Seagull Energy Corporation
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) September 11, 1997
Seagull Energy Corporation
(Exact name of registrant as specified in its charter)
Texas 1-8094 74-1764876
(State or other jurisdiction of (Commission File (I.R.S. Employer
incorporation or organization) Number) Identification No.)
1001 Fannin, Suite 1700, Houston, Texas 77002-6714
(Address of principal executive offices) (Zip code)
(713) 951-4700
(Registrant's telephone number, including area code)
None (Former name, former address and former fiscal year, if changed
since last report)
<PAGE>
Item 5. Other Events.
On September 11, 1997, Seagull Energy Corporation, a Texas corporation
("Seagull" or the "Company"),entered into a Share Sale Agreement with Rio Alto
Exploration Ltd. ("Rio Alto") regarding the sale of Seagull's Canadian oil and
gas subsidiary, Seagull Energy Canada Ltd. ("Seagull Canada"). The economic
effective date for the disposition is July 1, 1997 (the "Effective Date").
Subject to receiving various regulatory approvals, Seagull and Rio Alto expect
to close the transaction no later than the fourth quarter of 1997.
Based on current exchange rates and subject to final purchase price
adjustments, which are expected to be minor and positive, Seagull expects to
realize no less than U.S. $182 million. Initially Seagull will apply the sales
proceeds to repay existing long-term debt, including all of its Canadian debt.
Seagull expects to realize an after-tax gain of approximately $13 million, or
approximately 21 cents per share, in the quarter in which the transaction is
closed.
The Company's operations in Canada consist of oil and gas exploration
and production activities through interests in a small number of fields located
in Alberta, Canada. As of December 31, 1996, the Company's holdings in Canada
totaled 42,682 thousand barrels of oil equivalents representing 17% of the
Company's reserves.
Pro forma financial information is included in Exhibit 99.1 and is
incorporated herein by reference. The pro forma financial information includes
(i) unaudited pro forma statements of operations for the six months ended June
30, 1997 and the year ended December 31, 1996 as though the sale of Seagull
Canada occurred on January 1, 1996 and (ii) an unaudited pro forma balance sheet
as of June 30, 1997 as though the sale of Seagull Canada occurred on June 30,
1997.
The descriptions of the agreement pursuant to which Seagull sold its
Canadian oil and gas operations set forth above are qualified by reference to
the Share Sale Agreement which is filed as Exhibit 2.1 and is incorporated
herein by reference.
Forward Looking Statements
This document includes forward looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. Although Seagull believes that its
expectations are based upon reasonable assumptions, it can give no assurance
that its goals will be achieved. Important factors that could cause actual
results to differ materially from those in the forward looking statements
include the resolution of various litigation matters, the satisfaction of
certain closing conditions relating to the sale of the Company's Canadian
properties, political developments in foreign countries, federal and state
regulatory developments, the timing and extent of changes in commodity prices,
the timing and extent of success in
<PAGE>
discovering, developing and producing or acquiring oil and gas reserves and
conditions of the capital and equity markets during the periods covered by the
forward looking statements.
Item 7. Financial Statements and Exhibits
(c) Exhibits.
2.1 Share Sale Agreement, dated as of September 11, 1997, by and
between Seagull Energy Canada Holding Company, Seagll Energy Corporation and Rio
Alto Exploration Ltd.
99.1 Unaudited pro forma condensed financial information
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: September 18, 1997
SEAGULL ENERGY CORPORATION
By: /s/ William L. Transier
William L. Transier
Senior Vice President and
Chief Financial Officer
(Principal Financial Officer)
<PAGE>
Exhibit Index
<TABLE>
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<S> <C> <C>
Page
2.1 Share Sale Agreement, dated as of September 11, 1997, by and between Seagull
Energy Canada Holding Company, Seagull Energy Corporation and Rio Alto
Exploration Ltd.
99.1 Unaudited pro forma condensed financial information
</TABLE>
Exhibit 2.1
SHARE SALE AGREEMENT
Between
SEAGULL ENERGY CANADA HOLDING COMPANY as Vendor
and
745910 ALBERTA LTD. as Purchaser
and
SEAGULL ENERGY CORPORATION
and
RIO ALTO EXPLORATION LTD.
in respect of the shares of
SEAGULL ENERGY CANADA LTD.
September 11, 1997
<PAGE>
TABLE OF CONTENTS
ARTICLE 1
INTERPRETATION
<TABLE>
<S> <C> <C>
1.1 Definitions 6
1.2 Headings, meaning of "hereof", and Article and Schedule References 15
1.3 Single and Plural and Gender 15
1.4 Currency 15
1.5 Knowledge 15
1.6 Schedules 15
1.7 Conflicts 16
1.8 Statute References 16
ARTICLE 2
PURCHASE AND SALE
2.1 Purchase and Sale Purchase Price 16
2.2 Purchase Price 16
2.3 Deposit 17
2.4 Payment at Closing 18
ARTICLE 3
REPRESENTATIONS, WARRANTIES AND COVENANTS
3.1 Regarding the Vendor and Seagull Corporation 18
3.2 Regarding the Corporation 19
3.3 Regarding the Assets 21
3.4 Negation 23
3.5 Purchaser's Representations, Warranties and Covenants 23
ARTICLE 4
TAX INDEMNITIES AND COVENANTS
4.1 Tax Indemnities 24
4.2 Withholding Tax 26
4.3 Prior Period Tax Returns 27
ARTICLE 5
INTERIM PERIOD
5.1 Operations Generally 27
5.2 Negative Covenants of the Corporation 28
5.3 Insurance 28
5.4 Due Diligence 29
5.5 Bank Debt 29
5.6 Required Approvals 29
5.7 CNQ Offer 29
5.8 Discharges 29
</TABLE>
<PAGE>
TABLE OF CONTENTS
ARTICLE 6
CONDITIONS
<TABLE>
<S> <C> <C>
6.1 Conditions for the Benefit of the Purchaser 29
6.2 Conditions for the Benefit of the Vendor 31
6.3 Efforts to Satisfy Conditions 32
6.4 Competition Act Approval 32
ARTICLE 7
CLOSING
7.1 Closing 32
7.2 Deliveries by the Vendor at Closing 32
7.3 Deliveries by the Purchaser at Closing 33
ARTICLE 8
ENVIRONMENTAL INDEMNITY
8.1 Indemnity 33
ARTICLE 9
GENERAL INDEMNITIES
9.1 Vendor's Indemnity 33
9.2 Purchaser's Indemnity 34
9.3 Limitations on Vendor's Indemnity 34
9.4 Limitations on Purchaser's Indemnity 34
ARTICLE 10
EMPLOYEES
10.1 Offers of Employment 35
10.2 Severance Obligations 35
10.3 Retention Bonuses 35
10.4 Recognition of Service 36
ARTICLE 11
ARBITRATION
11.1 Arbitration 36
ARTICLE 12
GUARANTEES
12.1 Seagull Corporation Guarantee 37
12.2 Rio Alto Guarantee 37
ARTICLE 13
SURVIVAL
13.1 Survival 37
ARTICLE 14
GENERAL
14.1 Further Assurances 37
14.2 Time of the Essence 38
14.3 Corporation 38
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
14.4 Expenses 38
14.5 Public Announcements 38
14.6 Benefit of the Agreement 38
14.7 Entire Agreement 38
14.8 Amendments and Waiver 38
14.9 Assignment 39
14.10 Notices 39
14.11 Change of Corporation's Name 39
14.12 Governing Law 40
14.13 No Duplication of Adjustments 40
14.14 Attornment 40
14.15 Counterpart Execution 40
</TABLE>
<PAGE>
SHARE SALE AGREEMENT
THIS AGREEMENT made this 11th day of September, 1997;
B E T W E E N:
SEAGULL ENERGY CANADA HOLDING COMPANY, a body corporate incorporated
under the laws of the State of Wyoming (hereinafter referred to as the "Vendor")
OF THE FIRST PART
- and -
745910 ALBERTA LTD., a body corporate incorporated under the laws of
the Province of Alberta (hereinafter referred to as the "Purchaser")
OF THE SECOND PART
- and -
SEAGULL ENERGY CORPORATION, a body corporate incorporated under the
laws of the State of Texas (hereinafter referred to as "Seagull Corporation")
OF THE THIRD PART
- and -
RIO ALTO EXPLORATION LTD., a body corporate incorporated under the laws
of the laws of the Province of Alberta (hereinafter referred to as "Rio Alto")
OF THE FOURTH PART
WHEREAS the Vendor is the registered and beneficial owner of the
Shares;
AND WHEREAS the Purchaser is a wholly owned subsidiary of Rio Alto and
Rio Alto has agreed to guarantee the obligations of the Vendor hereunder; AND
WHEREAS the Vendor desires to sell the Shares to the Purchaser and the Purchaser
desires to purchase the Shares upon and subject to the terms and conditions
hereinafter set forth;
AND WHEREAS the Vendor is a wholly owned subsidiary of Seagull
Corporation and Seagull Corporation has agreed to guarantee the obligations of
the Vendor hereunder;
NOW THEREFORE THIS AGREEMENT WITNESSES that in consideration of the
premises and the covenants and agreements herein contained the parties hereto
agree as follows:
ARTICLE 1
INTERPRETATION
1.1 Definitions
In this Agreement, unless otherwise stated or the context otherwise
requires:
(a) "Affiliate" has the same meaning as in the Business Corporations
Act (Alberta);
(b) "Agreement" means this share sale agreement and all amendments that
may be made hereto by written agreement between the Vendor and the
Purchaser;
(c) "Applicable Law" means, in relation to any Person, property or
circumstance:
(i) common law, equity and statutes (including regulations
enacted thereunder);
(ii) judgments and orders of courts of competent jurisdiction;
(iii) regulations and orders issued by governmental agencies and
authorities; and
(iv) the terms and conditions of permits, licenses, authorizations or
approvals issued by governmental agencies or authorities;
which are applicable to such Person, property or circumstance;
(d) "Assets" mean any and all assets, properties and rights
beneficially owned by the Corporation, whether vested or contingent, including
the Oil and Gas Assets and working capital;
(e) "Bank Debt" means all indebtedness of the Corporation pursuant to
the Existing Credit Facilities;
(f) "Bank Debt Adjustment" means:
(i) the outstanding amount of the Bank Debt at the Effective
Date; plus
(ii) the amount booked by the Corporation in accordance with GAAP
as interest in respect of the Bank Debt for the period between the
Effective Date and the Closing Date; minus
(iii) the amount advanced by the Vendor to the Corporation to
repay the Bank Debt pursuant to Section 5.5;
(g) "Base Price" has the meaning indicated in paragraph 2.2(a)(i);
(h) "Business Day" means a day other than a Saturday, Sunday or
statutory holiday in Calgary, Alberta or Houston, Texas;
(i) "Canadian Tax Act" means the Income Tax Act R.S.C. 1985, c. 1 (5th
Supplement) as amended;
(j) "Claim" means any claim, demand, lawsuit, proceeding, arbitration
or governmental investigation;
(k) "Closing" means the closing of the sale of the Shares and the Note
by the Vendor to the Purchaser pursuant hereto;
(l) "Closing Date" means:
(i) if the Appropriate Withholding Tax Certificate is received
prior to October 1, 1997, the fourth day following the "Closing Date"
as defined in the CNQ Offer, provided that if such day is not a
Business Day, the Closing Date shall be the next Business Day
thereafter; and
(ii) if the Appropriate Withholding Tax Certificate has not been
received prior to October 1, 1997, the later of October 1, 1997, and
the date determined in accordance with paragraph (i) immediately
above; provided that, for purposes of the foregoing, "Appropriate
Withholding Tax Certificate" means a Certificate (as defined in
subsection 4.2(a)) which has a Certificate Limit (as defined in
subsection 4.2(a)) which is not less than the portion of the Purchase
Price which is allocated to the Shares in accordance with subsection
2.2 (c);
(m) "CNQ" means Canadian Natural Resources, a general partnership
formed pursuant to the laws of Alberta;
(n) "CNQ Offer" means (i) the offer to purchase dated September 11,
1997 made by CNQ to the Corporation whereby CNQ has offered to acquire certain
of the Assets from the Corporation in exchange for Class A Units of CNQ (ii) the
Offer Acceptance Agreement dated the date hereof among the Vendor, Seagull
Corporation, Seagull Canada, CNQ and Canadian Natural Resources Limited and
(iii) all amendments thereof and documents and agreements related thereto;
(o) "Competition Act Approval" means that:
(i) the Director of Investigation of Research (the "Director")
appointed under the Competition Act (Canada) shall have issued an
advance ruling certificate pursuant to Section 102 of the Competition
Act (Canada) in respect of the transaction contemplated hereby on
terms and conditions satisfactory to the Parties acting reasonably; or
<PAGE>
(ii) the applicable waiting period under Section 123 of the
Competition Act (Canada) shall have expired without the Director
having advised the Parties that he intends to apply to the Competition
Tribunal for an order under Section 92 or Section 100 of the
Competition Act (Canada) in respect of the transaction contemplated by
this Agreement; or
