ ] 1998 (the "Facility Letter") the
Bank has made available to TRI a short term advances facility (the
"Facility") of up to US$1,800,000 on the terms and subject to the
conditions therein contained.
(B) It has been agreed that immediately upon the completion of the
proposed acquisition by Soco of 51% or more of the issued share
capital of TRI (the "Merger"), Soco and TRI shall be substituted
jointly and severally as Borrower under the Facility Letter in place
of TRI.
(C) Words and expressions defined in the Facility Letter shall bear the
same meanings when used in this Agreement.
NOW IT IS HEREBY AGREED AS FOLLOWS
(1) NOVATION
The parties agree that in consideration of the releases and assumptions
contained in this Clause with immediate effect from the completion of the
Merger:-
(i) TRI and the Bank each fully and completely releases its interest,
rights and benefits and releases the other from all obligations
whatsoever owed by it under the Facility Letter;
(ii) Each of TRI and Soco jointly and severally assumes towards the Bank
all obligations and liabilities in each case identical in all respects
to those which, prior to completion of the Merger, TRI owed to the
Bank under the Facility Letter and acknowledges that the Bank has
interests, rights and benefits in each case identical in all respects
to those
<PAGE>
which, prior to the completion of the Merger, the Bank enjoyed in
respect of the Facility Letter;
(iii) The Bank assumes towards each of TRI and Soco all obligations and
liabilities in each case identical in all respects to those which,
prior to the completion of the Merger, the Bank owed to TRI under the
Facility Letter and acknowledges that each of TRI and Soco jointly and
severally has interests, rights and benefits in each case identical in
all respects to those which, prior to completion of the Merger, TRI
enjoyed in respect of the Facility Letter;
(iv) Each of TRI and Soco agree to be jointly and severally bound by and be
jointly and severally subject to terms and conditions identical in all
respects to those by which, prior to completion of the Merger, TRI was
bound under the Facility Letter; and
(v) The Bank agrees to be bound by and subject to terms and conditions
identical in all respects to those by which, prior to completion of
the Merger, it was bound under the Facility Letter.
2. REPRESENTATIONS AND WARRANTIES
Soco represents and warrants to the Bank that:
(i) Soco is a public limited company, duly incorporated and validly
existing under the laws of England;
(ii) the execution, delivery and performance of this Agreement by Soco is
within Soco's corporate powers, has been duly authorised by all
necessary corporate action and does not contravene any provision of
law or regulation or of the Articles of Incorporation of Soco or any
contract or agreement binding on Soco;
(iii) the obligations and liabilities expressed to be assumed by Soco under
this Agreement are legal, valid and binding obligations of Soco
binding on Soco in accordance with their terms;
(iv) there are pending or threatened no actions or proceedings before any
court or administrative agency against Soco nor is Soco in breach of
or in default under any agreement to which it is a party or which is
binding on it or any of its assets, to an extent or in a manner which
may have an adverse effect on the financial condition or operations of
Soco, or impair Soco's ability to perform its obligations under this
Agreement;
(v) Soco has not taken any corporate action nor have any other steps been
taken or legal proceedings been started or (to the best of Soco's
knowledge and belief) threatened against Soco for its winding-up,
dissolution or reorganisation, or for the appointment of a
receiver, trustee or similar officer of it or of any or all of
its assets or revenues;
(vi) the information provided by Soco in connection with the negotiation of
this
<PAGE>
Agreement is true, complete and accurate in all material respects and
Soco is not aware of any material facts or circumstances that have not
been disclosed to the Bank.
(3) UNDERTAKING
Soco hereby undertakes to provide the Bank on demand with such information
concerning its business and its ability to repay the Loan as the Bank may
require.
(4) EFFECTIVE DATE
For the avoidance of doubt, it is expressly agreed that the novation described
in paragraphs (1)(i) to (v) shall be deemed to take effect immediately as from
completion of the Merger notwithstanding the date on which this agreement is
signed.
(5) CONTINUING OBLIGATIONS
(i) Save as provided in this agreement the terms and conditions of the
Facility Letter shall remain in full force and effect and shall
continue following the novation described herein as if TRI and Soco
jointly were named therein as Borrower in place of TRI.
(ii) For the avoidance of all, if any, doubt, TRI hereby irrevocably and
unconditionally confirms that the security constituted by the Share
Charge in favour of the Bank shall remain in full force and effect as
security for the obligations of TRI under or in connection with the
Facility Letter and shall not be discharged, released, prejudiced or
in any way affected by the novation herein contained.
(6) ONE AGREEMENT
This agreement and the Facility Letter shall be read and construed as one
agreement and references in the Facility Letter to "this Agreement" and other
like expressions shall be deemed to refer to the Facility Letter as supplemented
by this agreement and references in the Facility Letter to "Soco" shall be
deemed to refer to each of TRI and Soco jointly and severally.
(7) JOINT AND SEVERAL LIABILITY
The obligations and liabilities of each of TRI and Soco towards the Bank under
or in connection with the Facility Letter and following the novation herein
described shall be joint and several obligations and liabilities.
(8) COUNTERPARTS
This Agreement may be executed in as many counterparts as may be deemed
necessary or convenient, and by the different parties hereto on separate
counterparts each of which, when
<PAGE>
so executed, shall be deemed an original, but all such counterparts shall
constitute one and the same instrument.
(9) LAW
(i) This Agreement shall be governed by and construed in accordance with
the laws of England.
(ii) Each of the parties hereto agrees (but without prejudice to the right
of any party hereto to take proceedings in relation hereto before any
other court of competent jurisdiction), that the courts of England
shall have jurisdiction to hear and determine any suit, action or
proceeding, and to settle any disputes, which may arise in connection
herewith and, for such purposes, irrevocably submits to the
jurisdiction of such courts.
IN WITNESS whereof the parties hereto have caused this Agreement to be duly
executed on the date first above written
Signed by )
)
for and on behalf of )
SOCIETE GENERALE )
Signed by )
)
for and on behalf of )
TERRITORIAL RESOURCES INC. )
Signed by )
)
for and on behalf of )
SOCO INTERNATIONAL PLC )
<PAGE>
DATED 1998
-----------------
TERRITORIAL RESOURCES INC.
-and-
SOCO INTERNATIONAL PLC
-and-
SOCIETE GENERALE,
LONDON BRANCH
__________________________
NOVATION AGREEMENT
__________________________
<PAGE>
Draft 03/02/98
To: Territorial Resources Inc.
450 North Sam Houston Parkway
Suite 140
Houston, Texas 77060
USA
[ ] 1998
For the attention of: [*CONTACT NAME]
Dear Sirs,
RE: US$1,800,000 FACILITY
We, Societe Generale, are pleased to offer you a short term advances facility
on the terms and conditions set out below:-
1. BANK
Societe Generale, a company organised and existing under the laws of France
having its principal place of business in the United Kingdom at Exchange
House, Primrose Street, London EC2A 2HT (the "BANK").
2. BORROWER
Territorial Resources Inc. a company organised and existing under the laws of
the State of Colorado, USA whose registered office is at 450 North Sam
Houston Parkway, Suite 140, Houston, Texas 77060, USA (the "BORROWER").
3. THE FACILITY
The facility hereby offered (the "FACILITY") is a short term advances
facility in the maximum aggregate principal amount of one million eight
hundred thousand United States Dollars (US$1,800,000).
4. TERM
The Facility shall, unless cancelled earlier by the Borrower or the Bank
pursuant to the terms of this Agreement, terminate on whichever is the
earlier of (i) the Merger Date or (ii) 31st July1998. The date on which this
Agreement terminates is herein referred to as the "MATURITY DATE".
5. PURPOSE
The proceeds of the Facility are available to enable the Borrower to
repurchase a portion of its own issued share capital. The Bank shall not be
concerned to ensure that such application takes place.
<PAGE>
6. CONDITIONS PRECEDENT; AVAILABILITY
(A) The Borrower may not utilise the Facility unless and until the Bank
has received, in form and content satisfactory to it, each of the
following:-
(i) This Agreement, duly countersigned by the Borrower;
(ii) The Share Charge, duly executed by the Borrower;
(iii) The Novation Agreement duly signed by each of the Borrower
and Soco;
(iv) A copy, certified a true copy by a duly authorised officer
of the Borrower, of resolutions of the [BOARD OF DIRECTORS]
of the Borrower, satisfactory to the Bank, approving the
execution, delivery and performance of each of this
Agreement, the Share Charge, the Novation Agreement and the
terms and conditions hereof and thereof and authorising a
named person or persons to sign and/or execute and deliver
on behalf of the Borrower each of this Agreement, the Share
Charge, the Novation Agreement and any documents or further
agreements to be delivered by the Borrower and the other
parties thereto;
(v) A copy, certified a true copy by a duly authorised officer
of the Borrower, of the Articles of Incorporation and
Bye-Laws of the Borrower as in force on the date of this
Agreement;
(vi) A copy, certified a true copy by a duly authorised officer
of Soco, of resolutions of the Board of Directors of Soco,
satisfactory to the Bank, approving the execution, delivery
and performance of the Novation Agreement;
(vii) A specimen of the signature of each person authorised by the
Borrower to sign each of this Agreement, the Share Charge,
the Novation Agreement and to sign and despatch all notices
and other communications as required or permitted to be
given by the Borrower hereunder or thereunder;
(viii) A specimen of the signature of each person authorised by
Soco to sign the Novation Agreement and to sign and despatch
all notices and other communications required or permitted
to be given by Soco thereunder or in relation to the
Facility;
(ix) Evidence satisfactory to the Bank that the Value of the
Shares exceeds 165% of the Sterling Amount of the Facility;
(x) Evidence satisfactory to the Bank that the Borrower is the
registered holder of, and has good title (unencumbered save
in favour of the Bank) to, the Shares;
(xi) Share Certificates in respect of the Shares;
(xii) Stock transfer forms executed in blank relating to the
Shares;
(xiii) The Bank's standard form of mandate, duly completed by the
Borrower, opening an account with the Bank on and subject to
the Bank's standard terms;
<PAGE>
(xiv) A legal opinion from counsel acceptable to the Bank in the
State of Colorado, USA in form and substance satisfactory to
the Bank and covering such matters relating to the Borrower
as the Bank may require;
(xv) A legal opinion from English counsel acceptable to the Bank
in form and substance satisfactory to the Bank and covering
such matters relating to Soco as the Bank may require; and
(xvi) Such evidence as the Bank may require that Soco has agreed
to act as agent for service of process for the Borrower.
(B) Subject to:-
(i) the conditions set out in Clause 6(A) having been satisfied
as shown;
(ii) there having then occurred no breach of any of the terms or
conditions of this Agreement and the representations and
warranties set out in Clause 10 being true and accurate in
all respects;
(iii) there having then occurred no event or circumstance as is
described in Clause 17 ("Events of Default"), or event or
circumstance which, with the giving notice and/or lapse of
time and/or upon the Bank making a determination under
Clause 17 ("Events of Default") would constitute such an
event;
(iv) the Bank having received, by no later than 11.00 a.m. on the
second business day before the proposed Drawdown Date, a
notice of drawing in the form set out in Appendix One (which
shall be irrevocable) signed by a person duly authorised on
behalf of the Borrower and specifying the requested Drawdown
Date,
the Borrower may, on any business day during the Availability Period
draw Advances under the Facility PROVIDED THAT:-
(a) the term of each Advance shall expire on the Maturity Date;
(b) the amount of any Advance shall be either an integral
multiple of US$100,000 or the Available Facility Amount;
(c) a notice of drawing once given shall not be revocable by the
Borrower;
(d) the aggregate principal amount for the time being
outstanding shall at no time exceed the amount of the
Facility;
(e) not more than twenty Advances may be outstanding at any one
time;
(f) the Sterling Amount of the Outstandings does not exceed 165%
of the Value of the Shares on such date.
(C) If the Bank in its discretion allows the Borrower to draw any Advance
notwithstanding that some or all of the conditions specified in Clause
6(A) or (B) have not been satisfied the Bank shall not thereby be
deemed to have waived any such condition and the Borrower covenants
with the Bank to satisfy such conditions, or to procure that such
conditions are satisfied forthwith upon request from the Bank.
<PAGE>
7. SECURITY
By way of continuing security for the payment of all amounts from time to
time falling due under this Agreement the Borrower shall execute and deliver
to the Bank the Share Charge relating to the Shares.
8. INTEREST AND LATE PAYMENTS
(A) The rate of interest applicable to each Advance shall be the rate per
annum determined by the Bank to be the AGGREGATE of (i) 0.6% AND (ii)
LIBOR.
(B) Interest accrued on each Advance will be payable by the Borrower in
arrears on the Maturity Date.
(C) If any sum payable hereunder is not paid when due under the terms
hereof, interest will accrue from day to day on such unpaid amount from
the date when due until payment, calculated (as well after as before
judgment) at the rate determined by the Bank to be the AGGREGATE of (i)
3%; AND (ii) LIBOR for the relevant period;
(D) For the purposes of this Facility "LIBOR" means, in relation to any
Advance or any unpaid sum, the rate per annum determined by the Bank to
be the arithmetic mean (rounded upwards, if not already such a
multiple, to the nearest whole multiple of one sixteenth of one percent
(1/16%)) of the rates at which the Bank was offering to prime banks in
the London Interbank Market, as at 11.00 a.m. on the relevant Quotation
Date, US$ deposits in an amount equal to or (in the Bank's opinion)
comparable with such Advance or the amount of such unpaid sum, and for
the period of the term of such Advance or period applicable to such
unpaid sum.
9. REPAYMENT
(A) Subject as provided below, all Advances together with accrued interest
thereon and all other amounts outstanding under the Facility, and any
other monies owing hereunder shall be paid in full, on the Maturity
Date. For the avoidance of all (if any doubt) no amounts repaid
hereunder shall be available for redrawing.
(B) The Borrower shall not repay or prepay all or any part of any Advance
except at the times and in the manner expressly provided for in this
Agreement and shall not be entitled to reborrow any amount repaid.
10. REPRESENTATIONS AND WARRANTIES
(A) The Borrower represents and warrants to the Bank that:
(i) the Borrower is a private limited company, duly incorporated
and validly existing under the laws of the State of
Colorado, USA;
(ii) the execution, delivery and performance of this Agreement,
the Share Charge and the Novation Agreement by the Borrower
are within the Borrower's corporate powers, have been duly
authorised by all necessary corporate action and do not
contravene any provision of law or regulation or of the
Articles of Incorporation or Bye-Laws of Incorporation of
the Borrower or any contract or agreement binding on the
Borrower;
<PAGE>
(iii) the obligations and liabilities expressed to be assumed by
the Borrower under each of this Agreement, the Share Charge
and the Novation Agreement are legal, valid and binding
obligations of the Borrower binding on the Borrower in
accordance with their respective terms, and, without
prejudice to the foregoing, the Share Charge creates (inter
alia) valid first charges over the assets thereby charged
ranking in point of security ahead of all other creditors of
the Borrower;
(iv) there are pending or threatened no actions or proceedings
before any court or administrative agency against the
Borrower nor is the Borrower in breach of or in default
under any agreement to which it is a party or which is
binding on it or any of its assets, to an extent or in a
manner which may have an adverse effect on the financial
condition or operations of the Borrower, or impair the
Borrower's ability to perform its obligations under any of
this Agreement, the Share Charge or the Novation Agreement
and there are no pending or threatened disputes or
proceedings arising out of or in connection with the Shares;
(v) the Borrower has not taken any corporate action nor have any
other steps been taken or legal proceedings been started or
(to the best of the Borrower's knowledge and belief)
threatened against the Borrower for its winding-up,
dissolution or reorganisation, or for the appointment of a
receiver, trustee or similar officer of it or of any or all
of its assets or revenues nor have any proceedings analogous
to the foregoing been started or threatened in any other
jurisdiction;
(vi) save as provided in the Share Charge, the execution of this
Agreement, the Share Charge and the Novation Agreement and
the Borrower's exercise of its rights and performance of its
obligations hereunder and thereunder will not result in the
existence of, nor oblige the Borrower to create, any
encumbrance over all or any of its present or future
revenues or assets, nor result in any breach of any
agreement;
(vii) the financial statements most recently delivered to the Bank
by the Borrower were prepared in accordance with accounting
principles generally accepted in the State of Colorado, USA
and consistently applied, and give a true and fair view of
the financial condition of the Borrower and its subsidiaries
(if any) at the date to which they were prepared and the
results of the Borrower's operations during the financial
year ending on such date; since publication of such
financial statements there has been no material adverse
change in the business or financial condition of the
Borrower or any of its subsidiaries;
(viii) the information provided by the Borrower in connection with
the negotiation of the Facility and the preparation of the
Share Charge and the Novation Agreement is true, complete
and accurate in all material respects and the Borrower is
not aware of any material facts or circumstances that have
not been disclosed to the Bank and which might, if
disclosed, adversely affect the decision of a person
considering whether or not to provide finance to the
Borrower; and
(ix) no Event of Default has occurred and is continuing;
(x) the Borrower is the sole, absolute, legal and beneficial
owner of the Shares which are registered in its name and is
able freely to transfer them;
(xi) the Shares are not subject to Encumbrance of any type
whatsoever.
<PAGE>
(B) The representations made by the Borrower pursuant to Clause 10(A) shall
survive the execution of this Agreement and the drawing of each Advance
hereunder and shall be deemed to be repeated on each Drawdown Date, as
if made at and in respect of the circumstances existing at each such
time.
11. TAXES
(A) All payments to be made by the Borrower hereunder shall be made free and
clear of and without deduction for or on account of tax unless the
Borrower is required to make such a payment subject to the deduction or
withholding of tax, in which case the sum payable by the Borrower in
respect of which such deduction or withholding is required to be made
shall be increased to the extent necessary to ensure that, after the
making of such deduction or withholding, the Bank receives and retains
(free from any liability in respect of any such deduction or
withholding) a net sum equal to the sum which it would have received and
so retained had no such deduction or withholding been made or required
to be made.
(B) If at any time the Borrower is required to make any deduction or
withholding from any sum payable by him hereunder (or if thereafter
there is any change in the rates at which or the manner in which such
deductions or withholdings are calculated) the Borrower shall promptly
notify the Bank.
(C) If the Borrower makes any payment hereunder in respect of which it is
required to make any deduction or withholding it shall pay the full
amount required to be deducted or withheld to the relevant taxation or
other authority within the time allowed for such payment under
applicable law and shall deliver to the Bank within thirty days after it
has made such payment to the applicable authority an original receipt
(or a certified copy thereof) issued by such authority evidencing the
payment to such authority of all amounts so required to be deducted or
withheld.
(D) Without prejudice to the provisions of Clause 11(A), if the Bank is
required to make any payment on account of tax or otherwise (not being
tax imposed on the net income of its lending office by the jurisdiction
in which it is incorporated or in which its lending office is located)
on or in relation to any sum received or receivable by the Bank
hereunder (including, without limitation, any sum received or
receivable under this Clause 11) or any liability in respect of any
such payment is asserted, imposed, levied or assessed against the Bank,
the Borrower will upon demand of the Bank promptly indemnify the Bank
against such payment or liability, together with any interest,
penalties and expenses payable or incurred in connection therewith.
12. INCREASED COSTS
If by reason of (a) any change in law, treaty or regulation or in its
interpretation or administration and/or (b) compliance with any request or
direction (whether or not having the force of law) from, or requirement or
expressed expectation of, any central bank or other fiscal, monetary or other
authority (including in each case, without limitation, those relating to
taxation, any reserve, special deposit, cash ratio, liquidity or capital
adequacy requirement or other form of banking or monetary controls),
(i) the Bank incurs a cost as a result of its having entered into
and/or performing its obligations under this Agreement and/or as a
result of any Advance being outstanding hereunder;
<PAGE>
(ii) there is any increase in the cost to the Bank of funding or
maintaining any Advance; or
(iii) the Bank becomes liable to make a payment (not being a payment of
tax on its overall net income) on or calculated by reference to the
amount of any Advance,
then and in each such case (a) the Bank shall notify the Borrower of the
relevant event promptly upon becoming aware of the same and (b) promptly
following any demand from time to time by the Bank the Borrower shall promptly
pay to the Bank amounts sufficient to indemnify the Bank against, as the case
may be, (i) such cost, (ii) such increased cost (or such proportion of such
increased cost as is in the opinion of the Bank attributable to the funding or
maintaining of any relevant Advance) or (iii) such liability.
13. MARKET DISRUPTION
(A) If and each time that the Bank determines (which determination shall be
conclusive and binding on the Borrower) that at or about 11.00 a.m. on
the Quotation Date in respect of any Advance prime banks are not making
available to it in the London Interbank Market deposits in United States
Dollars of the required amount and for the required period for funding
such Advance, or that by reason of circumstances affecting the London
Interbank Market generally, the rate at which such deposits are being so
made available does not accurately reflect the cost to it of funding
such Advance and/or that adequate and fair means do not exist for
ascertaining the interest rate in accordance with Clause 8 ("Interest
and Late Payments"), the Bank shall promptly give notice in writing of
such determination to the Borrower.
(B) If the Bank gives a notice under Clause 13(A), the rate of interest
applicable to the Advance in question shall be the rate per annum
determined by the Bank to be the aggregate of (i) 0.6% AND (ii) the rate
conclusively determined by the Bank to express, as a percentage rate per
annum, the cost to it of funding such Advance from whatever sources it
may select.
(C) The Bank and the Borrower shall consult in good faith immediately
following the giving of any notice under Clause 13(A) and following any
significant change in market conditions after service of such notice
with a view to returning to the normal provisions of this Agreement.
14. ILLEGALITY
If any law, regulation, treaty or official directive (whether or not having
the force of law) shall make it unlawful or contrary to an official directive
in any jurisdiction for the Bank to give effect to or maintain its
obligations as contemplated by this Agreement, the Bank shall not thereafter
be obliged to make any Advances hereunder and the amount of the Facility
shall be reduced to zero, and, if the Bank so requires, the Borrower shall on
such date as the Bank shall have specified prepay all or any outstanding
Advances together with accrued interest thereon and pay to the Bank any other
amounts due from the Borrower hereunder.
15. POSITIVE COVENANTS
(A) The Borrower shall:
(i) at all times retain good title to the Shares free from any
Encumbrance whatsoever (save for any rights or Encumbrances which
may be granted to the Bank);
<PAGE>
(ii) from time to time at the request of the Bank, provide the Bank with
such information about the Borrower or the Shares as the Bank may
require;
(iii) procure that its obligations under this Agreement do and will rank
at least pari passu with all its other present and future unsecured
indebtedness, except for obligations which are mandatorily
preferred by law;
(iv) from time to time at the Bank's request do or procure the doing of
all such things (including, without limitation, the execution of
all such documents in form and substance satisfactory to the Bank)
as are necessary for giving full effect to this Agreement, the
Share Charge, the Novation Agreement and the security interests in
respect of the Shares granted in favour of the Bank as
contemplated herein and therein;
(v) obtain, comply with the terms of and do all that is necessary to
maintain in full force and effect all authorisations, approvals,
licences and consents required in or by all applicable laws and
regulations to enable the Borrower lawfully to enter into and
perform its obligations under this Agreement, the Share Charge and
the Novation Agreement; and
(vi) promptly notify the Bank of the occurrence of any of the events
specified in Clause 17 ("Events of Default").
(B) The Borrower covenants with the Bank to ensure that the Value of the
Shares shall at any given date from the date hereof to and including the
Maturity Date exceed 165% of the Sterling Amount of the Outstandings as
at such date.
(C) If at any time the provisions of Clause 15(B) are not for the time being
complied with, the Borrower shall, immediately after the Bank shall have
notified it of that fact and as the Bank may in its absolute discretion
decide:-
(i) repay all or part of the Outstandings as the Bank may require;
and/or
(ii) provide the Bank with such additional security as the Bank may
agree.
such that the aggregate of the amounts so repaid and/or the value of the
assets over which security is created is sufficient to ensure that the
requirements of Clause 15(B) are met.
(D) Without prejudice to the provisions of Clause 15(C), if at any time the
provisions of Clause 15(B) are not for the time being complied with the
Bank shall have the right at such time, without prior notice to the
Borrower, to enforce its security in respect of the Shares in accordance
with the terms of the Share Charge.
16. NEGATIVE COVENANTS
The Borrower shall not:-
(i) sell or otherwise dispose of or enter into a legally binding agreement
to sell or otherwise dispose of any of the Shares; or
(ii) create (or purport to create) or permit to exist any Encumbrance over
any of the Shares.
<PAGE>
17. EVENTS OF DEFAULT
If any of the following events occur:-
(A) the Borrower fails to pay any sum payable under this Agreement when due;
(B) any representation, warranty or statement made by the Borrower in or in
connection with this Agreement or the Share Charge:-
(i) proves to have been incorrect or inaccurate when made, or
(ii) in the case of any certificate, statement or document delivered or
made by the Borrower pursuant hereto or thereto or in connection
herewith or therewith (including, without limitation, any legal
opinion provided to the Bank pursuant to Clause 6(A) or otherwise)
proves to have been incorrect or inaccurate when made,
in either case in a manner or to an extent which is in the Bank's
opinion material and adverse;
(C) any representation, warranty or statement made by Soco in or in
connection with the Novation Agreement proves to have been incorrect or
inaccurate when made;
(D) the Borrower defaults in the performance of any other provision of this
Agreement, the Share Charge or the Novation Agreement or Soco defaults
in the performance of any provision of the Novation Agreement;
(E) any financial indebtedness of the Borrower (which in the opinion of the
Bank is material having regard to the Borrower's ability to perform its
obligations hereunder) becomes due and payable prior to its specified
maturity, the Borrower is in breach of or default under any agreement or
document evidencing or regulating such indebtedness, the Borrower fails
to pay any sum (which in the opinion of the Bank is material) due to be
paid by the Borrower under any guarantee, the Borrower is unable or
fails or admits its inability to pay its debts as they fall due or the
Borrower makes a general assignment of the benefit of, or a composition
with its creditors;
(F) a resolution is passed at a meeting of the Borrower for (or to petition
for) its winding up or the Borrower presents any petition for its
winding up or an order for the winding up of the Borrower is made;
(G) any resolution is passed at a meeting of the Borrower for (or to
petition for) its administration or an application for an administration
order in relation to the Borrower is presented to court or is made;
(H) the Borrower agrees to any kind of composition, scheme, compromise or
arrangement involving its creditors;
(I) any administrative or other receiver or any manager of the Borrower or
any of its assets is appointed or legal steps are taken to enforce any
Encumbrance over any of its assets;
(J) there occurs, in relation to the Borrower, in any country or territory
in which it carries on business or to the jurisdiction of whose courts
it or any of its assets are subject, any event
<PAGE>
which corresponds in that country or territory with any of those
mentioned in sub-clauses (F), (G), (H) or (I) inclusive above;
(K) any person, other than Soco, acquires 51% or more of the issued share
capital of the Borrower;
(L) any failure in the efficacy of any of the transactions contemplated in
this Agreement, the Share Charge or the Novation Agreement; and
(M) any change in the financial condition of the Borrower which, in the
Bank's opinion, is a material adverse change,
then the Bank shall be under no obligation to advance any moneys hereunder and
may by notice to the Borrower:-
(i) cancel any part of the Facility; and/or
(ii) require repayment (forthwith or otherwise as the Bank may require) of
all Advances and all other amounts outstanding under the Facility with
accrued interest thereon together with any other sums then owed by the
Borrower hereunder,
PROVIDED THAT immediately upon the occurrence of any of the events specified
in sub-clauses (E), (F), (G) and (H) above, and whether or not the Bank shall
previously have given any notice pursuant to paragraphs (i) or (ii) of this
Clause 17, the Facility shall automatically be cancelled and all Advances and
all interest, fees and all other sums payable under this Agreement shall
immediately become due and payable.
18. INDEMNITIES
The Borrower shall on first demand indemnify the Bank against any claim,
cost, loss or expense (including funding breakage costs and the costs of
terminating any interest rate swaps or other hedging or funding arrangements
entered into by the Bank in relation to this Agreement) incurred by the Bank
as a result of (a) default by the Borrower in the due payment of any sum due
under this Agreement, (b) receipt by the Bank of any amount outstanding
hereunder otherwise than on the Maturity Date, or (c) any Advance not being
made (other than as a result of the Bank's default) after the giving of the
notice of drawing applicable thereto.
19. BENEFIT OF AGREEMENT
(A) The Agreement shall bind and enure to the benefit of the Borrower and
the Bank and their respective successors and assigns.
(B) The Bank may assign the whole or any part of the benefit of this
Agreement to any person.
(C) The Borrower may not assign or transfer all or any part of his rights
and benefits under this Agreement.
(D) The Bank may disclose to a potential assignee of all or any part of its
rights under or in respect of this Agreement or to any person who may
otherwise enter into contractual relations with the Bank in relation to
this Agreement such information about the Facility and the security
provided in connection therewith as the Bank thinks fit. If, in respect
of the Facility, any of the Bank's affiliates provides the Bank with any
assistance with respect to
<PAGE>
any such assignment or other contractual relations, then the Bank may
disclose such information to such affiliate and such affiliate may
disclose such information to such assignee or other person.
20. NOTICES
(A) Each notice, request, demand or other document to be given or made
under this Agreement shall be in writing, addressed to the Borrower at
the address shown above or at such other address as the Borrower may
inform the Bank for this purpose and to the Bank at its address shown
above.
(B) Any notice, request, demand or other communication to be given or made
to the Borrower shall be deemed made (i) when despatched (if given or
made by facsimile or telex) or (ii) when left at the address mentioned
above or (iii) 7 days after posting addressed as required above (if
given or made by letter).
21. FEES AND EXPENSES
(A) The Borrower shall pay to the Bank an arrangement fee in the amount of
US$5,000 on the date on which the Borrower accepts the terms and
conditions of this Agreement by countersigning and returning the
enclosed copy hereof.
(B) The Borrower shall reimburse the Bank for all legal costs incurred by
the Bank in the negotiation, preparation and execution of this
Agreement, the Share Charge and the Novation Agreement (and any
amendment or variation thereto), together with all legal costs incurred
by the Bank in connection with the enforcement or preservation of any
of the Bank's rights thereunder.
(C) The Borrower shall, from time to time, reimburse the Bank on an
indemnity basis for any cost or expense (including without limitation,
valuation fees) incurred from time to time by the Bank from third
parties, in the negotiation, preparation, administration, execution,
registration and perfection of this Agreement, the Share Charge and any
security arrangements created thereby, the completion of the
transactions and documents herein or therein contemplated or the
preservation or enforcement of any of the Bank's rights under this
Agreement, the Share Charge and the Novation Agreement including,
without limitation, all stamp duty, registration and other taxes to
which the same or any judgment given in connection herewith or
therewith may be subject.
22. MISCELLANEOUS
(A) The currency of account and payment with regard to all the obligations
of the Borrower hereunder is United States Dollars, provided however
that any sum payable to the Bank under any of the indemnities
contained herein shall, unless the context otherwise requires, be
payable in the currency in which relevant loss or expense is suffered
or incurred by the Bank.
(B) All sums falling due hereunder by way of interest shall be calculated
on the basis of a year of 360 days from day to day for the actual
number of days elapsed unless the Bank determines, in its absolute
discretion, that a different basis is customarily applied in which
case such different basis shall be applied.
<PAGE>
(C) Any release, discharge or settlement between the Borrower and the Bank
shall be conditional upon no security, disposition or payment to the
Bank by the Borrower, or any other person being void or being set
aside or ordered to be refunded for any reason and if such condition
shall not be fulfilled the Bank shall be entitled to enforce the
provisions of this Agreement subsequently as if such release,
discharge or settlement had not occurred.
23. PAYMENTS
(A) All payments to be made by the Borrower to the Bank shall be made free
and clear of and without deduction for or on account of (i) any
set-off or counterclaim or (ii) (other than as required by law) any tax
or other matter. All payments to be made by the Borrower under this
Agreement shall be made in the currency required hereunder and in
immediately available freely transferable cleared funds to the Bank at
its address mentioned above (or in such other manner or to such account
as the Bank, or its assignee, (if any), may have specified for this
purpose) by no later than 11.00 a.m. (local time) on the due date for
any such payment.
