<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the registrant [X]
Filed by a party other than the registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[X] Preliminary proxy statement. [ ] Confidential, for use of the Commission
only (as permitted by Rule 14a-6(e)(2)).
[ ] Definitive proxy statement.
[ ] Definitive additional materials.
[ ] Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-2.
</TABLE>
BURLINGTON RESOURCES INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of filing fee (check the appropriate box):
[ ] No fee required.
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
Common shares of Poco Petroleums Ltd.
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
163,665,424
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
163,665,424 --- No. of Poco common shares and options
multiplied by,
US$9.68 --- Average of the high and low prices reported on The
---------- Toronto Stock Exchange for Poco common shares
US$1,584,899,141 (C$14.475) on September 3, 1999, adjusted to a U.S.
dollar equivalent (exchange rate .6690)
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
$1,584,899,141
------------------------------------------------------------------------
(5) Total fee paid:
$316,980
------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the form or schedule and the date of its filing.
(1) Amount Previously Paid:
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
(3) Filing Party:
------------------------------------------------------------------------
(4) Date Filed:
------------------------------------------------------------------------
<PAGE> 2
PRELIMINARY COPY -- SEPTEMBER 10, 1999
[BURLINGTON RESOURCES LOGO] [POCO PETROLEUMS LTD. LOGO]
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS OF
BURLINGTON RESOURCES INC.
TO BE HELD -- , 1999
-- AND --
JOINT MANAGEMENT INFORMATION CIRCULAR
AND PROXY STATEMENT
WITH RESPECT TO AN ARRANGEMENT INVOLVING
BURLINGTON RESOURCES INC.
-- AND --
POCO PETROLEUMS LTD.
-- , 1999
<PAGE> 3
[BURLINGTON RESOURCES LOGO]
--, 1999
Dear Fellow Shareholder:
We invite you to participate in a special meeting of the shareholders of
Burlington Resources Inc.
On August 16, 1999, BR agreed to acquire Poco Petroleums Ltd., one of
Canada's premier independent oil and gas exploration and production companies.
The purpose of the special meeting is for BR shareholders to approve the
issuance of BR common stock in connection with the transaction. THE BR BOARD
UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE IN FAVOR OF THIS PROPOSAL.
We believe that the acquisition of Poco is an important step towards
accomplishing our fundamental objective of building long-term shareholder value.
The transaction will establish a major presence for us in western Canada, a
region that has emerged as one of the most promising areas for natural gas
exploration and production in North America. Moreover, we believe the
acquisition will further strengthen our leadership position among independent
exploration and production companies worldwide and that the combined company
will be able to create substantially more shareholder value than could be
achieved by the companies individually.
The agreement between BR and Poco contemplates that Poco shareholders will
exchange each of their Poco shares for 0.25 of an exchangeable share of
Burlington Resources Canada Inc., a Canadian subsidiary of BR. Each exchangeable
share will have economic and voting rights equivalent to one share of BR common
stock and may be exchanged for one share of BR common stock at any time. Upon
completion of the transaction, former Poco shareholders will effectively own
approximately 18% of the outstanding BR common stock.
The transaction also requires approval by the shareholders of Poco. Each
company has scheduled a special shareholders' meeting on -- , 1999. We
invite you to attend our meeting, details of which are included in the enclosed
Notice of the Meeting. REGARDLESS OF THE NUMBER OF SHARES YOU OWN OR WHETHER YOU
PLAN TO ATTEND THE MEETING, IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AND
VOTED. VOTING INSTRUCTIONS ARE INCLUDED IN THIS BOOKLET.
This booklet also contains detailed information about the proposed
transaction, including a discussion of the benefits of the transaction to BR. We
encourage you to read this material carefully.
On behalf of your Board of Directors, I thank you for your support and urge
you to vote FOR approval of the stock issuance.
Sincerely,
Bobby S. Shackouls
Chairman, President and Chief Executive Officer
Mailing Date --, 1999
<PAGE> 4
BURLINGTON RESOURCES INC.
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
To be Held , 1999
TO THE STOCKHOLDERS:
A Special Meeting of Stockholders of Burlington Resources Inc. will be held
on -- , -- , at -- in the Ambassador Room, The Luxury Collection
Hotel, 1919 Briar Oaks Lane, Houston, Texas, for the following purposes:
1. To approve the issuance of shares of Burlington Resources Inc. common
stock, par value $.01 per share, in connection with the acquisition of
Poco Petroleums Ltd.; and
2. To transact any other business which may be properly brought before
the meeting.
Only stockholders of record at the close of business on -- , 1999 are
entitled to notice of, and to vote at, the meeting and any adjournment thereof.
YOUR VOTE IS IMPORTANT. PLEASE COMPLETE, SIGN, DATE AND RETURN YOUR PROXY
CARD IN THE ENCLOSED ENVELOPE PROMPTLY, OR AUTHORIZE THE INDIVIDUALS NAMED ON
YOUR PROXY CARD TO VOTE YOUR SHARES BY CALLING THE TOLL-FREE TELEPHONE NUMBER OR
USING THE INTERNET AS DESCRIBED IN THE INSTRUCTIONS INCLUDED WITH YOUR PROXY
CARD.