(iii) the Director shall have advised the Purchaser that it does
not intend at the current time to apply to the Competition Tribunal
for an order under Section 92 of the Competition Act (Canada) in
respect of the transaction contemplated by this Agreement;
(p) "Confidentiality Agreement" means the Confidentiality Agreement
dated August 5, 1997 between Nesbitt Burns Inc. (as agent for the Corporation),
and the Purchaser and the Non-Compete Agreement dated August 14, 1997 between
the Corporation and the Purchaser;
(q) "Corporation" means Seagull Energy Canada Ltd., a body corporate
incorporated pursuant to the laws of Alberta;
(r) "Deposit" and "Deposit Interest" have the meanings specified in
Section 2.3;
(s) "Effective Date" means July 1, 1997;
(t) "Employee" means any of the Corporation's current employees;
(u) "Employee Plan" means any employee benefit plan, program or
arrangement sponsored, maintained or contributed to by the Vendor or the
Corporation or their Affiliates for the benefit of the Corporation's employees,
including, without limitation, bonus; pension; savings; profit sharing; deferred
compensation; supplemental retirement income; stock option and hospital,
medical, dental, disability, automobile, life and accident issuance plans,
excluding the Employee Retention Agreements and the Employee Severance
Agreements;
(v) "Employee Retention Bonuses" means the retention bonuses payable to
the Employees pursuant to the Employee Retention Agreements;
(w) "Employee Retention Agreements" means the letter agreements dated
June 12, 1997 between the Corporation and each Employee pursuant to which the
Corporation has agreed to pay a retention bonus, in certain circumstances, to
each Employee;
(x) "Employee Severance Payment" means a Severance Payment, as defined
in an Employee Severance Agreement;
(y) "Employee Severance Agreement" means the letter agreements dated
June 12, 1997 between the Corporation and each of its employees pursuant to
which the Corporation has agreed to pay a severance payment, in certain
circumstances, to each Employee;
(z) "Encumbrance" means a Security Interest, an option, a farmout
agreement under which earning has not occurred, a royalty, a right of a third
party to reduce or alter an interest of the Corporation on the occurrence of
payout or in other circumstances, a penalty or forfeiture arising as a result of
an election by the Corporation or any of its predecessors in interest prior to
or after the date hereof not to participate in a drilling or other operation and
any other adverse claim or other encumbrance in favour of a third party to which
the Corporation's interest in an Asset is subject;
(aa) "Engineering Report" means the report of Sproule Associates
Limited in respect of certain oil and gas properties of the Corporation which is
dated July 14, 1997 and is comprised of 8 volumes;
(bb) "Environmental Damage" means:
(i) contamination, pollution or other damage to the environment;
or
(ii) damage caused by the presence, release, spill or emission of
any substance (including any form of energy), including, without
limitation, corrosion or deterioration of structures or other property
and death or injury to human beings, plants or animals; and for
purposes hereof, the environment includes air, soil, ground water,
surface water, aquifers and plant and animal life;
(cc) "Environmental and Reclamation Liabilities" means liabilities
(whether under Applicable Law, by contract or otherwise) to (i) pay amounts
(including compensation for damages) on account of Environmental Damage, (ii)
cleanup, remediate or prevent Environmental Damage or Environmental Problems or
(iii) abandon any well, remove any equipment or structure or reclaim the surface
site thereof;
(dd) "Existing Credit Facilities" means (i) the Cdn. $5,000,000 Credit
Facility dated October 24, 1994 between the Corporation and the Bank of Nova
Scotia and (ii) the U.S. $100,000,000 Credit Facility dated June 17, 1997
between the Corporation, a group of Banks and the Chase Manhattan Bank of
Canada, as Administrative Agent;
(ee) "Financial Statements" means:
(i) the audited financial statements of the Corporation for the
12 month period ended December 31, 1996; and
(ii) the audited interim financial statements of the Corporation
for the six months ended June 30, 1997; which are attached hereto as
Schedule A;
(ff) "First Conditions Satisfaction Time" means the time at which,
pursuant to the terms of the CNQ Offer, the closing of the sale to CNQ pursuant
thereto is scheduled to close;
(gg) "GAAP" means generally accepted accounting principles used in
Canada from time to time;
(hh) "Gas and Oil Sales Contracts" means contracts for the sale and
purchase of Petroleum Substances;
(ii) "Interim Period" means the period from the date hereof to the Time
of Closing;
(jj) "Komex Report" means the report of Komex International Ltd.
respecting environmental matters related to certain of the Corporation's Oil and
Gas Assets dated August, 1997;
(kk) "Lands" means the lands described in Schedule E, subject to such
limitations as to geological formations and substances as may appear in Schedule
E;
(ll) "Leases" means the petroleum and natural gas leases and similar
instruments listed in Schedule E by virtue of which the holder thereof is
entitled to drill for, and produce, save and market Petroleum Substances from
the Lands;
(mm) "Losses" means, in respect of a Party and in relation to any
matter, all losses, costs and damages which such Party suffers, sustains, pays
or incurs in connection with such matter or circumstance and includes reasonable
costs of legal counsel (on a full indemnity basis) and other consultants and
reasonable costs of investigating and defending Claims arising from such matter,
regardless of whether such Claims are sustained but does not include loss of
future profits;
(nn) "Material Adverse Effect" means, with respect to any matter, that:
(i) such matter has resulted in or is reasonably expected to
result in:
(A) payments by the Corporation;
(B) Losses to the Corporation; or
(C) a reduction in the value of the Assets; which, after
taking into account the effect on the Corporation's Taxes of such
payment, Losses or reduction in value and the proceeds of any
insurance available to the Corporation in respect thereof, is in
excess of $25,000,000.00; or
(ii) has or is reasonably expected to have a material effect
on the transactions contemplated by this Agreement;
(oo) "Miscellaneous Interests" means all of the Corporation's right,
title, estate and interest in and to all property, assets and rights associated
with the Petroleum and Natural Gas Rights or the Tangibles (other than the
Petroleum and Natural Gas Rights and the Tangibles themselves) including, but
not in limitation of the generality of the foregoing, the entire interest of the
Corporation in:
(i) the Title and Operating Documents;
(ii) all subsisting rights to enter upon, use and occupy the
surface of any of the Lands, any lands with which the Lands have
been pooled or unitized or any lands on which the Tangibles are
located;
(iii) all wells used or useful for the purpose of production
of Petroleum Substances from the Lands or lands with which the
Lands have been pooled or unitized, including water injection
wells; and
(iv) all land, technical, operating, production, geological,
geophysical, seismic, engineering, reservoir, marketing and
production data and information related to the Oil and Gas
Assets;
(pp) "Note" means a non-interest bearing, demand promissory note issued
by the Corporation to the Vendor in respect of loans made by the Vendor to the
Corporation during the Interim Period to repay the Bank Debt pursuant to Section
5.5;
(qq) "Office Leases" means the Corporation's real property leases for
its Calgary, Brooks and Edson, Alberta offices, which are listed in Schedule H;
(rr) "Oil and Gas Assets" means the Petroleum and Natural Gas Rights,
the Tangibles and the Miscellaneous Interests;
(ss) "Parties" means the Vendor, Seagull Corporation and the Purchaser
and their respective successors and permitted assigns hereunder and
"Party" means one of them;
(tt) "Permitted Encumbrances" means:
(i) liens for taxes, assessments or governmental charges
which are not due or delinquent or the validity of which is being
diligently contested in good faith by the Vendor or the
Corporation;
(ii) liens incurred or created in the ordinary course of
business as security in favour of any other Person who is
conducting the development or operation of the property to which
such liens relate for the Corporation's share of the costs and
expenses of such development or operation which are not due or
delinquent;
(iii) mechanics', builders' or materialmen's liens in
respect of services rendered or goods supplied for which payment
is not due;
(iv) easements, rights of way, servitudes or other similar
rights in land (including, without limitation, rights of way and
servitudes for railways; sewers; drains; gas and oil pipelines;
gas and water mains; and electric light, power, telephone,
telegraph and cable television conduits, poles, wires and
cables);
(v) the right reserved to or vested in any municipality or
governmental or other public authority by the terms of any lease,
licence, franchise, grant or permit or by any statutory
provision, to terminate any such lease, license, franchise, grant
or permit or to require annual or other periodic payments as a
condition of the continuance thereof;
(vi) governmental requirements of general application,
including, without limitation, those respecting production rates
or other operational matters;
(vii) the Encumbrances described in Schedule E;
(viii) the reservations, limitations, provisos and
conditions in any original grants from the Crown of any of the
Lands or interests therein and statutory exceptions to title;
(ix) the terms and conditions of the Title and Operating
Documents; and
(x) the terms and conditions of the CNQ Offer, if it is
accepted;
(uu) "Person" means any individual, body corporate, partnership
(limited or general), trust, trustee, executor or similar official, governmental
agency or authority or other entity;
(vv) "Petroleum and Natural Gas Rights" means the undivided interests
attributed to the Corporation in Schedule E in:
(i) rights (whether fee simple interests, leasehold
interests or other interests) to drill for and produce, save and
market Petroleum Substances from the Lands;
(ii) royalties, net profits interests and similar interests
entitling the holder thereof to a share of the Petroleum
Substances produced from the Lands or to a payment calculated by
reference to the quantity of such production, the proceeds from
the sale thereof or the profits therefrom; and
(iii) rights to acquire the foregoing;
(ww) "Petroleum Substances" means petroleum, natural gas and related
hydrocarbons (except coal) and all other substances (including sulphur and
sulphur compounds) produced in association therewith;
(xx) "Place of Closing" means the offices of Bennett Jones Verchere
located at 4500, 855 - 2nd Street S.W.,Calgary, Alberta;
(yy) "Prime Rate" means the annual rate of interest announced from time
to time by the Bank of Nova Scotia as a reference rate then in effect for
determining interest rates on Canadian dollar commercial loans in Canada;
(zz) "Prior Period Taxes" means all Taxes paid or payable by the
Corporation pursuant to the Canadian Tax Act and the income tax legislation of
the Provinces of Canada for periods ending on or before the Time of Closing
(including the taxation year which, pursuant to the Canadian Tax Act, will be
deemed to have ended as a result of the acquisition of control of the
Corporation which results from the sale of the Shares pursuant hereto),
including any obligation to withhold or remit Taxes on behalf of any other
Person, provided that Taxes shall be determined without reference to any
amendments to any of such legislation announced after the Time of Closing;
(aaa) "Purchase Price" means the purchase price payable by the
Purchaser to the Vendor for the Shares and the Note pursuant hereto as set out
in
Section 2.2;
(bbb) "Required Approvals" means the Competition Act Approval, the
Seagull Corporation Bank Consent and all other approvals and authorizations of
the sale of the Shares and the Note pursuant hereto required to be obtained
pursuant to Applicable Law which, if not obtained, will have a Material Adverse
Effect;
(ccc) "Seagull Corporation Bank Consent" means the consent to the
transactions contemplated by this Agreement and the CNQ Offer required to be
obtained pursuant to the Seagull Corporation Credit Facility;
(ddd) "Seagull Corporation Credit Facility" means (i) the U.S.