(B) The Bank is authorised to apply any credit balance to which the
Borrower is entitled on any account of the Borrower with the Bank in
satisfaction of any sum due and payable from the Borrower to the Bank
under the Facility but unpaid; for this purpose the Bank is authorised
to purchase with the monies standing to the credit of any such account
such other currencies as may be necessary to effect such application.
(C) Notwithstanding any other provision of this Agreement, express or
implied, the Bank shall have an absolute and unfettered right to
appropriate any payments received from the Borrower to such of the
Borrower's obligations under this Agreement (and whether to the
principal, interest or any other sums payable) as the Bank may
determine, to the exclusion of any right on the part of the Borrower
to make any appropriation in respect of such payments.
24. INTERPRETATION
In this Agreement, unless the context otherwise requires:-
"ADVANCE" means an advance made or to be made by the Bank under this
Agreement;
The expressions "THE AGREEMENT" or "THIS AGREEMENT" means and
includes, as the context so admits, the agreement resulting from the
acceptance by the Borrower of the terms and conditions set out in this
letter of offer, and any reference to the "DATE" of this Agreement
means the date of such acceptance by the Borrower;
"AVAILABILITY PERIOD" means the period commencing on the date of this
Agreement and ending on 30th June 1998;
"AVAILABLE FACILITY AMOUNT" means, at any time, the amount of the
Facility less the aggregate amount (if any) of each outstanding Advance
made hereunder;
"BUSINESS DAY" means a day (other than Saturday and Sunday) on which
banks are open for domestic and foreign exchange business in London and
New York;
Any reference to a CLAUSE is, unless the context otherwise requires, a
reference to a clause of this Agreement;
<PAGE>
"DRAWDOWN DATE" means the date on which an Advance is drawn or to be
drawn by the Borrower hereunder;
"ENCUMBRANCE" means any mortgage, charge, pledge, lien, hypothecation,
other security interest or security arrangement of any kind;
"FACILITY" has the meaning ascribed to that term in Clause 3;
Any reference to "FINANCIAL INDEBTEDNESS" of any person shall be
construed so as to include, without limitation, any indebtedness of
such person for or in respect of borrowed money, amounts raised under
or liabilities in respect of any note purchase or acceptance credit
facility, amounts raised by or pursuant to the issue of any notes,
bonds, debentures or other debt securities or any other transaction
(including, without limitation, forward sale or purchase agreements,
leases, hire purchase and conditional sale agreements) having the
commercial effect of a borrowing entered into by any person to finance
its operations or capital requirements;
"INDEBTEDNESS" shall be construed so as to include any obligation
(whether incurred as principal or surety) for the payment or repayment
of money, whether present or future, actual or contingent;
"LOAN " means the aggregate principal amount of all Advances made by
the Bank hereunder or (as the context requires) the amount thereof for
the time being outstanding;
"MATURITY DATE" has the meaning ascribed to that term in Clause 4;
"MERGER DATE" means the date on which the proposed acquisition by Soco
of 100% of the issued share capital of the Borrower is completed.
"NOVATION AGREEMENT" means an agreement to be entered into between the
Bank, the Borrower and Soco whereupon, on the Merger Date, the Borrower
and Soco shall be substituted as joint and several obligors in place of
the Borrower as borrower hereunder;
"OUTSTANDINGS" means the amount of the Loan from time to time
outstanding together with all unpaid interest and interest thereon and
all other monies owed to the Bank hereunder;
Any reference to a "PARAGRAPH" is, unless the context otherwise
requires, a reference to a paragraph of a clause of this Agreement;
Any reference to a "PERSON" shall be construed as a reference to any
person, firm, company, corporation, government, state or agency of a
state or any association or partnership (whether or not having separate
legal personality) of two or more of the foregoing;
"QUOTATION DATE" means, in relation to any Advance, the day
conclusively determined by the Bank to be the day on which quotations
would ordinarily be given by prime banks in the London Interbank Market
for deposits in United States Dollars for delivery on the Drawdown Date
of such Advance and for the term of such Advance, PROVIDED THAT if the
Bank determines that quotations would ordinarily be given on more than
one date, the Quotation Date shall be the last of those dates;
"SHARES" means those shares in Soco held by the Borrower, details of
which are set out in Appendix Two hereto;
<PAGE>
"SHARE CHARGE" means the mortgage to be created by the Borrower over
the Shares in such form as the Bank may require pursuant to Clause 7;
"SOCO" means Soco International Plc, a company incorporated under the
laws of England under company number 3300821 whose registered office is
at Swan House, 32/33 Old Bond Street, London W1X 3AD;
"STERLING AMOUNT" means in relation to any amount denominated in a
currency other than Pounds Sterling at any time, the amount of Pounds
Sterling determined by the Bank to be required to purchase the relevant
amount of such other currency at the Bank's spot buying rate of
exchange in London at such time;
"TAX" shall be construed so as to include any tax, levy, impost, duty
or other charge of a similar nature (including without limitation any
penalty payable in connection with any failure to pay or any delay in
paying any of the same);
Any reference to a TIME is, unless otherwise stated, to London time.
"UNITED STATES DOLLARS" and "US$" means the lawful currency for the
time being of the United States of America;
"VALUE" means in relation to any of the Shares on any day the mid-market
value as quoted in the London Stock Exchange Daily Official List on such
day.
25. CALCULATIONS AND EVIDENCE OF DEBT
(A) The Bank shall maintain in its books a control account in which shall
be recorded (i) the amount of all principal, interest or other sums due
or to become due from the Borrower to the Bank hereunder and (ii) the
amount of any sum received or recovered by the Bank hereunder.
(B) In any legal action or proceeding arising out of or in connection with
this Agreement, the entries made by the Bank in such control account
shall, in the absence of manifest error, be conclusive evidence of the
existence and amounts of the obligations of the Borrower therein
recorded.
(C) A certificate of the Bank as to any amount for the time being required
to indemnify it against any amount provided herein or any other
calculation to be made by the Bank hereunder shall, in the absence of
manifest error, be conclusive evidence in any legal action or
proceeding arising out of or in connection with this Agreement.
26. PARTIAL INVALIDITY
If at any time any provision hereof is or becomes illegal, invalid or
unenforceable in any respect under the law of any jurisdiction neither the
legality, validity or enforceability of the remaining provisions hereof nor the
legality, validity or enforceability of such provision under the law of any
other jurisdiction shall be in any way affected or impaired thereby.
27. WAIVERS; REMEDIES CUMULATIVE
No failure or delay by the Bank in exercising any right, power or privilege
under this Agreement shall impair such right, power of privilege or be construed
as a waiver thereof nor shall any single or
<PAGE>
partial exercise of any right, power or privilege preclude any other or
further exercise thereof or the exercise of any other right, power or
privilege. The rights and remedies of the Bank herein provided are
cumulative and not exclusive of any rights and remedies provided by law.
28. LAW
This Agreement shall be governed by and construed in accordance with English
law.
29. JURISDICTION
(A) The Borrower hereby irrevocably agrees for the benefit of the Bank (and
without prejudice to the right of the Bank to take proceedings in
relation hereto before any other court of competent jurisdiction) that
the courts of England shall have jurisdiction to hear and determine
any suit, action or proceeding, and to settle any disputes, which may
arise out of or in connection with this Agreement, the Share Charge or
the Novation Agreement and, for such purposes, hereby irrevocably
submits to the jurisdiction of such courts.
(B) The Borrower hereby irrevocably agrees that any writ, judgment or other
legal process shall be sufficiently served on it in connection with any
proceedings in England if delivered to Soco at its registered office
from time to time, being, as at the date of this Agreement, Swan House,
32/33 Old Bond Street, London W1X 3AD.
The offer set forth above may be accepted by the Borrower countersigning and
returning to the Bank the enclosed copy hereof but will lapse if the Bank has
not received the enclosed copy hereof, duly countersigned, by [*DATE] from the
date hereof.
Yours faithfully,
For and on behalf of
SOCIETE GENERALE, LONDON BRANCH
___________________________ ___________________________
[ ] [ ]
Agreed and accepted
By: _____________________
for and on behalf of
TERRITORIAL RESOURCES INC.
Date:
<PAGE>
APPENDIX ONE
NOTICE OF DRAWDOWN
Societe Generale
London Branch
Exchange House
Primrose Street
London EC2A 2HT
[ - ] 1998
Attention: Head of Corporate Banking
Dear Sirs
RE: US$1,800,000 SHORT TERM ADVANCES FACILITY
We refer to the one million eight hundred thousand United States Dollars
short term advances facility which you have agreed to make available to us
under the terms of a Facility Letter (the "Facility Letter") dated
[ ] 1998.
In accordance with the provisions of clause 6(B) of the Facility Letter we
hereby give you irrevocable notice that we wish to draw down an Advance in
the amount of US$[ ] on [ ]1998 upon the
terms and subject to the conditions contained in the Facility Letter.
We confirm that at the date hereof the representations set out in Clause 10
of the Facility Letter are true, complete and accurate and that no event
which is or may become (with the passage of time or the giving of notice or
both) an Event of Default (as defined in the Facility Letter) has occurred.
We would be grateful if you would pay the proceeds of the Advance to
[*ACCOUNT DETAILS].
Yours faithfully
- ----------------------------------
for and on behalf of
TERRITORIAL RESOURCES INC.
<PAGE>
APPENDIX TWO
THE SHARES
NUMBER COMPANY DESCRIPTION
600,000 Soco International Plc 20 pence ordinary shares
<PAGE>
To: Societe Generale
London Branch
Exchange House
London EC2A 2HT
Dear Sirs
We act generally as Legal Counsel to Territorial Resources Inc. ("TRI"). We
refer to (1) the facility letter dated [ ] 1998 for a short term
advances facility in the maximum aggregate sum of US$1,800,000 to be made
available by Societe Generale (the "Bank") to TRI (the "Facility Letter"),
(2) the share charge dated [ ] 1998 made by TRI in favour of the
Bank over certain shares in Soco International plc (the "Share Charge") and
(3) the novation agreement dated [ ] 1998 made between TRI, the Bank
and Soco International plc (the "Novation Agreement").
1. We have examined the following documents:
(a) The Facility Letter;
(b) The Share Charge;
(c) The Novation Agreement;
(d) The Articles of Incorporation and Bye-Laws of Incorporation of TRI;
and
(e) Certified true copies of the Board Resolutions of TRI dated [ ] 1998.
We have also examined such other documents and obtained from officers and
representatives of TRI such certificates and assurances as to factual matters
as we have considered necessary for the purposes of this opinion.
2. Having considered the above documents and having regard to the relevant
laws of the State of Colorado and the federal laws of the United States
of America, we are pleased to advise that in our opinion:-
(i) TRI is a private limited company duly organised, validly existing
and in all respects in good standing under the laws of the State of
Colorado and has full power and authority to own its property and
assets and to carry on its business as it is now being conducted;
(ii) TRI has full power and authority to incur the obligations referred
to in each of the Facility Letter, the Share Charge and the
Novation Agreement, to execute and deliver each of the Facility
Letter, the Share Charge and the Novation Agreement, to comply with
the provisions thereof and to perform all of its obligations
thereunder and in particular (but without limitation) to create
security over its shares in Soco International plc on
<PAGE>
the terms provided in the Share Charge and to confer upon the Bank
the rights and interests in respect of such shares expressed to be
conferred thereby;
(iii) The execution and delivery of each of the Facility Letter, the
Share Charge and the Novation Agreement on behalf of TRI by the
relevant person(s) mentioned in the board resolutions referred to
in paragraph 1(e) above have been validly authorised by all
appropriate action of TRI;
(iv) The execution and delivery of each of the Facility Letter, the
Share Charge and the Novation Agreement by the relevant person(s)
mentioned in the board resolutions referred to in paragraph 1(e)
above constitute the assumption by TRI of all the obligations on
the part of TRI contained in each of the Facility Letter, the Share
Charge and the Novation Agreement, and such obligations (assuming
them to be valid and binding according to English law, to which the
Facility Letter, the Share Charge and the Novation Agreement are
expressed to be subject) are legally binding on and enforceable
against TRI under the law of the State of Colorado and United
States federal law and in the courts of the State of Colorado and
any federal courts in accordance with their respective terms.
(v) All acts, conditions and things required to be done and performed
in order:
(a) To enable TRI lawfully to enter into and perform the
obligations expressed to be assumed by it under each of the
Facility Letter, the Share Charge and the Novation Agreement;
(b) To ensure that the obligations expressed to be incurred by TRI
under each of the Facility Letter, the Share Charge and the
Novation Agreement are legal, valid and enforceable in
accordance with their terms;
(c) To make each of the Facility Letter, the Share Charge and the
Novation Agreement admissable in evidence in the State of
Colorado;
have been done, fulfilled and performed in strict compliance with
the Articles of Incorporation and Bye-Laws of Incorporation of TRI
and with all applicable laws of the State of Colorado and any
applicable United States federal laws;
(vi) the rights of the Bank under the Share Charge will constitute a
valid security in respect of all liabilities and obligations of TRI
under or in connection with the Facility Letter (both before and
after the novation described in the Novation Agreement) and will
assure the priority of the Bank in respect of the shares thereby
charged before all other creditors of TRI and/or any liquidator,
administrator, receiver, manager or trustee of TRI.
<PAGE>
(vii) The execution and delivery of each of the Facility Letter, the
Share Charge and the Novation Agreement and the performance by TRI
of its obligations thereunder and compliance with the terms
thereof; do not and will not:
(a) Violate any provision of any law, decree, rule or regulation
or the Articles of Incorporation and Bye-Laws of Incorporation
of TRI; or
(b) Cause any limit of the borrowings of TRI (whether imposed by
law, regulation, regulatory requirement, agreement, its
Articles of Incorporation and Bye-Laws of Incorporation or
otherwise howsoever) to be exceeded.
(viii) All consents, approvals, exemptions and other requirements of all
governmental, regulatory, public and other bodies and authorities
required for or in connection with the execution, delivery and
performance by TRI of its obligations under each of the Facility
Letter, the Share Charge and the Novation Agreement, and the making
of all payments thereunder in the relevant currencies, have been
obtained and are in full force and effect, and no further consents,
approvals, exemptions or other requirements will be needed or will
need to be satisfied so as to enable TRI to perform its obligations
(including, but not limited to its payment obligations) under the
Facility Letter, the Share Charge and the Novation Agreement;
(ix) No stamp or other taxes or fees are required or imposed by the
State of Colorado, United States federal tax law or any political
subdivision or taxing authority thereof or therein with respect to
the preparation, execution, delivery, filing, recording,
registering or performance by any of the parties to the Facility
Letter, the Share Charge and the Novation Agreement of the
obligations thereunder or with respect to the enforcement against
TRI of such obligations;
(x) There is not in the State of Colorado nor under United States
federal tax law any withholding or other tax to be deducted or
levied from or in respect of any payment, whether of principal,
interest or otherwise, to be made by TRI pursuant to any of the
Facility Letter, the Share Charge and the Novation Agreement;
(xi) It is not necessary or advisable under the law or practice of the
State of Colorado or United States federal law for the Facility
Letter, the Share Charge and/or the Novation Agreement to be filed,
recorded or registered in any public office or elsewhere in the
State of Colorado or the United States, nor is it necessary or
advisable for any other document to be executed and delivered or
filed, registered or recorded as aforesaid;
<PAGE>
(xii) The obligations of TRI under each of the Facility Letter and the
Novation Agreement constitute direct, unconditional and general
obligations of TRI and (with the exception of any indebtedness and
liabilities preferred by law) rank and will rank at least pari
passu with all other unsecured obligations and liabilities (actual
or contingent) of TRI;
(xiii) In any proceedings taken in relation to any of the Facility Letter,
the Share Charge and the Novation Agreement, TRI will not be
entitled to claim immunity from suit or legal process;
(xiv) The choice by TRI of English law as the governing law of each of
the Facility Letter, the Share Charge and the Novation Agreement
will be recognised and enforced in the State of Colorado and any
judgment obtained in England against TRI in relation to any
proceedings taken in relation to any of the Facility Letter, the
Share Charge and the Novation Agreement will be recognised and
enforceable in the State of Colorado;
(xv) It is not necessary or advisable under the laws of the State of
Colorado in order to enable the Bank to enforce its rights under
the Facility Letter, the Share Charge and the Novation Agreement or
by reason of the execution, delivery and performance of the
Facility Letter, the Share Charge and the Novation Agreement, that
TRI should be licensed, qualified or otherwise entitled to carry on
business in the State of Colorado.
In giving this opinion we express no opinion with regard to any laws other
than the laws of the State of Colorado and the federal law of the United
States of America.
This opinion is addressed to the Bank for its own use and benefit and for the
use and benefit of its legal advisers in connection with the Facility Letter,
the Share Charge and the Novation Agreement.
Yours faithfully
<PAGE>
SOCIETE GENERALE
SHARE MORTGAGE
Date: [ ] 1998
1. DEFINITIONS
1.1 Mortgagor: Territorial Resources Inc., a company
incorporated in the State of Colorado,
USA with limited liability whose
registered office is at 450 North Sam
Houston Parkway, Suite 140, Houston,
Texas, 77060 USA.
1.2 Bank: Societe Generale, a company incorporated
in France with limited liability whose
U.K. head office is at Exchange House,
Primrose Street, London EC2A 2HT
1.3 Facility Letter: The facility letter of even date between
the Bank and the Mortgagor for the
provision of a US$1,800,000 short-term
advances facility to the Mortgagor as the
same may be amended, supplemented or
novated from time to time
1.4 Interest: Interest at the rate or rates charged to
the Mortgagor by the Bank pursuant to the
Facility Letter
1.5 Shares: Six hundred thousand 20 pence ordinary
shares in Soco International Plc
1.6 Security Assets: The Shares and all rights, assets or
property referred to in Clause 2(b) below
in respect of the Shares
1.7 Mortgagor's Obligations: All the Mortgagor's liabilities to the
Bank of any kind and in any currency or
currencies (whether present or future
actual or contingent whether incurred as
principal or surety and whether incurred
or outstanding alone or jointly with
another) including banking charges and
commission under or in connection with the
Facility Letter
1.8 Expenses: All expenses (on a full indemnity basis)
incurred by the Bank at any time in
connection with the Shares or the
Mortgagor's Obligations or in taking
perfecting enforcing or exercising any
power under this deed with
<PAGE>
Interest from the date they are incurred
1.9 Required Currency: The currency or currencies in which the
Mortgagor's Obligations are expressed from
time to time
1.10 Address for Service: c/o Soco International Plc, Swan House,
32/33 Old Bond Street, London W1X 3AD
2. CHARGE
In consideration of the Bank entering into the Facility Letter with the
Mortgagor and for the purpose of securing the discharge on demand of the
Mortgagor's Obligations together with Interest to the date of discharge and
Expenses the Mortgagor, with full title guarantee:-
a) mortgages and charges the Shares to the Bank, by way of first
legal mortgage and a first fixed charge;
b) mortgages and charges and agrees to mortgage and charge to the
Bank by way of a first legal mortgage and first fixed charge
all rights, moneys or property accruing or offered at any time
by way of redemption, bonus, preference, options, rights or
otherwise to or in respect of any of the Shares or in
substitution or exchange for any of the Shares; and
c) undertakes to deposit forthwith with the Bank and in such
manner as the Bank may direct all share certificates and other
documents in respect of the Security Assets and share transfer
forms executed in blank in respect of the Shares,
provided that upon irrevocable payment in full of the Mortgagor's Liabilities,
the Bank will at the request and expense of the Mortgagor release to the
Mortgagor all the right, title and interest of the Bank in or to the Security
Assets.
3. CONTINUING SECURITY
3.1 This deed shall be a continuing security and not satisfied by any
intermediate payment or satisfaction of the whole or any part of the
Mortgagor's Obligations but shall secure the ultimate balance of the
Mortgagor's Obligations.
3.2 The security hereby given shall be in addition to and shall not be
affected by any other mortgage or charge of any kind now or hereafter
held by the Bank for all or any of the Mortgagor's Obligations and shall
not merge with or prejudice any such other security or any contractual
or legal rights of the Bank.
3.3 The security hereby created shall not be affected by any other security
held by the Bank or any intended security in respect of the Mortgagor's
Obligations being void or unenforceable or not completed or perfected.
4. ARRANGEMENTS WITH THE MORTGAGOR AND OTHERS
4.1 The Bank may without the Mortgagor's consent and without releasing or
affecting
<PAGE>
the security created by this deed or the obligations of the Mortgagor
hereunder do any of the following:-
4.1.1 Allow to the Mortgagor or any other person any time or indulgence
4.1.2 Vary, extend, compromise, renew or release or refuse or neglect
to perfect or enforce any terms of the Facility Letter or any
other rights or remedies against or securities granted by the
Mortgagor or any other person
4.1.3 Grant to the Mortgagor any new or increased facility and increase
any rate of interest or charge
4.1.4 Enter into renew vary or end any agreement or arrangement with or
liability of the Mortgagor or any other person
4.1.5 Renew vary refrain from enforcing or release any present or
future security or guarantee which the Bank holds from the
Mortgagor or any other person
4.1.6 Compound with the Mortgagor or any other person
4.2 The obligations of the Mortgagor hereunder and this security shall not
be affected by any act, omission or circumstances which but for this
provision might operate to release or otherwise exonerate the Mortgagor
from its obligations hereunder or affect such obligations including,
without limitation, and whether or not known to the Mortgagor or the
Bank:-
4.2.1 Any irregularity, invalidity or unenforceability of any
obligations of the Mortgagor under the Facility Letter or any
present or future law or order of any government or authority
purporting to reduce or otherwise affect any of such obligations,
to the intent that the Mortgagor's obligations hereunder shall
remain in full force and this deed shall be construed accordingly
as if there were no such irregularity, unenforceability,
invalidity, law or order
4.2.2 Any legal limitation, disability, incapacity or other
circumstances relating to the Mortgagor or any other person
4.2.3 Any incapacity or lack of powers, authority or legal personality
of or dissolution or change in the market or status of the
Mortgagor or any other person
4.2.4 Any failure by the Bank to take any security or the invalidity of
any security taken
4.3 The Bank shall not be concerned to see or investigate the powers or
authorities of the Mortgagor or its officers or agents and moneys
obtained or Mortgagor's Obligations incurred in purported exercise of
such powers or authorities shall be deemed to form part of the
Mortgagor's Obligations
5. PRESERVATION OF SECURITY
<PAGE>
The Mortgagor shall remain liable under the security created by this deed
notwithstanding any settlement between the Bank and the Mortgagor or any release
given by the Bank to the Mortgagor until any security given or payment made to
the Bank by the Mortgagor or any other person cannot be avoided or reduced under
any law (whether English or foreign) relating to bankruptcy or liquidation (or
analogous circumstances) from time to time in force and the Bank shall be
entitled to retain this security until it is satisfied that it will not have to
make any repayment under such law
6. APPROPRIATION
6.1 Subject to Clause 6.2 the Bank may appropriate all payments received in
respect of the Mortgagor's Obligations in reduction of any part of the
Mortgagor's Obligations as the Bank decides
6.2 After the security created by this deed has been discontinued or upon
the Bank receiving actual or constructive notice of any charge or
interest affecting the Shares the Bank may open a new account or
accounts for the Mortgagor and whether or not the Bank opens any such
account no payment received by the Bank for the account of the Mortgagor
after such discontinuance or notice shall (if followed by any payment
out of or debit to the Mortgagor's account) be appropriated towards or
have the effect of discharging any part of the Mortgagor's Obligations
outstanding at the time of such discontinuance or notice
6.3 The Bank may place to the credit of a suspense account for so long as it
considers desirable any money received under this deed without any
obligation to apply it towards discharge of the Mortgagor's Obligations
7. UNDERTAKINGS BY MORTGAGOR
7.1 The Mortgagor undertakes to deposit with the Bank all documents relating
to any bonus or rights or other issue of shares in respect of the Shares
7.2 The Mortgagor undertakes to pay all calls or other payments due from
time to time in respect of the Shares
8. WARRANTIES BY THE MORTGAGOR
The Mortgagor hereby warrants, represents and undertakes that:-
8.1 it is the sole, absolute and beneficial owner of the Security Assets and
that it has not transferred, assigned, pledged or in any way encumbered
the Security Assets;
8.2 it will not assign, pledge or otherwise encumber hereafter the whole or
any part of the Security Assets to anyone other than the Bank
8.3 the Shares are fully paid and validly allotted and there are no calls or
other payments which may become due in respect of the Shares
<PAGE>
9. POWERS OF THE BANK
9.1 Section 103 of the Law of Property Act 1925 shall not apply to this deed
and the Bank shall have power at its discretion to sell the Shares in
whole or in part at any time after the occurrence of an Event of Default
(as defined in the Facility Letter) and in particular (without
limitation) the Bank shall have power:-
9.1.1 to exercise at its discretion (in the name of the Mortgagor or
otherwise) and without any further consent or authority on the
part of the Mortgagor in respect of any of the Security Assets
any voting rights and any powers or rights which may be exercised
by the person or persons in whose name or names the Security
Assets are registered or who is the holder thereof under the
terms thereof or otherwise including, but without limitation, all
the powers given to trustees by section 10(3) and (4) of the
Trustee Act, 1961 in respect of securities or property subject to
a trust; and
9.1.2 to sell all or any of the Security Assets in any manner permitted
by law upon such terms as the Bank shall in its absolute
discretion determine; and
9.1.3 to collect, recover or compromise and to give a good discharge
for any moneys payable to the Mortgagor in respect of the
Security Assets or in connection therewith.
9.2 If the proceeds of sale of all or any of the Security Assets are not in
the Required Currency then the receipt shall take effect as a receipt by
the Bank of the amount in the Required Currency which the Bank is able
(in accordance with its usual practice and after deduction of the cost
to the Bank of making such purchase) to purchase with the amount so
received as soon as may be practicable
9.3 The Bank may at its discretion pay any calls or other payments due from
time to time in respect of the Shares or payable in respect of any
rights attaching to the Shares
9.4 Section 93(1) of the Law of Property Act 1925 shall not apply to this
deed
10. REGISTRATION
The Mortgagor hereby authorises the Bank on or after an Event of Default (as
defined in the Facility Letter) to arrange for the Shares to be registered (if
required by the Bank to perfect the Bank's security therein) and (under the
powers of realisation herein conferred) to transfer or cause the Security Assets
to be transferred to and registered in the name of any purchasers or transferees
from or nominees of the Bank and the Mortgagor undertakes from time to time on
or after an Event of Default (as defined in the Facility Letter) to execute and
sign all transfers, powers of attorney and other documents which the Bank may
reasonably require for perfecting its title to any of the Security Assets or for
vesting the same in itself or its nominees or in any purchasers or transferees.
11. LIABILITY TO PERFORM
<PAGE>
The Bank shall not be required in any manner to perform or fulfil any
obligations of the Mortgagor in respect of the Security Assets, or to make
any payment, or to make an enquiry as to the nature or sufficiency of any
payment received by it or them, or to present or file any claim or take any
other action to collect or enforce the payment of any amount to which it may
have been or to which it may be entitled hereunder at any time or times.
12. FURTHER ASSURANCE
The Mortgagor further agrees that at any time and from time to time upon the
request of the Bank in writing it will promptly and duly execute and deliver
any and all such further instruments and documents as the Bank may deem
desirable for the purpose of obtaining the full benefit of this deed and of
the rights and powers herein granted.
13. POWER OF ATTORNEY
The Mortgagor hereby by way of security irrevocably appoints the Bank the
attorney of the Mortgagor on its behalf and in the name of the Mortgagor or
the Bank as the attorney(s) may decide, after the occurrence of an Event of
Default (as defined in the Facility Letter), to do all acts and execute all
documents which the Mortgagor could itself do in relation to the Security
Assets or in connection with any of the matters provided for in this deed
including without limitation the execution or completion of any transfer,
bill of sale or other assurance in respect of the Security Assets and in
particular:-
(a) to exercise all the rights and powers of the Mortgagor in respect of the
Security Assets;
(b) to ask, require, demand, receive, compound and give acquittances for any
and all moneys and claims for moneys due and to become due under or
arising out of such Security Assets;
(c) to endorse any cheques or other instruments or orders in connection
therewith; and
(d) to make any claims or to take any action or to institute any proceedings
which the Bank considers to be necessary or advisable to protect the
security hereby created.
14. PROTECTION OF PURCHASER
No purchaser or other person dealing with the Bank or with its attorneys or
agents shall be concerned to enquire:-
(a) whether any power exercised or purported to be exercised by it or them
has become exercisable;
(b) whether any money remains due on the security hereby created;
(c) as to the propriety or regularity of any of its or their actions; or
(d) as to the application of any money paid to it or them.
<PAGE>
In the absence of mala fides on the part of such purchaser or other person
such dealing shall be deemed so far as regards the protection of such
purchaser or other person to be within he powers hereby conferred and to be
valid accordingly. The remedy of the Mortgagor in respect of any impropriety
or irregularity whatever in the exercise of such powers shall be in damages
only.
15. INDEMNITY
15.1 ATTORNEY
The Mortgagor will indemnify the Bank and every attorney appointed
pursuant hereto in respect of all liabilities and expenses incurred by
it, him or them in good faith in the execution or purported execution of
any rights, powers or discretions vested in it, him or them pursuant
hereto;
15.2 NON LIABILITY FOR LOSSES
The Bank shall not be liable for any losses arising in connection with
the exercise or purported exercise of any of its rights, powers and
discretions in good faith hereunder (save for negligence or default) and
in particular without limitation the Bank in possession shall not be
liable to account as mortgagee in possession or for anything except
actual receipts.
16. WAIVERS: REMEDIES CUMULATIVE
No waiver of any of the terms hereof shall be effective unless in writing
signed by the Bank. No delay or omission by the Bank shall constitute a
waiver. Any waiver may be on such terms as the Bank sees fit. The rights,
powers and discretions of the Bank herein are additional to and not exclusive
of those provided by law, by any agreement with or security in favour of the
Bank or otherwise.
17. MISCELLANEOUS
17.1 ENFORCEMENT EXPENSES
The Mortgagor will reimburse the Bank for all charges and expenses
incurred by the Bank in or in connection with the preservation of any
rights under this deed (including the fees and expenses of legal
advisers and any VAT thereon).
17.2 STAMP DUTY
The Mortgagor will pay or procure the payment when due of all present
and future registration fees, stamp duties and other imposts or
transactions taxes in relation to this deed and keep the Bank
indemnified against any failure or delay in paying the same.
17.3 ASSIGNMENT BY MORTGAGOR
<PAGE>
The Mortgagor may not assign any of its rights under this deed.
17.4 ASSIGNMENT BY THE BANK
The Bank may assign and transfer all of its respective rights and
obligations hereunder.