By Order of the Board of Directors,
Wendi S. Zerwas
Corporate Secretary
-- , 1999
<PAGE> 5
TABLE OF CONTENTS
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CHAPTER ONE -- THE TRANSACTION.............................. 1
QUESTIONS AND ANSWERS ABOUT THE TRANSACTION............... 1
SUMMARY................................................... 4
The Companies.......................................... 4
The Combined Company................................... 4
Reasons for the Transaction............................ 5
Recommendations to Shareholders........................ 5
What Poco Shareholders Will Receive in the
Transaction........................................... 5
Comparative Per Share Market Price Information......... 5
Listing of BR Common Stock and Exchangeable Shares..... 5
Who Can Vote at the Meetings........................... 6
Shareholder Votes Required............................. 6
Appraisal Rights....................................... 6
Interests of Poco Officers and Directors............... 6
Accounting Treatment................................... 6
Regulatory Approvals................................... 6
Conditions to the Completion of the Transaction........ 6
Termination of the Combination Agreement............... 7
Termination Fees....................................... 7
No Solicitation........................................ 8
The Transaction Documents.............................. 8
Opinions of Financial Advisors......................... 8
Tax Consequences of the Transaction.................... 8
Exchange Rate of Canadian and U.S. Dollars............. 9
Comparative Per Share Data............................. 10
Summary Unaudited Pro Forma Combined Financial Data.... 11
Summary Historical Consolidated Financial Data of BR... 12
Summary Historical Consolidated Financial Data of Poco
Under Canadian GAAP................................... 13
Summary Historical Consolidated Financial Data of Poco
Under U.S. GAAP -- Full Cost Method................... 14
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING
STATEMENTS............................................. 15
RISK FACTORS.............................................. 16
Transaction Risks...................................... 16
The Oil and Gas Market................................. 16
Our Operations......................................... 16
Oil and Gas Industry................................... 16
Change of Control...................................... 16
DESCRIPTION OF THE TRANSACTION............................ 17
Background............................................. 17
Reasons for the Transaction............................ 19
Recommendations of Boards of Directors................. 22
Opinion of RBC Dominion Securities Inc................. 23
Opinion of Morgan Stanley.............................. 27
Transaction Mechanics and Description of Exchangeable
Shares................................................ 33
Voting and Exchange Trust Agreement.................... 39
Support Agreement...................................... 40
Delivery of BR Common Stock............................ 41
The Combination Agreement.............................. 41
Dissenting Shareholders' and Optionholders' Rights..... 45
Anticipated Accounting Treatment....................... 46
Procedures for Transfer by Poco Shareholders and Poco
Optionholders......................................... 47
Stock Exchange Listings................................ 47
</TABLE>
i
<PAGE> 6
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Eligibility for Investment in Canada................................................................... 48
Regulatory Matters..................................................................................... 48
Resales of Exchangeable Shares and BR Common Stock..................................................... 48
Interests of Certain Persons in the Transaction........................................................ 50
CHAPTER TWO -- CERTAIN FINANCIAL AND OTHER INFORMATION ABOUT THE COMPANIES.................................. 51
BUSINESS OF BR............................................................................................ 51
BUSINESS OF POCO.......................................................................................... 51
THE COMBINED COMPANY...................................................................................... 52
CERTAIN FINANCIAL INFORMATION............................................................................. 52
Comparative Per Share Market Price Data................................................................ 52
Unaudited Pro Forma Combined Condensed Financial Statements............................................ 53
CHAPTER THREE -- INFORMATION ABOUT THE BR COMMON STOCK AND THE EXCHANGEABLE SHARES.......................... 60
BR CAPITAL................................................................................................ 60
BR Common Stock........................................................................................ 60
Preferred Stock........................................................................................ 60
Special Voting Stock................................................................................... 60
BR Rights Agreement.................................................................................... 61
Provisions Affecting Control........................................................................... 61
BR CANADA SHARE CAPITAL................................................................................... 63
Common Shares of BR Canada............................................................................. 63
Exchangeable Shares.................................................................................... 63
COMPARISON OF SHAREHOLDER RIGHTS.......................................................................... 65
CHAPTER FOUR -- INFORMATION ABOUT TAX CONSIDERATIONS........................................................ 71
CANADIAN FEDERAL INCOME TAX CONSIDERATIONS TO POCO SHAREHOLDERS........................................... 71
Introduction........................................................................................... 71
Shareholders Resident in Canada........................................................................ 71
Shareholders Not Resident in Canada.................................................................... 75
CANADIAN FEDERAL INCOME TAX CONSIDERATIONS TO POCO OPTIONHOLDERS.......................................... 76
UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS TO POCO SHAREHOLDERS...................................... 77
CHAPTER FIVE -- INFORMATION ABOUT THE MEETINGS AND VOTING................................................... 85
THE BR SPECIAL MEETING -- INFORMATION FOR BR SHAREHOLDERS................................................. 85
THE POCO SPECIAL MEETING -- INFORMATION FOR POCO SHAREHOLDERS............................................. 86
CHAPTER SIX -- CERTAIN LEGAL AND OTHER INFORMATION.......................................................... 88
AUDITORS, TRANSFER AGENT AND REGISTRAR.................................................................... 88
LEGAL MATTERS............................................................................................. 88
AVAILABLE INFORMATION..................................................................................... 88
DOCUMENTS INCORPORATED BY REFERENCE....................................................................... 89
CERTIFICATE............................................................................................... 91
</TABLE>
ii
<PAGE> 7
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ANNEX A-- Form of Arrangement Resolution
ANNEX B-- Amended and Restated Combination Agreement
ANNEX C-- Interim Order
ANNEX D-- Plan of Arrangement
ANNEX E-- Share Capital and Other Provisions
ANNEX F-- Form of Support Agreement
ANNEX G-- Voting and Exchange Trust Agreement
ANNEX H-- RBC Dominion Securities Inc. Fairness Opinion
ANNEX I-- Morgan Stanley & Co. Incorporated Fairness Opinion
ANNEX J-- Section 184 of the ABCA
ANNEX K-- Additional Documents Included:
Proxy Statement and Information Circular for Poco's Annual
and Special Meeting of Shareholders held on May 6, 1999.
Poco's Annual Information Form dated April 21, 1999.
Poco Selected Historical Financial Data under Canadian and
U.S. GAAP.
Poco Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Poco Audited Financial Statements for the years ended
December 31, 1998, 1997 and 1996 and Unaudited Financial
Statements for the periods ended June 30, 1999 and June
30, 1998.
</TABLE>
UNLESS OTHERWISE INDICATED, ALL DOLLAR AMOUNTS IN THIS JOINT PROXY
STATEMENT ARE EXPRESSED IN U.S. DOLLARS.
iii
<PAGE> 8
CHAPTER ONE -- THE TRANSACTION
QUESTIONS AND ANSWERS ABOUT THE TRANSACTION
QUESTIONS FOR ALL SHAREHOLDERS
Q: WHEN AND WHERE ARE THE SHAREHOLDER MEETINGS?
A: Both meetings will take place on -- , -- , 1999. The BR special
meeting will be held at -- (Houston time) at the Ambassador Room, The
Luxury Collection Hotel, 1919 Briar Oaks Lane, Houston, Texas. The Poco
special meeting will be held at -- (Calgary time) at -- .
Q: WHAT DO I NEED TO DO NOW?
A: Just indicate on your proxy card how you want to vote, and sign and mail it
in the enclosed return envelope as soon as possible, so that your shares may
be represented at your meeting. BR shareholders may also complete proxies by
calling the toll-free telephone number or using the internet as described in
the instructions included with your proxy card. If you sign and send in your
proxy and do not indicate how you want to vote, your proxy will be counted
as a vote in favor of the transaction or the BR stock issuance, as the case
may be. You may also choose to attend your meeting and vote your shares in
person. If you are a shareholder or optionholder of Poco, your proxy must be
received by -- p.m. on -- , 1999 to be effective.
Q: WHAT DO I DO IF I WANT TO CHANGE MY VOTE?
A: Just send in a later-dated signed proxy card to your company's Secretary, or
you can attend your meeting in person and vote. You may also revoke your
proxy by sending a notice of revocation to your company's Secretary at the
address under "The Companies" on page 4.
Q: IF MY SHARES OF STOCK ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER
VOTE MY SHARES FOR ME?
A: Your broker will vote your shares only if you provide instructions on how to
vote. Without instructions, your shares will not be voted. You should
instruct your broker to vote your shares, following the directions provided
by your broker.
Q: WHAT VOTES ARE REQUIRED TO COMPLETE THE TRANSACTION?
A: The transaction requires the approval of the holders of at least two-thirds
of the shares and options of Poco present and voting at the Poco special
meeting. The issuance of BR common stock in connection with the transaction
requires the approval of a majority of the shares of BR common stock present
and voting at the BR special meeting.
Q: WHAT ARE THE OTHER MATERIAL CONDITIONS TO COMPLETION OF THE TRANSACTION?
A: The transaction is subject to the receipt of required governmental and
regulatory approvals, including approvals under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976 (United States), the Competition Act
(Canada), the Investment Canada Act (Canada) and approval of the plan of
arrangement giving effect to the transaction by the Court of Queen's Bench
of Alberta. The transaction is also subject to other customary conditions.
Q: WHEN DO YOU EXPECT THE TRANSACTION TO BE COMPLETED?