$450,000,000.00 credit facility dated June 17, 1997 between Seagull Corporation,
a group of banks and the Chase Manhattan Bank, as Administrative Agent and (ii)
the Existing Credit Facilities;
(eee) "Security Interest" means any pledge, lien, charge, conditional
sale, title retention agreement, mortgage, assignment by way of security or
other security interest;
(fff) "Shares" means all of the issued and outstanding common and
preferred shares of the Corporation;
(ggg) "Take or Pay Obligations" means obligations of the Corporation
under or in respect of contracts for the sale of production of Petroleum
Substances arising as a result of payments made by or on behalf of the buyer
thereunder in advance of taking delivery of Petroleum Substances pursuant
thereto or payments made by or on behalf of the buyer thereunder in lieu of or
as compensation for the buyer not taking deliveries of Petroleum Substances
pursuant thereto;
(hhh) "Tangibles" means all of the Corporation's right, title, estate
and interest in and to all equipment and facilities used or held for use in
respect of the production, gathering, dehydration, processing, treatment,
measurement, storage or transportation of Petroleum Substances from the Lands or
lands pooled or unitized therewith, including, without limitation, wellheads,
pumps, pumpjacks, dehydrators, separators, meters, generators, flowlines,
gathering lines, batteries, tanks, pipelines, compressors and plants;
(iii) "Tax Indemnity" means the indemnity by the Vendor in favour of
the Corporation and the Purchaser in respect of Prior Period Taxes provided for
in subsection 4.1(a);
(jjj) "Tax Pools" consists of cumulative Canadian oil and gas property
expense ("COGPE"), cumulative Canadian development expense ("CDE"), cumulative
Canadian exploration expense ("CEE") and undepreciated capital cost ("UCC"), in
each case, as defined in the Canadian Tax Act;
(kkk) "Tax Returns" includes all returns, reports, declaration,
elections, filings, information returns and statements required to be filed by
the corporation in respect of Taxes;
(lll) "Taxes" means all taxes, duties, fees, premiums, assessments,
levies and other charges of any kind whatsoever imposed by any taxing or other
governmental authority or agency, together with all interest and penalties in
respect thereof, but does not include royalties and similar payments payable
pursuant to or in respect of the Leases;
(mmm) "Time of Closing" means 10:30 a.m. local Calgary time on the
Closing Date;
(nnn) "Title and Operating Documents" means (i) the Leases (ii) all
agreements relating to the ownership or operation of the Oil and Gas Assets
entered into in the normal course of business, including, without limitation,
operating procedures; unit agreements and unit operating agreements; agreements
for the construction, ownership and operation of gas plants, pipelines, gas
gathering systems and similar facilities; pooling agreements, royalty
agreements, farmin agreements, farmout agreements and participation agreements;
agreements respecting the gathering, measurement, processing, compression or
transportation of Petroleum Substances; Gas and Oil Sales Contracts; well
operating contracts; and surface leases, pipeline easements, road use agreements
and other contracts granting the right to use the surface of lands; and (iii)
all permits, licenses and approvals issued or granted by governmental
authorities pertaining to the ownership or operation of the Oil and Gas Assets;
and
(ooo) "Title Opinion" means the title opinions in respect of certain of
the Petroleum and Natural Gas Rights dated July 28, 1997 delivered by Howard
Mackie to the Corporation.
1.2 Headings, meaning of "hereof", and Article and Schedule References
The headings of Articles, Sections, and subsections in this Agreement
are for convenience of reference only and shall not affect the construction or
interpretation of this Agreement. The terms "this Agreement", "hereof",
"hereunder" and similar expressions refer to this Agreement in its entirety and
include any agreement supplemental hereto. Unless something in the subject
matter or context is inconsistent therewith, references herein to Articles,
Sections, subsections and paragraphs are to Articles, Sections, subsections and
paragraphs of this Agreement and references herein to Schedules are references
to Schedules to this Agreement.
1.3 Single and Plural and Gender
In this Agreement words importing the singular number only shall
include the plural and vice versa and words importing one gender shall include
the other genders.
1.4 Currency
Unless specifically otherwise stated, all references to currency herein
are to lawful money of Canada.
1.5 Knowledge
In this Agreement, references to the Vendor's knowledge or awareness
and similar references mean the actual knowledge of the officers and employees
of the Vendor, Seagull Corporation and the Corporation whose primary
responsibilities relate to the matter in question after a reasonable review of
the Corporation's files and records, but without any further inquiry.
1.6 Schedules
The following are the Schedules to this Agreement:
Schedule Title
Schedule A - Financial Statements
Schedule B - Form of Officer's Certificate
Schedule C - Claims
Schedule D - Oil and Gas Sales Contracts
Schedule E - Lands
Schedule F - Bank Accounts
Schedule G - Employee Plans
Schedule H - Office Leases
Schedule I - List of Employee Severance Payments
Schedule E is contained in binders labeled "Schedule E to the Share
Sale Agreement dated September 11 among Seagull Energy Canada Holding Company,
745910 Alberta Ltd. and Seagull Energy Corporation - Land Schedule". Schedule G
is contained in a binder labeled "Schedule G to the Share Sale Agreement dated
September 11, 1997 among Seagull Energy Canada Holding Company, 745910 Alberta
Ltd. and Seagull Energy Corporation - Employee Plans". The labels on Schedules E
and G have been initialed by the Parties. The remainder of the Schedules are
attached hereto. The Schedules form part of this Agreement.
1.7 Conflicts
Where any provision of any Schedule to this Agreement conflicts or is
at variance with any provision in the body of this Agreement, the latter shall
prevail.
1.8 Statute References
A reference in this Agreement to a statute shall be a reference to the
statute and the regulations made pursuant thereto as amended or superseded, from
time to time, either before or after the date hereof, unless otherwise stated or
the context otherwise requires.
ARTICLE 2
PURCHASE AND SALE
2.1 Purchase and Sale Purchase Price
The Vendor shall sell to the Purchaser and the Purchaser shall purchase
from the Vendor all of the Shares and the Note, in accordance with and subject
to the terms and conditions of this Agreement. Ownership of the Shares and the
Note will pass to the Purchaser at the Time of Closing.
2.2 Purchase Price
(a) If the Bank Debt Adjustment is a positive amount, the Purchase
Price shall be:
(i) Two Hundred Fifty One Million Five Hundred Thousand
Dollars $251,500,000.00 (the "Base Price"); minus
(ii) the Bank Debt Adjustment; plus
(iii) simple interest at the Prime Rate on the Base Price
from the Effective Date to the Closing Date.
(b) If the Bank Debt Adjustment is a negative amount, the Purchase
Price shall be:
(i) the Base Price; plus
(ii) an amount equal to the amount by which the Bank Debt
Adjustment is less than zero; plus
(iii) simple interest at the Prime Rate on the Base Price
from the Effective Date to the Closing Date.
(c) The Parties agree that the portions of the Purchase Price which are
payable for the Shares and the Note, respectively, are:
(i) the Note - the principal amount thereof; and
(ii) the Shares - the balance of the Purchase Price 2.3
Deposit
(a) At the time of execution and delivery of this Agreement, the
Purchaser shall pay Twelve Million Five Hundred Seventy Five Thousand Dollars
($12,575,000.00) (herein called the "Deposit") to Bennett Jones Verchere,
Barristers and Solicitors (the "Escrow Agent"), to be held by the Escrow Agent
in an interest-bearing solicitor's trust account to be applied in accordance
with the following terms:
(i) if Closing occurs, the Deposit together with the
interest actually earned thereon while held by the Escrow Agent
(the "Deposit Interest") shall be paid by the Escrow Agent to the
Vendor at the Time of Closing in partial satisfaction of the
Purchaser's obligation to pay the Purchase Price;
(ii) if Closing does not occur due to a breach of this
Agreement by the Purchaser, the Vendor shall be entitled to the
Deposit and Deposit Interest, and the Escrow Agent shall pay the
Deposit and Deposit Interest to the Vendor on the scheduled
Closing Date. The Deposit and Deposit Interest shall thereupon be
forfeited to the Vendor on account of the damages suffered by the
Vendor as a consequence of such breach. The Parties agree that
such amount constitutes their genuine pre-estimate of the minimum
damages which will be suffered by the Vendor by virtue of such
breach. The forfeiture of the Deposit and Deposit Interest as
provided herein shall not limit the rights and remedies available
to the Vendor as a result a breach by the Purchaser of its
obligations hereunder and the Vendor shall be entitled to pursue
such rights and remedies, notwithstanding the forfeiture of the
Deposit and the Deposit Interest to the Vendor, including
recovering the Losses in excess of the Deposit and the Deposit
Interest suffered by the Vendor due to a breach of this Agreement
by the Purchaser; and
(iii) if Closing does not occur for any reason or
circumstance other than that described in paragraph 2.3(a)(ii),
the Purchaser shall be entitled to the Deposit and Deposit
Interest and the Escrow Agent shall on the scheduled Closing Date
pay the Deposit and Deposit Interest to the Purchaser.
The Purchaser acknowledges that Bennett Jones Verchere acts
as legal counsel to the Vendor in connection with this Agreement.
The Purchaser agrees that notwithstanding that Bennett Jones
Verchere is the Escrow Agent, Bennett Jones Verchere shall be
entitled to continue to act on behalf of the Vendor in respect of
any matter arising in relation to this Agreement, including any
dispute regarding the disposition of the Deposit or Deposit
Interest.
(b) If the Escrow Agent is notified by either Party, or otherwise
becomes aware that there is a dispute between the Parties regarding entitlement
to all or part of the Deposit and Deposit Interest, the Escrow Agent may, in its
sole discretion, interplead the matter and thereupon pay the Deposit and Deposit
Interest (or that portion thereof as to which there is a dispute as to
entitlement) into the court of law in which the matter has been interpleaded.
2.4 Payment at Closing
The Purchase Price shall be paid to the Vendor at Closing as follows:
(a) the Deposit plus the Deposit Interest shall be paid to the Vendor
at Closing by the Escrow Agent in accordance with Section 2.3; and
(b) the Purchaser shall pay to the Vendor an amount equal to the
Purchase Price less the Deposit and the Deposit Interest by wire transferring
such amount to a bank account at a branch in Canada of a Canadian chartered bank
specified by the Vendor by a written notice to the Purchaser prior to the
Closing Date.
Not later than two (2) days prior to the Closing Date, the Vendor shall deliver
a statement setting forth an itemized calculation of the amounts to be paid to
the Purchaser by the Vendor and the Escrow Agent at Closing in accordance with
this Section 2.4.