18. CERTIFICATE OF MORTGAGOR'S OBLIGATIONS
A certificate signed by an official or manager of the Bank as to the amount
of the Mortgagor's Obligations or the amount due from the Mortgagor under
this deed shall be conclusive evidence save in the case of manifest error or
on any question of law
19. NOTICES
19.1 Any notice or demand by the Bank may be sent by post telex or facsimile
transmission or delivered to the Mortgagor at the above address or the
Mortgagor's address last known to the Bank or the address stated in
Clause 20.4 or if the Mortgagor is a company may be served personally on
any director or the secretary of the Mortgagor
19.2 A notice or demand by the Bank by post shall be deemed served on the day
after posting
19.3 A notice or demand by the Bank by telex or facsimile transmission shall
be deemed served at the time of sending
20. GOVERNING LAW AND JURISDICTION
20.1 This deed shall be governed by and construed in accordance with the laws
of England
20.2 For the benefit of the Bank the Mortgagor irrevocably submits to the
jurisdiction of the English Courts and the Mortgagor irrevocably agrees
that a judgment in any proceedings in connection with this deed by the
English Courts shall be conclusive and binding upon the Mortgagor and
may be enforced against the Mortgagor in the Courts of any other
jurisdiction. The Bank shall also be entitled to take proceedings in
connection with this deed against the Mortgagor in the Courts of any
country in which the Mortgagor has assets or in any other Courts of
competent jurisdiction
20.3 The Mortgagor irrevocably waives:-
20.3.1 Any objection which the Mortgagor may now or in the future
have to the English Courts or other Courts referred to in
Clause 20.2 as a venue for any proceedings in connection with
deed and
20.3.2 Any claim which the Mortgagor may now or in the future be able
to make that any proceedings in the English Courts or other
Courts referred to in
<PAGE>
Clause 20.2 have been instituted in an inappropriate forum
20.4 The Address for Service (or such other address in England or Wales as
the Mortgagor may from time to time nominate in writing to the Bank for
the purpose) shall be an effective address for service of any notice or
proceedings in the English Courts to or against the Mortgagor
21. MORTGAGOR'S CONSTITUTION AND POWERS
The Mortgagor warrants to the Bank that:-
21.1 The Mortgagor is a corporation duly constituted and in good standing
under the law of the country in which it is incorporated and the
Mortgagor has appropriate power and authority to own its property and
assets and carry on its business as now conducted
21.2 The Mortgagor has appropriate power to enter into and perform the terms
and conditions of this deed and has taken all necessary action to
authorize the execution delivery and performance of this deed
21.3 No permit licence approval or authorization of any government judicial
or other authority or other third party is required or desirable in
connection with the execution performance validity or enforceability of
this deed
21.4 The Mortgagor will on demand obtain or pay to the Bank the cost incurred
by the Bank in obtaining at any time a written opinion from a legal firm
acceptable to the Bank confirming Clauses 21.1 21.2 and 21.3 of this
deed and any other matters relevant to this deed as the Bank may require
22. MERGER OR AMALGAMATION
The Mortgagor's Obligations shall include all liabilities of the Mortgagor to
the Bank notwithstanding the Bank's absorption by or amalgamation with any other
bank or banks and all liabilities of the Mortgagor past and future to such
absorbing or amalgamated bank as though such absorbing or amalgamated bank were
named in and referred to in this deed in addition to the Bank
23. INTERPRETATION
23.1 The expressions "Mortgagor" and "Bank" where the context admits include
their respective successors in title and assigns
23.2 Interest will be calculated both before and after demand or judgment on
a daily basis and on the basis of a 360 or 365 day year according to the
practice of the Bank and compounded according to agreement between the
Bank and the Mortgagor or in the absence of agreement monthly on such
days as the Bank may select
23.3 Each of the provisions of this deed shall be severable and distinct from
one another and if one or more of such provisions is invalid or
unenforceable the remaining
<PAGE>
provisions shall not in any way be affected
IN WITNESS whereof this deed has been duly executed and is intended to be and is
hereby delivered on the date first above written
EXECUTED AND DELIVERED as a deed )
by the Mortgagor )
Director
Secretary/Director
<PAGE>
EXHIBIT (b)(1)
SAYER SECURITIES LIMITED
SUITE 1620, AQUITAINE TOWER
540 FIFTH AVENUE S.W.
CALGARY, ALBERTA
CANADA T2P 0M2
February 5, 1998
The Board of Directors
Territorial Resources, Inc.
Suite 1345, 734 - 7th Avenue SW
Calgary, Alberta
T2P 3P8
Gentlemen:
We understand Territorial Resources, Inc., ("Territorial" or the
"Company") and SOCO International plc ("SOCO") may carry out a transaction
(the "Transaction") whereby, amongst other things, the Company will carry out
a 36,000-to-one reverse stock split of the Company's stock (the "Reverse
Split") and then merge with a newly-formed subsidiary of SOCO (the "Merger").
As consideration for the Transaction, the current Territorial shareholders
will receive (i) prior to the Merger, a cash payment for Territorial's
currently outstanding common stock in lieu of the issuance of any resulting
fractional shares of the common stock to any shareholders who, after the
Reverse Split, own a fractional share of common stock and (ii) following the
Merger, each post-Reverse Split share will be converted into the right to
receive the number of SOCO ordinary shares equal to the product of 36,000
multiplied by the quotient of $1.40 USD (expressed in Pounds Sterling at the
then prevailing United States Dollar to Pounds Sterling exchange rate)
divided by the SOCO market price, as defined in the Reorganization Agreement
and Plan of Merger (items (i) and (ii) being collectively referred to herein
as the "Transaction Consideration"). Territorial and SOCO are collectively
referred to herein as the "Companies". You have requested our opinion (the
"Fairness Opinion") as to the fairness, from a financial point of view, of
the Transaction Consideration to the common shareholders of Territorial.
BACKGROUND
Sayer Securities Ltd. ("Sayer Securities", "we" or "us") was engaged
pursuant to an engagement letter dated January 27, 1998 (the "Engagement
Contract") to provide an opinion as to the fairness, from a financial point
of view, of the Transaction Consideration to the common shareholders of
Territorial. In consideration for the preparation of the Fairness Opinion,
Sayer Securities will receive a fee of CDN$50,000. Territorial has also
agreed to reimburse Sayer Securities for reasonable out-of-pocket expenses
incurred in the performance of its duties as outlined in the Engagement
Contract. The Company will indemnify Sayer Securities in respect of certain
liabilities including liabilities under the federal securities laws which may
be incurred by Sayer Securities in connection with its engagement.
<PAGE>
THE BOARD OF DIRECTORS
TERRITORIAL RESOURCES INC.
FEBRUARY 5, 1998 PAGE 2
- ------------------------------------------------------------------------------
RELATIONSHIP OF SAYER SECURITIES WITH INTERESTED PARTIES
Sayer Securities is not an insider, associate or affiliate of the
Companies, and prior to this engagement Sayer Securities has never been
engaged by the Companies to provide advisory services or to act as agent or
underwriter. Sayer Securities does not have interests in any of the
securities of the Companies.
Sayer Securities' compensation is not dependent in whole or in part on
any agreement or understanding which gives Sayer Securities a financial
incentive in respect to its fairness conclusions or the outcome of the
proposed Transaction. Sayer Securities has no financial interest, outside the
ordinary course of its business as an oil and gas financial services and
investment company, in any future business involving the Companies.
There are no understandings, agreements or commitments between Sayer
Securities and the Companies with respect to future business dealings with
them. Sayer Securities may, in the normal course of business, provide
advisory services to the Companies or their successors in the future.
QUALIFICATIONS OF SAYER SECURITIES
Sayer Securities is a specialized financial services company providing
capital market and advisory services for oil and gas companies, governments
and financial institutions across Canada and for foreign entities. These
services include merger and acquisition advice, independent research,
financings, valuations, and fairness opinions for clients.
CONDITIONS PRECEDENT
There are certain conditions precedent to be met prior to completion of
the Transaction. These conditions include:
1) The Reverse Split shall be approved by the shareholders of
Territorial;
2) The Merger shall be authorized and approved by the shareholders of the
Company after consummation of the Reverse Split; and
3) All necessary regulatory approvals will have been obtained.
SCOPE OF REVIEW
No limitation on the scope of our review was imposed by the Company. In
connection with the opinion, Sayer Securities reviewed, among other things,
the Reorganization Agreement and Plan of Merger dated January 28, 1998 (the
"Agreement"); drafts of the proxy statement of the Company regarding the
Transaction (the "Proxy Statement"); certain publicly available information
concerning the Company, including annual reports on Form 10-KSB of the
Company for the years ended March 31, 1995, 1996, and 1997 and quarterly
reports on Form 10-QSB for the Company for the quarters ended June 30, 1997
and September 30, 1997; certain information on the market price and trading
of the Company's and SOCO's shares, as well as the trading of companies of a
comparable nature
<PAGE>
THE BOARD OF DIRECTORS
TERRITORIAL RESOURCES INC.
FEBRUARY 5, 1998 PAGE 3
- ------------------------------------------------------------------------------
to the Company and SOCO; certain publicly available information concerning
SOCO, including the listing particulars of SOCO dated May 23, 1997; the
interim report of SOCO for the period ended June 30, 1997; and certain
internal financial analyses and forecasts for the Company and SOCO prepared
by their respective managements. Sayer Securities also held discussions with
members of the senior management of the Company and SOCO regarding the
strategic rationale for, and potential benefits of, the Transaction and the
past and current business operations, financial condition and future
prospects of their respective companies. Sayer Securities reviewed certain
information provided by the Company relating to the oil and gas reserves of
the Company and SOCO, (the "Reserve Information"), including but not limited
to, (i) a December 31, 1996 reserve report for the Mongolian interests
prepared by independent petroleum engineers; (ii) a December 31, 1996
reserve report for the Thailand interests prepared by independent petroleum
engineers and (iii) reserve information for SOCO as of December 31, 1996 and
January 1, 1997 including forecasted production rates, revenues, cash flow
and capital expenditure as estimated and reviewed by independent petroleum
engineers. In addition, Sayer Securities discussed the Reserve Information
with the respective managements of the Company and SOCO.
In addition to the above information we relied on the following:
a) Interviews with the management of Territorial;
b) A letter of representation from the Chairman and Chief Executive
Officer of Territorial with regard to the accuracy and completeness
of all information provided by Territorial to Sayer Securities
in connection with preparation of the Fairness Opinion;
c) Certain publicly available information pertaining to oil and gas
prices and other economic factors regarding the industry in which the
Companies operate;
d) Certain publicly available information concerning the trading of, and
the trading market for, the listed securities of certain oil and gas
companies that we believe to be comparable to the Companies;
e) Published commentary information of a general nature relevant to the
industry in which the Companies operate, and;
f) Such other financial, market, corporate and industry information,
investigations and analysis, research and testing of assumptions as we
considered necessary or appropriate in the circumstances in order to
complete the Fairness Opinion.
To our knowledge, all information requested from the Company was provided
to us.
<PAGE>
THE BOARD OF DIRECTORS
TERRITORIAL RESOURCES INC.
FEBRUARY 5, 1998 PAGE 4
- ------------------------------------------------------------------------------
ASSUMPTIONS AND LIMITATIONS
Sayer Securities has assumed and relied upon the accuracy and
completeness of all of the financial and other information provided to it or
publicly available and has neither attempted independently to verify nor
assumed responsibility for verifying any of such information. Sayer
Securities has not conducted an independent evaluation of any of the
properties, assets or facilities of the Company or SOCO, nor has it made or
obtained or assumed any responsibility for making or obtaining any
independent evaluations or appraisals of any of such properties, assets or
facilities. With respect to projections, it has assumed that they have been
reasonably prepared on bases reflecting the best currently available
estimates and judgments of the managements of the Company and SOCO as to the
respective future financial performance of the Company and SOCO as well as
the synergistic values and operating cost savings expected to be achieved
through the combination of the operations of the Company and SOCO. Sayer
Securities expresses no view with respect to such projections or the
assumptions on which they were based. Sayer Securities further has assumed
that each of the Agreement and the other agreements which are attached as
exhibits to the Agreement, when executed and delivered, will not differ
materially from the drafts which it has reviewed and that the Transaction
will be carried out as contemplated in the Agreement and Proxy Statement.
In preparing the Fairness Opinion, we have assumed that all conditions
necessary to implement the Transaction will be satisfied and that the
Transaction will be implemented in the manner and within the time frame
contemplated in the Proxy Statement. The proposed Transaction has been
assumed to be legal under all applicable laws and we have assumed that all
steps necessary to effect the Transaction will be carried out as necessary.
The Fairness Opinion is submitted in the context of securities markets and
economic, financial and general business conditions as they exist on the date
hereof and the prospects, financial and otherwise, of the Companies as they
were reflected in the information and documents reviewed by us and as they
were represented to us in our discussions with the management of and advisors
to the Companies.
The Fairness Opinion must be considered as a whole. The consideration
of selected portions or individual facts set out in the Fairness Opinion
outside of the context of the whole Fairness Opinion may result in misleading
or inappropriate conclusions.
METHODOLOGY
In assessing the fairness of the Transaction Consideration, Sayer
Securities utilized such various methods of analysis of both a quantitative
and qualitative nature as we considered appropriate in the circumstances,
based on our experience as advisors in mergers and acquisitions in the oil
and gas industry. As part of the analysis, Sayer Securities developed a
range of values for the common shares of Territorial. The main
considerations and assumptions used in our analysis are described briefly
below.
<PAGE>
THE BOARD OF DIRECTORS
TERRITORIAL RESOURCES INC.
FEBRUARY 5, 1998 PAGE 5
- ------------------------------------------------------------------------------
The following is a summary of certain financial analyses used by Sayer
Securities in connection with providing its written opinion to the
Territorial Board on February 5, 1998:
(i) HISTORICAL STOCK TRADING ANALYSIS: Sayer Securities reviewed
historical share trading prices and volumes for the Company and
SOCO. The average closing price of the Company common stock has
been $0.625, $0.625, $0.667 and $0.648 for the past 30 days, 60
days, 90 days and since the date of Territorial's 3 for 1 share
consolidation in May 1997, respectively. The cash value of the
Reverse Stock Split consideration of $1.40 represents a premium of
124%, 124%, 109% and 116% to the above mentioned prices. The last
trade of common stock prior to the announcement of the Reverse
Stock Split and the Merger occurred at a price of $0.625. The
last trade of common stock prior to the date of the fairness
opinion was also $0.625. The cash consideration of $1.40
represents a premium of 124% over that price.
In assessing the value of the SOCO shares being offered, Sayer
Securities relied on the market trading value approach. Since
each Territorial shareholder who receives SOCO shares will
receive a minority interest in SOCO and will not be able to
effect a sale of 100% of SOCO, Sayer Securities concluded it
was not appropriate to rely on methodologies that are based on
the assumption of a change of control transaction. Sayer
Securities believes that the market price of the SOCO shares
is an appropriate indicator of the value being offered to the
Territorial shareholders under the Reverse Split and Merger.
(ii) SELECTED COMPANY ANALYSIS. Sayer Securities reviewed publicly
available financial, operating and stock market data of
Territorial and SOCO and similar information on a number of
publicly traded companies with international assets. The
companies reviewed included Bow Valley Energy Inc., Epic Energy
Inc., NTI Resources Limited and Can Baikal Resources Inc. Sayer
Securities calculated the enterprise value per barrel of reserves
multiple based on the companies' closing prices of January 27,
1998. The range of values were $0.88 per barrel of oil equivalent
to $7.35. The corresponding value implied for Territorial by the
proposed Transaction was $6.62. Sayer Securities emphasized the
difficulty in identifying truly comparable companies which are at
the same stage of exploration with similar resource or reserve
development and the difficulty in placing values on early
exploration properties such as those owned by Territorial.
The trading range of public companies varies widely over time, and
we are aware of a number of transactions similar to that proposed
which have taken place at prices varying widely from the stock
market value.
<PAGE>
THE BOARD OF DIRECTORS
TERRITORIAL RESOURCES INC.
FEBRUARY 5, 1998 PAGE 6
- ------------------------------------------------------------------------------
(iii) NET ASSET VALUES. Sayer Securities prepared estimates of
Territorial's net asset value at a variety of discount rates using
the Reserve Information, recent financial information and
information on Territorial's other assets. The net asset value
per share was in the range of $1.23 to $0.98, or $1.15 to $0.92 on
a fully diluted basis, at discount rates of 10 to 15 percent
before income tax. Other assets and liabilities, excluding the
oil and gas properties, were valued at book values or estimated
current market values. The net book value approach was
considered to be principally an estimate of historic costs and
past estimates of useful life rather than an estimate of fair
market value in the oil and natural gas producing industry.
Sayer Securities has also reviewed the net book value of
Territorial and determined it to be of minimal use in calculating
the value of same.
(iv) SELECTED TRANSACTION ANALYSIS. Sayer Securities has reviewed
publicly available information and analysis of a number of
acquisitions of international oil and gas assets and companies.
The range of values per barrel were $0.30 to $12.40. Sayer
Securities noted the significant difference among the various
transactions. Of particular note was a recent transaction in
Mongolia which ascribed a value of $2.38 per barrel. The per
barrel value ascribed in the Territorial transaction was $6.62.
Because the reasons for and circumstances surrounding each of the
comparable transactions analysed were diverse and because of the
inherent differences between the operations of Territorial, SOCO
and the companies engaged in the selected transactions, Sayer
Securities believed that a purely quantitative comparable
transaction analysis would not be particularly meaningful in the
context of the Reverse Split and Merger. Sayer Securities
believed that an appropriate use of a comparable transaction
analysis in this instance would involve qualitative judgments
concerning differences between the characteristics of these
transactions and the Reverse Split and Merger
(v) CONTRIBUTION ANALYSIS. Sayer Securities reviewed the contribution
of assets and reserves to the ongoing entity. On a pro-forma
basis, assuming the exchange of all of the Territorial shares for
SOCO shares, the Territorial shareholders would contribute 3 - 4%
of the net asset value of the on-going merged corporation and
receive approximately 5% of the equity of the ongoing company. On
a reserves basis, Territorial will contribute 1.5 to 3.3 percent
of the reserves.
ADDITIONAL CONSIDERATIONS
In arriving at our opinion as to the fairness of the Transaction
Consideration we have considered a number of qualitative aspects, in addition to
the quantitative analysis summarized above. Some of these aspects considered
include:
i) the opportunity for certain shareholders to receive cash for their
shares and all to receive some cash;
<PAGE>
THE BOARD OF DIRECTORS
TERRITORIAL RESOURCES INC.
FEBRUARY 5, 1998 PAGE 7
- ------------------------------------------------------------------------------
ii) the prospects for Territorial, including its ability to raise
additional capital given the nature of its assets, its planned capital
expenditures, its size, and current capital market conditions;
iii) the opportunity provided for certain shareholders to receive shares in
a larger entity, with a greater diversity of reserves, production and
cash flow, or alternatively, the potential for those shareholders
receiving cash to invest in such larger entity;
iv) the opportunity for the shareholders to dissent to both the Reverse
Split and the Merger;
v) the signing of lock-up agreements by shareholders holding
approximately 64% of the shares;
vi) the values implied by the Transaction Consideration in light of the
above analysis; and
vii) all shareholders will be eligible to receive consideration for their
shares and small shareholders will have the opportunity to receive
cash for their shares.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description.
Selecting portions of the analyses set forth above, without considering Sayer
Securities' analyses as a whole, could create an incomplete view of the
processes underlying Sayer Securities' opinion. In arriving at its fairness
determination, Sayer Securities considered the results of all such analyses
and did not assign relative weights to any of the analyses. No company or
transaction used in the above analyses as a comparison is identical to
Territorial or SOCO or the contemplated transaction. The analyses were
prepared solely for purposes of Sayer Securities providing its opinion to the
Territorial Board as to the fairness of the consideration to be paid by SOCO
and do not purport to be appraisals or necessarily reflect the prices at
which Territorial or its securities might actually be sold. Analyses based
upon forecasts of future results are not necessarily indicative of actual
future results, which may be significantly more or less favorable than
suggested by such analyses. Because such analyses are inherently subject to
uncertainty, being based upon numerous factors or events beyond the control
of the parties or their respective advisors, none of SOCO, Territorial, Sayer
Securities or any other person assumes responsibility if future results are
different from those forecast. Sayer Securities' opinion to the Territorial
Board was one of many factors taken into consideration by the Territorial
Board in making its determination to approve the Agreement and the
Transaction.
Sayer Securities' opinion necessarily is based upon economic, market and
other conditions as they exist and can be evaluated on the date hereof and it
assumes no responsibility to update or revise its opinion based upon
circumstances or events occurring after the date hereof. Sayer Securities'
opinion does not constitute an opinion or imply any conclusions as to the
likely trading
<PAGE>
range for the SOCO ordinary shares following consummation of the Transaction
nor does its opinion address the potential tax consequences of any
shareholders' receipt of the Transaction Consideration. In addition, Sayer
Securities' opinion does not address the Company's underlying decision to
effect the Merger or related transactions and it expressed no view on the
effect on the Company of the Merger and related transactions. Our opinion is
directed only to the fairness, from a financial point of view, of the
Transaction Consideration, to holders of Company common shares and does not
constitute a recommendation to any holder of Company common shares as to how
such holder should vote with respect to the Transaction.
Further, Sayer Securities was not requested to and did not provide
advice concerning the structure, the specific amount of the consideration, or
any other aspects of the Transaction, or to provide services other than the
delivery of this opinion. Sayer Securities was not authorized to and did not
solicit any expressions of interest from any other parties with respect to
the sale of all or any part of the Company or any other alternative
transaction. Sayer Securities did not participate in negotiations with
respect to the terms of the Transaction and related transactions.
Consequently, it has assumed that such terms are the most beneficial terms
from the Company's perspective that could under the circumstances be
negotiated among the parties to such transactions, and no opinion is
expressed whether any alternative transaction might produce consideration for
the Company's stockholders in an amount in excess of that contemplated in the
Transaction.
Yours truly,
SAYER SECURITIES LIMITED
<PAGE>
TERRITORIAL RESOURCES, INC/SOCO INTERNATIONAL PLC
FAIRNESS OPINION REPORT
SCHEDULES
- ------------------------------------------------------------------------------
A-1) Territorial/SOCO Pre-Reverse Split Net Asset Values
B-1) Territorial/SOCO Post-Reverse Split Net Asset Values
C-1) Territorial/SOCO Share Exchange Calculation & Sensitivities
D-1) Territorial/SOCO Net Asset and Reserves Contribution Analysis
E-1) Territorial/SOCO Net Book Values
F-1) Territorial/SOCO Comparable Companies Summary
G-1) Past International Transactions
H-1) Territorial/SOCO Cash Flow Forecasts
- ------------------------------------------------------------------------------
SAYER SECURITIES LIMITED CONFIDENTIAL
FEBRUARY 5, 1998
<PAGE>
TERRITORIAL RESOURCES, INC./SOCO INTERNATIONAL PLC
PRE-REVERSE SPLIT RELATIVE NET ASSET VALUES
(RESERVES - DEC 31, 1996)
<TABLE>
<CAPTION>
TERRITORIAL
(US$MM)
------------------------------------------------------------
1)NET ASSET VALUE 8% 10% 12% 15% 18% 20% Notes
- ------------------ ------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Reserves
Proven 1.50 1.32 1.16 0.95 0.78 0.68
Probable (Note 1) 9.04 7.93 6.97 5.77 4.80 4.27
U.S. assets 0.02 0.02 0.02 0.02 0.02 0.02
Undeveloped Land
Working Capital (Sept. 30/97) (0.03) (0.03) (0.03) (0.03) (0.03) (0.03)
Long-term Debt - - - - - -
SOCO shares (600,000 @331p) 3.27 3.27 3.27 3.27 3.27 3.27
------------------------------------------------------------
Net Asset Value 13.81 12.51 11.40 9.99 8.85 8.21
------------------------------------------------------------
------------------------------------------------------------
Share Outstanding (millions) 10.157266
- ----------------------------------------------------------------------------------------------------
NAV Basic 1.359 1.232 1.122 0.984 0.781 0.808
- ----------------------------------------------------------------------------------------------------
Option Proceeds 0.3 0.3 0.3 0.3 0.3 0.3
Option Shares (mm) 1.0 1.0 1.0 1.0 1.0 1.0
Fully diluted NAV 14.11 12.81 11.70 10.29 9.15 8.51
- ----------------------------------------------------------------------------------------------------
F.D. NAV per share 1.264 1.148 1.048 0.922 0.820 0.763
- ----------------------------------------------------------------------------------------------------
2) EXCHANGE RATIOS
- -------------------
SOCO NAV Basic per share 7.65 6.49 6.03 5.14 4.45 4.02
Exchange Ratio(TERX:SOCO) 0.178 0.190 0.186 0.191 0.196 0.201
SOCO NAV F.D. per share 7.35 6.90 6.44 5.55 4.86 4.43
Exchange Ratio(TERX:SOCO) 0.172 0.166 0.163 0.16 0.169 0.172
SOCO
(US$mm)
------------------------------------------------------------
1)NET ASSET VALUE 8% 10% 12% 15% 18% 20% Notes
- ------------------ ------------------------------------------------------------
Reserves
Proven 102.72 91.06 81.46 68.86 58.48 53.81
Probable (Note 1) 202.83 157.40 144.08 112.90 89.12 72.50
U.S. assets 0.00 0.00 0.00 0.00 0.00 0.00
Undeveloped Land
Working Capital (Sept. 30/97) 71.89 71.89 71.89 71.89 71.89 71.89 @ June 3/97
Long-term Debt 0.00 0.00 0.00 0.00 0.00 0.00
SOCO shares (600,000 @331p)
------------------------------------------------------------
Net Asset Value 377.45 320.35 297.44 253.66 219.49 198.20
------------------------------------------------------------
------------------------------------------------------------
Share Outstanding (millions) 49.3488460
NAV Basic 7.65 6.49 6.03 5.14 4.45 4.02
Option Proceeds 20.37 20.37 20.37 20.37 20.37 20.7
Option Shares (mm) 4.7767
Fully diluted NAV 397.82 340.72 317.80 274.03 239.86 218.57
F.D. NAV per share 7.35 6.90 6.44 5.55 4.86 4.43
</TABLE>
Note 1) Includes proportionate share of SOTAMO reserves and working
interest reserves.
- -------------------------------------------------------------------------------
SAYER SECURITIES LIMITED CONFIDENTIAL
PAGE A-1 FEBRUARY 5, 1998
<PAGE>
TERRITORIAL RESOURCES, INC./SOCO INTERNATIONAL PLC
POST-REVERSE SPLIT RELATIVE NET ASSET VALUES
(RESERVES - DEC 31, 1996)
<TABLE>
<CAPTION>
TERRITORIAL
(US$MM)
------------------------------------------------------------
1)NET ASSET VALUE 8% 10% 12% 15% 18% 20% Notes
- ------------------ ------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Reserves
Proven 1.50 1.32 1.16 0.95 0.78 0.68
Probable (Note 1) 9.04 7.93 6.97 5.77 4.80 4.27
U.S. assets 0.02 0.02 0.02 0.02 0.02 0.02
Undeveloped Land
Working Capital (Sept. (0.03) (0.03) (0.03) (0.03) (0.03) (0.03)
30/97) - - - - - -
Long-term Debt (1.62) (1.62) (1.62) (1.62) (1.62) (1.62)
Soc. Gen Debt (Note 2) 3.27 3.27 3.27 3.27 3.27 3.27
SOCO shares (600,000 @331p)
------------------------------------------------------------
Net Asset Value 12.19 10.89 9.78 8.37 7.23 6.59
------------------------------------------------------------
------------------------------------------------------------
Share Outstanding Post Minority (millions) 0.000250
- --------------------------------------------------------------------------------------------------
NAV Basic 48,744 43,564 39,100 33,480 28,290 26.368
- --------------------------------------------------------------------------------------------------
2) EXCHANGE RATIOS
---------------
Exchange Ratio(TERX:SOCO) 6373 6711 6487 6513 6502 6565
<CAPTION>
SOCO
(US$mm)
------------------------------------------------------------
1)NET ASSET VALUE 8% 10% 12% 15% 18% 20% Notes
- ------------------ ------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Reserves
Proven 102.72 91.06 81.46 68.86 58.48 53.81
Probable (Note 1) 202.83 157.40 144.08 112.90 89.12 72.50
U.S. assets 0.00 0.00 0.00 0.00 0.00 0.00
Undeveloped Land
Working Capital (Sept. 30/97) 71.89 71.89 71.89 71.89 71.89 71.89 @June 3/97
Long-term Debt 0.00 0.00 0.00 0.00 0.00 0.00
Soc. Gen Debt (Note 2)
SOCO shares (600,000 @331p) 0.00
------------------------------------------------------------
Net Asset Value 377.45 320.35 297.44 253.66 219.49 198.20
------------------------------------------------------------
------------------------------------------------------------
Share Outstanding Post Minority (millions) 49.3488460
NAV Basic 7.65 6.49 6.03 5.14 4.45 4.02
Note 1) Includes proportionate share of SOTAMO reserves and working interest reserves.
Note 2) Debt to acquire minority shareholder stock.
</TABLE>
- -----------------------------------------------------------------------------
SAYLES SECURITIES LIMITED CONFIDENTIAL
PAGE B-1 FEBRUARY 5, 1998
<PAGE>
TERRITORIAL RESOURCES, INC./SOCO INTERNATIONAL PLC
TERRITORIAL/SOCO SHARE EXCHANGE CALCULATION
- ---------------------------------------------------------------------------
<TABLE>
<S> <C>
1 post-Reverse Split Territorial share = 36,000 x US $1.40 (POUNDS TO US$ EXCHANGE RATE)
------------------------------------------------
SOCO Market Price
at January 27, 1998 (day prior to signing of Agreement)
= 36,000 x US $1.40 X 0.6066 L/US$
-----------------------
3.31 L
= 36,000 x 0.2566
1 post-Reverse Split Territorial share = 9,236 SOCO shares
1 pre-Reverse Split Territorial share = 0.2566 SOCO shares
- -----------------------------------------------------------------------------
SAYLES SECURITIES LIMITED CONFIDENTIAL
PAGE C-1 FEBRUARY 6, 1998
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TERRITORIAL RESOURCES, INC./SOCO INTERNATIONAL PLC
TERRITORIAL/SOCO SHARE EXCHANGE SENSITIVITY
Offer Exchange SOCO Exchange
Price Rate Mkt Ratio
(US$/sh (USD/Stp) (L) (Pre-Split)
1.40 1.6486 3.31 0.2566
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sensitivity of Ratio SOCO Market Price (L)
0.2566 3.20 3.25 3.30 3.35 3.40 3.45 3.50
---------------------------------------------------------------------------------
1.60 0.2734 0.2692 0.2652 0.2612 0.2574 0.2536 0.2500
1.60 0.2717 0.2676 0.2635 0.2596 0.2558 0.2520 0.2484
EXCHANGE 1.62 0.2701 0.2659 0.2619 0.2580 0.2542 0.2505 0.2469
RATE 1.63 0.2684 0.2643 0.2603 0.2564 0.2526 0.2490 0.2454
1.64 0.2668 0.2627 0.2587 0.2548 0.2511 0.2474 0.2439
1.65 0.2652 0.2611 0.2571 0.2533 0.2496 0.2459 0.2424
1.66 0.2636 0.2595 0.2556 0.2518 0.2481 0.2445 0.2410
1.67 0.2620 0.2579 0.2540 0.2502 0.2466 0.2430 0.2395
1.68 0.2604 0.2564 0.2525 0.2488 0.2451 0.2415 0.2381
1.69 0.2589 0.2549 0.2510 0.2473 0.2436 0.2401 0.2367
1.70 0.2574 0.2534 0.2496 0.2458 0.2422 0.2387 0.2353
Range High 0.2734 0.2692 0.2652 0.2612 0.2574 0.2536 0.2500
Low 0.2574 0.2534 0.2496 0.2458 0.2422 0.2387 0.2353
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sensitivity of Ratio
0.2566 3.55 3.60 3.65 3.70 3.75 High Low
-----------------------------------------------------------------------------
1.60 0.2465 0.2431 0.2397 0.2365 0.2333 0.2734 0.2333
1.60 0.2449 0.2415 0.2382 0.2350 0.2319 0.2717 0.2319
EXCHANGE 1.62 0.2434 0.2401 0.2368 0.2336 0.2305 0.2701 0.2305
RATE 1.63 0.2419 0.2386 0.2353 0.2321 0.2290 0.2684 0.2290
1.64 0.2405 0.2371 0.2339 0.2307 0.2276 0.2668 0.2276
1.65 0.2390 0.2357 0.2325 0.2293 0.2263 0.2652 0.2263
1.66 0.2376 0.2343 0.2311 0.2279 0.2249 0.2636 0.2249
1.67 0.2361 0.2329 0.2297 0.2266 0.2236 0.2620 0.2236
1.68 0.2347 0.2315 0.2283 0.2252 0.2222 0.2604 0.2222
1.69 0.2334 0.2301 0.2270 0.2239 0.2209 0.2589 0.2209
1.70 0.2320 0.2288 0.2256 0.2226 0.2196 0.2574 0.2196
Range High 0.2465 0.2431 0.2397 0.2365 0.2333
Low 0.2320 0.2288 0.2256 0.2226 0.2196
- ------------------------------------------------------------------------------------------------------------------
SAYER SECURITIES LIMITED CONFIDENTIAL
PAGE C-2 FEBRUARY 5, 1998
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TERRITORIAL RESOURCES, INC./SOCO INTERNATIONAL PLC
NET ASSET AND RESERVES CONTRIBUTION ANALYSIS
TERX SOCO Pro- TERX SOCO
10% 10% Forma Contr. Contr.