A: We are working toward completing the transaction as quickly as possible. We
hope to complete the transaction by the end of 1999.
<PAGE> 9
QUESTIONS FOR BR SHAREHOLDERS
Q: WHY IS BR ENTERING INTO THIS TRANSACTION?
A: BR believes the transaction is an important step towards accomplishing BR's
fundamental objective of building long-term shareholder value. BR believes
the Poco acquisition will:
- establish a meaningful presence for BR in western Canada;
- extend BR's North American natural gas position into a promising new
area for BR;
- expand BR's portfolio of opportunities for growth through exploration
and development;
- create a platform for future expansion in Canada through exploration and
strategic acquisitions; and
- be immediately accretive to earnings, excluding the impact of one-time
transaction related charges, and to cash flow per share.
Q: WHO DO I CALL IF I HAVE MORE QUESTIONS?
A: For questions about voting and proxies, BR shareholders may call:
D.F. King & Co., Inc.
(800) 758-5378
(212) 269-5550 (banks and brokers only)
For other information, BR shareholders may call:
Burlington Resources
Investor Relations
(800) 262-3456
(713) 624-9500
QUESTIONS FOR POCO SHAREHOLDERS AND OPTIONHOLDERS
Q: WHY IS POCO ENTERING INTO THIS TRANSACTION?
A: Poco believes the transaction is in the best interest of Poco shareholders
and optionholders. The benefits of the transaction include:
- a premium to the trading price of Poco common shares prior to the
announcement of the transaction;
- enhancement of the potential for future growth as a result of:
- a stronger balance sheet and more financial flexibility;
- a larger and more diversified asset base;
- an experienced management team and greater human and technological
resources; and
- participation in the largest natural gas holdings in North America of
any independent exploration and production company;
- tax deferral for most shareholders;
- participation in a stock that has historically paid dividends; and
- participation in a liquid market for BR common stock which is widely
held and listed on the NYSE.
Q: WHAT WILL I RECEIVE AS A RESULT OF THIS TRANSACTION?
A: You will receive 0.25 exchangeable shares issued by Burlington Resources
Canada Inc., a Canadian subsidiary of BR, for each Poco common share.
CHAPTER ONE -- THE TRANSACTION
2
<PAGE> 10
Q: WHAT ARE THE EXCHANGEABLE SHARES?
A: Each exchangeable share has economic and voting rights equivalent to one
share of BR common stock. Exchangeable shareholders will be entitled to:
- exchange their shares for BR common stock at any time on a one-for-one
basis;
- vote at meetings of BR shareholders; and
- receive dividends on the same basis as BR shareholders.
Q: WILL THE EXCHANGEABLE SHARES BE LISTED ON A STOCK EXCHANGE?
A: Yes. An application for listing has been made to the Toronto and Montreal
exchanges.
Q: AS A CANADIAN WHY WOULD I CONTINUE TO HOLD EXCHANGEABLE SHARES?
A: The exchangeable share structure has been designed to be attractive to
Canadian shareholders. The structure provides tax deferral opportunities for
most Canadian resident holders. The exchangeable shares will be listed on
the Toronto and Montreal exchanges, and as long as they remain listed on a
Canadian stock exchange, they will qualify as Canadian property for RRSP,
RRIF, RESP and other savings and pension plans.
Q: AS A U.S. SHAREHOLDER WHY WOULD I CONTINUE TO HOLD EXCHANGEABLE SHARES?
A: The exchangeable share structure has been developed primarily for Canadian
residents for Canadian tax and investment reasons. In addition, it may be
advantageous for Poco shareholders subject to U.S. federal income tax laws
to hold exchangeable shares.
Q: HOW DO I EXCHANGE MY EXCHANGEABLE SHARES FOR BR COMMON STOCK?
A: You may exchange your shares as soon as we complete the transaction if you
check the relevant box on the Poco letter of transmittal to indicate that
you wish to exchange your shares immediately. If you want to exchange your
shares at a later date, you must deposit your share certificate, duly
endorsed, with CIBC Mellon Trust Company. If your shares are held in "street
name" your broker will handle the exchange.
Q: HOW LONG WILL IT TAKE TO RECEIVE BR COMMON STOCK?
A: It will take three business days to receive your certificate representing BR
common stock following deposit of your exchangeable share certificate, duly
endorsed, with CIBC Mellon Trust Company.
Q: WHO DO I CALL IF I HAVE MORE QUESTIONS?
A: For questions about voting, proxies or completing the letter of transmittal,
Poco shareholders may call:
CIBC Mellon Trust Company
1-800-387-0825 (Canada and U.S.)
(416) 643-5500 (outside Canada and U.S. call collect)
For other information, Poco shareholders may contact:
Mr. John W. Ferguson
Vice President and Chief Financial Officer
Phone: (403) 260-8059
Fax: (403) 263-2708
E-mail: [email protected] or john _ [email protected]
CHAPTER ONE -- THE TRANSACTION
3
<PAGE> 11
SUMMARY
THE COMPANIES
Burlington Resources Inc.
5051 Westheimer, Suite 1400
Houston, Texas 77056
(713) 624-9500
BR is engaged in exploring for, developing, producing and marketing crude
oil and natural gas. BR is the largest U.S. independent oil and gas company
based on total proved U.S. reserves, and the second largest U.S. independent oil
and gas company based on total proved worldwide reserves, which were estimated
at 8.0 trillion cubic feet of gas equivalent at December 31, 1998. Approximately
90% of BR's year-end 1998 total proved oil and gas reserves were U.S. reserves.
Natural gas comprised approximately 80% of BR's total worldwide reserves.
BR's U.S. operations are focused in several strategic areas including the
San Juan Basin of New Mexico, the Mid-Continent region including the Rocky
Mountains, the Gulf Coast onshore and the deepwater province of the Gulf of
Mexico. International activities are concentrated in the East Irish Sea, the
U.K. and Dutch sectors of the North Sea, northern South America and north
Africa.
Poco Petroleums Ltd.
Suite 3700, 250 - 6th Avenue, S.W.
Calgary, Alberta T2P 3H7
(403) 260-8000
Poco's principal business is the acquisition of interests in crude oil and
natural gas rights and the exploration for, development, production and
marketing of crude oil and natural gas. Poco is one of Canada's top five
independent natural gas producers. At December 31, 1998, Poco's proved reserves,
converting oil to natural gas on a one barrel to six thousand cubic feet basis,
totaled nearly 1.9 trillion cubic feet of natural gas equivalent, with natural
gas comprising approximately 77% of the total.
Poco is one of the few large independent Canadian producers that has
consistently focused on natural gas. Its operations are concentrated in western
Canada with an emphasis on the deeper part of the Western Canadian Sedimentary
Basin.
THE COMBINED COMPANY
The combined company will be the leading independent oil and gas company
worldwide on the basis of proved reserves. At December 31, 1998, BR and Poco had
combined pro forma worldwide proved reserves of approximately 9.9 trillion cubic
feet of natural gas equivalent, ranking the combined entity as the largest
independent exploration and production company in the world and the third
largest holder of North American gas reserves among all oil and gas companies.
Converting oil to natural gas on a one barrel to six thousand cubic feet basis,
79% of the combined reserves were natural gas and 21% were oil and condensate.