ARTICLE 3
REPRESENTATIONS, WARRANTIES AND COVENANTS
3.1 Regarding the Vendor and Seagull Corporation
The Vendor and Seagull Corporation represent and warrant to the
Purchaser that:
(a) Incorporation: the Vendor is duly incorporated, organized and
subsisting under the laws of Wyoming and Seagull Corporation is duly
incorporated, organized and subsisting under the laws of Texas;
(b) Corporate Authority: the Vendor and Seagull Corporation have
corporate power and authority to enter into and deliver this Agreement and
transfer beneficial ownership of the Shares to the Purchaser pursuant hereto;
(c) Title to the Shares: the Vendor is the registered and beneficial
owner of the Shares and at the Time of Closing will have good and marketable
title to the Note, in each case, free and clear of all Encumbrances and there is
no contract, option or any other right binding upon the Vendor or which at any
time in the future may become binding upon the Vendor to sell, transfer, assign,
pledge, charge, mortgage or in any other way dispose of or encumber any of the
Shares or the Note other than pursuant to this Agreement;
(d) Due Authorization and no Violations: provided the Competition Act
Approval is obtained, the execution and delivery of this Agreement and the
completion of the transactions contemplated hereby have been duly authorized by
all necessary corporate action on the part of the Vendor and Seagull Corporation
and do not and will not:
(i) violate or result in a breach or default of, require any
consent under, be in conflict with, accelerate or permit the
acceleration of the performance of, result in the loss or
termination of or give a third party a right to terminate any
material agreement, licence, permit, franchise or other
instrument to which the Vendor, Seagull Corporation or the
Corporation is a party or of which any of them is bound or which
relate to any of the Assets;
(ii) violate or conflict with any Applicable Law or the
articles of incorporation, by-laws or similar constitutional
documents of the Vendor, Seagull Corporation or the Corporation;
or
(iii) give rise to any rights of first refusal or other
preemptive, preferential or similar rights to purchase any of the
Shares or the Assets created by, through or under the Vendor,
Seagull Corporation or the Corporation or of which the Vendor is
aware;
(e) No Claims Affecting the Sale of the Shares: neither the Vendor nor
Seagull Corporation has received notice of any Claim and the Vendor is not aware
of any Claim, actual or threatened, which affects or could reasonably be
expected to affect the consummation of the transactions contemplated by this
Agreement;
(f) No Finder's Fees: none of the Vendor, Seagull Corporation or the
Corporation has incurred any obligation or liability, contingent or otherwise,
for broker's or finder's fees in respect of the transactions contemplated hereby
for which the Purchaser or the Corporation shall have any obligation or
liability; and
(g) Due Execution and Enforceability: this Agreement has been duly
executed and delivered by the Vendor and Seagull Corporation and, if duly
executed and delivered by the Purchaser, constitutes valid and binding
obligations of the Vendor and Seagull Corporation enforceable against the Vendor
and Seagull Corporation in accordance with its terms, subject to bankruptcy,
insolvency, preference, reorganization, moratorium and other similar laws
affecting creditors' right generally and the discretion of courts with respect
to equitable and discretionary remedies and defenses.
3.2 Regarding the Corporation
The Vendor and Seagull Corporation represent and warrant to the
Purchaser that:
(a) Incorporation: the Corporation is a corporation duly incorporated,
organized and subsisting under the laws of Alberta with the corporate power to
own the Assets and to carry on its business as now conducted by it and is
registered to carry on business in the Provinces of Alberta, British Columbia
and Saskatchewan;
(b) Share Capital: the authorized capital of the Corporation consists
of an unlimited number of Class A, B and C common shares, and 102,000 preferred
shares of which one Class A common share and 102,000 preferred shares are issued
and outstanding all of which are registered in the name of the Vendor and are
fully paid and non-assessable;
(c) No Issuance of Shares: there is no contract, option or other right
binding on or which at any time in the future may become binding on the
Corporation to (i) transfer the Shares, (ii) allot or issue any of the unissued
shares of the Corporation or (iii) create any additional class of shares;
(d) Conduct of Business: since June 30, 1997 the business of the
Corporation has been carried on in the ordinary course and since that date the
Corporation has not disposed of any of the Oil and Gas Assets except
dispositions which would be permitted by Section 5.2 if they occurred during the
Interim Period;
(e) Financial Statements: the Financial Statements fairly disclose in
all respects that are material the financial position of the Corporation and
since June 30, 1997 there have been no changes in the business, assets,
operations, working capital, or financial condition of the Corporation other
than in the normal course of business, which has had a Material Adverse Effect,
provided that no representation or warranty is given with respect to: (i) any
change which affects the exploration for or the production or sale of Petroleum
Substances generally, including, without limitation, prices payable for
Petroleum Substances, taxation or government regulation; or (ii) reserves for
Environmental and Reclamation Liabilities;
(f) Dividends: since June 30, 1997, the Corporation has not, directly
or indirectly, declared or paid dividends or declared or made any other
distribution on any of its outstanding shares and there are no dividends
declared and unpaid or due to be paid and no arrears with respect to the Shares;
(g) Indemnities and Guarantees: except for indemnities of operators and
similar obligations arising in the ordinary course of business under the Title
and Operating Documents, the Corporation has not guaranteed, endorsed, assumed
or indemnified, contingently or otherwise, the obligations or indebtedness of
any Person;
(h) Judgements and Claims: there are no judgments unsatisfied against
the Corporation or any consent decrees or injunctions to which the Corporation
is subject and there are no Claims in existence, or, to the knowledge of the
Vendor, threatened against the Corporation or with respect to any of the Assets
which has had or can reasonably be expected to have a Material Adverse Effect
other than as set forth in Schedule C;
(i) Subsidiaries: the Corporation does not have any subsidiaries;
(j) Investments: the Corporation is not a party to any agreements of
any nature to acquire any shares of any corporation or to acquire, capitalize or
invest in any business;
(k) Non-arm's Length Debt: no director, former director, officer, or
employee of the Corporation or any Person not dealing at "arm's length" (within
the meaning of the Canadian Tax Act) with any such Person is indebted to the
Corporation nor is the Corporation indebted to any such Person;
(l) Taxes: the Corporation has (i) filed all Tax Returns required to be
filed by it prior to the date hereof, (ii) paid all Taxes (including
installments) due and payable by it prior to the date hereof and (iii) withheld
and remitted to the appropriate governmental authorities all amounts required to
be withheld by it in respect of the Tax liability of any other Person, and, to
the Vendor's knowledge, there are no Claims threatened or pending against the
Corporation in respect of Taxes.
(m) Tax Pools: as at the Time of Closing (after giving effect to the
Corporation's claims in respect of its taxation year which, pursuant to the
Canadian Tax Act, will be deemed to have ended as a result of the acquisition of
control of the Corporation which results from the sale of the Shares pursuant
hereto) the aggregate amount of the Corporation's Tax Pools will not be not less
than $ 85 Million less the reductions in the Tax Pools that are attributable to
the transactions that occur pursuant to the CNQ Offer and between the date
hereof and the Time of Closing, the Corporation will not do anything (other than
the transactions contemplated by this Agreement and the CNQ Offer) which would
result in such Tax Pools being restricted in a manner which prevents their
reasonable utilization;
(n) Tax Year: the Corporation's taxation year (as defined in the
Canadian Tax Act) ends on December 31;
(o) Employees: except the Employee Severance Agreements and the
Employee Retention Bonus Agreements:
(i) the Corporation is not a party to any written
employment contracts, collective bargaining agreements or
employee association agreements;
(ii) the Corporation has not conducted and is not now
conducting any negotiations with any labour union or
employee association;
(iii) the Corporation has no agreements, policies or
understandings with its employees with respect to increases
in their compensation; and
(iv) the Corporation has complied with all of its
obligations in respect of unemployment insurance payments,
Canada Pension Plan payments, income tax withholding
payments and Worker's Compensation payments;
(p) Employee Plans: all Employee Plans are listed in Schedule G; and:
(i) the Corporation has paid or provided for all
liabilities for wages, vacation pay, salaries, bonuses,
pensions and all other amounts payable under Employee Plans
prior to the date hereof; and
(ii) each of the Employee Plans complies with and has
been administered in substantial compliance with the terms
thereof and Applicable Law; and
(q) Real Property Leases: the Corporation is not a party to or bound by
any real property leases except the Office Leases and leases comprised in the
Title and Operating Documents.
3.3 Regarding the Assets
The Vendor and Seagull Corporation represent and warrant to the
Purchaser that:
(a) Title: the Vendor and Seagull Corporation do not warrant title to
the Assets but do represent and warrant that the Oil and Gas Assets are free and
clear of all Encumbrances created by, through or under the Corporation or its
current Affiliates, other than Permitted Encumbrances, provided that, except as
expressly set forth in this subsection, the Vendor and Seagull Corporation do
not make any representation or warranty with respect to the Corporation's title
to any of the Assets;
(b) Take or Pay: the Corporation does not have any Take or Pay
Obligations and is not bound by any gas balancing agreements;
(c) Environmental and Reclamation Liabilities: except as set forth in
the Komex Report or in Schedule C, the Corporation has not received notice of
any Claim by any third party of any Environmental and Reclamation Liabilities
nor, to the knowledge of Vendor, are there any threatened or pending Claims of
Environmental and Reclamation Liabilities and, except obligations arising in the
ordinary course of business in respect of the abandonment of wells and
facilities when they cease to be useful and the reclamation of the surface sites
thereof;
(d) Bank Accounts: all bank accounts maintained by the Corporation are
listed in Schedule F;
(e) Books and Records: the books of account and other financial records
of the Corporation reflect fairly and accurately the financial transactions of
the Corporation and are maintained in a prudent business manner on a basis
consistent with previous practices of the Corporation;
(f) Gas and Oil Sales Contracts: set forth in Schedule D is a
description of all Gas and Oil Sales Contracts having a term of more than ninety
(90) days which are not terminable without penalty on notice of ninety (90) days
or less;
(g) Insurance: since the Effective Date, the Corporation has maintained
insurance in accordance with normal Canadian oil and gas industry practices,
provided that the Vendor and Seagull Corporation shall have no obligations to
maintain or cause the Corporation to maintain any insurance after the Closing
Date;
(h) Disclosure to Howard Mackie: to the Vendor's knowledge, in
connection with the preparation of the Title Opinion, the Corporation made
available to Howard Mackie all of the material files and records in the
possession or control of the Corporation which were relevant to the Title
Opinion; and
(i) Disclosure to Sproule: to the Vendor's knowledge, in connection
with the preparation of the Engineering Report, the Corporation made available
to Sproule Associates Limited all material information in the possession or
control of the Corporation which was relevant to the Engineering Report or which
Sproule Associates Limited requested in connection therewith, provided that,
except as expressly set forth in this subsection, the Vendor and Seagull
Corporation do not make any representation or warranty with respect to the
Engineering Report.
3.4 Negation
(a) The Vendor and Seagull Corporation make no representation or
warranty except as and to the extent set forth in Sections 3.1, 3.2, and 3.3.
Except for such representations and warranties, the Vendor and Seagull
Corporation shall not be liable (whether in contract or in tort) for any
covenant, representation, warranty, opinion, advise or statement which may have
been made in any document or instrument relative hereto, or otherwise
communicated to the Purchaser in any manner including, without limitation, any
information or opinion which may have been provided to the Purchaser or its
employees, agents, legal counsel or other representatives, whether by the
Vendor, Seagull Corporation or the Corporation or their Affiliates, employees,
agents, legal counsel or other representatives or otherwise. Purchaser confirms
that it has only relied upon the representations and warranties contained in
Sections 3.1, 3.2 and 3.3 and not on any covenants, representations or
warranties outside this Agreement. Purchaser acknowledges and confirms that it
has performed its own due diligence and, except for such reliance, has relied,
and will continue to rely, upon its own engineering, other evaluations and
projections as the same relate to the Corporation or the Assets and on its own
inspection of all other physical property and assets which comprise the Assets.