----------------------------------------------
<S> <C> <C> <C> <C> <C>
Proven Reserves 1.32 91.06 91.06 1.4% 98.6%
Probable Reserves 7.93 157.40 157.40 4.8% 95.2%
U.S. assets 0.02 - - 100.0% -
Undeveloped Land - - - - -
Working Capital (0.03) 71.89 71.89 - 100.0%
(Sept. 30/97) - - - - -
Long-term Debt 3.27 - - 100.0% -
SOCO shares
----------------------------------------------
Net Asset Value 12.51 320.35 332.86 3.8% 96.2%
----------------------------------------------
----------------------------------------------
TERX SOCO Pro- TRX SOCO
15% 15% Forma Contr. Contr.
----------------------------------------------
<S> <C> <C> <C> <C> <C>
Proven Reserves 0.95 68.86 69.81 1.4 98.6%
Probable Reserves 5.77 112.90 118.68 4.9% 95.1%
U.S. assets 0.02 - 0.02 100.0% 0.0%
Undeveloped Land - - - - -
Working Capital (0.03) 71.89 71.87 0.0% 100.0%
(Sept. 30/97) - - - - -
Long-term Debt 3.27 - 3.27 100.0% 0.0%
SOCO shares
----------------------------------------------
Net Asset Value 9.99 253.66 263.65 3.8% 96.2%
----------------------------------------------
----------------------------------------------
<CAPTION>
TERRITORIAL RESOURCES, INC./SOCO INTERNATIONAL PLC
POST-REVERSE SPLIT NET ASSET VALUES
(RESERVES - DECEMBER 31, 1996)
TERX SOCO Pro- TERX SOCO
10% 10% Forma Contr. Contr.
----------------------------------------------
<S> <C> <C> <C> <C> <C>
Proven Reserves 1.32 91.06 92.38 1.0% 99.0%
Probable Reserves (Note 1) 7.93 157.40 165.32 5.0% 95.0%
U.S. assets 0.02 - 0.02 100.0% 0.0%
Undeveloped Land - - - - -
Working Capital (Sept. 30/97) (0.03) 71.89 71.87 0.0% 100.0%
Long-term Debt - - - - -
Soc. Gen Debt (Note 2) (1.62) - (1.62) 100.0% 0.0%
SOCO shares 3.27 - 3.27 100.0% 0.0%
----------------------------------------------
Net Asset Value 12.51 320.35 331.24 3.3% 96.7%
----------------------------------------------
----------------------------------------------
NAV per share 6.49 6.41
<CAPTION>
TERX SOCO Pro-Forma TRX SOCO
15% 15% Contr. Contr.
-----------------------------------------------
<S> <C> <C> <C> <C> <C>
Proven Reserves 0.95 68.86 69.81 1.0% 99.0%
Probable Reserves (Note 1) 5.77 112.90 118.68 5.0% 95.0%
U.S. assets 0.02 - - 100.0% 0.0%
Undeveloped Land - - - - -
Working Capital(Sept. 30/97 (0.03) 71.89 71.87 0.0% 100.0%
Long-term Debt - - - - -
Soc. Gen Debt (Note 2) (1.62) - (1.62) 100.0% 0.0%
SOCO shares 3.27 - 3.27 100.0% 0.0%
-----------------------------------------------
Net Asset Value 8.37 253.66 262.03 3.2% 96.8%
-----------------------------------------------
-----------------------------------------------
NAV per share
Note 1) Includes proportionate share of SOTAMO reserves and working interest
reserves.
Note 2) Debt to acquire minority shareholder stock.
POST-REVERSE SPLIT OWNERSHIP
<CAPTION>
Territorial Shares Outstanding SOCO Shares Outstanding Pro-Forma Outstanding
(mm) (mm) (mm)
<S> <C> <C> <C>
9.00 49.349 51.66
Ownership % 4.5% 95.5%
- ------------------------------------------------------------------------------------------------------------------
SAYER SECURITIES LIMITED CONFIDENTIAL
PAGE D-1 FEBRUARY 5, 1998
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TERRITORIAL RESOURCES, INC.
NET BOOK VALUE
--------------------------------------------------------
<S> <C>
AT SEPT. 30/97
(US$MM)
-------
Investment in SOCO International 4.497
Investment in SOTAMO 1.465
Net Property and Equipment 1.260
Current Assets 0.159
Note Receivable 0.009
Current Liabilities (0.187)
Deferred Taxes (1.368)
-------
Net Book Value 5.835
-------
-------
Per Share $0.57
-------
-------
- --------------------------------------------------------------------------------------
SAYER SECURITIES LIMITED CONFIDENTIAL
PAGE E-1 FEBRUARY 5, 1998
</TABLE>
<PAGE>
SOCO INTERNATIONAL PLC
NET BOOK VALUE
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AT JUNE 30/97
(L000,000)
-------------
<S> <C>
FIXED ASSETS
Tangible assets 31.919
Investment in associate 8.155
Current assets 48.313
Current liabilities (4.475)
Provisions for liabilities and charges (1.096)
------
Net Book Value 82.816
------
------
Per Share L1.68
------
------
</TABLE>
- --------------------------------------------------------------------------------
CONFIDENTIAL
SAYER SECURITIES LIMITED PAGE E-2 FEBRUARY 5, 1998
<PAGE>
COMPANIES WITH INTERNATIONAL ASSETS
<TABLE>
<CAPTION>
IPO or recent Share 52 Week Shares Market Proven Probable Total Enterprise Enterprise Enterprise
Issue Price Price Range O/S Cap Reserves Reserves Reserves Value Value/BOE Value/BOE
98-01-26 @ 6:1 @ 6:1 0.72
($/share) ($/share) (mm) (C$mm) (mmboe) (mmboe) ($mm) (C$/BOE) (US$)
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Bow Valley 2.65 1.55 3.40-1.32 24.55 38.05 1.51 2.22 3.729 38.05 10.20 7.35
Epic 1.00 0.12 1.60-0.05 65.724 7.89 1.31 0.07 1.378 8.26 6.00 4.32
- ------------------------------------------------------------------------------------------------------------------------------------
NTI N.A. 0.19 8.20-0.17 110.51 21.00 - 12.27 12.268 14.94 1.22 0.88
- ------------------------------------------------------------------------------------------------------------------------------------
CanBaikal 1.00 1.45 2.30-0.60 20.52 29.75 5.03 5.25 10.281 29.75 2.89 2.08
BlackSea 4.49 1.20 4.65-1.15 89.69 107.63 43.20 71.80 115 107.63 0.94 0.67
Hurricane 5.25 9.30 14.25-4.25 40.19 373.77 133.00 83.00 216 373.77 1.73 1.25
Int't Petrol (gone) 7.45 44.232 329.53 16.30 10.70 27 295.35 10.94 7.88
Implied Values for Territorial (US$) US$
Offer Price 1.40 11.157 15.62 0.50 1.86 2.356 15.59 6.62
</TABLE>
- --------------------------------------------------------------------------------
CONFIDENTIAL
SAYER SECURITIES LIMITED PAGE F-1 FEBRUARY 5, 1998
<PAGE>
TERRITORIAL RESOURCES, INC./SOCO INTERNATIONAL PLC
INTERNATIONAL TRANSACTIONS
<TABLE>
<CAPTION>
Acquisition Transactions
<S> <C> <C> <C> <C> <C> <C> <C>
Date Acquiror Seller Acquisition Location Price Value Notes
(US$mm) ($/BOE)
- -----------------------------------------------------------------------------------------------------------------------------------
Jan-98 Gulf Cda/Roc Oil Nescor PSC Block 13, 14, 15, 10-N Mongolia 14.3 2.38
Dec-97 Intercap Resources CMS Nomeco 11.8% East Shabwa Area Yemen 25.9 12.40
Dec-97 Sands IPC Malaysia, Papua NG, Libya Falklands, + 173.8 2.13
Sep-96 Melrose Evikhon 20% Evikhon Siberia 15.0 0.53
Aug-96 Hurricane JSC Yuzhneftegas Kazakhstan 340.0 2.99
Jul-96 Seagull Global Nat. Res Gulf Coast, Egypt, Russia +Indonesia 516.0 8.83
Jul-96 Seagull Exxon Egypt asset Egypt 74.0 7.71
Apr-96 Undisclosed Snyder 15.4 % SOCO Perm Russia 10.0 3.42
Apr-96 Fountain Undisc 31% Maylop gas field Russia 8.0 0.30
Mar-96 Apache Phoenix Egypt 372.0 7.11
Mar-96 Cdn. Leader Marathon Tunisia 11.0 1.58
Feb-95 Petro-Hunt Vanguard 20% Magma Oil Russia 50.0 5.68
Feb-95 CMS Nomeco Walter Int'l Congo, Guinea, Tunisia 49.0 2.47
High 516.0 12.40
Low 8.0 0.30
Median 49.0 2.99
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
SAYER SECURITIES LIMITED CONFIDENTIAL
PAGE G-1 FEBRUARY 5, 1998
<PAGE>
<TABLE>
<CAPTION>
SOCO CASH FLOW FORECAST
(L 000,000)
- --------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1997
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Op. C.F. before taxes 5.007 21.996 47.843
Interest income 1.174 1.239 0.707
----- ------ ------
6.181 23.235 48.550
Taxes (0.107) (1.579) (7.882)
----- ------ ------
6.074 21.656 40.668
Per share (49.348846mm) 0.12L 0.4388L 0.821L
CF Multiple (3.31L) 7.5 x 4.0 x
- --------------------------------------------------------------------------------
</TABLE>
SAYER SECURITIES LIMITED CONFIDENTIAL
PAGE H-1 FEBRUARY 5, 1998
<PAGE>
TERRITORIAL CASH FLOW
AS PER GEO AND GAFFNEY CLINE REPORTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(US $ MM)
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Mongolia Op C.F. 0.188 1.060 2.690
(Before Capex)
Thailand Op. C.F. - - 1.445
----- ----- -----
(Before Capex & Taxes)
0.118 1.060 4.135
G & A (0.300) (0.600)
----- ----- -----
0.76 3.535
----- ----- -----
----- ----- -----
per share (10.157mm) N/A 0.07 US$0.35
C.F. multiple (at US$1.40) 20.0 x 4.0 x
<CAPTION>
NOTE: Cash flow should be offset by at least 18 months ie. Production does not
start until Jun/98.
<S> <C> <C>
1998 1998
---- ----
C.F. after G & A (0.24) (0.011)
- --------------------------------------------------------------------------------
</TABLE>
SAYER SECURITIES LIMITED CONFIDENTIAL
PAGE H-2 FEBRUARY 5, 1998
<PAGE>
EXHIBIT (d)(1)
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant / /
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)(1)
and 0-11
(1) Title of each class of securities to which transaction applies:
Common Stock, no par value
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
10,370,824
------------------------------------------------------------------------
(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:
------------------------------------------------------------------------
<PAGE>
PRELIMINARY COPY
TERRITORIAL RESOURCES, INC.
734 7 Avenue S.W.
Calgary, Alberta
Canada T2P 3P8
____________, 1998
Dear Shareholder:
You are cordially invited to attend a Special Meeting of Shareholders of
Territorial Resources, Inc. (the "Company"), to be held on _______________,
1998 at 10:00 a.m. Calgary time, at ____________, Calgary, Alberta, Canada.
At the Special Meeting, the holders of the Company's common stock, no
par value (the "Common Stock"), will be asked to approve and adopt an
amendment to the Company's Articles of Incorporation ("the Amendment")
providing for (a) a one-for-36,000 reverse stock split of the Company's
Common Stock and (b) a cash payment of $1.40 per existing share of Common
Stock (the "Cash Consideration") in lieu of the issuance of any resulting
fractional shares of the Common Stock to any shareholders who, after the
reverse stock split, would otherwise own a fractional share of Common Stock.
Items (a) and (b) will be considered as one proposal and are referred to
herein as the "Reverse Stock Split."
The text of the proposed Amendment is set forth in Annex A to the
accompanying Proxy Statement. If the Reverse Stock Split is approved, the
shareholders of the Company who own less than one (1) share of Common Stock
after the Reverse Stock Split will cease to be shareholders of the Company or
to have any equity interest in the Company. Such shareholders will receive
the Cash Consideration for each share of Common Stock of which they are the
owners prior to the Reverse Stock Split (as will the owners of more than one
share of Common Stock who would also own fractional shares of Common Stock).
If the Reverse Stock Split is approved and effected, the Company will
elect to cease filing any reports with the Securities and Exchange Commission
(the "Commission"). Following the deregistration of the Common Stock under
the Securities Exchange Act of 1934, the remaining Company shareholders will
vote upon the approval of a merger (the "Merger") of the Company with a
newly-formed subsidiary of SOCO International plc, a public limited company
organized in England and Wales ("SOCO"), pursuant to a Reorganization
Agreement and Plan of Merger dated January 28, 1998 (the "Merger Agreement").
Pursuant to the Merger, the remaining Company shareholders will receive in
exchange for each of their shares of Common Stock which were converted into
whole shares of New Common Stock a number of SOCO ordinary shares of 20 pence
each ("SOCO Shares") having a value equal to $1.40, based on the approximate
market value of SOCO Shares on the London Stock Exchange at the time of
consummation of the Merger. Therefore, all shareholders of the Company will
ultimately receive either cash pursuant to the Reverse Stock Split or SOCO
Shares pursuant to the Merger of substantially equal value in exchange for
their existing shares of Common Stock.
<PAGE>
Approval of the Reverse Stock Split requires the affirmative vote of the
holders of a majority of the Company's Common Stock. If the Reverse Stock
Split is approved, a shareholder of the Company who strictly complies with
the requirements of Article 113 of the Colorado Business Corporation Act (the
"CBCA") may dissent from the Reverse Stock Split and, in lieu of payment of
the Cash Consideration, obtain payment in cash of the "fair value" of such
shareholder's shares of Common Stock as determined under Article 113 of the
CBCA. A shareholder who wishes to assert such dissenter's rights must
deliver to the Company a written notice at the Special Meeting before the
vote on the Reverse Stock Split of such shareholder's intent to demand
payment for such shareholder's shares of Common Stock if the Reverse Stock
Split is effectuated. A shareholder who wishes to assert such dissenter's
rights also may not vote any of the shareholder's shares of Common Stock for
the Reverse Stock Split. See "The Reverse Stock Split -- Dissenting
Shareholders' Rights" in the accompanying Proxy Statement for a statement of
the rights of dissenting shareholders and a description of the procedures
required to be followed to obtain the fair value of the shares of Common
Stock. A copy of Article 113 of the CBCA is attached as Annex B to the
accompanying Proxy Statement. Details of the Reverse Stock Split are set
forth in the enclosed Proxy Statement, which you are urged to read carefully.
Your Board of Directors unanimously believes that the Reverse Stock
Split is in the best interests of the Company and its shareholders. In
arriving at its decision to recommend the Reverse Stock Split, the Board
carefully reviewed and considered the terms and conditions of the Reverse
Stock Split and the factors described in the enclosed Proxy Statement.
If you are a holder of the Company's Common Stock, whether or not you
plan to attend the Special Meeting, please complete, sign and date the
enclosed proxy and return it in the envelope provided for that purpose. If
you attend the meeting and wish to vote in person, you may do so by
withdrawing your proxy prior to the meeting. Under Colorado law, if you
abstain from voting, your abstention will be treated as a "no" vote for
purposes of determining whether approval of the Reverse Stock Split has been
obtained.
Sincerely,
Daniel A. Mercier
Chairman of the Board and Chief Executive Officer
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE FAIRNESS OR MERITS
OF SUCH TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION
CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
<PAGE>
TERRITORIAL RESOURCES, INC.
734 7th Avenue S.W.
Calgary, Alberta
Canada T2P 3P8
Notice of Special Meeting of Shareholders
to be Held on ____________, 1998
TO THE SHAREHOLDERS OF TERRITORIAL RESOURCES, INC.:
Notice is hereby given that a Special Meeting of Shareholders (the
"Special Meeting") of Territorial Resources, Inc., a Colorado corporation
(the "Company"), will be held on ____________, 1998 at 10:00 a.m. Calgary
time, at the Company's offices, located at 734 7th Avenue S.W., Calgary,
Alberta, Canada for the purpose of considering and voting upon the following
matters:
1. To consider and vote upon the approval and adoption of an
amendment to the Company's Articles of Incorporation ("the
Amendment"), substantially in the form attached as Annex A to the
accompanying Proxy Statement, providing for (a) a one-for-36,000
reverse stock split of the Company's common stock, no par value (the
"Common Stock"), and (b) a cash payment of $1.40 per existing share
of Common Stock (the "Cash Consideration") in lieu of the issuance of
any resulting fractional shares of Common Stock to any shareholders
who, after the reverse stock split, would otherwise own a fractional
share of Common Stock. Items (a) and (b) will be considered as one
proposal and will be referred to herein as the "Reverse Stock Split,"
all as described more fully in the accompanying Proxy Statement; and
2. Such other business as may properly come before the Special
Meeting and any adjournment thereof.
Holders of record of the Company's Common Stock at the close of business
on ____________, 1998 (the "Record Date") are entitled to notice of, and to
vote at, the Special Meeting and any adjournment thereof.
If the Reverse Stock Split is approved and effected, the shareholders of
the Company who own less than one (1) share of Common Stock after the Reverse
Stock Split ("New Common Stock") will cease to be shareholders of the Company
or to have any equity interest in the Company. Such shareholders will
receive the Cash Consideration for each of their shares of Common Stock (as
will the owners of one or more shares of New Common Stock who would also
otherwise own fractional shares of New Common Stock), and the Company will
elect to cease filing any reports with the Securities and Exchange Commission
(the "Commission").
<PAGE>
If the Reverse Stock Split is approved and effected, a shareholder of
the Company who strictly complies with the requirements of Article 113 of the
Colorado Business Corporation Act (the "CBCA") may dissent from the Reverse
Stock Split and, in lieu of payment of the Cash Consideration, obtain payment
in cash of the "fair value" of such shareholder's shares of Common Stock as
determined under Article 113 of the CBCA. A shareholder who wishes to assert
such dissenter's rights must deliver to the Company a written notice at the
Special Meeting before the vote on the Reverse Stock Split of such
shareholder's intent to demand payment for such shareholder's shares of
Common Stock if the Reverse Stock Split is effectuated. A shareholder who
wishes to assert such dissenter's rights also may not vote any of the
shareholder's shares of Common Stock for the Reverse Stock Split. See "The
Reverse Stock Split -- Dissenting Shareholders' Rights" in the accompanying
Proxy Statement for a statement of the rights of dissenting shareholders and
a description of the procedures required to be followed to obtain the fair
value of the shares of Common Stock. A copy of Article 113 of the CBCA is
attached as Annex B to the accompanying Proxy Statement. Details of the
Reverse Stock Split are set forth in the enclosed Proxy Statement, which you
are urged to read carefully.
YOUR VOTE IS IMPORTANT REGARDLESS OF THE NUMBER OF SHARES OF COMMON
STOCK YOU OWN. WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, PLEASE
COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD WITHOUT DELAY. ANY
SHAREHOLDER PRESENT AT THE SPECIAL MEETING MAY VOTE PERSONALLY ON EACH MATTER
BROUGHT BEFORE THE SPECIAL MEETING AND ANY PROXY GIVEN BY A SHAREHOLDER MAY
BE REVOKED AT ANY TIME BEFORE IT IS EXERCISED.
By the order of the Board of Directors,
Daniel A. Mercier
Chairman of the Board and Chief Executive Officer
____________, 1998
PLEASE DO NOT SEND ANY CERTIFICATES FOR YOUR SHARES AT THIS TIME.
<PAGE>
PROXY STATEMENT
OF
TERRITORIAL RESOURCES, INC.
FOR
SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON _________, 1998
This Proxy Statement is being furnished to the holders as of the Record
Date (as defined below) of common stock, no par value (the "Common Stock"),
of Territorial Resources, Inc., a Colorado corporation (the "Company"), in
connection with the solicitation of proxies by the Company's Board of
Directors (the "Board" or the "Board of Directors"), for use at a Special
Meeting of Shareholders of the Company (the "Special Meeting") to be held on
_______, 1998 at 10:00 a.m. Calgary time at the Company's offices, located at
734 7th Avenue S.W., Calgary, Alberta, Canada. This Proxy Statement and the
accompanying Proxy are first being mailed to shareholders of the Company on
or about _______, 1998.
At the Special Meeting, the holders of the Company's Common Stock will
be asked to consider and vote upon a proposal to approve and adopt an
amendment to the Company's Articles of Incorporation ("the Amendment"),
substantially in the form attached as Annex A hereto, providing for (a) a
one-for-36,000 reverse stock split of the Company's Common Stock and (b) a
cash payment of $1.40 per existing share of Common Stock (the "Cash
Consideration") in lieu of the issuance of any resulting fractional shares of
Common Stock to any shareholders who, after the reverse stock split, would
otherwise own a fractional share of Common Stock. Items (a) and (b) will be
considered as one proposal and are referred to herein as the "Reverse Stock
Split."
Pursuant to the Colorado Business Corporation Act (the "CBCA"), the
affirmative vote of the holders of a majority of the outstanding shares of
Common Stock is required to approve the Reverse Stock Split. Seven directors
and officers of the Company and two former directors of the Company have
agreed to vote their shares, representing a total of approximately 65% of the
outstanding shares of Common Stock, in favor of the Reverse Stock Split.
If the Reverse Stock Split is approved, the shareholders of the Company
who would own less than one (1) share of Common Stock after the Reverse Stock
Split ("New Common Stock") will cease to be shareholders of the Company or to
have any equity interest in the Company. Such shareholders will receive the
Cash Consideration for each of their shares of Common Stock (as will the
owners of one or more shares of New Common Stock who would also otherwise own
fractional shares of New Common Stock), and the Company will elect to cease
filing any reports with the Securities and Exchange Commission (the
"Commission").
The Company has entered into a Reorganization Agreement and Plan of
Merger dated January 28, 1998 (the "Merger Agreement"), with SOCO
International plc, a public limited company organized in England and Wales
("SOCO"), and SOCO Resources (Colorado), Inc., a new Colorado corporation and
wholly-owned subsidiary of SOCO ("Newco"), pursuant to which, the Company has
agreed to merge with Newco (the "Merger") after effectuation of the Reverse
Stock Split and deregistration of the Common Stock under the Securities
Exchange Act of 1934, as amended (the
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<PAGE>
"Exchange Act"). Approximately 90 days after effectuation of the Reverse
Stock Split, a special meeting of the remaining shareholders of the Company
will be called to approve the Merger. The terms of the Merger provide that
each of the outstanding shares of New Common Stock will be exchanged for a
number of SOCO ordinary shares of 20 pence each ("SOCO Shares") having a
value equal to $50,400 (which is $1.40 multiplied by 36,000), based on the
approximate market value of the SOCO Shares on the London Stock Exchange at
the time of consummation of the Merger. The Cash Consideration will be
substantially equivalent to the value of the SOCO Shares to be issued with
respect to a share of Common Stock in the Merger. Accordingly, all
shareholders of the Company will receive either cash (pursuant to the Reverse
Stock Split) or SOCO Shares of substantially equal value (pursuant to the
Merger) in exchange for their shares of Common Stock.
SHAREHOLDERS ARE ENCOURAGED TO READ AND REVIEW CAREFULLY THIS PROXY
STATEMENT AND THE FINANCIAL INFORMATION AND ANNEXES INCLUDED HEREWITH.
NO PERSONS HAVE BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROXY STATEMENT IN
CONNECTION WITH THE SOLICITATION OF PROXIES MADE HEREBY, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY OR ANY OTHER PERSON.
_________________
The date of this Proxy Statement is __________, 1998.
-ii-
<PAGE>
TABLE OF CONTENTS
PAGE
----
SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
THE SPECIAL MEETING . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Time, Date and Place of Special Meeting . . . . . . . . . . . 1
Purpose of the Special Meeting . . . . . . . . . . . . . . . 1
Record Date; Quorum . . . . . . . . . . . . . . . . . . . . . 1
Required Vote . . . . . . . . . . . . . . . . . . . . . . . . 1
Proxies . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Solicitation of Proxies . . . . . . . . . . . . . . . . . . . 2
Certain United States Federal Income Tax Consequences . . . . 2
Certain Effects of the Reverse Stock Split . . . . . . . . . 3
Terms of the Reverse Stock Split . . . . . . . . . . . . . . 3
Dissenting Shareholders' Rights . . . . . . . . . . . . . . . 3
SOCO; The Merger . . . . . . . . . . . . . . . . . . . . . . 4
Possible Conflicts of Interest . . . . . . . . . . . . . . . 4
SPECIAL FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Background and Reasons for the Reverse Stock Split
and Merger . . . . . . . . . . . . . . . . . . . . . . . . 4
Opinion of Financial Advisor . . . . . . . . . . . . . . . . 8
Recommendation of the Board of Directors . . . . . . . . . . 12
Interest of Certain Persons in the Reverse Stock Split. . . . 13
Plans for the Company after the Reverse Stock Split . . . . . 13
Certain Effects of the Reverse Stock Split . . . . . . . . . 14
Certain United States Federal Income Tax Consequences . . . . 14
Source and Amounts of Funds for and Expenses of
the Reverse Stock Split. . . . . . . . . . . . . . . . . . 17
THE REVERSE STOCK SPLIT . . . . . . . . . . . . . . . . . . . . . . . . 17
Amendment of Articles of Incorporation to Effect
the Reverse Stock Split . . . . . . . . . . . . . . . . . 17
Exchange of Shares and Payment in Lieu of Issuance
of Fractional Shares . . . . . . . . . . . . . . . . . . . 18
Voting; Vote Required . . . . . . . . . . . . . . . . . . . . 18
Dissenting Shareholders' Rights . . . . . . . . . . . . . . . 19
PRICE RANGE OF COMMON STOCK; DIVIDENDS; BOOK VALUE . . . . . . . . . . 21
Common Stock Information . . . . . . . . . . . . . . . . . . 21
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Book Value . . . . . . . . . . . . . . . . . . . . . . . . . 21
DIRECTORS AND EXECUTIVE OFFICERS . . . . . . . . . . . . . . . . . . . 22
Directors and Executive Officers . . . . . . . . . . . . . . 22
Principal Occupation and Business Experience . . . . . . . . 23
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<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERSAND
MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
INDEPENDENT PUBLIC ACCOUNTANTS . . . . . . . . . . . . . . . . . . . . 27
ADDITIONAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . 27
INDEX TO FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . F-1
-iv-
<PAGE>
SUMMARY
The following is a brief summary of certain information contained
elsewhere in this Proxy Statement. This summary is not intended to be a
complete description of the matters covered in this Proxy Statement and is
subject to and qualified in its entirety by reference to the more detailed
information contained elsewhere in this Proxy Statement, including the
Annexes hereto.
THE SPECIAL MEETING
TIME, DATE AND PLACE OF SPECIAL MEETING
The Special Meeting will be held on _________, 1998 at 10:00 a.m. Calgary
time, at the Company's offices, located at 734 7th Avenue S.W., Calgary,
Alberta, Canada.
PURPOSE OF THE SPECIAL MEETING
At the Special Meeting, the holders of the Company's Common Stock will
be asked to consider and vote upon a proposal to approve and adopt the
Amendment in order to effectuate the Reverse Stock Split. The shareholders
are not being asked to approve the Merger at the Special Meeting. The Board
of Directors unanimously recommends that the shareholders vote FOR approval
of the Reverse Stock Split.
RECORD DATE; QUORUM
The close of business on ________, 1998 (the "Record Date") has been
fixed as the record date for determining holders of shares of Common Stock
entitled to notice of and to vote at the Special Meeting. Each share of
Common Stock outstanding on such date is entitled to one vote at the Special
Meeting. As of the Record Date, 10,370,824 shares of Common Stock were
outstanding and held of record by [2,651] holders. The presence, in person
or by proxy, of the holders of a majority of the outstanding shares of Common
Stock entitled to vote at the Special Meeting is necessary to constitute a
quorum for the transaction of business at the Special Meeting. Abstentions
and broker non-votes are counted for purposes of determining whether a quorum
exists for the transaction of business at the Special Meeting but are not
counted for purposes of determining whether the holders of a majority of the
shares of Common Stock present in person or by proxy at the Special Meeting
voted in favor of the Reverse Stock Split.
REQUIRED VOTE
Pursuant to the CBCA, the affirmative vote of the holders of a majority
of the outstanding shares of Common Stock is required to approve the Reverse
Stock Split. The Reverse Stock Split is not structured to require the
approval of at least a majority of the shareholders who will not remain
shareholders of the Company after the Reverse Stock Split is effected. Seven
directors and officers of the Company and two former directors of the
Company, who beneficially own a total of approximately 65% of the outstanding
shares of Common Stock, have agreed with SOCO to vote their shares of Common
Stock in favor of the Reverse Stock Split. All directors and officers of the
Company intend to vote all of their shares of Common Stock in favor of the
Reverse Stock Split.
<PAGE>
PROXIES
Shares of Common Stock represented by properly executed proxies received
at or prior to the Special Meeting and which have not been revoked will be
voted in accordance with the instructions indicated thereon. If no
instructions are indicated on a properly executed proxy, such proxy will be
voted FOR the Reverse Stock Split. A shareholder who has given a proxy may
revoke such proxy at any time prior to its exercise at the Special Meeting by
(i) giving written notice of revocation to the Secretary of the Company, (ii)
properly submitting to the Company a duly executed proxy bearing a later
date, or (iii) attending the Special Meeting and voting in person.
Attendance at the Special Meeting will not in and of itself revoke a proxy.
All written notices of revocation and other communications with respect to
revocation of proxies should be addressed as follows: Corporate Secretary,
734 7th Avenue S.W., Calgary, Alberta, Canada T2P 3P8.
If the Special Meeting is adjourned or postponed for any purpose, at any
subsequent reconvening of the Special Meeting, all proxies will be voted in
the same manner as such proxies would have been voted at the original
convening of the meeting (except for any proxies which have theretofore
effectively been revoked or withdrawn), notwithstanding that they may have
been effectively voted on the same or any other matter at a previous meeting.
SHAREHOLDERS SHOULD NOT SEND ANY STOCK CERTIFICATES WITH THEIR PROXY
CARDS. IF THE REVERSE STOCK SPLIT IS CONSUMMATED, THE PROCEDURE FOR THE
EXCHANGE OF CERTIFICATES REPRESENTING SHARES OF COMMON STOCK WILL BE AS SET
FORTH IN THIS PROXY STATEMENT. SEE "THE REVERSE STOCK SPLIT -- EXCHANGE OF
SHARES AND PAYMENT IN LIEU OF ISSUANCE OF FRACTIONAL SHARES."