The combined company had:
- 1998 worldwide gas production of 2.1 billion cubic feet per day;
- 1998 oil production of approximately 106 thousand barrels per day;
- 1998 year end total net worldwide undeveloped acreage position of 17.9
million acres, with 3.1 million acres in Canada;
- June 30, 1999 long-term debt which comprised only 45% of the aggregate
book capitalization; and
- pro forma combined 1998 operating cash flow exceeding $1.1 billion.
CHAPTER ONE -- THE TRANSACTION
4
<PAGE> 12
REASONS FOR THE TRANSACTION (SEE PAGE 19)
BR. BR believes that the acquisition of Poco is an important step toward
accomplishing BR's fundamental objective of building long-term shareholder
value. BR believes that western Canada represents a major new growth area for
BR's oil and gas exploration and production activities. BR believes that Poco is
an excellent vehicle for BR's entry into Canada as Poco's extremely attractive
asset base provides an outstanding fit with BR's existing assets. The
combination of the two companies should result in a balanced portfolio of
exploration, exploitation and producing assets, with greater opportunities for
growth in reserves and production than would be provided by BR's existing
portfolio.
Poco. Poco believes that by joining forces with BR, Poco will become a
major part of a combined enterprise with the size and scope, operating skills
and financial resources to pursue more aggressively the growth opportunities
both companies have identified in Canada, the United States and around the
world. At the same time, Poco shareholders will receive a premium to the trading
price of Poco common shares prior to the announcement of the transaction and
will participate in the future growth of the combined company by holding
exchangeable shares which are the economic equivalent of BR common stock. Poco
shareholders will also continue to be exposed to the North American natural gas
market through ownership of BR common stock.
RECOMMENDATIONS TO SHAREHOLDERS
To BR shareholders:
THE BR BOARD BELIEVES THAT THE TRANSACTION IS FAIR TO YOU AND IN YOUR BEST
INTEREST AND UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR THE ISSUANCE OF BR COMMON
STOCK IN CONNECTION WITH THE TRANSACTION.
To Poco shareholders:
THE POCO BOARD BELIEVES THAT THE TRANSACTION IS FAIR TO YOU AND IN YOUR
BEST INTEREST AND UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR THE APPROVAL OF THE
ARRANGEMENT TO GIVE EFFECT TO THE TRANSACTION.
WHAT POCO SHAREHOLDERS WILL RECEIVE IN THE TRANSACTION (SEE PAGE 33)
As a result of the transaction, Poco shareholders will receive 0.25 of an
exchangeable share of BR Canada for each Poco common share. Each exchangeable
share will have economic and voting rights equivalent to one share of BR common
stock and will be exchangeable at any time for one share of BR common stock.
Based on the number of Poco common shares outstanding on -- , 1999,
the former Poco shareholders will effectively own approximately -- shares
of BR common stock, or approximately -- % of the outstanding BR common
stock. BR will not issue any fractional exchangeable shares. Poco shareholders
will receive a cash payment instead of the fractional share.
COMPARATIVE PER SHARE MARKET PRICE INFORMATION
BR common stock is listed on the NYSE. Poco common shares are listed on The
Toronto Stock Exchange and the Montreal Exchange. On August 13, 1999, the last
full trading day for Poco before the public announcement of the transaction,
Poco common shares closed at C$13.15 on the TSE. On August 16, 1999, the last
full trading day for BR before the public announcement of the transaction, BR
common stock closed at $45 5/16. On -- , 1999, BR closed at $ -- and
Poco closed at C$ -- on the TSE.
LISTING OF BR COMMON STOCK AND EXCHANGEABLE SHARES
On -- , 1999 the NYSE conditionally approved the listing of the shares
of BR common stock issuable upon the exchange of the exchangeable shares. On
-- , 1999 the Toronto and Montreal exchanges conditionally approved the
listing of the exchangeable shares.
CHAPTER ONE -- THE TRANSACTION
5
<PAGE> 13
WHO CAN VOTE AT THE MEETINGS
BR. Only record holders of BR common stock at the close of business on
-- are entitled to notice of and to vote at the BR special meeting. On that
date, -- shares of BR common stock were outstanding. Each share will have
one vote on each matter at the BR special meeting.
Poco. Only registered holders of Poco common shares and Poco options at
the close of business on -- are entitled to notice of and to vote at the
Poco special meeting. Transferees of Poco common shares after that date who
comply with the procedures described in the Notice of Special Meeting of
Shareholders and Optionholders accompanying this joint proxy statement are also
entitled to vote. On -- , -- Poco common shares and -- Poco
options were outstanding. Each Poco common share and Poco option will have one
vote on each matter at the Poco special meeting.
SHAREHOLDER VOTES REQUIRED
BR. Approval of the issuance of BR common stock in connection with the
transaction requires a majority of the votes cast by holders of BR common stock.
Poco. Approval of the transaction requires two-thirds of the votes cast by
holders of Poco common shares and options, voting as a single class.
APPRAISAL RIGHTS (SEE PAGE 45)
The holders of Poco common shares and options have statutory rights to
dissent and be paid the judicially determined fair value of their shares or
options. The holders of BR common stock do not have any right to an appraisal of
the value of their shares in connection with the transaction.
INTERESTS OF POCO OFFICERS AND DIRECTORS (SEE PAGE 50)
When you consider the recommendation of the Poco board that Poco
shareholders and optionholders vote in favor of the transaction, you should be
aware that a number of Poco directors and officers have interests in the
transaction that may differ from those of Poco shareholders and optionholders
generally.
ACCOUNTING TREATMENT (SEE PAGE 46)
BR and Poco expect the transaction to qualify as a pooling of interests
under U.S. generally accepted accounting principles, which means that we will
treat our companies as if they had always been combined for accounting and
financial reporting purposes. Each of BR and Poco will use commercially
reasonable efforts to obtain a letter from its independent public accounting
firm concurring with the conclusion of each company's management that the
company is eligible to enter into a combination that qualifies for
pooling-of-interests accounting treatment under U.S. GAAP.
REGULATORY APPROVALS (SEE PAGE 48)
The arrangement requires approval by the Court of Queen's Bench of Alberta.
In addition, we cannot complete the transaction until the applicable waiting
periods expire under the Hart-Scott-Rodino Act and the Competition Act, and we
receive the required approvals under the Investment Canada Act, the Gas
Utilities Act (Alberta) and the Public Utilities Board Act (Alberta). We expect
to make all required regulatory filings and receive all required regulatory
approvals promptly.
CONDITIONS TO THE COMPLETION OF THE TRANSACTION (SEE PAGE 41)
The completion of the transaction depends upon meeting a number of
conditions, including:
- the approval of the issuance of BR common stock by the BR shareholders;
- the approval of the arrangement by the Poco shareholders and
optionholders;
- the approval of the arrangement by the Alberta Court of Queen's Bench;
CHAPTER ONE -- THE TRANSACTION
6
<PAGE> 14
- the receipt of all required consents and regulatory approvals;
- there must not be any law or court order prohibiting the transaction;
- the representations and warranties of the parties must be materially
accurate as of the closing;
- the parties must perform their obligations under the combination
agreement; and
- the listing of the exchangeable shares on the TSE or another recognized
Canadian stock exchange.
Each party has the right to waive the conditions to its obligations under
the combination agreement.