(b) The Purchaser acknowledges that the Vendor and Seagull Corporation
shall have no liability or responsibility to the Purchaser or the Corporation in
respect of any of the representations, warranties or covenants made by the
Corporation in or pursuant to the CNQ Offer.
3.5 Purchaser's Representations, Warranties and Covenants
The Purchaser and Rio Alto represent and warrant to the Vendor and
Seagull Corporation that:
(a) Incorporation: each of the Purchaser and Rio Alto is duly
incorporated, organized and subsisting under the laws of its jurisdiction of
incorporation and is duly registered in those jurisdictions where the conduct of
its business so requires;
(b) Corporate Authority: each of the Purchaser and Rio Alto has
corporate power and authority to enter into and deliver this Agreement and to
complete the transactions contemplated hereby;
(c) Financial Capability: the Purchaser has sufficient cash on hand and
financial commitments to complete the sale and purchase of Shares and the Note
herein contemplated;
(d) No Finder's Fees: neither the Purchaser nor Rio Alto has incurred
any obligation or liability, contingent or otherwise, for broker's or finder's
fees in respect of the transactions contemplated hereby for which the Vendor,
Seagull Corporation or any of its Affiliates shall have any obligation or
liability;
(e) Purchaser acting as Principal: the Purchaser is purchasing the
Shares pursuant hereto as principal;
(f) Due Execution and Enforceability: this Agreement has been executed
and delivered by each of the Purchaser and Rio Alto and, if duly executed and
delivered by the Vendor and Seagull Corporation, constitutes the Purchaser's and
Rio Alto's valid and binding obligation enforceable in accordance with its
terms, subject to bankruptcy, insolvency, preference, organization, moratorium
and other similar laws affecting creditors' rights generally and the discretion
of courts with respect to equitable and discretionary remedies and defenses; and
(g) Due Authorization and no Violations: provided the Competition Act
Approval is obtained, the execution and delivery of this Agreement and the
completion of the transactions contemplated hereby have been duly authorized by
all necessary corporate action on the part of the Purchaser and Rio Alto and do
not and will not violate or conflict with any Applicable Law or the articles of
incorporation, by-laws or similar constitutional documents of the Purchaser or
Rio Alto; and
(h) Investment Canada Act: the purchase of the Shares and the Note by
the Purchaser pursuant hereto is not reviewable pursuant to Part IV of the
Investment Canada Act.
ARTICLE 4
TAX INDEMNITIES AND COVENANTS
4.1 Tax Indemnities
(a) Notwithstanding anything to the contrary expressed herein but
subject to subsection 4.1 (c) and Section 9.1, after Closing, the Vendor shall
(i) be liable to and indemnify the Corporation (which in this Section 4.1
includes the Corporation's successors and assigns) in respect of all Prior
Period Taxes which have not been paid prior to the Effective Date excluding any
Prior Period Taxes which are otherwise adjusted for hereunder and any Prior
Period Taxes which would not have arisen if the transactions contemplated by the
CNQ Offer had not been undertaken ( "Indemnified Prior Period Taxes") and (ii)
indemnify the Corporation from and against all Losses which it suffers in
respect of the breach of the representation and warranty contained in subsection
3.2(m).
(b) The Purchaser shall give prompt written notice to the Vendor
whenever it becomes aware that a Claim has been or may be made for which the
Vendor may be liable pursuant to subsection 4.1(a). The Vendor shall have the
right at its own expense and employing counsel of its own choice to have full
carriage and control of the contestation of any such Claim, provided that if the
Claim does not relate solely to matters to which the indemnity in subsection
4.1(a) may apply, the Purchaser shall, at its own expense and employing counsel
of its own choice, have full carriage and control of the contestation of the
portion of the Claim relating to matters to which the indemnity does not relate;
and further provided that neither the Purchaser nor the Corporation will agree
to any compromise or settlement of any Claim to which the indemnity may apply
without the consent of the Vendor. If the Purchaser does not consent to a
settlement of a Claim to which the indemnity in this clause may apply following
a request from the Vendor to do so, the obligation of the Vendor to indemnify
the Purchaser for the Claim shall be limited to the amount of the proposed
settlement of the Claim and the Vendor shall forthwith transfer carriage of the
contestation of the Claim to the Purchaser or its nominee. The Purchaser, the
Corporation and the Vendor shall cooperate with each other in any defense of any
such Claims and shall keep each other reasonably informed of the conduct
thereof.
(c) The indemnities in Section 4.1 shall apply in respect of Taxes
assessed within the period during which Taxes may be assessed under Applicable
Law on the assumption that no waiver is filed pursuant to subparagraph
152(4)(a)(ii) of the Canadian Tax Act or similar provisions of provincial income
tax legislation unless such waiver is filed with the written consent of the
Vendor. which may be withheld for any reason whatsoever.
(d) If the Corporation is finally determined by any relevant taxing
authority to have Tax Pools, in the aggregate, at the Time of Closing (after
giving effect to the Corporation's claims in respect of the taxation year which,
pursuant to the Canadian Tax Act, will be deemed to have ended as a result of
the acquisition of control of the Corporation which results from the sale of the
Shares pursuant hereto) less than represented in subsection 3.2(m), the amount
of the indemnity to which the Purchaser shall be entitled pursuant hereto shall
be limited to an amount equal to twenty cents ($0.20) multiplied by each dollar
that such Tax Pools in the aggregate are less than the amount so represented.
(e) The Purchaser agrees to pay to the Vendor any refund of Indemnified
Prior Period Taxes, together with any interest received with respect to such
refund, (whether by payment, credit, offset or otherwise) received after the
Effective Date by the Purchaser or the Corporation, promptly after receipt of
payment of the refund or notice from the relevant governmental authority of such
credit, offset or other refund mechanism, as the case may be, less any Taxes
payable by the Corporation on any interest received with respect to such refund
or an amount equal to twenty cents ($0.20) on each dollar of Tax Pools which are
utilized to reduce or eliminate the Taxes payable by the Corporation on such
interest. Notwithstanding the foregoing, the Purchaser is not required to pay to
the Vendor any refund of Prior Period Taxes which arises as a result of the
carryback of losses of the Corporation which are attributable to any outlay or
expenditure incurred by the Corporation subsequent to the Closing Date.
(f) The Parties covenant that they will not request an audit by any
taxation authority which may result in an assessment to which the Tax Indemnity
may apply other than any audit which may be required to obtain a clearance
certificate on a wind-up, dissolution or discontinuance of the Corporation.
(g) The Parties undertake to inform each other of any audit inquiries
with respect to issues to which the Tax Indemnity may apply and to cooperate
with each other in making any representations prior to any assessment to which
those indemnities may apply.
(h) Any reference in this Agreement to the Canadian Tax Act shall refer
to the effect of the Canadian Tax Act, as it is in force at the Closing Date
together with any amendments which are publicly announced prior to the Closing
Date and all representations, warranties or indemnities hereunder shall be
construed as if the Canadian Tax Act were not subsequently amended except
pursuant to such publicly announced amendments.
4.2 Withholding Tax
(a) In this Section 4.2:
(i) "Certificate" means the certificate, if any, issued
pursuant to section 116(4) of the Canadian Tax Act in
respect of the sale of the Shares pursuant hereto, as
amended prior to the Remittance Date;
(ii) "Certificate Limit" means the certificate limit
(as that term is used in section 116(4) of the Canadian Tax
Act) set forth in the Certificate, provided that until a
Certificate is delivered to the Purchaser, the Certificate
Limit shall be deemed to be zero;
(iii) "Remittance Date" means the second Business Day
prior to the thirtieth day following the end of the calendar
month in which the Closing occurs;
(iv) "Withholding Amount" means an amount equal to 33
1/3% of the amount (if any) by which the portion of the
Purchase Price payable for the Shares exceeds the
Certificate Limit; and
(v) "Escrow Amount" means a portion of the Purchase
Price equal to 33 1/3% of the amount (if any) by which the
portion of the Purchase Price payable for the Shares exceeds
the Certificate Limit based upon the Certificate (if any)
provided to the Purchaser at or prior to Closing.
(b) The Escrow Amount shall be paid to Bennett Jones Verchere at
Closing. Bennett Jones Verchere shall deposit the Escrow Amount in an interest
bearing trust account and shall disburse the Escrow Amount as follows:
(i) on the Remittance Date, Bennett Jones Verchere
shall remit the Withholding Amount to the Minister of
National Revenue in accordance with section 116 of the
Canadian Tax Act; and
(ii) if a Certificate is furnished to Bennett Jones
Verchere after the Closing and prior to the Remittance Date,
Bennett Jones Verchere shall promptly pay to the Vendor the
amount by which the Escrow Amount exceeds the Withholding
Amount (calculated on the basis of such Certificate).
Except as provided in this subsection, the Purchaser shall not withhold
any portion of the Purchase Price on account of its obligations under section
116 of the Canadian Tax Act.
(c) Interest actually earned on the Escrow Amount while held by Bennett
Jones Verchere will be paid by Bennett Jones Verchere as follows:
(i) 15% (or any greater or lesser percentage that may
be required at the applicable time pursuant to the Canadian
Tax Act or a tax treaty) to the Minister of National
Revenue; and
(ii) the balance to the Vendor.
Vendor will, on the Remittance Date, cause Bennett
Jones Verchere to provide the Vendor and the Purchaser with
proof that the Escrow Amount and the interest actually
earned thereon while held by Bennett Jones Verchere have
been disbursed by it in accordance with the provisions of
this Section 4.2.
4.3 Prior Period Tax Returns
(a) The Vendor shall prepare, execute and file all Tax Returns in
respect of Prior Period Taxes required under Applicable Law on behalf of and in
the name of the Corporation and at the Vendor's cost. The Vendor shall cooperate
with the Purchaser in order to have such Tax Returns prepared in draft form
sixty (60) days prior to the filing deadline. Prior to filing any such Tax
Returns, the Vendor shall provide copies of such Tax Returns to the Purchaser
for its review and comment.
(b) The Purchaser shall not, without the prior written consent of the
Vendor, cause or allow the Corporation to originate the recalculation and/or
refiling of any Tax Return filed by the Vendor or the Corporation in respect of
Prior Period Taxes.
(c) At Closing, the Purchaser shall provide to the Vendor letters of
authorization empowering the Assistant Vice President, Tax of Seagull
Corporation to deal with Canadian taxation authorities with respect to any
matter relating to Prior Period Taxes.
ARTICLE 5
INTERIM PERIOD
5.1 Operations Generally
During the Interim Period, the Vendor shall cause the Corporation to
conduct its business in substantially the same manner as it currently conducts
its business. Without limiting the generality of the foregoing, the Purchaser
agrees that, so long as the Corporation determines to do so consistent with its
past practices, during the Interim Period the Corporation may initiate,
participate in and commit to the drilling, completion, equipping and abandoning
of wells; the construction, installation, decommissioning and removal of
equipment and facilities and the acquisition of interests in petroleum and
natural gas leases and similar instruments. Notwithstanding the foregoing,
without the prior approval of the Purchaser, which will not be unreasonably
withheld or delayed, except as contemplated by the CNQ Offer, the Corporation
will not during the Interim Period :
(a) commit to make an acquisition of an interest or interests in one or
more petroleum and natural gas leases or similar instruments (whether by
purchase, farmin or at a crown sale) if the Corporation reasonably expects that
the consideration payable pursuant to such acquisition will exceed $100,000;
(b) amend or terminate any contract if such amendment or termination
could reasonably be expected to have a Material Adverse Effect, provided that,
solely for purposes of this paragraph, the figure "25,000,000.00" in the
definition of Material Adverse Effect shall be deemed to be "500,000.00"; or
(c) enter into any new employment contract or employee benefit program.