SOLICITATION OF PROXIES
The cost of solicitation of the shareholders of the Company will be paid
by the Company. Such cost will include the reimbursement of banks, brokerage
firms, nominees, fiduciaries and custodians for the expenses of forwarding
solicitation material to beneficial owners of shares. In addition to the
solicitation of proxies by use of mail, the directors, officers and employees
of the Company may solicit proxies personally or by telephone, telegraph or
facsimile transmission. Such directors, officers and employees will not be
additionally compensated for such solicitation but may be reimbursed for
out-of-pocket expenses incurred in connection therewith.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The receipt by a shareholder of the Company of the Cash Consideration in
lieu of fractional shares of New Common Stock pursuant to the Reverse Stock
Split will be a taxable transaction for United States federal income tax
purposes. See "Special Factors--Certain United States Federal Income Tax
Consequences."
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<PAGE>
CERTAIN EFFECTS OF THE REVERSE STOCK SPLIT
Upon the effectiveness of the Reverse Stock Split, the shareholders of
the Company, other than the 23 remaining shareholders, each of whom prior to
effectiveness of the Reverse Stock Split own 36,000 or more shares of Common
Stock, will no longer have any continuing interest as shareholders of the
Company, and the Company will elect to suspend the filing of reports under,
and will apply for termination of the registration of its shares of Common
Stock pursuant to, the Exchange Act. See "Special Factors -- Certain Effects
of the Reverse Stock Split."
TERMS OF THE REVERSE STOCK SPLIT
The proposed Amendment provides for (a) a one-for-36,000 Reverse Stock
Split of the Company's Common Stock and (b) a cash payment of the Cash
Consideration for the currently outstanding Common Stock in lieu of the
issuance of any resulting fractional shares of the New Common Stock to any
shareholders who, after the Reverse Stock Split, would otherwise own a
fractional share of New Common Stock. The Amendment does not modify any of
the rights or privileges of the Common Stock. Immediately upon the filing of
Articles of Amendment with the Secretary of State of the State of Colorado
with respect to the Amendment (the "Articles of Amendment"), every 36,000
shares of the Company's Common Stock issued on the date of the filing of the
Articles of Amendment will be automatically converted into one share of New
Common Stock. All shares which would otherwise be converted into a fractional
share of New Common Stock will instead be converted into the right to receive
the Cash Consideration. The Company will pay for such fractional shares upon
the physical surrender by the fractional shareholders of their share
certificates pursuant to the transmittal instructions to be mailed by the
Company to the holders of fractional shares. See "The Reverse Stock Split --
Amendment of Articles of Incorporation to Effect the Reverse Stock Split" and
"The Reverse Stock Split -- Exchange of Shares and Payment in Lieu of
Issuance of Fractional Shares."
DISSENTING SHAREHOLDERS' RIGHTS
If the Reverse Stock Split is approved, a shareholder who strictly
complies with the requirements of Article 113 of the CBCA may dissent from
the Reverse Stock Split and, in lieu of the payment of the Cash
Consideration, obtain payment in cash of the "fair value" of such
shareholder's shares of Common Stock as determined under Article 113 of the
CBCA. A shareholder who wishes to assert such dissenter's rights must
deliver to the Company a written notice, before the vote on the Reverse Stock
Split at the Special Meeting, of such shareholder's intent to demand payment
for such shareholder's shares of Common Stock if the Reverse Stock Split is
effectuated. A shareholder who wishes to assert such dissenter's rights also
may not vote any of the shareholder's shares of Common Stock for the Reverse
Stock Split. See "The Reverse Stock Split -- Dissenting Shareholders'
Rights" for a statement of the rights of dissenting shareholders and a
description of the procedures required to be followed to obtain the fair
value of the shares of Common Stock. A copy of Article 113 of the CBCA is
attached as Annex B hereto.
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<PAGE>
SOCO; THE MERGER
SOCO is a public limited company, organized in England and Wales, whose
shares are traded on the London Stock Exchange. SOCO is an independent oil
and gas exploration and production company which is headquartered in London
and owns interests in Mongolia, Russia, the United Kingdom, Yemen, Thailand
and Tunisia. As of June 30, 1997, SOCO had net assets of approximately $130
million and approximately 49.3 million SOCO Shares were outstanding.
Approximately 90 days following completion of the Reverse Stock Split,
at which time the registration of the shares of Common Stock under the
Exchange Act will have been terminated, the Company will call a meeting of
its 23 remaining shareholders to approve the Merger. Pursuant to the Merger,
each remaining shareholder will receive in exchange for each of his shares of
New Common Stock a number of SOCO Shares having a value of $50,400 (which is
$1.40 multiplied by 36,000), based on the approximate market value of the
SOCO Shares on the London Stock Exchange at the time of consummation of the
Merger. The SOCO Shares will be issued in a private offering exempt from
registration under the Securities Act.
POSSIBLE CONFLICTS OF INTEREST
Following the Merger, Daniel A. Mercier, Chairman and Chief Executive
Officer of the Company, expects to become an officer of SOCO; however, no
formal offer of employment has been extended by SOCO, and no specific terms
of any such employment, including salary, have been determined. William C.
Penttila, President of the Company, and Dennis M. Buck, Vice President,
Exploration of the Company are officers of Exploration Associates Inc., an
exploration consulting company that has provided consulting services to both
the Company and SOCO in the past. Exploration Associates Inc. expects to
continue providing consulting services to SOCO following the Merger on
substantially the same terms as those being currently provided. Edward T.
Story, Jr., President and Chief Executive Officer and a Director of SOCO was,
until December 26, 1996, a Director of the Company and owns 471,061 shares of
Common Stock. Jimmy McCarroll, a Director of the Company, has also assisted
SOCO in certain of its farmout endeavors during the past four years. See
"Special Factors--Interests of Certain Persons in the Reverse Stock Split."
SPECIAL FACTORS
BACKGROUND AND REASONS FOR THE REVERSE STOCK SPLIT AND MERGER
The Company was formed upon the merger of Target Oil & Gas Incorporated
with Egret Energy Corporation on December 31, 1984, with the name of the
resulting corporation being changed to Territorial Resources, Inc. in 1988.
Prior to 1995, the Company was engaged in oil and gas exploration and
production in the continental United States. Since March 1995, the Company
has primarily pursued international exploration and production opportunities
and has disposed of substantially all of its continental United States
interests.
The assets of the Company consist primarily of: (i) shares of SOCO
Tamtsag Mongolia Inc. ("SOTAMO"), a Delaware close corporation whose primary
business is exploration and development of oil and gas interests in a 50,000
square kilometer area known as the Tamtsag basin
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<PAGE>
of northeastern Mongolia; (ii) a direct 15% interest in one of the four
contract blocks in the same area; (iii) a direct 50% interest in a recently
awarded contract block known as Contract Area XI (Galba) in southern
Mongolia; (iv) a 7.5% working interest in a 9,500 square kilometer oil and
gas concession in the Gulf of Thailand; and (v) 600,000 SOCO Shares (which
were acquired from SOCO in exchange for part of the Company's interest in
SOTAMO). SOCO, whose President and Chief Executive Officer (Edward T. Story,
Jr.) serves as the Managing Director of SOTAMO, is the operator of the
Company's interests in Mongolia. SOCO, through U.S. and Thai subsidiaries,
is also the concessionaire and operator of the Company's Thailand interests.
In late July 1997, Daniel A. Mercier, Chairman of the Board and Chief
Executive Officer of the Company, was contacted by Roger D. Cagle, Vice
President and Chief Financial Officer and a Director of SOCO, for the purpose
of discussing a possible acquisition of the Company by SOCO in exchange for
SOCO Shares. SOCO had completed an initial public offering of SOCO Shares on
the London Stock Exchange in May 1997, and desired to use its publicly traded
SOCO Shares to acquire additional interests in SOTAMO and its other Mongolian
properties in which the Company owned an interest. SOCO was also interested
in hiring Mr. Mercier to oversee SOCO's operations in Mongolia and SOCO's
other areas of interest in the Far East as they are developed. In addition,
William C. Penttila, a Director and President of the Company, and Dennis M.
Buck, Vice President of Exploration of the Company, are principals in
Exploration Associates, Inc., an international oil and gas exploration
consulting firm which provides services to both the Company and SOCO. SOCO
believed that a consolidation of the Company with SOCO would increase the
efficiency of work performed by Exploration Associates, Inc. and eliminate
any potential conflicts of interests in connection with the providing of
their services.
Mr. Cagle initially expressed to Mr. Mercier a verbal offer of $13
million (primarily in the form of SOCO Shares) for all of the outstanding
shares of Common Stock; however, Mr. Cagle expressed SOCO's lack of interest
in making a public offering of SOCO Shares in the United States because of
the expense involved in connection with a registered offering under the
Securities Act of 1933, as amended (the "Securities Act") and the ongoing
expense thereafter of preparing and filing reports under the Exchange Act.
Mr. Mercier rejected the $13 million offer as being too low, and after
further discussions, Messrs. Mercier and Cagle finally agreed to present to
the directors of the Company and the directors of SOCO a proposed merger
based upon a relative valuation of one SOCO Share for every four shares of
Common Stock. At that time, the approximate market value of the SOCO Shares
on the London Stock Exchange was $5.80 (based on the U.S. Dollar-to-Pound
Sterling Exchange Rate at that time), which would result in a total value for
the Company of approximately $15 million, or $1.45 per share of Common Stock.
Approximately 90% of the outstanding shares of Common Stock is held by
23 shareholders (the "Majority Shareholders"), each of whom is believed by
the Company to be an "accredited investor" within the meaning of Regulation D
under the Securities Act ("Regulation D"), and the remaining 10% is held by
approximately 2,600 shareholders (the "Minority Shareholders"). Because of
this high concentration of shares in the hands of a relatively few Majority
Shareholders, Messrs. Mercier and Cagle decided to explore with counsel the
possibility of structuring an acquisition of the Company by SOCO such that
the Majority Shareholders could exchange their shares of Common Stock for
SOCO Shares in a private transaction exempt from registration under the
Securities Act pursuant to Regulation D and the Minority Shareholders could
receive an equivalent value per share
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<PAGE>
of Common Stock in the form of cash. Mr. Cagle also expressed SOCO's desire
to obtain commitments from seven directors and officers of the Company and
two former directors of the Company, Brian A. Lingard and Edward T. Story,
Jr. (collectively, the "Control Shareholders"), who beneficially own in the
aggregate a total of approximately 65% of the outstanding shares of Common
Stock, to vote their shares in favor of the Reverse Stock Split and the
Merger, in order to ensure the requisite shareholder approval of SOCO's
acquisition of the Company. The Company's Board of Directors met on
September 24, 1997, to discuss the status of the negotiations with SOCO, and
authorized Mr. Mercier to continue such negotiations and his discussions with
Company counsel and SOCO on the structure of the proposed transaction under
the parameters described in the two preceding sentences.
Following extensive discussions between the Company and its counsel and
SOCO and SOCO's U.S. counsel and English counsel, the parties decided upon
the structure set forth in the Merger Agreement, consisting of a Reverse
Stock Split followed by the Merger involving only the Majority Shareholders.
At a meeting held on November 25, 1997, the Company's Board of Directors
authorized Mr. Mercier to continue discussions with SOCO based on such
structure. At such meeting, Mr. Mercier was also authorized to engage Sayer
Securities Limited of Calgary, Alberta, Canada ("Sayer Securities") to render
a fairness opinion from a financial point of view on the consideration to be
received by the Company's shareholders pursuant to the Reverse Stock Split
and the Merger.
The terms of the Merger Agreement were negotiated during December 1997
and January 1998, and in connection with such negotiations, the parties
agreed to fix the dollar value of the consideration to be received by all of
the Company's shareholders (whether in cash or in SOCO Shares) at the
approximate market value of 0.25 of a SOCO Share on the London Stock Exchange
at the time of execution of the Merger Agreement, based on the U.S.
Dollar-to-Pound Sterling Exchange Rate at that time. The final version of
the Merger Agreement was presented to and unanimously approved by the
Company's Board of Directors at a meeting held on January 28, 1998. The
Merger Agreement obligates the Company to first effectuate the Reverse Stock
Split, under which all shareholders will be paid the Cash Consideration of
$1.40 per share of Common Stock for all shares which would otherwise be
converted into a fractional share of New Common Stock, and as soon as
practicable thereafter to terminate the Company's reporting obligations under
the Exchange Act and remove the shares of Common Stock from registration
under the Exchange Act. The price of $1.40 per share of Common Stock is
acknowledged by the Company and SOCO to be approximately equivalent to the
value of 0.25 of a SOCO Share, based on the approximate market price of SOCO
Shares and the U.S. Dollar-to-Pound Sterling Exchange Rate as of January 28,
1998.
Pursuant to the Merger Agreement, following completion of the
deregistration process (estimated to be 90 days following effectuation of the
Reverse Stock Split), the Company will call a meeting (the "Second Meeting")
of its 23 remaining shareholders (I.E., the Majority Shareholders) to approve
the Merger, and SOCO will provide a confidential offering document for the
private placement of the SOCO Shares to be included with the notice of such
meeting. The Merger will then be effectuated pursuant to Colorado law, and
the Majority Shareholders will receive SOCO Shares having a value of $1.40
for each of their shares of Common Stock which were converted into whole
shares of New Common Stock. For purposes of the Merger, (a) the SOCO Shares
will be valued at the higher of (i) the average mid-market price per share of
the SOCO Shares on the ten trading days
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<PAGE>
ending on the trading day last preceding the closing of the Merger or (ii)
90% of the mid-market price on the trading day last preceding such closing,
and (b) the U.S. Dollar-to-Pound Sterling Exchange Rate as of the close of
business on the day preceding the effective date of the Merger will be used.
The Merger Agreement was also executed by each of the Control
Shareholders, pursuant to which they agreed to vote all shares of Common
Stock controlled by them in favor of the Reverse Stock Split at the Special
Meeting and in favor of the Merger at the Second Meeting. Although Mr.
Mercier anticipates being hired by SOCO as an officer with the responsibility
of overseeing SOCO's operations in the Far East following the Merger, SOCO
has not made a formal offer of employment to Mr. Mercier and no specific
terms of any such employment, including salary, have been determined.
Although Messrs. Penttila and Buck expect to continue performing consulting
services for SOCO following the Merger, no arrangements have been discussed
which are different from their current arrangements with SOCO.
The Company expects that its share of the Mongolia and Thailand program
costs during 1998 would exceed $2.5 million if the Merger does not occur.
The failure by the Company to pay its share of any program cost on the due
date thereof will result in forfeiture by the Company of part of its interest
in the subject properties. Given the Company's small size and attendant
difficulty in raising new capital, the uncertainty of being able to secure
such capital on a timely basis and the risk that future costs could exceed
the current estimates, the Board of Directors believes that a sale of the
Company to a significantly larger company which has common property
interests, such as SOCO, at a fair price to the Company's shareholders, is in
the best interests of the Company and its shareholders because the combined
organization will be better able to secure financing and will be better able
to control the pace and direction of future capital expenditures. In
addition, because of SOCO's knowledge of and common interests in the
Company's properties, SOCO is better equipped to evaluate the properties than
any other potential buyer and is capable of realizing operational
efficiencies through the acquisition of such properties that other oil and
gas companies could not achieve. The Company believes that these factors
have resulted in a fair and reasonable offer from SOCO with respect to the
Reverse Stock Split and the Merger. The Board of Directors has also used as
a basis for its decision and recommendation the opinion of Sayer Securities,
acting as an independent financial advisor to the Company, to the effect that
the Cash Consideration and the value of the SOCO Shares to be received by the
shareholders of the Company is fair from a financial point of view. See
"--Opinion of Financial Advisor."
The Board of Directors believes that the Reverse Stock Split and the
Merger will enable all shareholders of the Company to receive the same fair
value for their Common Stock either in the form of cash, if pursuant to the
Reverse Stock Split, or in the form of SOCO Shares, if pursuant to the
Merger. In particular, the Reverse Stock Split affords the Minority
Shareholders an opportunity to receive a fair cash price for their shares
(which provides a significant premium over recent quoted sales prices in the
over-the-counter market) without incurring the attendant costs of sale (which
would otherwise be disproportionate considering the small amounts of cash
proceeds involved for each Minority Shareholder). Accordingly, the Board of
Directors has unanimously approved the Reverse Stock Split and recommends
that the shareholders vote FOR approval of the Reverse Stock Split.
-7-
<PAGE>
OPINION OF FINANCIAL ADVISOR
Sayer Securities has acted as financial advisor to the Company in
connection with the Reverse Stock Split and the Merger and was chosen because
of its reputation and proximity to the Company and because of Mr. Mercier's
previous experience in dealing with Sayer Securities while he was President
and Chief Executive Officer of Canadian Conquest Exploration Inc. Sayer
Securities delivered its oral opinion to the Company's Board of Directors at
its January 28, 1998 meeting (subsequently confirmed in writing on February
5, 1998), to the effect that the consideration to be received by the holders
of Common Stock as a result of the Reverse Stock Split and the Merger is fair
to such shareholders from a financial point of view. A copy of the fairness
opinion is attached hereto as Annex C. The report accompanying the fairness
opinion will be available for inspection and copying at the Company's offices
during regular business hours by any shareholder of the Company, or his
representative who has been so designated in writing. In addition, a copy of
the report will be sent by the Company to any shareholder of the Company, or
his representative who has been so designated in writing, upon written
request and at the expense of the requesting shareholder.
In connection with the opinion, Sayer Securities reviewed, among other
things, the Merger Agreement; drafts of this Proxy Statement; certain
publicly available information concerning the Company, including annual
reports on Form 10-KSB of the Company for the years ended March 31, 1995,
1996, and 1997 and quarterly reports on Form 10-QSB for the Company for the
quarters ended June 30, 1997 and September 30, 1997; certain information on
the market price and trading of the Company's and SOCO's shares, as well as
the trading of companies of a comparable nature to the Company and SOCO;
certain publicly available information concerning SOCO, including the listing
particulars of SOCO dated May 23, 1997; the interim report of SOCO for the
period ended June 30, 1997; and certain internal financial analyses and
forecasts for the Company and SOCO prepared by their respective managements.
Sayer Securities also held discussions with members of the senior management
of the Company and SOCO regarding the strategic rationale for, and potential
benefits of, the Reverse Stock Split and the Merger and the past and current
business operations, financial condition and future prospects of their
respective companies. Sayer Securities reviewed certain information provided
by the Company relating to the oil and gas reserves of the Company and SOCO
(the "Reserve Information"), including but not limited to, (i) a December 31,
1996 reserve report for the Mongolian interests prepared by independent
petroleum engineers; (ii) a December 31, 1996 reserve report for the
Thailand interests prepared by independent petroleum engineers and (iii)
reserve information for SOCO as of December 31, 1996 and January 1, 1997
including forecasted production rates, revenues, cash flow and capital
expenditure as estimated and reviewed by independent petroleum engineers. In
addition, Sayer Securities discussed the Reserve Information with the
respective managements of the Company and SOCO.
THE FULL TEXT OF SAYER SECURITIES' OPINION, WHICH SETS FORTH, AMONG
OTHER THINGS, ASSUMPTIONS MADE, PROCEDURES FOLLOWED, MATTERS CONSIDERED AND
LIMITATIONS ON THE REVIEW UNDERTAKEN, IS ATTACHED AS ANNEX C TO THIS PROXY
STATEMENT. THE COMPANY'S SHAREHOLDERS ARE URGED TO AND SHOULD READ THE SAYER
SECURITIES OPINION CAREFULLY AND IN ITS ENTIRETY. SAYER SECURITIES' OPINION
IS DIRECTED ONLY TO THE FAIRNESS OF CASH CONSIDERATION AND THE VALUE OF THE
SOCO SHARES TO BE RECEIVED
-8-
<PAGE>
FROM A FINANCIAL POINT OF VIEW TO THE HOLDERS OF THE COMPANY'S COMMON STOCK
AND DOES NOT ADDRESS ANY OTHER ASPECT OF THE REVERSE STOCK SPLIT OR THE
MERGER AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY HOLDER OF THE
COMPANY'S COMMON STOCK AS TO HOW TO VOTE AT THE COMPANY'S SPECIAL MEETING.
THE SUMMARY OF THE MATERIAL ELEMENTS OF SAYER SECURITIES' OPINION SET FORTH
HEREIN IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF SUCH
OPINION.
Sayer Securities has assumed and relied upon the accuracy and
completeness of all of the financial and other information provided to it or
publicly available and has neither attempted independently to verify nor
assumed responsibility for verifying any of such information. Sayer
Securities has not conducted an independent evaluation of any of the
properties, assets or facilities of the Company or SOCO, nor has it made or
obtained or assumed any responsibility for making or obtaining any
independent evaluations or appraisals of any of such properties, assets or
facilities. With respect to projections, it has assumed that they have been
reasonably prepared on bases reflecting the best currently available
estimates and judgments of the managements of the Company and SOCO as to the
respective future financial performance of the Company and SOCO as well as
the synergistic values and operating cost savings expected to be achieved
through the combination of the operations of the Company and SOCO. Sayer
Securities expresses no view with respect to such projections or the
assumptions on which they were based. Sayer Securities further has assumed
that each of the Merger Agreement and the other agreements which are attached
as exhibits to the Merger Agreement, when executed and delivered, will not
differ materially from the drafts which they have reviewed and that the
Reverse Stock Split and the Merger will be carried out as contemplated in the
Merger Agreement and this Proxy Statement.
The following is a summary of certain financial analyses used by Sayer
Securities in connection with providing its written opinion to the Board on
February 5, 1998:
(i) HISTORICAL STOCK TRADING ANALYSIS: Sayer Securities reviewed
historical share trading prices and volumes for the Company and SOCO. The
average closing price per share of the Common Stock has been $0.625,
$0.625, $0.667 and $0.648 for the past 30 days, 60 days, 90 days and since
the date of the Company's one-for-three reverse stock split in May 1997,
respectively. The cash value of the Reverse Stock Split consideration of
$1.40 represents a premium of 124%, 124%, 109% and 116% over the above
mentioned prices, respectively. The last trade of Common Stock prior to
the announcement of the Reverse Stock Split and the Merger occurred at a
price of $0.625. The last trade of Common Stock prior to the issuance of
the fairness opinion was also $0.625. The Cash Consideration of $1.40
represents a premium of 124% over that price.
In assessing the value of the SOCO Shares being offered, Sayer
Securities relied on the market trading value approach. Since each holder
of Common Stock will receive a minority interest in SOCO and will not be
able to effect a sale of 100% of SOCO, Sayer Securities concluded it was
appropriate not to rely on methodologies that are based on the assumption
of a change of control transaction. Sayer Securities believes that the
market price of the SOCO Shares is an appropriate indicator of the value
being offered to the Company shareholders under the Reverse Stock Split
and Merger.
-9-
<PAGE>
(ii) SELECTED COMPANY ANALYSIS. Sayer Securities reviewed publicly
available financial, operating and stock market data of the Company and
SOCO and similar information on a number of publicly traded companies with
international assets. The companies reviewed included Bow Valley Energy
Inc., Epic Energy Inc., NTI Resources Limited and Can Baikal Resources Inc.
Sayer Securities calculated the enterprise value per barrel of reserves
multiple based on the companies closing prices of January 27, 1998. The
range of values was $0.88 per barrel of oil equivalent to $7.35. The
corresponding value implied for the Company by the proposed Cash
Consideration and Merger was $6.62. Sayer Securities emphasized the
difficulty in identifying truly comparable companies which are at the same
stage of exploration with similar resource or reserve development and the
difficulty in placing values on early exploration properties such as those
owned by the Company.
(iii) NET ASSET VALUES. Sayer Securities prepared estimates of
the Company's net asset value at a variety of discount rates using the
Reserve Information, recent financial information and information on the
Company's other assets. The net asset value per share was in the range of
$1.23 to $0.98, or $1.15 to $0.92 on a fully diluted basis, at discount
rates of 10 to 15 percent before income tax.
(iv) SELECTED TRANSACTION ANALYSIS. Sayer Securities has reviewed
publicly available information and analyses of a number of acquisitions of
international oil and gas assets and companies. The range of values per
barrel was $0.30 to $12.40. Sayer Securities noted the significant
difference among the various transactions. Of particular note was a
recent transaction in Mongolia which ascribed a value of $2.38 per barrel.
The per barrel value ascribed to the Reverse Stock Split and the Merger
was $6.62. Because the reasons for and circumstances surrounding each of
the comparable transactions analyzed were diverse and because of the
inherent differences between the operations of the Company, SOCO and the
companies engaged in the selected transactions, Sayer Securities believed
that a purely quantitative comparable transaction analysis would not be
particularly meaningful in the context of the Reverse Stock Split and
Merger. Sayer Securities believed that an appropriate use of a comparable
transaction analysis in this instance would involve qualitative judgments
concerning differences between the characteristics of these transactions
and the Reverse Stock Split and Merger.
(v) CONTRIBUTION ANALYSIS. Sayer Securities reviewed the
contribution of assets and reserves to the ongoing entity. On a pro-forma
basis, assuming the exchange of all of the shares of Common Stock for SOCO
Shares, the Company's shareholders would contribute approximately 3% to 4%
of the net asset value of the ongoing merged corporation and receive
approximately 5% of the equity of the ongoing company. On a reserves
basis, the Company will contribute 1.5 to 3.3 percent of the reserves.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description.
Selecting portions of the analyses or of the summary set forth above, without
considering Sayer Securities' analyses as a whole, could create an incomplete
view of the processes underlying Sayer Securities' opinion. In arriving at
its fairness determination, Sayer Securities considered the results of all
such analyses and did not assign relative weights to any of the analyses. No
company or transaction used in the above analyses as a comparison is
identical
-10-
<PAGE>
to the Company or SOCO or the contemplated Reverse Stock Split or the Merger.
The analyses were prepared solely for purposes of Sayer Securities providing
its opinion to the Board as to the fairness of the Cash Consideration and the
Merger and the consideration to be paid by SOCO and do not purport to be
appraisals or necessarily reflect the prices at which the Company or its
securities might actually be sold. Analyses based upon forecasts of future
results are not necessarily indicative of actual future results, which may be
significantly more or less favorable than suggested by such analyses.
Because such analyses are inherently subject to uncertainty, being based upon
numerous factors or events beyond the control of the parties or their
respective advisors, none of SOCO, the Company, Sayer Securities or any other
person assumes responsibility if future results are different from those
forecast. As described above, Sayer Securities' opinion to the Board was one
of many factors taken into consideration by the Board in making its
determination to approve the Merger Agreement and the Reverse Stock Split and
the Merger. The foregoing summary does not purport to be a complete
description of the analysis performed by Sayer Securities and is qualified in
its entirety by reference to the written opinion of Sayer Securities set
forth in Annex C hereto.
Sayer Securities' opinion necessarily is based upon economic, market and
other conditions as they exist and can be evaluated on the date hereof and it
assumes no responsibility to update or revise its opinion based upon
circumstances or events occurring after the date hereof. Sayer Securities'
opinion does not constitute an opinion or imply any conclusions as to the
likely trading range for the SOCO Shares following consummation of the
Merger, nor does its opinion address the potential tax consequences of any
shareholder's receipt of the Cash Consideration or the SOCO Shares. In
addition, Sayer Securities' opinion does not address the Company's underlying
decision to effect the Merger or related transactions, and it expresses no
view on the effect on the Company of the Merger and related transactions.
Further, Sayer Securities was not requested to and did not provide
advice concerning the structure, the specific amount of the consideration, or
any other aspects of the Reverse Stock Split and the Merger, or to provide
services other than the delivery of this opinion. Sayer Securities was not
authorized to and did not solicit any expressions of interest from any other
parties with respect to the sale of all or any part of the Company or any
other alternative transaction. Sayer Securities did not participate in
negotiations with respect to the terms of the Reverse Stock Split and the
Merger and related transactions. Consequently, it has assumed that such terms
are the most beneficial terms from the Company's perspective that could under
the circumstances be negotiated among the parties to such transactions, and
no opinion is expressed whether any alternative transaction might produce
consideration for the Company's shareholders in an amount in excess of that
contemplated pursuant to the Reverse Stock Split and the Merger.
Sayer Securities is a specialized financial services company providing
capital market and advisory services for oil and gas companies, governments
and financial institutions across Canada and for foreign entities. These
services include merger and acquisition advice, independent research,
financings, valuations, and fairness opinions for clients.
-11-
<PAGE>
Sayer Securities is not an insider, associate or affiliate of the
Company or SOCO, and prior to this engagement Sayer Securities has never been
engaged by the Company or SOCO to provide advisory services or to act as
agent or underwriter. Sayer Securities does not have interests in any of
the securities of the Company or SOCO. Sayer Securities has no financial
interest, outside the ordinary course of its business as an oil and gas
financial services and investment company, in any future business involving
the Company or SOCO. There are no understandings, agreements or commitments
between Sayer Securities and the Company or SOCO with respect to future
business dealings with them. Sayer Securities may, in the normal course of
business, provide advisory services to the Company or SOCO or their
successors in the future.
Pursuant to an engagement contract dated as of January 27, 1998, a fee
of $50,000 (Cdn) will be payable to Sayer Securities upon delivery of the
fairness opinion for its services as financial advisor to the Company in
connection with the Reverse Stock Split and the Merger. The Company has also
agreed to reimburse Sayer Securities for its reasonable out-of-pocket
expenses, including the fees of its legal counsel, and to indemnify Sayer
Securities against liabilities, including liabilities under the federal
securities laws.
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board of Directors, at the meeting of the Board of Directors on
January 28, 1998, considered the fairness of the proposed one-for-36,000
Reverse Stock Split of the Company's Common Stock. Based upon the opinion of
Sayer Securities described above and the Board's own evaluation of the
effects of the Reverse Stock Split and the Merger on the Company and its
shareholders (as described under "-Background and Reasons for the Reverse
Stock Split and Merger"), the Board of Directors unanimously concluded that
the Reverse Stock Split, both from a financial and procedural point of view,
is fair to, and in the best interests of, both the Company and its
shareholders, including the Minority Shareholders. The Board of Directors
has therefore unanimously approved the Reverse Stock Split and the Merger and
unanimously recommends that the shareholders vote FOR approval of the Reverse
Stock Split.
The Board of Directors of the Company did not retain an unaffiliated
representative to act solely on behalf of the Minority Shareholders for the
purpose of negotiating the terms of the Reverse Stock Split and the Merger or
for the purpose of preparing a report with respect to the fairness of the
Reverse Stock Split and the Merger. The Board of Directors determined that
the cost and expense to retain such representative or to prepare such report
were not warranted in light of (i) the fact that the opinion delivered by
Sayer Securities examined the fairness of the Cash Consideration and the
value of the SOCO Shares to be received by the Company's shareholders in the
Merger, (ii) the fact that the Majority Shareholders and the Minority
Shareholders will receive substantially the same dollar value for their
shares of Common Stock, (iii) the Cash Consideration to be paid to the
Minority Shareholders pursuant to the Reverse Stock Split will be available
for payment at least 90 days prior to the issuance of SOCO Shares pursuant to
the Merger and the Minority Shareholders will not bear any risk that the
Merger might not close because of the occurrence of an unforeseen event
during such 90 day period (which risk will be borne solely by the Majority
Shareholders) and (iv) the right of each of the Minority Shareholders to
dissent from the Reverse Stock Split under the CBCA. The Board of Directors
also did not appoint an independent committee of the Board of
-12-
<PAGE>
Directors to review the fairness of the Reverse Stock Split and the Merger
for the foregoing reasons. See "-Opinion of Financial Advisor."
INTEREST OF CERTAIN PERSONS IN THE REVERSE STOCK SPLIT
It is anticipated that the following persons, all of whom are currently
officers or directors of the Company, except for Edward T. Story, Jr. who,
until December 26, 1996, was a Director of the Company, will have ongoing
roles as employees, officers, directors or contractors to SOCO:
1) Edward T. Story, Jr., the owner of 471,061 shares of Common Stock and a
director of the Company prior to December 26, 1996, is presently the
President and Chief Executive Officer and a Director and owner of 869,162
SOCO Shares. In addition, on April 25, 1997 Mr. Story was granted an
option to acquire an additional 1,973,954 shares of SOCO Shares at the
initial public offering price of 2.60 Pounds Sterling per share. Mr.
Story will continue to act in such capacity with SOCO after the Merger.