TERMINATION OF THE COMBINATION AGREEMENT (SEE PAGE 43)
Either BR or Poco can terminate the combination agreement if any of the
following occurs:
- there has been a material breach of the combination agreement by the
other party, subject to notice and cure provisions;
- all closing conditions have not been satisfied or waived by March 31,
2000;
- the required approvals of BR shareholders and Poco shareholders and
optionholders are not obtained at the shareholder meetings; or
- a law or court order prohibits the transaction.
BR can terminate the combination agreement if any of the following occurs:
- the Poco board withdraws or modifies adversely to BR its recommendation
or fails to reaffirm its recommendation upon request by BR or after a
competing acquisition proposal is announced; or
- the Poco board accepts a superior acquisition proposal in compliance
with the combination agreement.
Poco can terminate the combination agreement if:
- the BR board withdraws or modifies adversely to Poco its recommendation.
TERMINATION FEES (SEE PAGE 44)
Poco must pay BR a termination fee of U.S. $7 million in cash if:
- BR terminates the combination agreement because of a material breach by
Poco which is not cured; or
- BR or Poco terminates the combination agreement because Poco
shareholders and optionholders do not approve the transaction.
Poco must pay BR a termination fee of U.S. $61 million in cash if:
- an acquisition proposal by a third party in respect of Poco is publicly
announced, BR or Poco terminates the combination agreement because Poco
shareholders and optionholders do not approve the transaction, and
within 12 months Poco accepts an alternative acquisition proposal or
consummates an alternative acquisition transaction.
Poco must pay BR a termination fee of U.S. $68 million in cash if:
- BR terminates the combination agreement because the Poco board withdraws
or modifies adversely to BR its recommendation or fails to reaffirm its
recommendation when required to do so or after an acquisition proposal
is announced; or
- Poco terminates the combination agreement in order to accept a superior
acquisition proposal.
CHAPTER ONE -- THE TRANSACTION
7
<PAGE> 15
BR must pay Poco a termination fee of U.S. $7 million in cash if:
- Poco terminates the combination agreement because of a material breach
by BR which is not cured; or
- BR or Poco terminates the combination agreement because BR shareholders
do not approve the issuance of BR common stock in connection with the
transaction.
BR must pay Poco a termination fee of U.S. $68 million if:
- Poco terminates the combination agreement because the BR board withdraws
or modifies adversely to Poco its recommendation.
NO SOLICITATION
Poco may not solicit or encourage any competing acquisition proposals.
However, if a superior acquisition proposal is made, the Poco board may enter
into discussions and negotiations with, and provide information to, the party
making the superior proposal. BR has the right to match any superior acquisition
proposal.
THE TRANSACTION DOCUMENTS
We have included the combination agreement and the plan of arrangement as
Annexes B and D to this joint proxy statement. We encourage you to read these
agreements as they are the principal legal documents that govern the
transaction.
OPINIONS OF FINANCIAL ADVISORS (SEE PAGE 23)
In deciding to approve the transaction, each board considered the opinion
of its financial advisor. Poco received an opinion from RBC Dominion Securities
Inc. as to the fairness from a financial point of view as of August 16, 1999 of
the terms of the transaction to holders of Poco common shares. BR received an
opinion from Morgan Stanley & Co. Incorporated as to the fairness from a
financial point of view as of August 16, 1999 of the exchange ratio of 0.25
exchangeable shares for each Poco common share. These opinions are attached as
Annexes H and I. We encourage you to read these opinions.
TAX CONSEQUENCES OF THE TRANSACTION (SEE PAGE 71)
The transaction structure provides tax deferral opportunities for most
Canadian resident holders of Poco common shares through the exchange of Poco
common shares for exchangeable shares of BR Canada. This tax deferral will
continue as long as they continue to hold the exchangeable shares. In addition,
while the exchangeable shares are listed on a Canadian stock exchange they will
qualify as Canadian content for RRSP, RRIF, RESP and other savings and pension
plans.
In the opinion of BR's U.S. tax counsel, it is more likely than not that
Poco shareholders subject to U.S. federal income tax laws that exchange their
Poco common shares for exchangeable shares will not recognize gain or loss on
the exchange. There is however, no direct authority addressing the proper
treatment of the transaction for U.S. federal income tax purposes, and,
therefore, that conclusion is subject to significant uncertainty.
CHAPTER ONE -- THE TRANSACTION
8
<PAGE> 16
EXCHANGE RATE OF CANADIAN AND U.S. DOLLARS
On -- , 1999, the exchange rate for one Canadian dollar expressed in
U.S. dollars based on the noon buying rate of the Federal Reserve Bank of New
York was -- .
For each period, the following table provides the high and low exchange
rates for one Canadian dollar expressed in U.S. dollars, the average of these
exchange rates on the last day of each month during the period, and the exchange
rate at the end of the period, based upon the noon buying rate in New York City
for cable transfers in Canadian dollars, as certified for customer purposes by
the Federal Reserve Bank of New York:
<TABLE>
<CAPTION>
SIX-MONTH PERIOD TWELVE-MONTH PERIOD ENDED DECEMBER 31,
ENDED JUNE 30, ------------------------------------------
1999 1998 1997 1996 1995 1994
---------------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
High............................... 0.6891 0.7105 0.7487 0.7513 0.7512 0.7632
Low................................ 0.6535 0.6341 0.6945 0.7235 0.7023 0.7103
Average............................ 0.6703 0.6748 0.7223 0.7334 0.7285 0.7321
Period End......................... 0.6787 0.6504 0.6999 0.7301 0.7323 0.7128
</TABLE>
On -- , 1999, the exchange rate for one U.S. dollar expressed in
Canadian dollars based on the noon spot rate of the Bank of Canada was -- .
For each period, the following table provides the high and low exchange
rates for one U.S. dollar expressed in Canadian dollars, the average of these
exchange rates on the last day of each month during such period, and the
exchange rate at the end of such period, based upon the noon spot rate of the
Bank of Canada:
<TABLE>
<CAPTION>
SIX-MONTH PERIOD TWELVE-MONTH PERIOD ENDED DECEMBER 31,
ENDED JUNE 30, ----------------------------------------------
1999 1998 1997 1996 1995 1994
---------------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
High.......................... 1.5298 1.5765 1.4392 1.3860 1.4235 1.4074
Low........................... 1.4505 1.4075 1.3353 1.3316 1.3282 1.3102
Average....................... 1.4923 1.4836 1.3849 1.3638 1.3725 1.3664
Period End.................... 1.4720 1.5305 1.4291 1.3696 1.3652 1.4028
</TABLE>
CHAPTER ONE -- THE TRANSACTION
9
<PAGE> 17
COMPARATIVE PER SHARE DATA
The following table sets forth certain historical per share data for BR and
Poco and unaudited pro forma and equivalent pro forma combined per common share
data after giving effect to the proposed transaction under the
pooling-of-interests method at the exchange ratio of 0.25 exchangeable shares
for each Poco common share. Basic and Diluted Earnings (Loss) per Common Share
and Cash Dividends per Common Share are presented for the six months ended June
30, 1999 and for each of the three years in the period ended December 31, 1998.
Book Value per Common Share is presented as of June 30, 1999 and December 31,
1998.