5.2 Negative Covenants of the Corporation
During the Interim Period, except as otherwise contemplated or
permitted by this Agreement (including Section 5.1), the Corporation shall not
without the prior written consent of the Purchaser (which will not be
unreasonably withheld or delayed).
(a) sell, transfer or dispose of, or grant an Encumbrance on or in
respect of, the whole or any part of the Assets, except the creation of
Permitted Encumbrances and the sale of Petroleum Substances produced from the
Lands or lands pooled or unitized therewith in the ordinary course;
(b) enter into any transaction not in the ordinary course of its
business;
(c) borrow money or incur any indebtedness for money except borrowings
pursuant to Existing Credit Facilities or Section 5.5;
(d) make loans or advances, excluding loans and advances in accordance
with the terms of operating agreements to which the Corporation is a party or by
which it is bound and excluding routine advances to employees of the Corporation
for expenses incurred in the ordinary course;
(e) issue, sell or agree to issue or sell any shares, rights, options,
warrants or other securities of the Corporation;
(f) purchase, cancel, retire, redeem or otherwise acquire any of the
Shares;
(g) change, amend or modify the Corporation's Articles of Incorporation
or by-laws;
(h) declare, set aside, make or pay any dividend or other distribution
in respect of any securities issued by the Corporation;
(i) alter any of the Employee Plans, except as required by Applicable
Law; or
(j) increase the salaries, benefits or other compensation payable to
any of its directors, officers or employees;
5.3 Insurance
During the Interim Period, the Corporation shall maintain insurance in
accordance with normal Canadian oil and gas industry practices. The Vendor and
Seagull Corporation shall have no obligations to maintain or cause the
Corporation to maintain any insurance after the Closing Date.
5.4 Due Diligence
The Corporation shall permit the Purchaser and its legal counsel and
authorized representatives to have access to all of the Corporation's books,
records and files during the Interim Period for purposes of performing due
diligence with respect to the Corporation and its assets and affairs, other than
to the extent that such access would result in a breach of any obligation of the
Corporation to keep any information confidential. The provisions of the
Confidentiality Agreement shall continue to be applicable to any information
made available by the Corporation pursuant to the provisions of this Agreement.
5.5 Bank Debt
The Vendor covenants to the Purchaser that at the Time of Closing, the
Bank Debt shall be nil. The Vendor may loan the money to the Corporation which
the Corporation requires to reduce the Bank Debt to nil, which loan shall be
evidenced by the Note.
5.6 Required Approvals
The Parties shall use all reasonable efforts to obtain the Required
Approvals prior to the Time of Closing. The Vendor shall be responsible for
seeking the Competition Act Approval and the Purchaser shall be responsible for
seeking the Investment Canada Act Approval and each of them shall provide such
information and cooperation as the other may reasonably request in connection
therewith.
5.7 CNQ Offer
Notwithstanding anything to the contrary contained herein, the
Corporation may complete the sale of certain of its assets to CNQ that is
contemplated by the CNQ Offer.
5.8 Discharges
Prior to the Closing, the Vendor covenants to use all reasonable
commercial efforts (which does not include the payment of monies to the
encumbrance holder) to obtain specific registrable discharges of all adverse
security interests (other that Permitted Encumbrances) identified in the Title
Opinion, the costs of registration to be for the account of Seagull Corporation.
After Closing, the costs of registration of such instruments of discharge will
be shared equally between Seagull Corporation and the Purchaser.
ARTICLE 6
CONDITIONS
6.1 Conditions for the Benefit of the Purchaser
(a) The sale by the Vendor and the purchase by the Purchaser of the
Shares and the Note pursuant hereto is subject to the following conditions which
are for the exclusive benefit of the Purchaser:
(i) the representations and warranties of the Vendor
set forth in Sections 3.1, 3.2 and 3.3 shall be true and
correct in all material respects at the First Conditions
Satisfaction Time with the same force and effect as if made
at and as of such time;
(ii) in all material respects, the Vendor shall have
performed or complied with all covenants in this Agreement
to be performed or complied with by the Vendor at or prior
to the First Conditions Satisfaction Time pursuant hereto;
(iii) no changes shall have occurred between the date
hereof and the First Conditions Satisfaction Time which have
had or are reasonably expected to have a Material Adverse
Effect except matters (including, without limitation, the
prices payable for Petroleum Substances, taxation and
government regulation) which are generally applicable to the
oil and gas industry;
(iv) all Required Approvals shall have been obtained on
terms acceptable to the Vendor acting reasonably, at or
prior to the First Conditions Satisfaction Time;
(v) the Corporation shall have accepted the CNQ Offer
and shall have performed or complied with, in all material
respects, all covenants in the CNQ Offer required to be
performed or complied with by the Corporation at or prior to
the First Conditions Satisfaction Time pursuant thereto; and
(vi) on or before the First Conditions Satisfaction
Time, the Vendor shall have delivered to the Purchaser "no
interest" letters accompanied by an undertaking to provide
registrable instruments of discharge within a reasonable
time after the Closing Date for all adverse security
interests identified in the Title Opinion to the extent
required by Purchaser's lender except those for which
Seagull Corporation provides an indemnity to the Purchaser,
the costs of registration of such discharges incurred prior
to Closing to be borne by Seagull Energy Corporation and the
costs incurred after Closing to be shared equally by the
Purchaser and Seagull Corporation.
(b) The sale by the Vendor and the purchase by the Purchaser of the
Shares and the Note is subject to the following conditions which are for the
exclusive benefit of the Purchaser:
(i) between the First Conditions Satisfaction Time and
the Time of Closing the Vendor and Seagull Corporation shall
not have done anything which has caused the representations
and warranties of the Vendor and Seagull Corporation set
forth in Sections 3.1, 3.2 and 3.3 not to be true and
correct in all material respects at the Time of Closing with
the same force and effect as if made at and as of such time;
(ii) in all material respects, the Vendor shall have
performed or complied with all covenants in this Agreement
to be performed or complied with by the Vendor between the
First Conditions Satisfaction Time and the Time of Closing
pursuant hereto; and
(iii) at Closing, the Vendor shall have delivered all
items which it is required to deliver pursuant to Section
7.2.
(c) If any of the conditions set forth in subsection 6.1(a) are not
satisfied at the First Conditions Closing Time, the Purchaser may, at or prior
to the First Conditions Satisfaction Time, but not after that time, at its sole
option:
(i) rescind this Agreement by notice to the Vendor, in
which event the Purchaser shall be released from all
obligations hereunder; or
(ii) waive such condition in whole or in part without
prejudice to any of its rights in the event of
non-performance of any other term, covenant or condition in
whole or in part without limiting any other right that the
Purchaser may have.
(d) If any of the conditions set forth in subsection 6.1(b) are not
satisfied at the Time of Closing, the Purchaser may, at or prior to the Time of
Closing, but not after that time, at its sole option:
(i) rescind this Agreement by notice to the Vendor, in
which event the Purchaser shall be released from all
obligations hereunder; or
(ii) waive such condition in whole or in part without
prejudice to any of its rights in the event of
non-performance of any other term, covenant or condition in
whole or in part without limiting any other right that the
Purchaser may have.
6.2 Conditions for the Benefit of the Vendor
(a) The sale by the Vendor and the purchase by the Purchaser of the
Shares and the Note is subject to the following conditions which are for the
exclusive benefit of the Vendor:
(i) the representations and warranties of the Purchaser
set forth in Section 3.5 shall be true and correct in all
material respects at the Time of Closing with the same force
and effect as if made at and as of such time;
(ii) in all material respects, the Purchaser shall have
performed or complied with all of the terms, covenants and
conditions of this Agreement to be performed or complied
with by the Purchaser at or prior to the Time of Closing
pursuant hereto;
(iii) at Closing, the Purchaser shall have delivered
all items it is required to deliver pursuant to Section 7.3;
and
(iv) all Required Approvals shall have been obtained on
terms acceptable to the Purchaser, acting reasonably, at or
prior to the Time of Closing.
(b) If any of the conditions set forth in subsection 6.2(a) are not
satisfied, the Vendor may, at or before the Time of Closing but not after that
time, in its sole option:
(i) rescind this Agreement by notice to the Purchaser,
in which event the Vendor shall, except as provided in
Section 2.3(a)(iii), be released from all obligations
hereunder; or
(ii) waive such condition in whole or in part without
prejudice to any of its rights in the event of
non-performance of any other term, covenant or condition in
whole or in part without limiting any other right that the
Vendor may have.
6.3 Efforts to Satisfy Conditions
Each Party shall use all reasonable efforts to cause the conditions set
forth in Section 6.1 and 6.2 which are within its reasonable control to be
satisfied. Each Party shall provide such information and cooperation to the
other Party as it may reasonably request in connection with the satisfaction of
such conditions.
6.4 Competition Act Approval
The obligations of the Parties to complete the purchase and sale
contemplated hereby is subject to the Competition Act Approval having been
obtained on or before October 31, 1997. and if such condition is not satisfied
the Parties shall be released from their obligations to complete the purchase
and sale contemplated hereby.
ARTICLE 7
CLOSING
7.1 Closing
The Closing shall occur at the Place of Closing at the Time of Closing.
7.2 Deliveries by the Vendor at Closing
At Closing, the Vendor shall deliver to the Purchaser:
(a) the certificates representing the Shares duly endorsed for transfer
by the Vendor, new share certificates issued in the name of the Purchaser in
respect of the Shares and the Note endorsed to the Purchaser;
(b) the minute book, corporate seal and all corporate records of the
Corporation;
(c) certificate of an officer or director of the Vendor in the form of
Schedule B;
(d) resignations of all directors and officers of the Corporation;
(e) a letter from Howard Mackie confirming that the Purchaser can rely
on the Title Opinion in connection with its purchase of the Shares and the Note
pursuant hereto as if it was addressed to the Purchaser; and
(f) written evidence establishing that the outstanding amount of the
Bank Debt is nil.
7.3 Deliveries by the Purchaser at Closing
At Closing, the Purchaser shall:
(a) pay the Purchase Price to the Vendor, subject to Section 4.2; and
(b) deliver a certificate of an officer or director of the Purchaser in
the form of Schedule B.
ARTICLE 8
ENVIRONMENTAL INDEMNITY
8.1 Indemnity
The Purchaser and Rio Alto shall and shall cause the Corporation to
indemnify and save harmless the Vendor, Seagull Corporation and their directors,
officers, employees, agents and Affiliates from and against all Environmental
Liabilities and all Losses which they may suffer, sustain, pay or incur in
respect thereof, whether arising or relating to events occurring prior to, on or
after the Closing Date. The indemnifications contained in this Section 8.1 shall
not limit, in any way, the rights and remedies of the Purchaser hereunder in
respect of the representation and warranty contained in subsection 3.3(c);
ARTICLE 9
GENERAL INDEMNITIES
9.1 Vendor's Indemnity
Subject to Section 9.3, the Vendor and Seagull Corporation shall
indemnify and save harmless the Purchaser and its directors, officers,
employees, agents and Affiliates from and against all Losses which they may
suffer, sustain, pay or incur as a consequence of a breach of a representation
and warranty contained in Section 3.1, 3.2 or 3.3 or a breach by the Vendor or
Seagull Corporation of any of the covenants made by them in this Agreement,
provided that the Vendor and Seagull Corporation shall only be obligated to
indemnify and save them harmless the Purchaser and its directors, officers,
employees, agents and Affiliates in respect of Environmental and Reclamation
Liabilities to the extent of Losses suffered, sustained, paid or incurred by
them as a result of a breach of the representation and warranty contained in
subsection 3.3(f).