2) Daniel A. Mercier, Chairman and Chief Executive Officer and a Director of
the Company and beneficial owner of 2,528,667 shares of Common Stock,
expects to be appointed as an officer of SOCO upon the closing of the
Merger. In addition to his beneficial ownership of 621,000 SOCO Shares as
a result of the Merger, Mr. Mercier owns 6,000 SOCO Shares. In addition
to the shares beneficially owned by Mr. Mercier, Mr. Mercier's siblings
beneficially own an additional 6,000 SOCO Shares.
3) William C. Penttila, President and a Director of the Company and
beneficial owner of 683,921 shares of Common Stock, is also the beneficial
owner of 62,812 SOCO Shares. Mr. Penttila is a Vice President of
Exploration Associates, Inc., an international oil and gas exploration
consulting company, which provides exploration consulting services to the
Company and to SOCO on a fee for service basis. Exploration Associates,
Inc. expects to continue providing such services to SOCO after the Merger.
4) Dennis M. Buck, Vice President of Exploration of the Company and
beneficial owner of 683,921 shares of Common Stock, is also the beneficial
owner of 42,812 SOCO Shares. Mr. Buck is President of Exploration
Associates, Inc.
PLANS FOR THE COMPANY AFTER THE REVERSE STOCK SPLIT
Following the Reverse Stock Split, the Company will have 23 remaining
shareholders and will apply for deregistration with the Commission. Upon
completion of the deregistration process, expected to occur approximately
90 days after the Special Meeting, the Company will call a meeting of the
remaining shareholders to approve the Merger. If the Merger is approved at
such meeting, the remaining shareholders will exchange their shares of Common
Stock of the Company for SOCO Shares pursuant to the Merger Agreement.
-13-
<PAGE>
CERTAIN EFFECTS OF THE REVERSE STOCK SPLIT
GENERAL EFFECTS
If the Reverse Stock Split is approved by the vote of a majority of the
outstanding shares of Common Stock, all shares of Common Stock which would
upon conversion otherwise represent a fractional share of New Common Stock
will be automatically converted into the right to receive from the Company,
in lieu of fractional shares of New Common Stock, cash in the amount of $1.40
for each such share of Common Stock. Those shareholders owning less than one
share of New Common Stock after the Reverse Stock Split will cease to be
shareholders or to have any equity interest in the Company and, therefore,
will not share in its future earnings and growth, if any, and will not have
any right to vote on any corporate matter.
TERMINATION OF EXCHANGE ACT REGISTRATION
The shares of Common Stock are currently registered under Section 12(g)
of the Exchange Act. Such registration may be terminated upon application of
the Company to the Commission if the Company has fewer than 300 record
holders of shares or fewer than 500 shareholders and less than $10,000,000 in
assets as of the end of three consecutive fiscal years. The Company
currently intends to apply for termination of registration of the shares of
Common Stock as promptly as possible after filing the Articles of Amendment
with the Secretary of State of Colorado. Termination of registration of the
shares of Common Stock under the Exchange Act would substantially reduce the
information required to be furnished by the Company to its shareholders and
to the Commission and would make certain provisions of the Exchange Act, such
as the short-swing profit recovery provisions of Section 16(b) of the
Exchange Act, the requirement of furnishing a proxy or information statement
in connection with shareholder meetings pursuant to Section 14(a) of the
Exchange Act, and the requirements of Rule 13e-3 promulgated by the
Commission under the Exchange Act with respect to "going private"
transactions, no longer applicable to the Company. Termination of
registration of the shares of Common Stock would also deprive "affiliates" of
the Company and persons holding "restricted securities" of the Company of the
ability to dispose of such securities pursuant to Rule 144 promulgated under
the Securities Act. Such termination of registration shall cause all shares
of Common Stock to be restricted.
EFFECT ON MARKET FOR SHARES
If the Reverse Stock Split is approved and, as contemplated, the shares
of Common Stock are deregistered under the Exchange Act, there will not be
any public market for the Company's shares of Common Stock.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The receipt by each fractional shareholder of cash in lieu of fractional
shares of Common Stock pursuant to the Reverse Stock Split will be a taxable
transaction for federal income tax purposes under the Internal Revenue Code
of 1986, as amended (the "Code").
-14-
<PAGE>
Under Section 302 of the Code, a fractional shareholder will recognize
gain or loss upon receiving cash in lieu of fractional shares of Common Stock
if (i) the Reverse Stock Split results in a "complete redemption" of all of
the fractional shareholder's shares of Common Stock, (ii) the receipt of cash
is "substantially disproportionate" with respect to the fractional
shareholder, or (iii) the receipt of cash is "not essentially equivalent to a
dividend" with respect to the fractional shareholder. These three tests are
applied by taking into account not only shares that a fractional shareholder
actually owns, but also shares that a fractional shareholder constructively
owns pursuant to Section 318 of the Code, described below.
If any one of these three tests is satisfied, the fractional shareholder
will recognize gain or loss equal to the difference between the amount of
cash received by the fractional shareholder pursuant to the Reverse Stock
Split and the tax basis in the existing shares of Common Stock held by the
fractional shareholder. Provided that the shares of Common Stock constitute
a capital asset in the hands of the fractional shareholder, this gain or loss
will be long-term capital gain or loss if the shares of Common Stock are held
for more than one year and will be short-term capital gain or loss if the
shares of Common Stock are held for one year or less.
Pursuant to the constructive ownership rules of Section 318 of the Code,
a shareholder is deemed to constructively own shares owned by certain related
individuals and entities in addition to shares actually owned by the
shareholder. For instance, an individual shareholder is considered to own
shares owned by or for his or her spouse and his or her children,
grandchildren, and parents ("family attribution"). A shareholder is also
considered to own a proportionate number of shares owned by estates or
certain trusts in which the shareholder has a beneficial interest, by
partnerships in which the shareholder is a partner, and by corporations in
which 50 percent or more of the value of the stock is owned directly or
indirectly by or for such shareholder. Similarly, shares directly or
indirectly owned by beneficiaries of estates of certain trusts, by partners
of partnerships and, under certain circumstances, by shareholders of
corporations may be considered owned by these entities ("entity
attribution"). A shareholder is also deemed to own shares which the
shareholder has the right to acquire by exercise of an option.
The receipt of cash by a fractional shareholder pursuant to the Reverse
Stock Split will result in a "complete redemption" of all of the fractional
shareholder's shares of Common Stock, so long as the fractional shareholder
does not receive nor constructively own any shares of New Common Stock after
the Reverse Stock Split is effected. However, a fractional shareholder who
does not receive any shares of New Common Stock as a result of the Reverse
Stock Split may qualify for gain or loss treatment under the "complete
redemption" test even though such fractional shareholder constructively owns
shares of New Common Stock provided that (i) the fractional shareholder
constructively owns shares of New Common Stock as a result of the family
attribution rules (or, in some cases, as a result of a combination of the
family and entity attribution rules), and (ii) the fractional shareholder
qualifies for a waiver of the family attribution rules (such waiver being
subject to several conditions, one of which is that the fractional
shareholder has no interest in the Company immediately after the Reverse
Stock Split (including as an officer, director, or employee), other than an
interest as a creditor).
-15-
<PAGE>
It is anticipated that fractional shareholders who do not receive any
shares of New Common Stock as a result of the Reverse Stock Split will
qualify for capital gain or loss treatment as a result of satisfying the
"complete redemption" requirements. However, if the constructive ownership
rules prevent compliance with these requirements, a fractional shareholder
may nevertheless qualify for capital gain or loss treatment by satisfying
either the "substantially disproportionate" or the "not essentially
equivalent to a dividend" requirements. In general, the receipt of cash
pursuant to the Reverse Stock Split will be "substantially disproportionate"
with respect to the fractional shareholder if the percentage of shares of
Common Stock constructively owned by the fractional shareholder immediately
after the Reverse Stock Split is less than 80 percent of the percentage of
existing shares of Common Stock actually and constructively owned by the
fractional shareholder immediately before the Reverse Stock Split.
Alternatively, the receipt of cash pursuant to the Reverse Stock Split will,
in general, be "not essentially equivalent to a dividend" if the Reverse
Stock Split results in a "meaningful reduction" in the fractional
shareholder's proportionate interest in the Company.
If none of the three tests described above is satisfied, a fractional
shareholder who does not receive any shares of New Common Stock as a result
of the Reverse Stock Split will be treated under the distribution rules of
Section 301 of the Code. Generally, pursuant to Section 301 of the Code, a
distribution of cash by a corporation to its shareholders is considered a
taxable dividend in an amount equal to the entire amount of cash received by
such shareholder to the extent of the earnings and profits, both current and
accumulated, of such corporation. Although the Company does not have any
accumulated earnings and profits, it may have earnings and profits for the
fiscal year ended March 31, 1998. Accordingly, a fractional shareholder may
not qualify for capital gain or loss treatment under the distribution rules
of Section 301.
The receipt of shares of New Common Stock in the Reverse Stock Split by
shareholders of the Company who are not fractional shareholders will be a
non-taxable transaction for federal income tax purposes. However, it is
anticipated that a fractional shareholder who receives any shares of New
Common Stock as a result of the Reverse Stock Split will be treated as having
received a capital gain or loss in an amount equal to the difference between
the amount of cash received by the fractional shareholder pursuant to the
Reverse Stock Split and the tax basis in the fractional shares of New Common
Stock held by the fractional shareholder for which cash was received by the
fractional shareholder in lieu of New Common Stock. Consequently, a
shareholder of the Company receiving only shares of New Common Stock will not
recognize gain or loss, or dividend income, as a result of the Reverse Stock
Split with respect to the shares of New Common Stock received. In addition,
the basis and holding period attributed to the shares of Common Stock of the
shareholders who receive only New Common Stock and the fractional
shareholders who receive shares of New Common Stock as a result of the
Reverse Stock Split will carry over as the basis and holding period of such
shareholder's shares of New Common Stock.
Various legislative proposals have been introduced in Congress that
would reduce the rate of federal income taxation of certain capital gains.
Such legislation, if enacted, might apply only to gain realized on
transactions occurring after a date specified in the legislation. It cannot
be predicted whether any such legislation ultimately will be enacted and, if
enacted, what its effective date will be.
-16-
<PAGE>
THE FOREGOING IS ONLY A GENERAL DESCRIPTION OF CERTAIN OF THE FEDERAL
INCOME TAX CONSEQUENCES OF THE REVERSE STOCK SPLIT TO THE SHAREHOLDERS
WITHOUT REFERENCE TO THE PARTICULAR FACTS AND CIRCUMSTANCES OF ANY PARTICULAR
SHAREHOLDER. EACH SHAREHOLDER IS URGED TO CONSULT HIS OR HER OWN TAX ADVISOR
TO DETERMINE THE PARTICULAR TAX CONSEQUENCES TO SUCH SHAREHOLDER OF THE
REVERSE STOCK SPLIT (INCLUDING THE APPLICATION AND EFFECT OF STATE AND LOCAL
INCOME AND OTHER TAX LAWS).
SOURCE AND AMOUNTS OF FUNDS FOR AND EXPENSES OF THE REVERSE STOCK SPLIT
Estimated fees and expenses incurred or to be incurred by the Company in
connection with the Reverse Stock Split are approximately as follows:
<TABLE>
<CAPTION>
APPROXIMATE
ITEM AMOUNT
-------------------------------------------------------------
<S> <C>
Payment of Cash Consideration $1,766,367
Legal Fees 150,000
Financial Advisory Fees 50,000
Accounting Fees 10,000
Commission Filing Fees 354
Printing and Mailing Expenses 25,000
Loan Commitment Fee 5,000
Miscellaneous Expenses 13,279
----------
Total $2,020,000
----------
----------
</TABLE>
The Company has paid or will be responsible for paying all of such
expenses. It will pay such expenses (including the Cash Consideration
payments) from working capital and borrowings of up to $1,800,000 under a
short term advances facility (the "Loan Facility") to be entered into between
the Company and Societe Generale, London Branch (the "Bank"). The 600,000
SOCO Shares owned by the Company, having an approximate market value of
$3.4 million, will be pledged to secure the indebtedness outstanding under the
Loan Facility. Interest accrues on the amounts borrowed under the Loan
Facility at the rate per annum equal to LIBOR plus 0.6%. Interest is payable
at maturity of the Loan Facility, which is the earlier of (i) the effective
date of the Merger or (ii) July 31, 1998. Pursuant to an agreement to be
entered into among SOCO, the Company and the Bank, SOCO will assume the
Company's indebtedness under the Loan Facility upon the effective date of the
Merger.
THE REVERSE STOCK SPLIT
AMENDMENT OF ARTICLES OF INCORPORATION TO EFFECT THE REVERSE STOCK SPLIT
Pursuant to the terms of the Amendment, (i) each 36,000 shares of Common
Stock then issued and outstanding will be automatically converted into one
share of New Common Stock upon filing the Articles of Amendment with the
Secretary of State of Colorado, and (ii) a payment of the Cash Consideration
per share for the currently outstanding Common Stock will be made in lieu of
the issuance of any resulting fractional shares of New Common Stock to any
shareholders who, after
-17-
<PAGE>
the Reverse Stock Split, would otherwise own a fractional share of New Common
Stock. The fractional shareholders owning less than one share of New Common
Stock will cease to be shareholders or to have any equity interest in the
Company and, therefore, will not share in its future earnings and growth, if
any, and will not have any right to vote on any corporate matter. The form
of the Amendment is attached as Annex A to this Proxy Statement. If the
Reverse Stock Split is approved at the Special Meeting by the holders of a
majority of the currently issued and outstanding Common Stock, the Company
expects to file the Articles of Amendment with the Secretary of State of the
State of Colorado immediately following the Special Meeting, or as soon as
practicable thereafter (the "Effective Date").
EXCHANGE OF SHARES AND PAYMENT IN LIEU OF ISSUANCE OF FRACTIONAL SHARES
Within 10 days after the Effective Date, the Company will mail to the
fractional shareholders a notice of the filing of the Articles of Amendment
(the "Notice of Filing") and a letter of transmittal (the "Letter of
Transmittal") containing instructions with respect to the submission of
shares of Common Stock to the Company. Fractional shareholders will be
entitled to receive, and the Company will be obligated to make payment of,
the Cash Consideration in lieu of fractional shares of New Common Stock only
by transmitting stock certificate(s) for shares of Common Stock to the
Company, together with the properly executed and completed Letter of
Transmittal and such evidence of ownership of such shares as the Company may
require.
VOTING; VOTE REQUIRED
The Reverse Stock Split must be approved by a vote of not less than a
majority of the shares of Common Stock. The Reverse Stock Split is not
structured to require the approval of the holders of a majority of the shares
of Common Stock held by the Minority Shareholders. Each share of Common
Stock is entitled to one vote on each matter submitted to a vote at the
Special Meeting. The Control Shareholders, who beneficially own an aggregate
of 65% of the outstanding shares of Common Stock, have agreed with SOCO to
vote their shares in favor of the Reverse Stock Split. All directors and
officers of the Company intend to vote their shares of Common Stock in favor
of the Reverse Stock Split.
THE NOTICE OF FILING AND THE LETTER OF TRANSMITTAL WILL BE TRANSMITTED
BY THE COMPANY TO SHAREHOLDERS AT A DATE SUBSEQUENT TO THE EFFECTIVE DATE.
SHAREHOLDERS SHOULD NOT SEND IN THEIR CERTIFICATES UNTIL THE NOTICE OF FILING
AND LETTER OF TRANSMITTAL ARE RECEIVED AND SHOULD SURRENDER THEIR
CERTIFICATES ONLY WITH SUCH LETTER OF TRANSMITTAL.
There will be no service charges payable by the fractional shareholders
in connection with the payment of the Cash Consideration in lieu of the
issuance of fractional shares of New Common Stock. These costs will be borne
by the Company.
-18-
<PAGE>
DISSENTING SHAREHOLDERS' RIGHTS
Shareholders who do not vote in favor of the Reverse Stock Split have
the right, in lieu of the payment of the Cash Consideration, to seek payment
in cash of the fair value of their shares of Common Stock by strictly
complying with the requirements of Article 113 of the CBCA. Failure of a
shareholder to strictly adhere to the requirements of Article 113 of the CBCA
may result in the loss of such shareholder's dissenter's rights.
If a holder of Common Stock elects to exercise his rights under
Article 113, he must satisfy each of the following conditions:
(i) he must cause the Company to receive, before the vote with
respect to the Reverse Stock Split is taken, written notice of
his intention to demand payment for his shares if the Reverse
Stock Split is effectuated; and
(ii) he must not vote in favor of the Reverse Stock Split (a failure
to vote or an abstention will satisfy this condition, but
delivering a proxy in favor of or voting in favor of the
Reverse Stock Split will constitute a waiver of such
shareholder's right of appraisal and will nullify any
previously filed written demand for appraisal).
A holder of Common Stock who does not satisfy conditions (i) and
(ii) above is not entitled to demand payment for his shares under Article 113.
All written demands for appraisal should be directed to Daniel A.
Mercier, Chairman of the Board, 734 7th Avenue S.W., Suite 1345, Calgary,
Alberta, Canada T2P 3P8, and should be executed by, or on behalf of, the
holder of record. To be effective, the demand must be made by or for the
registered shareholder, fully and correctly, in such shareholder's name as it
appears on his stock certificates. A beneficial shareholder may assert
dissenter's rights as to the shares held on the beneficial shareholder's
behalf only if the beneficial shareholder causes the Company to receive the
record shareholder's written consent to the dissent not later than the time
the beneficial shareholder asserts dissenter's rights and the beneficial
shareholder dissents with respect to all shares beneficially owned by the
beneficial shareholder.
If Common Stock is owned of record in a fiduciary capacity, such as by a
trustee, guardian or custodian, execution of a demand for appraisal should be
made in such capacity, and if the stock is owned of record by more than one
person, as in a joint tenancy or tenancy in common, such demand should be
executed by or for all joint owners. An authorized agent, including one or
more joint owners, may execute the demand for appraisal for a shareholder of
record; however, the agent must identify the record owner or owners and
expressly disclose the fact that, in executing the demand, it is acting as
agent for the record owner. A record shareholder, such as a broker, who
holds Common Stock as a nominee for others, may exercise his right of
appraisal with respect to the shares held for one or more beneficial owners,
while not exercising such right for other beneficial owners, but only if the
record shareholder dissents with respect to all shares beneficially owned by
any one person and causes the Company to receive written notice which states
such dissent and the name, address and federal taxpayer identification
number, if any, of each person on whose behalf the record shareholder asserts
dissenters' rights.
-19-
<PAGE>
If the Reverse Stock Split is approved, no later than ten days after the
effective date of the Reverse Stock Split, the Company will notify each
shareholder who has complied with the foregoing provisions of the date the
Reverse Stock Split has become effective and also the date (which shall be
not less than 30 days from the date of the notice) by which the Company must
receive the shareholder's payment demand. Thereafter, the dissenting
shareholder must (i) make the payment demand to the Company and (ii) deposit
his stock certificates with the Company.
If a payment demand remains unresolved, the Company may, within 60 days
after receiving the payment demand, commence a proceeding and petition the
court to determine the fair value of the shares and accrued interest. If
the Company does not commence the proceeding within the 60 day period, the
Company shall be required to pay each dissenter whose demand
remainsunresolved the amount demanded.
After any hearing on the Company's petition, the court shall enter a
judgment for the dissenter in an amount, if any, by which the court finds the
fair value of the dissenter's Common Stock, plus interest, exceeds the amount
paid by the Company to the dissenter. "Fair value" is defined as the value
of the shares immediately before the Effective Date of the Reverse Stock
Split excluding any appreciation or depreciation in anticipation of the
Reverse Stock Split except to the extent that exclusion would be inequitable.
Therefore, the court should not consider the occurrence of the Reverse Stock
Split or the Merger in its determination of the "fair value" of the
dissenting shares, and it is therefore possible for the court to determine
the "fair value" to be less than the Cash Consideration.
The costs of the proceeding may be determined by the court, including
the reasonable compensation and expenses of the appraisers appointed by the
court. The court shall assess the costs against the Company; except the court
may assess costs against all or some of the dissenters in amounts the court
finds equitable, to the extent the court finds the dissenters acted
arbitrarily, vexatiously, or not in good faith in demanding payment.
The foregoing does not purport to be a complete statement of the
provisions of Article 113 of the CBCA and is qualified in its entirety be
reference to such sections, which are reproduced in full as Annex B to this
Proxy Statement.
THE PROVISIONS OF ARTICLE 113 OF THE CBCA ARE COMPLEX AND TECHNICAL IN
NATURE. SHAREHOLDERS DESIRING TO EXERCISE DISSENTERS' RIGHTS MAY WISH TO
CONSULT COUNSEL, SINCE THE FAILURE TO COMPLY STRICTLY WITH THESE PROVISIONS
WILL RESULT IN THE LOSS OF THEIR DISSENTERS' RIGHTS.
-20-
<PAGE>
PRICE RANGE OF COMMON STOCK; DIVIDENDS; BOOK VALUE
COMMON STOCK INFORMATION
The shares of the Company are traded in the over-the-counter market on
the National Association of Securities Dealers ("NASD") Electronic Bulletin
Board and are quoted in the "pink sheets" under the symbol "TERX." The
following table sets forth the range of high and low bid prices of the Common
Stock for the three most recent fiscal years. These prices are believed to
be representative inter-dealer quotations, without retail markup, markdown or
commissions, and may not represent actual transactions. All share prices
prior to May 12, 1997 have been restated to reflect the one-for-three reverse
stock split which became effective on that date. The source of the prices
quoted below is Trading and Market Services of The NASDAQ Stock Market, Inc.
<TABLE>
<CAPTION>
HIGH LOW
------- -------
<S> <C> <C>
FISCAL 1996
First Quarter $0.75 $0.1875
Second Quarter 1.875 0.1875
Third Quarter 3.75 0.1875
Fourth Quarter (March 31, 1996) 0.375 0.375
FISCAL 1997
First Quarter 2.0637 0.375
Second Quarter 0.5625 0.5625
Third Quarter 0.5625 0.1875
Fourth Quarter (March 31, 1997) 0.375 0.28125
FISCAL 1998
First Quarter 1.75 0.50
Second Quarter 0.6875 0.625
Third Quarter 1.125 0.625
Fourth Quarter (through January 28, 1998) 0.625 0.625
</TABLE>
On January 28, 1998, the last trading day before the public announcement
of the Merger, the closing sales price of the Common Stock was $0.625.
Upon consummation of the Merger, the Company intends to apply for
termination of registration of its shares of Common Stock under the Exchange
Act.
DIVIDENDS
The Company has never paid any dividends on its shares and does not
intend to do so in the future.
BOOK VALUE
The book value per share of Common Stock was $0.51 at December 31, 1997
and $0.25 at March 31, 1997.
-21-
<PAGE>
DIRECTORS AND EXECUTIVE OFFICERS
DIRECTORS AND EXECUTIVE OFFICERS
The names, addresses, ages and positions of all directors and executive
officers of the Company are as follows:
NAME AGE POSITION
- ------------------------------------- --- ---------------------------------
Daniel A. Mercier 43 Chairman of the Board and Chief
Territorial Resources, Inc. Executive Officer
734 7th Avenue S.W.
Calgary, Alberta
Canada T2P 3P8
William Penttila 64 President, Chief Operating
Exploration Associates, Inc. Officer and Director
450 N. Sam Houston Parkway, Suite 140
Houston, Texas 77060
Douglas N. Baker 44 Vice President Finance,
Territorial Resources, Inc. Treasurer, Chief Financial
734 7th Avenue S.W. Officer, Secretary and Director
Calgary, Alberta
Canada T2P 3P8
Richard A.N. Bonnycastle 63 Director
Cavendish Investing Ltd.
400 3rd Avenue S.W.
Calgary, Alberta T2P 3P8
Jimmy M. McCarroll 55 Director
1030 Townplace
Houston, Texas 77057-1942
Donald L. Oliver 54 Director
Forest Oil Company
1600 Broadway, Suite 2200
Denver, Colorado 80202
Lamont C. Tolley 61 Director
Starvest Exploration Ltd.
635 8th Avenue S.W.
Calgary, Alberta T2P 3P8
Dennis M. Buck 51 Vice President, Exploration
Exploration Associates, Inc.
450 N. Sam Houston Parkway, Suite 140
Houston, Texas 77060
-22-
<PAGE>
PRINCIPAL OCCUPATION AND BUSINESS EXPERIENCE
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. From December 1995 to March 1996, Mr. Mercier
was the Chief Operating Officer of Chancellor Energy Resources Inc., a
publicly-held Canadian oil and gas company listed on The Toronto Stock
Exchange. Mr. Mercier is also a Director of APF Energy Inc., the manager of
a Canadian royalty trust fund. Mr. Mercier is a mechanical engineer with
over twenty years of experience in the oil and gas industry in Canada and the
United States. Mr. Mercier is a citizen of Canada.
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 its 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.
On September 1, 1996, Mr. Penttila was appointed as Technical Advisor to
the Petroleum Authority of Mongolia. As such, Mr. Penttila evaluates
proposals and screens corporations and individuals who have expressed
interests in becoming involved in the petroleum industry in Mongolia. Each
of the Company and Mr. Penttila recognizes that the possibility exists that
his role as an officer and director of the Company may at times conflict with
his role as Technical Advisor to the Petroleum Authority. Mr. Penttila has
agreed that if such conflicts arise, he will fully disclose such conflicts to
the Company and, if appropriate, will resign either as Technical Advisor or
as an officer and director of the Company. Mr. Penttila receives no
compensation in his role as Technical Advisor to the Petroleum Authority of
Mongolia. Mr. Penttila is a citizen of the United States.
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, and its Secretary on April 30, 1997.
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. During 1997, Mr. Baker organized and
became President and Chief Financial Officer of Forte Energy Ltd., a Canadian
oil and gas exploration and production company. 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. Mr. Baker is a citizen of Canada.
-23-
<PAGE>
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, 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 directors
of a number of other publicly listed companies outside the United States.
Mr. Bonnycastle is a citizen of Canada.
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 has been the Managing Partner of
McCarroll and Young Energy Funds since 1980. Mr. McCarroll has also assisted
SOCO in certain of its farmout endeavors during the past four years.
Mr. McCarroll also serves as a Director of Pan Ocean Explorations Inc., a
corporation based in Vancouver, Canada, whose shares are traded on the
Vancouver Stock Exchange. Mr. McCarroll is a citizen of the United States.
DONALD L. OLIVER. Mr. Oliver joined the Company as President and a
Director in December 1987 and served as President until November 1994. He
currently serves as a Production Superintendent of Forest Oil Corporation in
Denver, Colorado, whose principal business is oil and gas exploration and
production in North America. 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. Mr. Oliver is
a citizen of the United States.
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. Mr. Tolley is a citizen of
Canada.
DENNIS M. BUCK. Mr. Buck is the Executive Vice 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. From
March 1977 to March 1981, Mr. Buck was Division Geophysicist for American
Petrofina. Prior thereto he held various technical positions with Amoco,
Texas Crude and Mitchell Energy. Mr. Buck has a B.S. Degree in Geology from
the New Mexico Institute of Mining and Technology. Mr. Buck is a citizen of
the United States.
-24-
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of the Record Date by certain
beneficial owners:
<TABLE>
<CAPTION>
AMOUNT AND
NATURE
OF PERCENT
BENEFICIAL OF
NAME AND ADDRESS OF BENEFICIAL OWNER OWNERSHIP CLASS (1)
---------------------------------------- ----------- -----------
<S> <C> <C> <C>
A. Andrew Davis 660,852 (2) 6.4%
Alan Davis Media Limited
Level 10
35 York Street
Sidney, NSW 2000
Australia
Brian A. Lingard 1,289,740 (3)(4) 12.4%
401 Louisiana
Suite 206
Houston, Texas 77002
Dennis M. Buck 683,921 (4) 6.6%
William C. Penttila 683,921 (4) 6.6%
450 N. Sam Houston Parkway E.,
Suite 140
Houston, Texas 77060
Michael C. Nemec 614,116 5.9%
The Phoenix Resource Companies
6525 N. Meridian Ave.
Oklahoma City, Oklahoma 77116
Asia Energy Ltd. 2,406,167 (4)(5) 23.2%
734 7th Avenue S.W., Suite 1345
Calgary, Alberta
Canada T2P 3B8
Jimmy M. McCarroll 550,000 (4) 5.3%
</TABLE>
- --------------
(1) Based upon 10,370,824 shares outstanding as of the Record Date.
(2) Consists of 393,141 shares either owned by Mr. Davis or by companies
controlled by him, with the remaining 267,711 shares owned by three
sisters of Mr. Davis but with voting proxy held by him.
(3) Includes 33,334 shares owned by his minor son with Mr. Lingard named as
custodian. Mr. Lingard disclaims beneficial ownership of these 33,334
shares. Also includes 105,000 shares owned by two companies and one trust
controlled by Mr. Lingard. Mr. Lingard is a former officer and director
of the Company. Mr. Lingard purchased 129,000 of his shares from his
parents at a price of $1.40 per share during the past 60 days.
(4) The holders of these shares, as Control Shareholders, have agreed in the
Merger Agreement to vote these shares in favor of approval of the Reverse
Stock Split.
(5) All shares reported are owned by AEL. See footnotes 4, 5 and 6 to table
below.
-25-
<PAGE>
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of the Record Date by each director
of the Company and the directors and executive officers as a group:
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF PERCENT
BENEFICIAL OF
NAME OF BENEFICIAL OWNER OWNERSHIP (1) CLASS (2)
--------------------------------------- ---------------- ----------
<S> <C> <C>
Daniel A. Mercier 2,528,667 (3)(4) 24.3%
William C. Penttila 683,921 (3) 6.6%
Douglas N. Baker 2,428,390 (3)(6) 23.4%
Richard A.N. Bonnycastle 2,447,834 (5) 23.6%
Jimmy M. McCarroll 550,000 5.3%
Donald L. Oliver 366,613 3.5%
Lamont C. Tolley 83,334 0.8%
Dennis M. Buck 683,921 (3) 6.6%
Directors and Officers as a Group 4,960,346 (7) 47.8%
</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 10,370,824 shares outstanding as of the Record Date.
(3) Messrs. Penttila, Buck, Mercier and Baker exercised options during the
last 60 days for 54,000, 54,000, 60,000 and 22,223 shares, respectively,
at a price of $.90 per share, which options had been granted by the
Company's Board of Directors in June 1996.
(4) Includes 114,000 shares owned directly by Mr. Mercier and 8,500 shares
owned by Mr. Mercier's wife. All other shares reported are owned by AEL.
Mr. Mercier is a Director and the President of AEL and (together with
shares held by his wife) owns approximately 11.8% of the outstanding
shares of capital stock of AEL. Mr. Mercier's father and siblings own an
additional 10.9% 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 Common Stock owned
by AEL.
(5) Includes 41,667 shares owned directly by Mr. Bonnycastle. All other
shares reported are owned by AEL. Mr. Bonnycastle is a Director of AEL
and owns approximately 12.9% of the outstanding shares of capital stock of
AEL. Mr. Bonnycastle disclaims beneficial ownership of all shares of
Common Stock owned by AEL.
(6) Includes 22,223 shares owned directly by Mr. Baker. 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 Common Stock
owned by AEL.
(7) Includes 4,938,123 shares, the beneficial owners of which (as Control
Shareholders) have agreed in the Merger Agreement to vote in favor of
approval of the Reverse Stock Split. Mr. Baker, as owner of the remaining
22,223 shares also intends to vote such shares in favor of the Reverse
Stock Split.
-26-
<PAGE>
INDEPENDENT PUBLIC ACCOUNTANTS
The consolidated balance sheet of the Company as at March 31, 1997 and the
consolidated statements of operations, changes in stockholders' equity and cash
flows for the year then ended have been audited by Price Waterhouse, chartered
accountants, as stated in their report appearing herein.