This data should be read in conjunction with the selected historical
consolidated financial data and the unaudited pro forma combined financial
statements included in this joint proxy statement and the separate historical
consolidated financial statements of BR and Poco, including the notes thereto,
incorporated by reference or included in this joint proxy statement. POCO'S
HISTORICAL DATA HAVE BEEN ADJUSTED TO CONFORM TO U.S. GAAP UNDER THE FULL COST
METHOD OF ACCOUNTING FOR OIL AND GAS PROPERTIES AND ARE EXPRESSED IN CANADIAN
DOLLARS. THE PRO FORMA DATA REFLECT ADJUSTMENTS TO CONFORM TO THE SUCCESSFUL
EFFORTS METHOD OF ACCOUNTING FOR OIL AND GAS PROPERTIES USED BY BR. The
unaudited pro forma combined financial data are not necessarily indicative of
the operating results or financial position that would have occurred had the
transaction been consummated at the beginning of the earliest period presented
and should not be construed as indicative of future operations.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30, FOR THE YEARS ENDED DECEMBER 31,
---------- -----------------------------------
1999 1998 1997 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Historical -- BR
Basic Earnings per Common Share(a)................ $ .03 $ .48 $ 1.80 $ 1.89
Diluted Earnings per Common Share(a).............. .03 .48 1.79 1.88
Cash Dividends per Common Share................... .275 .55 .46 .44
Book Value per Common Share(b).................... $ 16.84 $ 17.01
Historical -- Poco -- U.S. GAAP -- Full Cost
Basic Net Earnings (Loss) per Common Share(a)..... C$ .17 C$ (2.02) C$ .50 C$ .37
Diluted Net Earnings (Loss) per Common Share(a)... .17 (2.02) .49 .37
Cash Dividends per Common Share(c)................
Book Value per Common Share(b).................... C$ 6.02 C$ 5.83
Pro Forma per Common Share Data -- Successful
Efforts
Basic Earnings (Loss) per Common Share(d)......... $ .09 $ (1.10) $ 1.69 $ 1.72
Diluted Earnings (Loss) per Common Share(d)....... .09 (1.09) 1.67 1.70
Cash Dividends per Common Share(e)................ .275 .55 .46 .44
Payout Ratio(f)................................... 3.11 (.50)
Book Value per Common Share....................... $ 15.93 $ 16.37
Equivalent Pro Forma per Common Share Data(g)
Basic Earnings (Loss) per Common Share............ .03 (.29) .42 .43
Diluted Earnings (Loss) per Common Share.......... .03 (.29) .42 .43
Cash Dividends per Common Share................... .07 .14 .12 .11
Book Value per Common Share....................... $ 3.98 $ 4.09
</TABLE>
- ---------------
(a) The historical Basic Earnings (Loss) per Common Share is based upon the
weighted average number of common shares of BR and Poco outstanding for
each period. The historical Diluted Earnings (Loss) per Common Share is
based upon the weighted average number of common shares and equivalent
common shares outstanding for each period.
(b) The historical Book Value per Common Share is computed by dividing
stockholders' equity by the number of shares of common stock outstanding at
the end of each period.
(c) Poco neither declared nor paid a dividend during any of the periods
presented.
CHAPTER ONE -- THE TRANSACTION
10
<PAGE> 18
(d) The unaudited Pro Forma Earnings per Common Share is based upon the
weighted average number of Common Shares and Equivalent Common Shares
outstanding of BR and Poco for each period at the exchange ratio of 0.25
exchangeable shares for each Poco common share.
(e) The unaudited Pro Forma Cash Dividends per Common Share is calculated based
upon the historical cash dividends paid by BR.
(f) The unaudited Pro Forma Payout Ratio is based upon BR's current dividend of
$.55 multiplied by the total Common Shares outstanding after applying the
exchange ratio of 0.25 divided by the pro forma net income.
(g) The unaudited Equivalent Pro Forma per Common Share Data are calculated by
multiplying the Pro Forma per Common Share Data by the exchange ratio of
0.25.
SUMMARY UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
THE FOLLOWING TABLE SETS FORTH SUMMARY UNAUDITED PRO FORMA COMBINED
FINANCIAL DATA WHICH ARE PRESENTED TO GIVE EFFECT TO THE ACQUISITION OF POCO BY
BR UNDER THE POOLING-OF-INTERESTS METHOD OF ACCOUNTING. The income statement
data for each of the three years in the period ended December 31, 1998 and the
six months ended June 30, 1999, assume that the transaction had been consummated
on January 1, 1996. The balance sheet data assume that the transaction had been
consummated on June 30, 1999.
The unaudited pro forma combined financial data do not reflect any cost
savings or other synergies which may result from the transaction and are not
necessarily indicative of the results of operations or the financial position
which would have occurred had the transaction been consummated on January 1,
1996, nor are they necessarily indicative of future results of operations or
financial position. THE UNAUDITED PRO FORMA COMBINED FINANCIAL DATA ARE
PRESENTED IN ACCORDANCE WITH U.S. GAAP ON THE SUCCESSFUL EFFORTS METHOD OF
ACCOUNTING IN U.S. DOLLARS. The unaudited pro forma combined financial data
should be read in conjunction with the historical consolidated financial
statements of BR and Poco, including the notes thereto, incorporated by
reference in this joint proxy statement and the unaudited pro forma combined
financial statements contained elsewhere herein.
<TABLE>
<CAPTION>
SIX MONTHS FOR THE YEARS ENDED
ENDED JUNE 30, DECEMBER 31,
-------------- ------------------------
1999 1998 1997 1996
-------------- ------ ------ ------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA -- SUCCESSFUL EFFORTS
Revenues.............................................. $ 902 $2,009 $2,375 $2,477
Operating Income (Loss)............................... 133 (271) 604 643
Net Income (Loss)..................................... 19 (232) 353 353
Basic Earnings per Common Share....................... .09 (1.10) 1.69 1.72
Diluted Earnings per Common Share..................... .09 $(1.09) $ 1.67 $ 1.70
BALANCE SHEET DATA -- SUCCESSFUL EFFORTS
Total Assets.......................................... 7,183
Long-term Debt........................................ 2,786
Shareholders' Equity.................................. $3,426
</TABLE>
CHAPTER ONE -- THE TRANSACTION
11
<PAGE> 19
SUMMARY HISTORICAL CONSOLIDATED FINANCIAL DATA OF BR
The following table sets forth summary historical consolidated financial
data for BR as of and for each of the five years in the period ended December
31, 1998 and as of and for the six months ended June 30, 1999 and 1998.
Such data have been derived from, and should be read in conjunction with,
the audited consolidated financial statements and other financial information
contained in BR's Annual Report for the year ended December 31, 1998 and the
unaudited consolidated interim financial information contained in BR's Quarterly
Report on Form 10-Q for the six months ended June 30, 1999, including the notes
thereto, incorporated by reference and included in this joint proxy statement.
See "Available Information" and "Incorporation of Documents by Reference."