9.2 Purchaser's Indemnity
The Purchaser and Rio Alto shall indemnify and save harmless the Vendor
and Seagull Corporation and their directors, officers, employees, agents and
Affiliates from and against all Losses which they suffer, sustain, pay or incur
as a consequence of:
(a) a breach of a representation or warranty contained in Section 3.5
or a breach by the Purchaser of a covenant made by it in this Agreement; or
(b) subject to the Vendor's and Seagull Corporation's obligations in
respect of the indemnity contained in Section 9.1 and the Tax Indemnity, any
matter or circumstance relating to the Corporation or to the Assets or the
operation thereof which occurs before, on or after the Time of Closing.
9.3 Limitations on Vendor's Indemnity
(a) No Claim against the Vendor or Seagull Corporation in respect of a
breach of any representation, warranty or covenant made by the Vendor or Seagull
Corporation in this Agreement, other than a Claim in respect of the Tax
Indemnity, shall be made or be enforceable, whether by legal proceedings or
otherwise, unless written notice of such Claim is given by the Purchaser to the
Vendor or Seagull Corporation within twelve (12) months from the Closing Date.
(b) Notwithstanding anything to the contrary contained herein, the
Vendor and Seagull Corporation shall only be liable to compensate the Purchaser
and its directors, officers, employees, agents and Affiliates on account of
breaches by the Vendor and\or Seagull Corporation of the covenants,
representations and warranties made by them in this Agreement (including the Tax
Indemnity) to the extent that the aggregate Losses suffered by them in respect
of all breaches by the Vendor and Seagull Corporation of such representations,
warranties and covenants exceeds 1% of the Purchase Price, provided that, solely
for purposes of this subsection, Sections 3.1, 3.2 and 3.3 shall be read and
interpreted as if there were no references therein to "Material Adverse Effect".
(c) The maximum cumulative liability of the Vendor and Seagull
Corporation in respect of breaches of the representations, warranties and
covenants made by the Vendor and Seagull Corporation in this Agreement
(including the Tax Indemnity) shall not exceed 62.64% of the Purchase Price.
(d) Notwithstanding any other provision of this Agreement, Purchaser's
sole remedy for breach of Vendor's warranties or misrepresentation contained in
subsection 3.2(m) is limited to the Tax Indemnity.
9.4 Limitations on Purchaser's Indemnity
(a) No Claim against the Purchaser in respect of a breach of any
representation or warranty made by the Purchaser in Section 3.5 shall be made or
be enforceable whether by legal proceedings or otherwise, unless written notice
of such Claim is given by the Vendor or Seagull Corporation to the Purchaser
within twelve (12) months from the Closing Date.
(b) Notwithstanding anything to the contrary contained herein, the
Purchaser shall only be liable to compensate the Vendor and Seagull Corporation
and their directors, officers, employees, agents and Affiliates on account of
breaches of the representations, warranties and covenants made the Purchaser in
this Agreement to the extent that the aggregate Losses suffered by by them in
respect of all breaches of such representations, warranties and covenants
exceeds 1% of the Purchase Price.
ARTICLE 10
EMPLOYEES
10.1 Offers of Employment
The Purchaser confirms to the Vendor and Seagull Corporation that the
Purchaser and CNQ will consider offering employment to all of the Employees
other than the current president of the Corporation and anticipate offering
employment to most of such Employees.
10.2 Severance Obligations
(a) Except as otherwise provided in subsection 10.2(c) in respect of
the current president of the Corporation, the Purchaser shall be responsible for
all obligations arising in respect of the termination of the employment of any
Employee following the Closing and will indemnify and save harmless the Vendor
and Seagull Corporation from all Losses which they may suffer, sustain, pay or
incur in respect of the termination of the employment of any Employee following
the Closing
(b) Without limiting the generality of subsection 10.2(a), the
Purchaser agrees that if the Closing occurs, the Purchaser will cause the
Corporation to honour the Employee Severance Agreements.
(c) Notwithstanding subsection 10.2(a), the Vendor shall be responsible
for all obligations arising in respect of the termination of the employment of
the current president of the Corporation (determined on the basis of the current
terms of his employment by the corporation) if his employment by the Corporation
is terminated within 3 months of Closing and will indemnify and save harmless
the Purchaser and the Corporation from all Losses which they may suffer,
sustain, pay or incur in respect of such termination of employment. Without
limiting the generality of the foregoing, the Vendor shall reimburse to the
Corporation the amount of the Employee Severance Payment paid by the Corporation
to its current President if his employment by the Corporation is terminated
within three (3) months of the Closing Date within 30 days of receipt of a
written request for such reimbursement containing reasonable particulars
thereof.
10.3 Retention Bonuses
The Corporation shall pay the Employee Retention Bonuses to the
Employees in accordance with the provisions of the Employee Retention
Agreements. At Closing, the Vendor shall reimburse to the Corporation the amount
of the Retention Bonuses paid to the Employees at or prior to Closing. After
Closing, the Vendor will reimburse to the Corporation the amount of any
Retention Bonus paid by the Corporation after Closing within 30 days of receipt
of a written request for such reimbursement containing reasonable particulars
thereof.
10.4 Recognition of Service
The Purchaser covenants that the Purchaser and all Affiliates of the
Purchaser will recognize the period of service which an Employee has had with
the Corporation for all purposes of such Employee's employment with the
Corporation, the Purchaser and such Affiliates following Closing.
ARTICLE 11
ARBITRATION
11.1 Arbitration
(a) Unless otherwise specifically provided for herein any disagreement
between the parties shall be submitted to arbitration in accordance with
this Article.
(b) Any controversy submitted to arbitration hereunder shall be subject
to the following principles:
(i) Upon written demand of the Vendor or Purchaser,
representatives of the Purchaser and the Vendor shall meet
and attempt to appoint a single arbitrator. If such
representatives are unable to agree on a single arbitrator
then upon written demand by the Vendor each shall, within
ten (10) days of such demand, name an arbitrator and the two
(2) arbitrators so named shall promptly thereafter choose a
third. If either the Vendor or the Purchaser shall fail to
name an arbitrator within ten (10) days from such demand,
then the arbitrator for that party shall be appointed by any
Justice of the Court of Queen's Bench of Alberta. If the two
(2) arbitrators shall fail within ten (10) days from their
appointment to agree upon and appoint the third arbitrator,
then such third arbitrator shall be appointed by any Justice
of the Court of Queen's Bench of Alberta.
(ii) The arbitrator or arbitrators selected to act
hereunder shall be qualified by education, experience and
training to pass upon the particular question in dispute.
(iii) The arbitrator or arbitrators chosen as aforesaid
shall proceed immediately to hear and determine the question
or questions in dispute. The decision of the single
arbitrator shall be made within forty-five (45) days after
his or her appointment, subject to any reasonable delay due
to unforeseen circumstances. Where there are three (3)
arbitrators, the decision of the arbitrators, or a majority
of them, shall be made within forty-five (45) days after the
appointment of the third arbitrator, subject to any
reasonable delay due to unforeseen circumstances. If the
single arbitrator or the arbitrators, or a majority of them,
fail to make a decision within the period herein prescribed,
then either party may elect to have a new single arbitrator
or arbitrators chosen in the manner herein prescribed, as if
none had previously been selected.
(iv) The decision of the single arbitrator or the
decision of the arbitrators, or a majority of them, shall be
drawn up in writing and signed by the single arbitrator or
by the arbitrators, or a majority of them, and shall be
final and binding upon the parties hereto.
(v) The liability between the parties hereto for the
payment of the compensation and expenses of the single
arbitrator or the arbitrators shall be determined by the
arbitrator or arbitrators, as the case may be.
(vi) Arbitration pursuant hereto shall be governed in
all respects not addressed herein by the provisions of the
Arbitration Act (Alberta) and regulations thereunder.
ARTICLE 12 GUARANTEES
12.1 Seagull Corporation Guarantee
Seagull Corporation hereby unconditionally guarantees the due, complete
and punctual performance of all the Vendor's obligations and liabilities under
this Agreement.
12.2 Rio Alto Guarantee
Rio Alto hereby unconditionally guarantees the due, complete and
punctual performance of all the Purchaser's obligations and liabilities under
this Agreement.
ARTICLE 13
SURVIVAL
13.1 Survival
Subject to the limitations and provisions set forth in this Agreement,
notwithstanding the occurrence of Closing and the items delivered at Closing
pursuant hereto, the representations, warranties, covenants and indemnities
contained in this Agreement shall survive the Closing and the delivery of the
items delivered at Closing pursuant hereto for the benefit of the Parties in
accordance with terms hereof. If any document executed at or after Closing,
pursuant hereto is inconsistent with the provisions of this Agreement, the
provisions of this Agreement shall prevail unless the Parties expressly and
explicitly agree to the contrary.
ARTICLE 14
GENERAL
14.1 Further Assurances
Each of the Vendor and the Purchaser shall from time to time execute
and deliver all such further documents and instruments and do all acts and
things as the other party may, either before or after the Closing Date,
reasonably require to effectively carry out or better evidence or perfect the
full intent and meaning of this Agreement.
14.2 Time of the Essence
Time shall be of the essence of this Agreement.
14.3 Corporation
The Vendor shall cause the Corporation to do all of the things which it
is stated in this Agreement that the Corporation shall do at or prior to
Closing. The Purchaser shall cause the Corporation to do all things which it is
stated in this Agreement that the Corporation shall do following Closing.
14.4 Expenses
Each of the Vendor and Purchaser shall pay their respective legal and
accounting costs and expenses incurred in connection with the preparation,
execution and delivery of this Agreement and all documents and instruments
executed pursuant hereto and any other costs and expenses whatsoever and
howsoever incurred.
14.5 Public Announcements
No public announcement or press release concerning the sale and
purchase of the Shares shall be made by the Vendor or the Purchaser without the
prior written consent and joint approval of the Vendor and the Purchaser;
provided that nothing contained herein shall prevent either party at any time
furnishing any information to any governmental agency or regulatory authority or
to the public if required by applicable law. 14.6 Benefit of the Agreement
14.6 Benefit of Agreement
This Agreement shall enure to the benefit of and be binding upon the
respective heirs, executors, administrators, successors and permitted assigns of
the parties hereto. No Person other than the Parties and their successors and
permitted assigns shall be entitled to any rights or benefits hereunder.
14.7 Entire Agreement
This Agreement and the Confidentiality Agreement constitute the entire
agreement between the parties hereto with respect to the subject matter hereof
and cancels and supersedes any prior understandings and agreements (other than
the Confidentiality Agreement) between the parties hereto with respect thereto,
including without limitation, any letter agreements between the Purchaser, the
Vendor and/or the Corporation. Following Closing, the Purchaser shall be
released from all obligations under the Confidentiality Agreement, other than
obligations in respect of acts or omissions by the Purchaser and/or its
representatives prior to Closing.
14.8 Amendments and Waiver
No modification of or amendment to this Agreement shall be valid or
binding unless set forth in writing and duly executed by both of the parties
hereto and no waiver of any breach of any term or provisions of this Agreement
shall be effective or binding unless made in writing and signed by the party
purporting to give the same and, unless otherwise provided, shall be limited to
the specific breach waived.
14.9 Assignment
This Agreement may not be assigned by the Vendor or the Purchaser
without the written consent of the other party.
14.10 Notices
Any demand, notice or other communication to be given in connection
with this Agreement shall be given in writing and shall be given by personal
delivery, by registered mail or by facsimile addressed to the recipient as
follows:
To the Vendor or Seagull Corporation:
Seagull Energy Corporation
1001 Fannin Street, Suite 1700
Houston, Texas 77002
Attention: Chief Counsel
Fax: (713) 210-2194
To the Purchaser or Rio Alto:
Rio Alto Exploration Ltd.