The consolidated statements of operations, changes in stockholders' equity
and cash flows of the Company for the year ended March 31, 1996 have been
audited by Hein + Associates LLP, independent public accountants, as indicated
in their report appearing herein.
ADDITIONAL INFORMATION
The Company is subject to the informational requirements of the Exchange
Act and in accordance therewith files reports, proxy statements, and other
information with the Commission. Such reports, proxy statements, and other
information can be inspected and copied at the public reference facilities of
the Commission at Room 1024, 450 Fifth Street, N.W., Judiciary Plaza,
Washington, D.C. 20549 and at the regional offices of the Commission located at
7 World Trade Center, 13th Floor, Suite 1300, New York, New York 10048 and
Suite 1400, Citicorp Center, 14th Floor, 500 West Madison Street, Chicago,
Illinois 60661. Copies of such materials can also be obtained at prescribed
rates by writing to the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Judiciary Plaza, Washington, D.C. 20549.
This Proxy Statement includes information required by the Commission to be
disclosed pursuant to Rule 13e-3 under the Exchange Act, which governs so-
called "going private" transactions by certain issuers or their affiliates. In
accordance with that rule, the Company has filed with the Commission, under the
Exchange Act, a Rule 13e-3 Transaction Statement with respect to the Reverse
Stock Split. This Proxy Statement does not contain all of the information set
forth in the Rule 13e-3 Transaction Statement parts of which are omitted in
accordance with the regulations of the Commission. The Rule 13e-3 Transaction
Statement, and any amendments thereto, including exhibits filed as a part
thereof, will be available for inspection and copying at the offices of the
Commission as set forth above.
-27-
<PAGE>
INDEX TO FINANCIAL STATEMENTS
PAGE
Auditor's Report (Price Waterhouse) F-2
Auditor's Report (Hein + Associates, LLP) F-3
Consolidated Balance Sheet dated March 31, 1997 F-4
Consolidated Statements of Operations
for the Years Ended March 31, 1997 and 1996 F-6
Consolidated Statement of Changes in Stockholders' Equity
for the Years Ended March 31, 1997 and 1996 F-7
Consolidated Statements of Cash Flows
for the Years Ended March 31, 1997 and 1996 F-8
Notes to Consolidated Financial Statements F-9
Supplemental Information -- Disclosures of Oil and
Gas Producing Activities (Unaudited) F-15
Consolidated Balance Sheet dated December 31, 1997 (Unaudited) F-18
Consolidated Statements of Operations for the nine months ended
December 31, 1997 and 1996 (Unaudited) F-20
Consolidated Statements of Cash Flows
for the nine months ended December 31, 1997 and 1996 (Unaudited) F-21
Notes to Unaudited Financial Statements F-22
F-1
<PAGE>
Price Waterhouse
Chartered Accountants
1200 425 1st Street S.W.
Calgary, Alberta T2P 3V7
June 23, 1997, except for Note 11
which is as of June 30, 1997
AUDITOR'S REPORT
To the Board of Directors and Stockholders
Territorial Resources, Inc.
We have audited the consolidated balance sheet of Territorial Resources, Inc.
as at March 31, 1997 and the consolidated statements of operations, changes
in stockholders' equity and cash flows for the year then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation.
In our opinion, these consolidated financial statements present fairly, in
all material respects, the financial position of the Company as at March 31,
1997 and the results of its operations and its cash flows for the year then
ended in accordance with generally accepted accounting principles.
The consolidated statements of operations, changes in stockholders' equity
and cash flows for the year ended March 31, 1996 were audited by other
auditors who issued an unqualified report dated June 17, 1996.
Price Waterhouse
Chartered Accountants
Calgary, Alberta
F-2
<PAGE>
INDEPENDENT AUDITOR'S REPORT
Board of Directors and Stockholders
Territorial Resources, Inc.
We have audited the accompanying consolidated statements of operations,
changes in stockholders' equity and cash flows of Territorial Resources, Inc.
and subsidiary for the year ended March 31, 1996. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the results of operations and cash
flows of Territorial Resources, Inc. for the year ended March 31, 1996, in
conformity with generally accepted accounting principles.
The Company's primary asset is an investment in SOCO Tamtsag Mongolia, Inc.
which is a company engaged in oil and gas exploration in Mongolia. SOCO
Tamtsag Mongolia, Inc. has not yet discovered any proved reserves in Mongolia
(see also discussion of Mandatory Loan Obligations in Note 10).
HEIN + ASSOCIATES LLP
Houston, Texas
June 17, 1996
F-3
<PAGE>
TERRITORIAL RESOURCES, INC.
CONSOLIDATED BALANCE SHEET
ASSETS
(in thousands of US dollars, except share amounts)
<TABLE>
<CAPTION>
MARCH 31,
1997
-------------
<S> <C>
CURRENT ASSETS:
Cash $ 6
Accounts receivable:
Oil and gas 7
Other 2
Prepaid expenses 32
-------------
Total Current Assets 47
-------------
NOTE RECEIVABLE (Note 4) 9
-------------
INVESTMENT IN SOCO TAMTSAG MONGOLIA, INC. (Note 2) 2,820
-------------
PROPERTY AND EQUIPMENT, at cost:
Oil and gas, properties, full cost method 7,814
Less: Accumulated depreciation, depletion,
impairment and amortization (7,797)
-------------
17
-------------
TOTAL ASSETS $ 2,893
-------------
-------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
TERRITORIAL RESOURCES, INC.
CONSOLIDATED BALANCE SHEET -- CONTINUED
LIABILITIES AND STOCKHOLDERS' EQUITY
(in thousands of US dollars, except share amounts)
<TABLE>
<CAPTION>
MARCH 31,
1997
---------
<S> <C>
CURRENT LIABILITIES:
Accounts payable $ 92
Bank loan (Note 12) 166
Due to affiliated party (Note 12) 224
--------
TOTAL CURRENT LIABILITIES 482
--------
COMMITMENTS AND CONTINGENCIES
(Notes 9 and 10)
TOTAL LIABILITIES 482
--------
STOCKHOLDERS' EQUITY (Notes 3 and 7):
Common stock 28
Additional paid-in capital 6,125
Accumulated deficit (3,725)
Treasury stock (17)
--------
TOTAL STOCKHOLDERS' EQUITY 2,411
--------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $2,893
------
------
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
TERRITORIAL RESOURCES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands of US dollars, except per share amounts)
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31
--------------------
1997 1996
--------- ---------
<S> <C> <C>
REVENUES:
Oil and gas sales $ 21 $ 39
Interest and other income
1 2
--------- ---------
22 41
--------- ---------
COSTS AND EXPENSES:
Oil and gas production 1 7
Depreciation, depletion and amortization 5 26
Foreign exchange loss 3 --
General and administrative 206 64
Interest 5 --
--------- ---------
220 97
--------- ---------
Net Income (Loss) $ (198) $ (56)
--------- ---------
--------- ---------
Net Income (Loss) per share $ (.007) $ (.003)
--------- ---------
--------- ---------
WEIGHTED AVERAGE SHARES
OUTSTANDING (thousands) 27,767 20,591
--------- ---------
--------- ---------
</TABLE>
See accompanying notes to consolidated financial statements
F-6
<PAGE>
TERRITORIAL RESOURCES INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(in thousands of US dollars, except share amounts)
<TABLE>
<CAPTION>
Common Stock Stock Subscriptions
----------------------- -------------------------- Additional Treasury
Paid-In Accumulated Stock
Shares Amount Shares Amount Capital Deficit Amount
----------- ----------- ---------- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at
March 31, 1995 11,791,112 12 8,785,000 9 3,853 (3,471) (17)
---------- ----------- --------- --------- --------- --------- -----------
---------- ----------- --------- --------- --------- --------- -----------
Stock issued for
stock subscriptions 8,785,000 9 (8,785,000) (9) - - -
Debt Shares issued
to acquire TRI
Mongolia 5,450,000 5 - - 1,545 - -
Shares issued
as compensation to
officer, director and
other third parties 43,000 - - - 3 - -
Shares cancelled
as proceeds for
Account Receivable (3,000) - - - - - -
Net loss - - - - - (56) -
---------- ----------- --------- --------- --------- --------- -----------
Balance at
March 31, 1996 26,066,112 26 - - 5,399 (3,527) (17)
---------- ----------- --------- --------- --------- --------- -----------
---------- ----------- --------- --------- --------- --------- -----------
Shares issued for
cash and shares
of SOTAMO 1,918,750 2 - - 513 - -
Shares issued
for cash 142,500 - - - 43 - -
Shares issued for
termination of
warrants 100,000 - - - - - -
Shares issued for
exercise of
warrants 25,000 - - - 2 - -
Adjustment (8) - - - - - -
Net loss - - - - - (198) -
---------- ----------- --------- --------- --------- -----------
Balance at
March 31, 1997 28,252,354 28 - - (3,725) (17)
---------- ----------- --------- --------- --------- -----------
---------- ----------- --------- --------- --------- -----------
Preferred shares
issued for cash 112,500 168
---------- ---------
Balance at
March 31, 1997 112,500 6,125
---------- ---------
---------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
TERRITORIAL RESOURCES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands of US dollars)
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31
--------------------------------
1997 1996
-------------- ---------------
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net income (loss) $ (198) $ (56)
ADJUSTMENTS TO RECONCILE NET LOSS TO CASH USED BY OPERATIONS:
Depreciation, depletion and amortization 5 26
CHANGES IN OPERATING ASSET AND LIABILITIES:
Accounts receivable 1 14
Other current assets (32) -
Accounts payable 77 (4)
Accrued liabilities and other (49) (3)
-------------- --------------
Cash used by operating activities (196) (23)
-------------- --------------
CASH FLOWS FROM INVESTMENT ACTIVITIES:
Additions to investment in SOCO Tamtsag Mongolia, Inc. (1,076) (38)
Proceeds from the sale of option to acquire SOCO Tamtsag
Mongolia, Inc. stock - 20
Additions to property and equipment (18) -
Proceeds from sales of property 138 30
Cash provided by (used by) investment activities (956) 12
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Notes receivable 1 -
Advances from stockholders and affiliates 224 -
Short term bank loan 166 -
Issuance of preferred stock 168 -
Issuance of common stock 560 -
-------------- --------------
Cash provided by (used by) financing activities 1,119 -
-------------- --------------
Increase (decrease) in cash (33) (11)
Cash, beginning of year 39 50
Cash, end of year $ 6 $ 39
-------------- --------------
-------------- --------------
SUPPLEMENTAL CASH FLOW INFORMATION:
Acquisition of interest in SOCO Tamtsag Mongolia, Inc. in
exchange for common stock - 1,550
Collection of account receivable in exchange for cancellation
of common stock - 2
Note receivable received upon sale of oil and gas properties - $ 10
-------------- --------------
-------------- --------------
</TABLE>
F-8
<PAGE>
TERRITORIAL RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN US DOLLARS)
1. BUSINESS
Territorial Resources, Inc., formerly Egret Energy Corporation, (the
Corporation) is engaged in international oil and gas exploration,
primarily in Mongolia. Through its 13 percent ownership in SOCO Tamtsag
Mongolia, Inc., the Corporation is presently indirectly active in
Mongolia. Such activity may encompass development and possibly production
as well as exploration. In addition, the Corporation owns working
interests, minerals and/or overriding royalty interests primarily in the
United States.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INVESTMENT IN SOCO TAMTSAG MONGOLIA, INC. ("SOTAMO")
The Corporation accounts for its investment in SOTAMO under the cost
method of accounting as its investment represents a minority, non-
controlling interest of approximately 13 percent (119 shares) of the
outstanding common stock of SOTAMO. All costs related to this investment
are capitalized. Pursuant to the terms of the SOTAMO stockholders'
agreement, stockholders are required to pay cash calls for their
proportionate share of SOTAMO expenditures. The Corporation's investment
in SOTAMO is periodically reviewed for impairment in value.
<TABLE>
<CAPTION>
MARCH 31
--------------------------
1997 1996
---------- ----------
<S> <C> <C>
Balance, beginning of year $1,744,000 $ 128,000
Shares of SOTAMO acquired for common stock - 1,550,000
Share of expenditures incurred by SOTAMO 1,076,000 66,000
$2,820,000 $1,744,000
---------- ----------
---------- ----------
</TABLE>
OIL AND GAS OPERATIONS
The Corporation accounts for its oil and gas exploration and development
activities under the full cost method of accounting. Under this method,
all productive and nonproductive exploration and development costs
incurred in finding oil and gas reserves are accumulated and capitalized
in cost centers. The Corporation has two cost centers (the continental
United States and Canada prior to 1997) for its oil and gas activities.
In 1997 the Corporation disposed of its Canadian properties and initiated
direct activities in Mongolia. No gain or loss is recognized on the sale
or disposition of a property, except in extraordinary circumstances. Net
oil and gas properties were $17,000 at March 31, 1997. Substantially all
of the Corporation's oil and gas properties at March 31, 1997 are
classified as proved developed reserves except properties in Mongolia
which represent 100% of the net book value at March 31, 1997 and are in a
preliminary stage of development.
F-9
<PAGE>
LIMITATION ON CAPITALIZED COSTS
Capitalized costs of productive and nonproductive properties in a cost
center are limited to the present value of after tax future net revenues
(discounted at 10%) from estimated proved oil and gas reserves and the
lower-of-cost or fair market value of unproved properties.
DEPRECIATION, DEPLETION AND AMORTIZATION
Depreciation, depletion and amortization (DD&A) of the cost of oil and gas
properties is provided on the unit-of-production method based on proved
oil and gas reserves. Gas is converted to equivalent barrels on a basis
of six MCF of gas to one barrel of oil.
INCOME TAXES
The Corporation accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, Accounting for Income Tax. Under
this method, deferred income taxes are recognized for the tax consequences
of temporary differences by applying enacted statutory tax rates
applicable to future years to differences between the financial statement
and tax bases of its existing assets and liabilities. Income tax expense
or benefit represents the current tax payable or refundable for the period
plus or minus the tax effect of the net change in the deferred tax assets
and liabilities.
NET LOSS PER SHARE OF COMMON STOCK
Net loss per share of common stock was computed based on the weighted
average number of common shares outstanding. Primary and fully-diluted
net loss per share were substantially the same for both years presented.
Stock warrants were outstanding for all of fiscal 1996 and 1997. These
warrants were antidilutive and were therefore not considered in
determining the weighted average number of common shares outstanding.
3. QUASI-REORGANIZATION
On June 13, 1986, the Board of Directors resolved that a quasi-
reorganization be implemented as of March 31, 1986, for financial
reporting purposes. Accordingly, the Corporation transferred the deficit
($5,121,000) in retained earnings as of March 31, 1986, to additional paid-
in capital.
4. NOTE RECEIVABLE
The note receivable represents an amount due from the sale of an oil and
gas property. The note is to be repaid from a percentage of net
production revenue generated by the property for a fixed time period, and
is secured by the property.
F-10
<PAGE>
5. INCOME TAXES
At March 31, 1997, the Corporation had net operating loss carry forwards
(NOL'S) of approximately $6,000,000 available to offset future taxable
income. The carry forwards expire beginning in 1996. The NOL's are
generally limited as to usage to approximately $32,000 per year. As of
March 31, 1997, approximately $300,000 of the NOL was not restricted. The
Corporation also has a tax credit carry forward of $55,000. The usage of
this credit is also limited.
As of March 31, 1997, the Corporation's deferred tax assets exceed its
deferred tax liabilities. A valuation allowance for the entire amount of
the excess was provided at March 31, 1997.
6. REVENUES - SIGNIFICANT CUSTOMERS
Customers that have accounted for more than 10% of the Corporation's oil
and gas sales during the past three years are as follows:
<TABLE>
<CAPTION>
March 31
-----------------------------
1997 1996
------------ ------------
<S> <C> <C>
Norcen Energy Resources $ 3,000 $ 14,000
Snyder Oil Corporation $ 5,000 $ 6,000
Merit Energy Company $ 3,000
AFG Energy, Inc. $ 6,000
</TABLE>
7. STOCKHOLDERS' EQUITY
AUTHORIZED
1,437,500 preferred shares, non-voting, non-cumulative, convertible, $0.10
per value
30,000,000 common shares, no par value, $.001 stated value
<TABLE>
<CAPTION>
ISSUED
<S> <C>
28,252,354 common shares
(5,456) treasury stock
----------
24,246,898
----------
----------
112,500 preferred stock
----------
----------
</TABLE>
On March 29, 1996, the Corporation acquired an additional 12% interest in
SOTAMO in exchange for the issuance of 5,450,000 shares of the
Corporation's Common Stock. A value of $1,550,198 was placed on the
additional investment in SOTAMO, which was based on the net book value per
share of the Corporation's original investment in SOTAMO, plus the related
Mandatory Loan Obligations made through March 31, 1996, multiplied by the
additional shares acquired. As part of the acquisition, 975,000 of the
warrants were cancelled. At March 31, 1996, warrants to acquire 1,025,000
shares of common stock remain outstanding.
F-11
<PAGE>
On March 31, 1996, the Corporation entered into an Option Agreement (the
"Option") with its largest shareholder, Asia Energy Ltd. ("AEL"). The
Option, which was revised by letter dated April 27, 1996, gives AEL the
right to buy up to 29 of the 119 shares of SOTAMO owned by the Corporation
at a per share price of $50,000. The Option expires July 31, 1996, unless
otherwise extended. AEL paid the Corporation $20,000 in consideration for
the granting of the Option. On May 9, 1996, AEL purchased five SOTAMO
shares from the Corporation for $250,000 cash, which has been paid in
full.
During fiscal 1996, the Corporation compensated its corporate secretary, a
director and two professionals for services rendered to the Corporation by
the issuance of 43,000 shares of its common stock. A cost of $2,687 was
recorded for the services, based on the estimated fair value of the
shares. During fiscal 1996, the Corporation collected an account
receivable due from a shareholder for $2,000 in exchange for the
cancellation of 3,000 shares, which were valued at $187.
On July 19, 1996 the Corporation issued to Asia Energy Ltd. (an
affiliate) 1,918,750 shares of common stock in exchange for $267,000 in
cash, five shares of SOTAMO, the elimination of a payable to Asia Energy
Ltd. of $25,000 and the cancellation of an option agreement to purchase
shares of SOTAMO from the Corporation.
On June 20, 1996 100,000 shares of the common stock of the Corporation
were issued in exchange for the termination of 1,000,000 of the warrants.
On November 18, 1996, the Corporation issued 25,000 shares upon the
exercise of 25,000 warrants. Following this transaction no warrants
remain outstanding.
In October, 1996 the Corporation issued 142,500 shares of common stock and
112,500 shares of preferred stock for an aggregate consideration of
$211,000 cash. The preferred shares were converted on April 1, 1997 into
562,500 shares of common stock.
8. STOCK OPTIONS
On June 20, 1996, the Board of Directors approved the granting of options
to acquire common shares to the following executives and employees:
<TABLE>
<CAPTION>
<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
D. Allinson 30,000
Stephen L. Gray 30,000
---------
1,000,000
---------
---------
</TABLE>
F-12
<PAGE>
The options vest as to one-third immediately, one-third on the first
anniversary date and one-third on the second anniversary date in all cases
except Mr. Gray which vest immediately. The options are exercisable at
$0.30 per share.
The Corporation has elected to continue to account for stock options
issued to employees in accordance with APB opinion 25, "Accounting for
Stock Issued to Employees." During the year ended March 31, 1997, all
options issued to directors, who are also employees, officers and
employees were granted at an exercise price which equaled or exceeded the
market price per share at date of grant, accordingly, no compensation was
recorded.
Effective for the year ended March 31, 1997, the Corporation was required
to adopt the disclosure portion of FASB Statement 123, "Accounting for
Stock-Based Compensation." This statement requires the Corporation to
provide pro forma information regarding net loss applicable to common
stockholders and loss per share as if compensation cost for the
Corporation's stock options granted had been determined in accordance with
the fair value based method prescribed in FASB Statement 123.
The Corporation estimates that the fair value of each stock option at the
grant date, accounted for under the provisions of FASB Statement 123, does
not have a material impact on reported net loss and net loss per share for
the year ended March 31, 1997.
9. CONTINGENCIES
TRI Mongolia Inc. ("TRM"), a subsidiary of Territorial, is a named
defendant in an action styled, LEO METCALF, III VS. AMGOL, INC., SOCO
INTERNATIONAL INC., EAIT, CP&G CO., ET AL, cause no. 94-29503, in the
113th Judicial District Court of Harris County, Texas (the "Metcalf
Lawsuit"). The plaintiff in the Metcalf Lawsuit, a former director of
Amgol, Inc., has requested certain amounts be awarded to him based on
alleged damages suffered as a result of transactions entered into by Amgol
without his approval and without Amgol contemporaneously acquiring and
paying for certain interests the plaintiff claims to have owned. TRM has
been named as a defendant, according to the lawsuit, as a result of its
ownership interest in SOTAMO (which was owned by TRM's predecessor in
interest at the time the alleged damages were suffered).
Each of the shareholders from whom Territorial acquired TRM have granted
certain limited indemnification rights in favor of Territorial in the
event TRM or Territorial is held liable under the Metcalf Lawsuit. Such
shareholders have also pledged certain of the shares of Territorial common
stock received by them in connection with such acquisition, in order to
secure such indemnification obligations.
On June 24, 1996, SOCO International, Inc., a codefendant in this lawsuit,
obtained a summary judgment confirming that SOCO was not liable for
damages allegedly suffered by the plaintiff as a result of SOCO's
ownership in SOTAMO.
On September 9, 1996, TRM also obtained a summary judgment confirming that
TRM was not liable for the alleged damages. The plaintiff has appealed
the summary judgment.
F-13
<PAGE>
Although it is impossible at this time to predict the outcome of the
appeal (which is likely to be heard in 1997), the Corporation believes TRM
is not liable, in whole or in part, for the claims made in the Metcalf
Lawsuit and that the Metcalf Lawsuit will not have a material adverse
effect on the Corporation's assets or financial condition. The
Corporation intends to vigorously pursue the defense of the Metcalf
Lawsuit.
There are presently no other legal actions to which the Corporation is a
party.
10. COMMITMENT
In connection with its investment in SOTAMO, the Corporation has had, and
expects to continue to have, Mandatory Loan Obligations. Should the
Corporation be unable to meet its Mandatory Loan Obligations, the
Corporation will be subject to the default provisions of those loan
obligations, which could lead to the Corporation forfeiting its ownership
interest in SOTAMO.
At March 31, 1997, the estimated minimum commitments for the next twelve
months amounted to $650,000. The net proceeds from the proposed issue of
common stock referred to in Note 11 will be applied to these estimated
commitments.
11. SUBSEQUENT EVENTS
On April 30, 1997, the shareholders approved a common stock share
consolidation of one new share for each three existing common shares and
increased the authorized common share capital to 200,000,000 shares.
The Corporation entered into an Agency Agreement dated March 12, 1997 with
McDermid St. Lawrence Securities Ltd. to sell, on a best efforts basis,
1,500,000 units consisting of 1,500,000 shares of the Corporation at a
price of $1.00 per share and 1,500,000 common share purchase warrants
entitling the holder to purchase for each three warrants an additional
common share of the Corporation at a price of $1.50 per share for a period
of 12 months following the anticipated closing. The Agents will be paid a
commission of $0.08 per common share and will receive an option to
purchase up to 150,000 units of the offering of common shares and common
share purchase warrants for up to one year from the issue date at the
issue price.
On May 29, 1997 the Corporation exchanged 72 shares of SOTAMO
(representing 60% of its holdings) for common shares of SOCO International
plc ("SOCO plc"). SOCO plc is a company incorporated in England and
listed on the London Stock Exchange. Coincident with the exchange, the
Corporation sold 20% of the SOCO plc shares for proceeds of $926,000.
Territorial now holds 873,250 common shares of SOCO plc which had a fair
market value of $3.7 million based on the closing share price on May 29,
1997 for SOCO plc shares.
F-14
<PAGE>
On June 30, 1997, the Corporation acquired a 2.5% interest in two offshore
Thailand exploration blocks, containing approximately 2.5 million acres,
from a director of the Corporation in consideration for $210,000 and the
issuance of 550,000 common shares of the Corporation.
12. RELATED PARTY TRANSACTIONS
During 1997 Territorial obtained advances from two directors of $224,000.
The loans are due on demand and bear interest at Canadian bank prime rate
(4.75% at March 31, 1997). The amount due to one director was repaid
during the year from additional funds advanced by the other director.
Subsequent to March 31, 1997, all of the loans were repaid.
At March 31, 1997 accrued interest payable on the advances amounted to
$3,000. Interest paid during the year was $1,000.
The director has also guaranteed the bank loan of $166,000 at March 31,
1997. The loan is secured by a General Security Agreement as well as the
director's guarantee and bears interest at Canadian bank prime rate plus
1%.
SUPPLEMENTAL INFORMATION - DISCLOSURES OF OIL AND GAS
PRODUCING ACTIVITIES - UNAUDITED
COSTS INCURRED IN OIL AND GAS PRODUCING ACTIVITIES
<TABLE>
<CAPTION>
Years Ended March 31,
---------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Acquisition of proved properties $ -- $ $100,000
Acquisition of unproved properties -- -- --
Exploration costs 13,044 -- --
Development costs -- 8,978 4,918
------- ------ --------
$13,044 $8,978 $104,918
------- ------ --------
------- ------ --------
</TABLE>
RESERVE QUANTITIES
The following tables present estimates of the Company's proved oil and gas
reserves. The Company emphasizes that reserve estimates are inherently
imprecise and that estimates of new discoveries are more imprecise than those
of producing oil and gas properties. Accordingly, the estimates are expected
to change as future information becomes available. The estimates for March 31,
1994, 1995 and 1996 are based primarily upon a report prepared by a director of
the Company, Mr. Donald L. Oliver, who is also the Company's former President.
Estimates for 1996 only were based in part on a separate report prepared by
D. L. Paddock & Associates, Ltd., an independent engineering firm. The Company
did not have material quantities of proved reserves at March 31, 1997.
F-15
<PAGE>
<TABLE>
<CAPTION>
OIL (BBLS) GAS (MCFS)
---------- ----------
<S> <C> <C>
Reserves - March 31, 1994 56,229 218,868
Purchase of minerals in place .......... -- 202,311
Property sales ......................... (53,580) (91,850)
Revisions to previous estimates ........ 1,819 10,961
Production ............................. (877) (33,403)
------- --------
Reserves - March 31, 1995 3,591 306,887
------- --------
------- --------
Property sales ......................... (613) (41,627)
Revisions to previous estimates ........ 57 66,245
Production ............................. (1,017) (25,868)
------- --------
Reserves - March 31, 1996 2,018 305,637
------- --------
------- --------
Property sales ......................... -- (375,000)
Revisions to previous estimates ........ (1,468) (17,427)
Production ............................. (550) (13,210)
------- --------
Reserves - March 31, 1997 -- --
------- --------
------- --------
</TABLE>
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS
The following table presents the standardized measure of discounted future
net cash flows relating to proved oil and gas reserves, in accordance with the
Financial Accounting Standards Board Statement No. 69:
<TABLE>
<CAPTION>
Years Ended
March 31, *
--------------
1996 1995
---- ----
<S> <C> <C>
Future cash inflows $254,593 $441,686
Future production costs (12,971) (100,067)
Future development costs -- --
-------- --------
241,622 341,619
Future income taxes -- --
-------- --------
Future net cash flows 241,622 341,619
10% annual discount for estimated timing of cash flows (79,130) (132,962)
--------- --------
Standardized measure of discounted future net cash
flows $162,492 $208,657
-------- --------
-------- --------
</TABLE>
- ------------------
* The Company had no material quantities of proved reserves at March 31, 1997.
<PAGE>
CHANGES IN STANDARDIZED MEASURE
The following are the principal sources of changes in the standardized
measure of discounted future net cash flows for each of the three years ended
March 31:
<TABLE>
<CAPTION>
Years Ended March 31,
-----------------------
1997 1996 1995
-----------------------
<S> <C> <C> <C>
Standardized measure of discounted future net
cash flows (Beginning) ......................... $162,492 $208,657 $357,641
Sales of oil and gas, net of production costs ..... (20,000) (32,000) (53,000)
Net change in prices and production costs ......... -- (29,554) (89,000)
Revisions of previous quantity estimate ........... (4,492) 23,081 53,000
Accretion of discount ............................. -- 20,865 35,764
Purchases of reserves in place .................... -- -- 97,046
Sales of reserves in place ........................ (138,000) (33,101)(267,593)
Net change in income taxes ........................ -- -- 32,684
Other ............................................. -- 4,544 42,115
-------- -------- --------
Standardized measure of discounted future net
cash flows (Ending) $ -- $162,492 $208,657
-------- -------- --------
-------- -------- --------
</TABLE>
<PAGE>
TERRITORIAL RESOURCES, INC.
CONSOLIDATED BALANCE SHEETS
Assets
($1,000)
<TABLE>
<CAPTION>
UNAUDITED
DECEMBER 31, MARCH 31,
1997 1997
------------ -----------
<S> <C> <C>
CURRENT ASSETS:
Cash $ 25 $ 6
Accounts Receivable:
Oil and gas -- 7
Other 6 2
Prepaids 5 32
------- ------
Total Current Assets 36 47
------- ------
NOTE RECEIVABLE 9 9
------- ------
INVESTMENT IN SOCO TAMTSAG
MONGOLIA, INC. ("SOTAMO") 1,740 2,820
------- ------
INVESTMENT IN SOCO INTERNATIONAL PLC
("SOCO") 3,601 -
------- ------
PROPERTY AND EQUIPMENT, AT COST:
Oil and Gas (full cost accounting) 9,365 7,814
Less: Accumulated depreciation,
depletion & amortization (7,797) (7,797)
------- ------
Total Property and Equipment 1,568 17
------- ------
TOTAL ASSETS $ 6,954 $2,893
------- ------
------- ------
</TABLE>
See notes to condensed financial statements.
F-18
<PAGE>
TERRITORIAL RESOURCES, INC.
CONSOLIDATED BALANCE SHEETS (continued)
Liabilities and Stockholders' Equity
($1,000)
<TABLE>
<CAPTION>
UNAUDITED
DECEMBER 31, MARCH 31,
1997 1997
------- -------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 261 $ 92
Bank loan 24 166
Due to affiliated party - 224
------- -------
Total Current Liabilities 285 482
------- -------
DEFERRED INCOME TAXES 1,362 -
------- -------
STOCKHOLDERS' EQUITY:
Common stock, no par value, $.001
stated value; 200,000,000 shares
authorized; 9,957,266 shares issued
at September 30, 1997 and 9,604,951
at March 31, 1997 28 28
Additional paid in capital 6,378 6,125
Unrealized gain on securities held for
sale 1,055 -
Accumulated deficit, $5,121 deficit
eliminated in quasi-reorganization
effective March 31, 1986 (2,137) (3,725)
Treasury stock, 1,819 shares, at cost (17) (17)
------- -------
Total Stockholders' Equity 5,307 2,411
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 6,954 $ 2,893
------- -------
------- -------
</TABLE>
See notes to condensed financial statements.
F-19
<PAGE>
TERRITORIAL RESOURCES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS - UNAUDITED
December 31, 1997 and 1996
($1,000)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
DECEMBER 31,
----------------------
1997 1996
------- -------
<S> <C> <C>
REVENUES:
Oil & gas and other $ 3 $ 18
Gain on sale of SOTAMO shares 2,949 -
Gain of sale of SOCO shares 464 -
------- -------
Total Revenues 3,416 18
------- -------
COSTS AND EXPENSES:
Production costs - 1
Depreciation, depletion, and
amortization - 3
General and administrative 460 113
Interest 6 -
------- -------
Total Costs and Expenses 466 117
------- -------
NET INCOME (LOSS) BEFORE 2,950 (99)
INCOME TAXES
Income Tax Provision 1,362 -
------- -------
NET INCOME (LOSS) $ 1,588 $ (99)
------- -------
------- -------
NET INCOME (LOSS) PER SHARE $ .162 $ (.011)
------- -------
------- -------
Average Common Shares Outstanding 9,811 9,079
------- -------
------- -------
</TABLE>
See notes to condensed financial statements.