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30, FOR THE YEARS ENDED DECEMBER 31,
--------------- ------------------------------------------
1999 1998 1998 1997 1996 1995 1994
------ ------ ------ ------ ------ ------ ------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Revenues....................... $ 725 $ 844 $1,637 $2,000 $2,200 $1,734 $1,871
Operating Income (Loss)........ 91 163 218 503 580 (397) (159)
Net Income (Loss).............. 5 71 86 319 335 (261) (73)
Basic Earnings (Loss) per
Common Share................ .03 .40 .48 1.80 1.89 (1.47) (.41)
Diluted Earnings (Loss) per
Common Share................ .03 .40 .48 1.79 1.88 (1.47) (.41)
BALANCE SHEET DATA
Total Assets................... 5,852 5,797 5,917 5,821 5,683 5,608 6,285
Long-term Debt................. 1,988 1,840 1,938 1,748 1,853 2,042 2,049
Stockholders' Equity........... 2,988 3,067 3,018 3,016 2,808 2,591 2,920
Cash Dividends Declared per
Common Share................ $ .275 $ .275 $ .55 $ .46 $ .44 $ .44 $ .58
Common Shares Outstanding...... 177 177 177 177 177 178 177
</TABLE>
CHAPTER ONE -- THE TRANSACTION
12
<PAGE> 20
SUMMARY HISTORICAL CONSOLIDATED FINANCIAL DATA OF POCO UNDER CANADIAN GAAP
The following table sets forth summary historical consolidated financial
data for Poco as of and for each of the five years in the period ended December
31, 1998 and as of and for the six months ended June 30, 1999 and 1998. THE
SUMMARY HISTORICAL CONSOLIDATED FINANCIAL DATA HAVE BEEN PRESENTED IN CANADIAN
DOLLARS UNDER CANADIAN GAAP UNDER THE FULL COST METHOD OF ACCOUNTING FOR OIL AND
GAS PROPERTIES.
The data set forth should be read in conjunction with the consolidated
financial statements and related notes included in Annex K.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30, FOR THE YEARS ENDED DECEMBER 31,
----------------- ---------------------------------------------
1999 1998 1998 1997 1996 1995 1994
------- ------- ------- ------- ------- ------- -----
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
-- FULL COST
Revenues................... C$ 265 C$ 272 C$ 552 C$ 519 C$ 378 C$ 234 C$227
Net Earnings............... 4 31 50 73 34 4 14
Basic Net Earnings per
Common Share............ 0.03 0.24 0.37 0.57 0.30 0.05 0.15
Fully Diluted Net Earnings
per Common Share........ 0.03 0.23 0.36 0.56 0.30 0.05 0.15
BALANCE SHEET DATA
-- FULL COST
Total Assets............... 2,759 2,295 2,761 2,085 1,616 1,024 877
Long-term Debt............. 1,101 988 1,064 813 506 360 209
Shareholders' Equity....... C$1,212 C$ 892 C$1,200 C$ 846 C$ 947 C$ 588 C$577
Common Shares
Outstanding............. 153 131 153 129 127 95 94
</TABLE>
CHAPTER ONE -- THE TRANSACTION
13
<PAGE> 21
SUMMARY HISTORICAL CONSOLIDATED FINANCIAL DATA OF POCO UNDER U.S. GAAP -- FULL
COST METHOD
The following table sets forth summary historical consolidated income
statement data of Poco for each of the three years in the period ended December
31, 1998 and for the six months ended June 30, 1999 and 1998, and balance sheet
data as at December 31, 1998 and 1997 and June 30, 1999. THE SUMMARY HISTORICAL
CONSOLIDATED FINANCIAL DATA HAVE BEEN PRESENTED IN CANADIAN DOLLARS AND ADJUSTED
TO U.S. GAAP UNDER THE FULL COST METHOD OF ACCOUNTING FOR OIL AND GAS
PROPERTIES.
The data set forth should be read in conjunction with the consolidated
financial statements and related notes included in Annex K.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30, FOR THE YEARS ENDED DECEMBER 31,
---------------- ---------------------------------
1999 1998 1998 1997 1996
------ ------ --------- -------- --------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA -- FULL COST
Revenues.................................. C$ 265 C$ 272 C$ 552 C$ 519 C$ 378
Net Earnings (Loss)....................... 27 23 (275) 64 43
Basic Net Earnings (Loss) per Common
Share.................................. .17 .18 (2.02) .50 .37
Diluted Net Earnings (Loss) per Common
Share.................................. C$ .17 C$ .18 C$(2.02) C$ .49 C$ .37
</TABLE>
<TABLE>
<CAPTION>
AS AT AS AT DECEMBER 31,
JUNE 30, ------------------
1999 1998 1997
-------- ------- -------
<S> <C> <C> <C>
BALANCE SHEET DATA -- FULL COST
Total Assets.............................................. C$2,389 C$2,325 C$2,067
Long-term Debt............................................ 1,176 1,140 813
Shareholders' Equity...................................... C$ 923 C$ 889 C$ 859
Common Shares Outstanding................................. 153 153 129
</TABLE>
CHAPTER ONE -- THE TRANSACTION
14
<PAGE> 22
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
We have made forward-looking statements in this document that are subject
to risks and uncertainties. Forward-looking statements include the information
in this document regarding:
capital spending
oil and natural gas production
asset portfolios
oil and natural gas reserves after closing
the timing for closing the transaction
synergies
efficiencies
cost savings
revenue enhancements
future earnings
capital productivity
The sections of this booklet which contain forward-looking statements
include:
- "Questions and Answers About the Transaction";
- "Summary";
- "Summary Historical and Pro Forma Financial Data";
- "Risk Factors";
- "Description of the Transaction";
- "The Combined Company";
- "Certain Financial Information";
- Poco Management's Discussion and Analysis of Financial Condition and
Results of Operations in Annex K; and
- Burlington Management's Discussion and Analysis of Financial Condition
and Results of Operations contained in BR's Annual Report to
Shareholders for the year ended December 31, 1998.
Our forward-looking statements are also identified generally by the use of
the future tense and by words such as "believes", "expects", "anticipates",
"intends", "estimates" or similar expressions. Statements and calculations
concerning oil and gas reserves and their present value also may be deemed to be
forward-looking statements in that they reflect the determination, based on
certain estimates and assumptions, that oil and gas resources may be profitably
exploited in the future.
For all these statements, we claim the protection of the safe harbor for
forward-looking statements contained in the Private Securities Litigation Reform
Act of 1995, as amended.
CHAPTER ONE -- THE TRANSACTION
15
<PAGE> 23
RISK FACTORS
You should understand that the following important factors, in addition to
those discussed elsewhere in this booklet and in the documents which are
incorporated by reference, including BR's annual report on Form 10-K for the
year ended December 31, 1998, could affect the future results of BR, Poco or the
combined company after closing, and cause those results or other outcomes to
differ materially from those expressed in our forward-looking statements:
TRANSACTION RISKS
- The transaction could interrupt or cause a loss of momentum in our
business activities.
- A departure of key employees could cause significant disruptions.
- We will be more dependent upon doing business in the United States and
internationally than Poco was prior to the transaction, and more
dependent upon doing business in Canada than BR was prior to the
transaction.
THE OIL AND GAS MARKET
- Oil and gas prices fluctuate greatly.
- Extended periods of low prices for oil or gas could result in the
cancelation or delay of planned drilling programs, the curtailment of
production or downward adjustments to our estimated reserves.
- Market prices for crude oil and natural gas may decrease due to changes
in regional and worldwide supply and demand, weather related and
seasonal factors, and transportation costs.
- We hedge our exposure to fluctuations in oil and gas prices with
derivative instruments. The value of these instruments may change
greatly in response to small changes in oil or gas prices.