2500, 205-5th Avenue S.W.
Calgary, Alberta T2P 2V7
Attention: President
Fax: (403) 261-7628
or to such other address, individual or facsimile number as may be
designated by notice given by either party to the other. Any demand, notice or
other communication given by personal delivery shall be conclusively deemed to
have been given on the day of actual delivery thereof and, if given by
registered mail, on the day of actual receipt thereof and, if given by
facsimile, on the day of transmittal thereof if given during the normal business
hours of the recipient and on the Business Day during which such normal business
hours next occur if not given during such hours on any day. If the party giving
any demand, notice or other communication knows or ought reasonably to know of
any difficulties with the postal system which might affect the delivery of mail,
any such demand, notice or other communication shall not be mailed but shall be
given by personal delivery or by facsimile. Notwithstanding the foregoing, any
notice delivered pursuant to subsection 5.4(b), subsection 6.1(c) or (d) or
subsection 6.2(b) will be delivered by delivery or by facsimile during normal
business hours.
14.11 Change of Corporation's Name
Within three (3) months following Closing, the Purchaser shall change
the name of the Corporation to eliminate the word "Seagull" therefrom. Promptly
following such name change but in any case not later than six (6) months
following Closing, the Purchaser shall change all signs on the Corporation's
property to remove the word "Seagull" therefrom. Except for the matters referred
to in the preceding provisions of this Section, following the Closing, neither
the Corporation nor the Purchaser shall use or have right to use the word
"Seagull".
14.12 Governing Law
This Agreement shall be governed by and construed in accordance with
the laws of the Province of Alberta and the laws of Canada applicable therein.
14.13 No Duplication of Adjustments
The parties agree that the liability and adjustment provisions herein
shall be interpreted such that there shall be no duplication of payment made by
a party in respect of any adjustment or liability. 14.14 Attornment
For the purpose of all legal proceedings this Agreement shall be deemed
to have been performed in the Province of Alberta and the courts of the Province
of Alberta shall have jurisdiction to entertain any action arising under this
Agreement. The Vendor and the Purchaser each hereby attorn to the jurisdiction
of the courts of the Province of Alberta.
14.15 Counterpart Execution
This Agreement may be executed in as many counterparts as are necessary
and all executed counterparts together shall constitute one agreement.
IN WITNESS WHEREOF the parties have executed this Agreement.
SEAGULL ENERGY CORPORATION 745910 ALBERTA LTD.
Per: _________________________ Per: ________________________
Per: _________________________ Per: ________________________
SEAGULL ENERGY CANADA
HOLDING COMPANY
Per: _________________________
Per: _________________________
RIO ALTO EXPLORATION LTD.
Per: _________________________
Per: _________________________
Exhibit 99.1
UNAUDITED PRO FORMA CONDENSED FINANCIAL INFORMATION
On September 11, 1997, Seagull Energy Corporation, a Texas corporation
("Seagull" or the "Company"), entered into a Share Sale Agreement with Rio Alto
Exploration Ltd. ("Rio Alto") regarding the sale of Seagull's Canadian oil and
gas subsidiary, Seagull Energy Canada Ltd. ("Seagull Canada"). The unaudited pro
forma condensed statements of operations for the six months ended June 30, 1997
and the year ended December 31, 1996 give effect to the sale of Seagull Canada
as if the disposition had occurred on January 1, 1996. The unaudited pro forma
condensed balance sheet as of June 30, 1997 gives effect to the sale of Seagull
Canada as if the disposition had occurred on June 30, 1997.
The unaudited pro forma information presented is based on the
historical consolidated financial statements of Seagull and should be read in
conjunction with such financial statements and the related notes thereto.
Certain reclassifications have been made to 1996 information to conform to the
presentation used in 1997. The unaudited pro forma information presented does
not purport to be indicative of actual results, as if the disposition had been
in effect on the dates or for the periods indicated, or of future results.
<PAGE>
SEAGULL ENERGY CORPORATION
PRO FORMA
STATEMENT OF OPERATIONS
(Amounts in Thousands Except Per Share Amounts)
<TABLE>
<CAPTION>
Six Months Ended June 30, 1997
-----------------------------------------------------------------------
Seagull Pro Forma
Seagull Canada Adjustments Pro Forma
------------- --------------- ------------------ ---------------
(A)
<S> <C> <C> <C> <C>
Revenues:
Oil and gas operations $ 230,410 $ 18,384 $ 212,026
Alaska transmission and distribution 51,343 - 51,343
------------- --------------- ------------------ ---------------
281,753 18,384 - 263,369
------------- --------------- ------------------ ---------------
Costs of Operations:
Alaska transmission and distribution
cost of gas sold 23,966 - 23,966
Operations and maintenance 83,876 5,887 77,989
Exploration charges 16,299 1,469 14,830
Depreciation, depletion and amortization 87,772 7,595 80,177
General and administrative 5,423 - 5,423
------------- --------------- ------------------ ---------------
217,336 14,951 - 202,385
------------- --------------- ------------------ ---------------
Operating Profit (Loss) 64,417 3,433 - 60,984
Other (Income) Expense:
Interest expense 19,995 1,360 (3,125) (B) 15,510
(Gain) loss on sales of property,
plant and equipment, net 118 (15) 133
Interest income and other (1,031) (6) (1,025)
------------- --------------- ------------------ ---------------
Income Before Income Taxes 45,335 2,094 3,125 46,366
------------- --------------- ------------------ ---------------
Income Tax Expense 25,460 1,332 1,094 (C) 25,222
------------- --------------- ------------------ ---------------
Net Income $ 19,875 $ 762 $ 2,031 $ 21,144
============= =============== ================== ===============
Earnings Per Share $ 0.31 $ 0.33
============= ===============
Weighted Average Number of Common
Shares Outstanding 64,028 64,028
============= ===============
</TABLE>
See accompanying notes to unaudited pro forma condensed statement of
operations.
<PAGE>
SEAGULL ENERGY CORPORATION
PRO FORMA
STATEMENT OF OPERATIONS
(Amounts in Thousands Except Per Share Amounts)
<TABLE>
<CAPTION>
Year Ended December 31, 1996
-----------------------------------------------------------------------
Seagull Pro Forma
Seagull Canada Adjustments Pro Forma
------------- --------------- ------------------ ---------------
(A)
<S> <C> <C> <C> <C>
Revenues:
Oil and gas operations $ 419,595 $ 33,816 $ 385,779
Alaska transmission and distribution 97,616 - 97,616
------------- --------------- ------------------ ---------------
517,211 33,816 - 483,395
------------- --------------- ------------------ ---------------
Costs of Operations:
Alaska transmission and distribution
cost of gas sold 42,600 - 42,600
Operations and maintenance 147,294 14,147 133,147
Exploration charges 50,772 4,295 46,477
Depreciation, depletion and
amortization 155,669 16,856 138,813
General and administrative 17,433 - 17,433
------------- --------------- ------------------ ---------------
413,768 35,298 - 378,470
------------- --------------- ------------------ ---------------
Operating Profit (Loss) 103,443 (1,482) - 104,925
Other (Income) Expense:
Merger expense 9,982 - 9,982
Interest expense 44,842 4,191 (6,170) (B) 34,481
(Gain) loss on sales of property,
plant and equipment, net (1,088) (501) (587)
Interest income and other (5,149) (350) (4,799)
------------- --------------- ------------------ ---------------
48,587 3,340 (6,170) 39,077
------------- --------------- ------------------ ---------------
Income (Loss) Before Income Taxes 54,856 (4,822) 6,170 65,848
Income Tax Expense 25,895 1,375 2,160 (C) 26,680
------------- --------------- ------------------ ---------------
Net Income (Loss) $ 28,961 $ (6,197) $ 4,010 $ 39,168
============= =============== ================== ===============
Earnings Per Share $ 0.45 $ 0.61
============= ===============
Weighted Average Number of Common
Shares Outstanding 64,073 64,073
============= ===============
See accompanying notes to unaudited pro forma condensed statement of operations.
</TABLE>
<PAGE>
NOTES TO UNAUDITED PRO FORMA
CONDENSED STATEMENTS OF OPERATIONS
The Company expects to close the transaction no later than early in the
fourth quarter 1997. These pro forma financial statements do not include any
purchase price adjustments to be determined upon closing, which are not expected
to be material to the financial information presented herein.
(A) To remove the results of operations of Seagull Canada.
(B) To reduce interest expense to give effect to the use of net proceeds from
the disposition to reduce amounts outstanding under U.S. and Canadian credit
facilities.
(C) To adjust U.S. federal incomes taxes for the impact of the adjustments
described in Note (B) above. This amount does not include the tax benefits that
are expected to be realized upon closing of the sale of approximately $4.0
million.
<PAGE>
SEAGULL ENERGY CORPORATION
PRO FORMA
CONDENSED BALANCE SHEET
(Amounts in Thousands)
<TABLE>
<CAPTION>
June 30, 1997
------------------------------------------------------------
Seagull Pro Forma
Seagull Canada Adjustments Pro Forma
------------- ------------- -------------- -------------
(A)
<S> <C> <C> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $ 29,465 $ 38 - $ 29,427
Accounts receivable, net 149,346 4,565 144,781
Inventories 13,638 638 13,000
Prepaid expenses and other 15,271 360 14,911
------------- ------------- ------------ -----------
Total Current Assets 207,720 5,601 - 202,119
Property, Plant and Equipment - at cost
(successful efforts method for oil and
gas properties) 2,177,335 248,189 1,929,146
Accumulated Depreciation, Depletion and
Amortization 890,298 57,166 833,132
------------- ------------ ------------ -----------
1,287,037 191,023 - 1,096,014
Other Assets 43,011 456 42,555
------------- ------------ ------------ -----------
Total Assets $1,537,768 $ 197,080 $ - $1,340,688
============= ============ ============ ===========
Liabilities and Shareholders' Equity
Current Liabilities:
Accounts and note payable $ 158,140 $ 4,346 $ 153,794
Accrued expenses 45,028 877 44,151
Current maturities of long-term debt 7,247 - - 7,247
------------- ------------ ------------ -----------
Total Current Liabilities 210,415 5,223 205,192
Long-Term Debt 588,752 64,436 (113,064)(B) 411,252
Other Noncurrent Liabilities 60,348 103 60,245
Deferred Income Taxes 42,154 23,589 (4,000)(C) 14,565
Redeemable Bearer Shares 15,837 - 15,837
Shareholders' Equity 620,262 103,729 117,064 (D) 633,597
Commitments and Contingencies - -
------------- ----------- ------------ -----------
Total Liabilities and Shareholders' Equity $1,537,768 $ 197,080 $ - $1,340,688
============= =========== ============ ===========
See accompanying notes to unaudited pro forma condensed balance sheet.
</TABLE>
<PAGE>
NOTES TO UNAUDITED PRO FORMA
CONDENSED BALANCE SHEET
The Company expects to close the transaction no later than early in the
fourth quarter 1997. These pro forma financial statements do not include any
purchase price adjustments to be determined upon closing, which are not expected
to be material to the financial information presented herein.
(A) To remove the assets, liabilities and shareholders' equity of Seagull
Canada.
(B) To reflect estimated use of net proceeds at June 30, 1997 to repay all the
long-term debt of Seagull Canada ($64.4 million) and the remainder to reduce
Seagull's long-term debt ($113.1 million).
(C) To record the estimated income tax benefit of $4 million associated with the
sale of Seagull Canada.
(D) To (i) record the gain on sale of Seagull Canada, including the related
income tax benefit, as if the disposition had occurred on June 30, 1997, and
(ii) reflect shareholders' equity of Seagull Canada as of June 30, 1997.