F-20
<PAGE>
TERRITORIAL RESOURCES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS- UNAUDITED
December 31, 1997 and 1996
($1,000)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
DECEMBER 31,
------------------
1997 1996
------- -------
<S> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net Income (loss) $ 1,588 $ (99)
Adjustments to reconcile net income to
cash provided (used) by operations:
Depreciation, depletion and amortization - 3
Gain on sale of SOTAMO shares (2,949) -
Gain of sale of SOCO shares (464) -
Deferred income taxes 1,362 -
Changes in operating assets and liabilities:
Accounts receivable 3 (70)
Prepaid expenses 27 (7)
Accounts payable 169 185
Accrued liabilities - (49)
-------- --------
Cash provided by (used in) operations (264) (37)
-------- --------
CASH FLOW FROM INVESTMENT ACTIVITIES:
Additional investment in SOTAMO (604) (956)
Additions to property and equipment (1,298) -
Proceeds from sale of SOTAMO shares 926 -
Proceeds from sale of SOCO shares 1,625 -
Proceeds from sale of oil and gas property - 135
-------- --------
Cash provided (used in) from investment activities 649 (821)
-------- --------
CASH FLOW FROM FINANCING ACTIVITIES:
Issue of preferred stock - 164
Issue of common stock - 541
Debt incurred (repaid) (142) -
Advances from stockholders and affiliates (224) 135
Notes receivable - 1
-------- --------
Cash provided by (used in) financing activities (366) 841
-------- --------
CHANGE IN CASH BALANCE 19 (17)
CASH BALANCE - BEGINNING 6 39
-------- --------
CASH BALANCE - ENDING $ 25 $ 22
-------- --------
-------- --------
</TABLE>
See notes to condensed financial statements.
F-21
<PAGE>
TERRITORIAL RESOURCES, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
September 30, 1997 (Unaudited)
1. The information presented herein 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 for the fiscal year ended March 31,
1997. 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. Except as otherwise described in the
financial statements, all amounts stated in dollars or ($) represent
United States dollars and all references to shares of common stock, no par
value ("Common Stock"), of the Company have been adjusted to reflect a one-
for three reverse stock split effected in May 1997.
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,
1998, due to seasonal or other factors. The Company believes that the
interim period reports filed on Form 10-QSB are representative of its
financial position, changes in financial position and results of
operations for the periods covered thereby.
3. The number of shares of Common Stock reflected as issued on the unaudited
Balance Sheet as of December 31, 1997 does not include 200,000 shares of
Common Stock held in escrow. As previously described, the Company
acquired a 2.5% undivided working interest in two oil and gas concessions
in the Gulf of Thailand on June 30, 1997, and in connection therewith,
paid $210,000 in cash to Jimmy M. McCarroll, a director of the Company,
and issued to him an aggregate of 550,000 shares of Common Stock, of which
300,000 shares were held in escrow to be released in increments of 100,000
shares to Mr. McCarroll upon the occurrence of certain conditions relating
to the progress and results of operations of the Thailand concessions. As
a result of the fulfillment of one of the escrow conditions, 100,000 of
such shares were released from escrow on September 19, 1997.
4. On January 28, 1998, the Company entered into a Reorganization Agreement
and Plan of Merger with SOCO International plc and its wholly-owned
subsidiary, SOCO Resources (Colorado), Inc. ("Newco"), pursuant to which
and subject to the conditions set forth therein the Company agreed to
effect a one-for-36,000 reverse stock split and merge with Newco, as
described elsewhere herein.
F-22
<PAGE>
ANNEX A
PROPOSED AMENDMENT TO THE ARTICLES OF INCORPORATION OF
TERRITORIAL RESOURCES, INC. TO EFFECT A ONE-FOR-36,000
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-thirty-six thousandth (1/36,000th) 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. Form 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 factional share
interest will entitle the holder thereof to vote, or to any rights of a
shareholder of the corporation. In lieu of the issuance of any such
fractional share interest, the corporation shall pay to each holder of Old
Common Stock, who would otherwise be entitled to receive a fractional share
of New Common Stock an amount of cash equal to $1.40 multiplied by the number
of shares of Old Common Stock held by such holder which would otherwise be
converted into a fractional share of New Common Stock. 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 of New Common Stock. 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 minus the total amount of cash
paid by the corporation in lieu of the issuance of fractional shares of New
Common Stock, until thereafter reduced or increased in accordance with
applicable law.
<PAGE>
ANNEX B
ARTICLE 113
OF THE COLORADO BUSINESS CORPORATION ACT
DISSENTERS' RIGHTS
PART 1
RIGHT OF DISSENT -
PAYMENT FOR SHARES
7-113-101. DEFINITIONS. For purposes of this article:
(1) "Beneficial shareholder" means the beneficial owner of shares held
in a voting trust or by a nominee as the record shareholder.
(2) "Corporation" means the issuer of the shares held by a dissenter
before the corporate action, or the surviving or acquiring domestic or
foreign corporation, by merger or share exchange of that issuer.
(3) "Dissenter" means a shareholder who is entitled to dissent from
corporate action under section 7-113-102 and who exercises that right at the
time and in the manner required by part 2 of this article.
(4) "Fair value," with respect to a dissenter's shares, means the
value of the shares immediately before the effective date of the corporate
action to which the dissenter objects, excluding any appreciation or
depreciation in anticipation of the corporate action except to the extent
that exclusion would be inequitable.
(5) "Interest" means interest from the effective date of the corporate
action until the date of payment, at the average rate currently paid by the
corporation on its principal bank loans or, if none, at the legal rate as
specified in section 5-12-101, C.R.S.
(6) "Record shareholder" means the person in whose name shares are
registered in the records of a corporation or the beneficial owner of shares
that are registered in the name of a nominee to the extent such owner is
recognized by the corporation as the shareholder as provided in section
7-107-204.
(7) "Shareholder" means either a record shareholder or a beneficial
shareholder.
7-113-102. RIGHT TO DISSENT. (1) A shareholder, whether or not entitled to
vote, is entitled to dissent and obtain payment of the fair value of the
shareholder's shares in the event of any of the following corporate actions:
(a) Consummation of a plan of merger to which the corporation is a
party if:
<PAGE>
(I) Approval by the shareholders of that corporation is required
for the merger by section 7-111-103 or 7-111-104 or by the articles of
incorporation; or
(II) The corporation is a subsidiary that is merged with its parent
corporation under section 7-111-104;
(b) Consummation of a plan of share exchange to which the corporation
is a party as the corporation whose shares will be acquired;
(c) Consummation of a sale, lease, exchange, or other disposition of
all, or substantially all, of the property of the corporation for which a
shareholder vote is required under section 7-112-102(1); and
(d) Consummation of a sale, lease, exchange, or other disposition of
all, or substantially all, of the property of an entity controlled by the
corporation if the shareholders of the corporation were entitled to vote upon
the consent of the corporation to the disposition pursuant to section
7-112-102(2).
(1.3) A shareholder is not entitled to dissent and obtain payment, under
subsection (1) of this section, of the fair value of the shares of any class
or series of shares which either were listed on a national securities
exchange registered under the federal "Securities Exchange Act of 1934," as
amended, or on the national market system of the national association of
securities dealers automated quotation system, or were held of record by more
than two thousand shareholders, at the time of:
(a) The record date fixed under section 7-107-107 to determine the
shareholders entitled to receive notice of the shareholders' meeting at which
the corporate action is submitted to a vote;
(b) The record date fixed under section 7-107-104 to determine
shareholders entitled to sign writings consenting to the corporate action; or
(c) The effective date of the corporate action if the corporate action
is authorized other than by a vote of shareholders.
(1.8) The limitation set forth in subsection (1.3) of this section shall
not apply if the shareholder will receive for the shareholder's shares,
pursuant to the corporate action, anything except:
(a) Shares of the corporation surviving the consummation of the plan of
merger or share exchange;
(b) Shares of any other corporation which at the effective date of the
plan of merger or share exchange either will be listed on a national
securities exchange registered under the federal "Securities Exchange Act of
1934," as amended, or on the national market system of the national
association of securities dealers automated quotation system, or will be held
of record by more than two thousand shareholders;
(c) Cash in lieu of fractional shares; or
B-2
<PAGE>
(d) Any combination of the foregoing described shares or cash in lieu of
fractional shares.
(2) (Deleted by amendment, L. 96, p. 1321, Section 30, effective June 1,
1996.)
(2.5) A shareholder, whether or not entitled to vote, is entitled to dissent
and obtain payment of the fair value of the shareholder's shares in the event
of a reverse split that reduces the number of shares owned by the shareholder
to a fraction of a share or to scrip if the fractional share or scrip so
created is to be acquired for cash or the scrip is to be voided under section
7-106-104.
(3) A shareholder is entitled to dissent and obtain payment of the fair
value of the shareholder's shares in the event of any corporate action to the
extent provided by the bylaws or a resolution of the board of directors.
(4) A shareholder entitled to dissent and obtain payment for the
shareholder's shares under this article may not challenge the corporate
action creating such entitlement unless the action is unlawful or fraudulent
with respect to the shareholder or the corporation.
7-113-103. DISSENT BY NOMINEES AND BENEFICIAL OWNERS. (1) A record
shareholder may assert dissenters' rights as to fewer than all the shares
registered in the record shareholder's name only if the record shareholder
dissents with respect to all shares beneficially owned by any one person and
causes the corporation to receive written notice which states such dissent
and the name, address, and federal taxpayer identification number, if any, of
each person on whose behalf the record shareholder asserts dissenters'
rights. The rights of a record shareholder under this subsection (1) are
determined as if the shares as to which the record shareholder dissents and
the other shares of the record shareholder were registered in the names of
different shareholders.
(2) A beneficial shareholder may assert dissenters' rights as to the
shares held on the beneficial shareholder's behalf only if:
(a) The beneficial shareholder causes the corporation to receive the
record shareholder's written consent to the dissent not later than the time
the beneficial shareholder asserts dissenters' rights; and
(b) The beneficial shareholder dissents with respect to all shares
beneficially owned by the beneficial shareholder.
(3) The corporation may require that, when a record shareholder dissents
with respect to the shares held by any one or more beneficial shareholders,
each such beneficial shareholder must certify to the corporation that the
beneficial shareholder and the record shareholder or record shareholders of
all shares owned beneficially by the beneficial shareholder have asserted, or
will timely assert, dissenters' rights as to all such shares as to which
there is no limitation on the ability to exercise dissenters' rights. Any
such requirement shall be stated in the dissenters' notice given pursuant to
section 7-113-203.
B-3
<PAGE>
PART 2
PROCEDURE FOR EXERCISE
OF DISSENTERS' RIGHTS
7-113-201. NOTICE OF DISSENTERS' RIGHTS. (1) If a proposed corporate
action creating dissenters' rights under section 7-113-102 is submitted to a
vote at a shareholders' meeting, the notice of the meeting shall be given to
all shareholders, whether or not entitled to vote. The notice shall state
that shareholders are or may be entitled to assert dissenters' rights under
this article and shall be accompanied by a copy of this article and the
materials, if any, that, under articles 101 to 117 of this title, are
required to be given to shareholders entitled to vote on the proposed action
at the meeting. Failure to give notice as provided by this subsection (1)
shall not affect any action taken at the shareholders' meeting for which the
notice was to have been given, but any shareholder who was entitled to
dissent but who was not given such notice shall not be precluded from
demanding payment for the shareholder's shares under this article by reason
of the shareholder's failure to comply with the provisions of section
7-113-202(1).
(2) If a proposed corporate action creating dissenter's rights under
section 7-113-102 is authorized without a meeting of shareholders pursuant to
section 7-107-104, any written or oral solicitation of a shareholder to
execute a writing consenting to such action contemplated in section 7-107-104
shall be accompanied or preceded by a written notice stating that
shareholders are or may be entitled to assert dissenters' rights under this
article, by a copy of this article, and by the materials, if any, that, under
articles 101 to 117 of this title, would have been required to be given to
shareholders entitled to vote on the proposed action if the proposed action
were submitted to a vote at a shareholders' meeting. Failure to give notice
as provided by this subsection (2) shall not affect any action taken pursuant
to section 7-107-104 for which the notice was to have been given, but any
shareholder who was entitled to dissent but who was not given such notice
shall not be precluded from demanding payment for the shareholder's shares
under this article by reason of the shareholder's failure to comply with the
provisions of section 7-113-202(2).
7-113-202. NOTICE OF INTENT TO DEMAND PAYMENT. (1) If a proposed
corporate action creating dissenters' rights under section 7-113-102 is
submitted to a vote at a shareholders' meeting and if notice of dissenters'
rights has been given to such shareholder in connection with the action
pursuant to section 7-113-201 (1), a shareholder who wishes to assert
dissenters' rights shall:
(a) Cause the corporation to receive, before the vote is taken, written
notice of the shareholder's intention to demand payment for the shareholder's
shares if the proposed corporate action is effectuated; and
(b) Not vote the shares in favor of the proposed corporate action.
(2) If a proposed corporate action creating dissenters' rights under
section 7-113-102 is authorized without a meeting of shareholders pursuant to
section 7-107-104 and if notice of dissenters' rights has been given to such
shareholder in connection with the action pursuant to section 7-113-201(2), a
shareholder who wishes to assert dissenters' rights shall not execute a
writing consenting to the proposed corporate action.
B-4
<PAGE>
(3) A shareholder who does not satisfy the requirements of subsection (1)
or (2) of this section is not entitled to demand payment for the
shareholder's shares under this article.
7-113-203. DISSENTERS' NOTICE. (1) If a proposed corporate action
creating dissenters' rights under section 7-113-102 is authorized, the
corporation shall give a written dissenters' notice to all shareholders who
are entitled to demand payment for their shares under this article.
(2) The dissenters' notice required by subsection (1) of this section
shall be given no later than ten days after the effective date of the
corporate action creating dissenters' rights under section 7-113-102 and
shall:
(a) State that the corporate action was authorized and state the effective
date or proposed effective date of the corporate action;
(b) State an address at which the corporation will receive payment demands
and the address of a place where certificates for certificated shares must be
deposited;
(c) Inform holders of uncertificated shares to what extent transfer of the
shares will be restricted after the payment demand is received;
(d) Supply a form for demanding payment, which form shall request a
dissenter to state an address to which payment is to be made;
(e) Set the date by which the corporation must receive the payment demand
and certificates for certificated shares, which date shall not be less than
thirty days after the date the notice required for subsection (1) of this
section is given;
(f) State the requirement contemplated in section 7-113-103(3), if such
requirement is imposed; and
(g) Be accompanied by a copy of this article.
7-113-204. PROCEDURE TO DEMAND PAYMENT. (1) A shareholder who is given a
dissenters' notice pursuant to section 7-113-203 and who wishes to assert
dissenters' rights shall, in accordance with the terms of the dissenters'
notice:
(a) Cause the corporation to receive a payment demand, which may be the
payment demand form contemplated in section 7-113-203(2)(d), duly completed,
or may be stated in another writing; and
(b) Deposit the shareholder's certificates for certificated shares.
(2) A shareholder who demands payment in accordance with subsection (1) of
this section retains all rights of a shareholder, except the right to
transfer the shares, until the effective date of the proposed corporate
action giving rise to the shareholder's exercise of dissenters' rights and
has only the right to receive payment for the shares after the effective date
of such corporate action.
B-5
<PAGE>
(3) Except as provided in section 7-113-207 or 7-113-209(1)(b), the demand
for payment and deposit of certificates are irrevocable.
(4) A shareholder who does not demand payment and deposit the
shareholder's share certificate as required by the date or dates set in the
dissenters' notice is not entitled to payment for the shares under this
article.
7-113-205. UNCERTIFICATED SHARES. (1) Upon receipt of a demand for payment
under section 7-113-204 from a shareholder holding uncertificated shares, and
in lieu of the deposit of certificates representing the shares, the corporation
may restrict the transfer thereof.
(2) In all other respects, the provisions of section 7-113-204 shall be
applicable to shareholders who own uncertificated shares.
7-113-206. PAYMENT. (1) Except as provided in section 7-113-208, upon the
effective date of the corporate action creating dissenters' rights under
section 7-113-102 or upon receipt of a payment demand pursuant to section 7-113-
204, whichever is later, the corporation shall pay each dissenter who complied
with section 7-113-204, at the address stated in the payment demand, or if no
such address is stated in the payment demand, at the address shown on the
corporation's current record of shareholders for the record shareholder holding
the dissenter's shares, the amount the corporation estimates to be the fair
value of the dissenter's shares, plus accrued interest.
(2) The payment made pursuant to subsection (1) of this section shall be
accompanied by:
(a) The corporation's balance sheet as of the end of its most recent
fiscal year or, if that is not available, the corporation's balance sheet as
of the end of a fiscal year ending not more than sixteen months before the
date of payment, an income statement for that year, and, if the corporation
customarily provides such statements to shareholders, a statement of changes
in shareholders' equity for that year and a statement of cash flow for that
year, which balance sheet and statements shall have been audited if the
corporation customarily provides audited financial statements to
shareholders, as well as the latest available financial statements, if any,
for the interim or full-year period, which financial statements need not be
audited;
(b) A statement of the corporation's estimate of the fair value of the
shares;
(c) An explanation of how the interest was calculated;
(d) A statement of the dissenter's right to demand payment under section
7-113-209; and
(e) A copy of this article.
7-113-207. FAILURE TO TAKE ACTION. (1) If the effective date of the
corporate action creating dissenters' rights under section 7-113-102 does not
occur within sixty days after the date set by the corporation by which the
corporation must receive the payment demand as provided in section 7-113-203,
the corporation shall return the deposited certificates and release the
transfer restrictions imposed on uncertificated shares.
B-6
<PAGE>
(2) If the effective date of the corporate action creating dissenters'
rights under section 7-113-102 occurs more than sixty days after the date set
by the corporation by which the corporation must receive the payment demand
as provided in section 7-113-203, then the corporation shall send a new
dissenters' notice, as provided in section 7-113-203, and the provisions of
sections 7-113-204 to 7-113-209 shall again be applicable.
7-113-208. SPECIAL PROVISIONS RELATING TO SHARES ACQUIRED AFTER
ANNOUNCEMENT OF PROPOSED CORPORATE ACTION. (1) The corporation may, in or
with the dissenters' notice given pursuant to section 7-113-203, state the
date of the first announcement to news media or to shareholders of the terms
of the proposed corporate action creating dissenters' rights under section
7-113-102 and state that the dissenter shall certify in writing, in or with
the dissenter's payment demand under section 7-113-204, whether or not the
dissenter (or the person on whose behalf dissenters' rights are asserted)
acquired beneficial ownership of the shares before that date. With respect
to any dissenter who does not so certify in writing, in or with the payment
demand, that the dissenter or the person on whose behalf the dissenter
asserts dissenters' rights acquired beneficial ownership of the shares before
such date, the corporation may, in lieu of making the payment provided in
section 7-113-206, offer to make such payment if the dissenter agrees to
accept it in full satisfaction of the demand.
(2) An offer to make payment under subsection (1) of this section shall
include or be accompanied by the information required by section 7-113-206(2).
7-113-209. PROCEDURE IF DISSENTER IS DISSATISFIED WITH PAYMENT OR OFFER. (1)
A dissenter may give notice to the corporation in writing of the dissenter's
estimate of the fair value of the dissenter's shares and of the amount of
interest due and may demand payment of such estimate, less any payment made
under section 7-113-206, or reject the corporation's offer under section 7-113-
208 and demand payment of the fair value of the shares and interest due, if:
(a) The dissenter believes that the amount paid under section 7-113-206 or
offered under section 7-113-208 is less than the fair value of the shares or
that the interest due was incorrectly calculated;
(b) The corporation fails to make payment under section 7-113-206 within
sixty days after the date set by the corporation by which the corporation
must receive the payment demand; or
(c) The corporation does not return the deposited certificates or release
the transfer restrictions imposed on uncertificated shares as required by
section 7-113-207(1).
(2) A dissenter waives the right to demand payment under this section
unless the dissenter causes the corporation to receive the notice required by
subsection (1) of this section within thirty days after the corporation made
or offered payment for the dissenter's shares.
B-7
<PAGE>
PART 3
JUDICIAL APPRAISAL OF SHARES
7-113-301. COURT ACTION. (1) If a demand for payment under section
7-113-209 remains unresolved, the corporation may, within sixty days after
receiving the payment demand, commence a proceeding and petition the court to
determine the fair value of the shares and accrued interest. If the
corporation does not commence the proceeding within the sixty-day period, it
shall pay to each dissenter whose demand remains unresolved the amount
demanded.
(2) The corporation shall commence the proceeding described in
subsection (1) of this section in the district court of the county in this
state where the corporation's principal office is located or, if the
corporation has no principal office in this state, in the district court of
the county in which its registered office is located. If the corporation is
a foreign corporation without a registered office, it shall commence the
proceeding in the county where the registered office of the domestic
corporation merged into, or whose shares were acquired by, the foreign
corporation was located.
(3) The corporation shall make all dissenters, whether or not residents
of this state, whose demands remain unresolved parties to the proceeding
commenced under subsection (2) of this section as in an action against their
shares, and all parties shall be served with a copy of the petition. Service
on each dissenter shall be by registered or certified mail, to the address
stated in such dissenter's payment demand, or if no such address is stated in
the payment demand, at the address shown on the corporation's current record
of shareholders for the record shareholder holding the dissenter's shares, or
as provided by law.
(4) The jurisdiction of the court in which the proceeding is commenced
under subsection (2) of this section is plenary and exclusive. The court may
appoint one or more persons as appraisers to receive evidence and recommend a
decision on the question of fair value. The appraisers have the power
described in the order appointing them, or in any amendment to such order.
The parties to the proceeding are entitled to the same discovery rights as
parties in other civil proceedings.
(5) Each dissenter made a party to the proceeding commenced under
subsection (2) of this section is entitled to judgment for the amount, if
any, by which the court finds the fair value of the dissenter's shares, plus
interest, exceeds the amount paid by the corporation, or for the fair value,
plus interest, of the dissenter's shares for which the corporation elected to
withhold payment under section 7-113-208.
7-113-302. COURT COSTS AND COUNSEL FEES. (1) The court in an appraisal
proceeding commenced under section 7-113-301 shall determine all costs of the
proceeding, including the reasonable compensation and expenses of appraisers
appointed by the court. The court shall assess the costs against the
corporation; except that the court may assess costs against all or some of
the dissenters, in amounts the court finds equitable, to the extent the court
finds the dissenters acted arbitrarily, vexatiously, or not in good faith in
demanding payment under section 7-113-209.
(2) The court may also assess the fees and expenses of counsel and
experts for the respective parties, in amounts the court finds equitable:
B-8
<PAGE>
(a) Against the corporation and in favor of any dissenters if the court
finds the corporation did not substantially comply with the requirements of
part 2 of this article; or
(b) Against either the corporation or one or more dissenters, in favor
of any other party, if the court finds that the party against whom the fees
and expenses are assessed acted arbitrarily, vexatiously, or not in good
faith with respect to the rights provided by this article.
(3) If the court finds that the services of counsel for any dissenter
were of substantial benefit to other dissenters similarly situated, and that
the fees for those services should not be assessed against the corporation,
the court may award to said counsel reasonable fees to be paid out of the
amounts awarded to the dissenters who were benefitted.
B-9
<PAGE>
ANNEX C
SAYER SECURITIES LIMITED
SUITE 1620, AQUITAINE TOWER
540 FIFTH AVENUE S.W.
CALGARY, ALBERTA
CANADA T2P 0M2
February 5, 1998
The Board of Directors
Territorial Resources, Inc.
Suite 1345, 734 - 7th Avenue SW
Calgary, Alberta T2P 3P8
Dear Sirs:
We understand Territorial Resources, Inc., ("Territorial" or the
"Company") and SOCO International plc ("SOCO") may carry out a transaction
(the "Transaction") whereby, amongst other things, the Company will carry out
a 36,000-to-one reverse stock split of the Company's stock (the "Reverse
Split") and then merge with a newly-formed subsidiary of SOCO (the "Merger").
As consideration for the Transaction, the current Territorial shareholders
will receive (i) prior to the Merger, a cash payment for Territorial's
currently outstanding common stock in lieu of the issuance of any resulting
fractional shares of the common stock to any shareholders who, after the
Reverse Split, own a fractional share of common stock and (ii) following the
Merger, each post-Reverse Split share will be converted into the right to
receive the number of SOCO ordinary shares equal to the product of 36,000
multplied by the quotient of $1.40 USD (expressed in Pounds Sterling at the
then prevailing United States Dollar to Pounds Sterling exchange rate)
divided by the SOCO market price, as defined in the Reorganization Agreement
and Plan of Merger (items (i) and (ii) being collectively referred to herein
as the "Transaction Consideration"). Territorial and SOCO are collectively
referred to herein as the "Companies". You have requested our opinion (the
"Fairness Opinion") as to the fairness, from a financial point of view, of
the Transaction Consideration to the common shareholders of Territorial.
In connection with the opinion, we have reviewed, among other things, the
Reorganization Agreement and Plan of Merger dated January 28,1998 (the
"Agreement"); drafts of the proxy statement of the Company regarding the
Transaction (the "Proxy Statement"); certain publicly available information
concerning the Company, including annual reports on Form 10-KSB of the
Company for the years ended March 31, 1995, 1996, and 1997 and quarterly
reports on Form 10-QSB for the Company for the quarters ended June 30, 1997
and September 30, 1997; certain information on the market price and trading
of the Company's and SOCO's shares, as well as the trading of companies of a
comparable nature to Territorial and SOCO; certain publicly available
information concerning SOCO, including the listing particulars of SOCO dated
May 23, 1997; the interim report of SOCO for the period ended June 30, 1997;
and certain internal financial analyses
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<PAGE>
and forecasts for the Company and SOCO prepared by their respective
managements. We have also held discussions with members of the senior
management of the Company and SOCO regarding the strategic rationale for, and
potential benefits of, the Transaction and the past and current business
operations, financial condition and future prospects of their respective
companies. We have reviewed certain information provided by Territorial
relating to the oil and gas reserves of the Company and SOCO, (the "Reserve
Information"), including but not limited to, (i) a December 31, 1996 reserve
report for the Mongolian interests prepared by independent petroleum
engineers; (ii) a December 31, 1996 reserve report for the Thailand
interests prepared by independent petroleum engineers and (iii) reserve
information for SOCO as of December 31, 1996 and January 1, 1997 including
forecasted production rates, revenues, cash flow and capital expenditure as
estimated and reviewed by independent petroleum engineers. In addition, we
have discussed the Reserve Information with the respective managements of the
Company and SOCO.
In our review and analysis and in arriving at our opinion, we have
assumed and relied upon the accuracy and completeness of all of the financial
and other information provided to us or publicly available and have neither
attempted independently to verify nor assumed responsibility for verifying
any of such information. We have not conducted an independent evaluation of
any of the properties, assets or facilities of the Company or SOCO, nor have
we made or obtained or assumed any responsibility for making or obtaining any
independent evaluations or appraisals of any of such properties, assets or
facilities. With respect to projections, we have assumed that they have been
reasonably prepared on bases reflecting the best currently available
estimates and judgements of the managements of the Company and SOCO as to the
respective future financial performance of the Company and SOCO as well as
the synergistic values and operating cost savings expected to be achieved
through the combination of the operations of the Company and SOCO. We
express no view with respect to such projections or the assumptions on which
they were based. We further have assumed that each of the Agreement and the
other agreements which are attached as exhibits to the Agreement, when
executed and delivered, will not differ materially from the drafts which we
have reviewed and that the Transaction will be carried out as contemplated in
the Agreement and Proxy Statement.
In conducting our analysis and arriving at our opinion as expressed
herein, we have considered such financial and other factors as we have deemed
appropriate under the circumstances including, among others, the following
(i) the historical and current financial position and results of operations
of the Company and SOCO; (ii) the business prospects of the Company and SOCO;
(iii) the historical and current market for the Company's common shares, the
SOCO common stock and the equity securities of certain other companies that
we believe to be comparable to the Company and SOCO; and (iv) the nature and
terms of certain other transactions that we believe to be relevant. We have
also taken into account our assessment of general economic, market and
financial conditions and our knowledge of the oil and gas industry as well as
our experience in connection with similar transactions and securities
valuation generally. Our opinion necessarily is based upon economic, market
and other conditions as they exist and can be evaluated on the date hereof
and we assume no responsibility to update or revise our opinion based upon
circumstances or events occurring after the date hereof. Our opinion as
expressed below does not constitute an opinion or imply any conclusions as to
the likely trading range for the SOCO ordinary shares following consummation
of the Transaction. In addition, our opinion does not address the Company's
underlying decision to effect the Merger or related transactions and we
express no view on the effect
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on the Company of the Merger and related transactions. Additionally, our
analysis did not address the potential tax consequences of any shareholder's
receipt of the Transaction Consideration; consequently, our opinion is
limited to the fairness of the Transaction Consideration before such tax
consequences. Our opinion is directed only to the fairness, from a financial
point of view, of the Transaction Consideration, to holders of company common
shares and does not constitute a recommendation to any holder of Company
common shares as to how such holder should vote with respect to the
Transaction.
Further, we were not requested to and did not provide advice concerning
the structure, the specific amount of the consideration, or any other aspects
of the Transaction, or to provide services other than the delivery of this
opinion. We were not authorized to and did not solicit any expressions of
interest from any other parties with respect to the sale of all or any part
of the Company or any other alternative transaction. We did not participate
in negotiations with respect to the terms of the Transaction and related
transactions. Consequently, we have assumed that such terms are the most
beneficial terms from the Company's perspective that could under the
circumstances be negotiated among the parties to such transactions, and no
opinion is expressed whether any alternative transaction might produce
consideration for the Company's stockholders in an amount in excess of that
contemplated in the Transaction.
Based upon and subject to the foregoing and based upon such other matters
as we considered relevant, it is our opinion that as of the date hereof the
Transaction Consideration is fair, from a financial point of view, to the
common shareholders of the Company.
This letter is provided to the Board of Directors of the Company in
connection with and for the purposes of its evaluation of the Transaction
Consideration. This opinion may not be disclosed, referred to, or
communicated (in whole or in part) to any third party for any purpose
whatsoever except with our prior written consent in each instance. This
opinion may be reproduced in full in any proxy or information statement
mailed to stockholders of the Company but may not otherwise be disclosed
publicly in any manner without our prior written approval and must be treated
as confidential.
Your truly,
SAYER SECURITIES LIMITED
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EXHIBIT (d)(2)
PRELIMINARY COPY
TERRITORIAL RESOURCES, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby (a) acknowledges receipt of the Notice of Special
Meeting of Shareholders to be held on ______________, 1998 and the Proxy
Statement in connection therewith, each dated _______________, 1998, (b)
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 (c)
authorizes the Proxies 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 Special Meeting to be held __________, _________, 1998, or
any adjournment thereof.
1. Approval of amendment to the Articles of Incorporation to effect a
one-for-36,000 reverse stock split of the Common Stock.
FOR / / AGAINST / / ABSTAIN / /
2. In accordance with their discretion upon such other business as may
properly come before the meeting or any adjournment thereof.
SEE REVERSE SIDE
<PAGE>
(Continued from other side)
THIS PROXY WILL BE VOTED IN THE MANNER DIRECTED HEREIN AND IN ACCORDANCE
WITH THE ACCOMPANYING PROXY STATEMENT. IF NO DIRECTION IS MADE, THIS PROXY WILL
BE VOTED FOR PROPOSAL 1, AND, IN THE DISCRETION OF THE PROXIES, ON ANY OTHER
BUSINESS.
Dated:_______________________, 1998
-----------------------------------
-----------------------------------
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 AND RETURN IT IN THE ACCOMPANYING POSTPAID
ENVELOPE.