OUR OPERATIONS
- Our future growth depends upon our ability to maintain and increase our
crude oil and natural gas reserves. Results of future exploration,
exploitation and acquisition activities may significantly impact our
reserves and our operations.
- We rely on third parties to provide most of the services and equipment
necessary to drill wells. The prices charged by these third parties may
increase significantly.
- Future price decreases may result in reductions in the carrying value of
our oil and gas properties.
- The laws and policies of the U.S. or Canada affecting the oil and gas
industry, foreign trade or taxation may harm our operations.
OIL AND GAS INDUSTRY
- Reserve estimates often differ from the quantities of oil and gas
ultimately recovered.
- The prices used to estimate future net revenues may not be realized.
- International operations are subject to a great deal of political and
economic uncertainty.
- Some of our competitors may have far greater resources.
- Environmental laws and regulations may result in large penalties or
monetary obligations.
CHANGE OF CONTROL
- BR has charter and other provisions that may make it more difficult to
cause a change of control.
CHAPTER ONE -- THE TRANSACTION
16
<PAGE> 24
DESCRIPTION OF THE TRANSACTION
BACKGROUND
BR initiated a review of the Canadian oil and gas exploration and
production industry in the fall of 1998. The review focused on the natural gas
resource base in Canada and on the export markets for Canadian natural gas in
the United States. Based upon this review, BR determined that Western Canada
represented a major opportunity for BR to expand its North American oil and gas
exploration and production business. BR therefore began a review of Canadian
exploration and production companies, focusing on companies primarily
concentrating on natural gas exploration and production. Poco was identified as
one of the top companies in that group. In the spring of 1999 BR decided to
contact Poco management to inquire about Poco's interest in a possible business
combination.
Prior to being contacted by BR, the management of Poco periodically
reviewed its position with the objective of determining what alternatives were
available to enhance shareholder value. While Poco believed that it had positive
future prospects on a stand-alone basis, in recent years the management of Poco
had considered a range of options to improve its competitive position, including
acquisitions or dispositions of assets, joint ventures or other significant
transactions.
On May 3, 1999, on behalf of BR, Robert Rooney and Martin Lambert of
Bennett Jones, BR's Canadian legal counsel, met with Craig Stewart, President
and Chief Executive Officer of Poco, and Bruce McFarlane, Vice President of
Business Development of Poco. Mr. Rooney and Mr. Lambert expressed BR's interest
in Poco and provided an introduction for a call from Bobby Shackouls, Chairman,
President and Chief Executive Officer of BR, to Mr. Stewart.
On May 6, at a regularly scheduled Poco board meeting, Mr. Stewart reported
the conversation with Mr. Rooney and Mr. Lambert and advised he would keep the
board informed of any further discussions.
Mr. Shackouls contacted Mr. Stewart by telephone on May 21. In the
conversation, Mr. Shackouls discussed BR's strategy as a North American natural
gas exploration and production company. In connection with that strategy, Mr.
Shackouls communicated the strategic importance of a position in the Western
Canadian Sedimentary Basin and Poco's attractiveness to BR. Mr. Shackouls
suggested a meeting between representatives of BR and Poco to further discuss a
possible transaction between the two companies.
On May 28, Poco retained RBC DS to provide financial advice in connection
with alternatives for the company including the discussions with BR.
Mr. Shackouls and Thomas Nusz, Vice President of Strategic Planning and
Engineering for BR, met with Mr. Stewart and John Ferguson, Vice President and
Chief Financial Officer for Poco, in Calgary on June 18. Discussions included
the future of the industry, the direction of the respective companies,
strategies for growth and other general matters. With regard to a possible
transaction between the companies, Mr. Shackouls reiterated BR's interest in
Poco and expressed BR's preference for a negotiated process. Mr. Stewart
responded that he would do what was in the best interest of the Poco
shareholders and stated that he was unwilling to start any process without a
firm indication of value. The meeting was concluded with an agreement that BR
would respond to Poco within two weeks.
On July 2, Mr. Shackouls contacted Mr. Stewart by telephone. In the
conversation, Mr. Shackouls proposed a transaction whereby BR common stock would
be exchanged for Poco common shares and generally discussed a range of values.
Mr. Stewart responded that he would discuss the proposal with RBC DS.
During the first three weeks of July 1999, Morgan Stanley and RBC DS
discussed transaction issues and possible consideration. Following the
announcement of the deep gas exploration joint venture between Poco and Chevron
Canada Resources on July 22, 1999, BR management and the financial advisors
further discussed the added value of this joint venture. Morgan Stanley and RBC
DS conferred with their clients throughout this period.
On July 26, Mr. Shackouls contacted Mr. Stewart by telephone to discuss the
proposed transaction. Mr. Shackouls indicated that BR was willing to consider an
exchange of shares that would correspond to a price
CHAPTER ONE -- THE TRANSACTION
17
<PAGE> 25
per Poco common share of approximately C$16.50. Mr. Stewart concurred with Mr.
Shackouls that each company should initiate a due diligence inquiry and further
investigate the means for completing a transaction beneficial to the
shareholders of both companies.
During the week of July 26, Mr. Nusz and Mr. Ferguson negotiated
confidentiality agreements and a proposed structure for the due diligence
process. The confidentiality agreements between BR and Poco were signed on July
30 and provided, among other things, that the parties would negotiate
exclusively with each other until August 16. The parties agreed to conduct a due
diligence process from July 31 to August 11.
On July 29, Poco negotiated and executed an agreement with RBC DS to
provide financial advisory services to Poco's board in connection with the
negotiations with BR and the consideration of alternatives available to Poco.
This agreement superceded and replaced the agreement previously entered into on
May 28.
On July 31, members of the senior management team of each of BR and Poco,
along with representatives of Morgan Stanley and RBC DS, met in Denver to
exchange information. Management representatives of Poco made a presentation
regarding their business and responded to questions from BR. BR management also
provided preliminary information about BR.
Numerous phone conversations occurred between July 31 and August 11 and
data was exchanged during that time. An additional meeting was held on August 4
to continue discussions and the exchange of information between the companies'
management teams with respect to BR's and Poco's businesses. Morgan Stanley and
RBC DS were also present at the meeting to discuss the proposed transaction.
On August 11, Mr. Shackouls contacted Mr. Stewart by telephone. Mr.
Shackouls proposed a fixed exchange ratio of 0.245 shares of BR common stock per
Poco common share, subject to BR board approval. Mr. Stewart responded that he
would present this proposal to Poco's board.
On the evening of August 11, members of the Poco management team, Burnet,
Duckworth & Palmer, Poco's legal counsel, and RBC DS met with the Poco board.
Mr. Stewart reviewed the negotiations with BR to that point and requested that
formal consideration of the BR proposal be deferred to the board meeting
scheduled for August 12. Legal counsel reviewed the Poco board's fiduciary
duties and obligations in consideration of the proposed combination. RBC DS
reviewed the financial context for the proposed combination and the range of
terms of precedent transactions. Extensive discussion ensued concerning the
proposed combination and the factors to be considered in responding to BR's
proposal.
At Poco's August 12 board meeting, Mr. Stewart presented BR's proposal.
Extensive discussion ensued concerning the proposal and the discussion was
concluded with a determination that the offer would have to be in excess of the
proposed exchange ratio of 0.245 for Poco to proceed with an exclusive
transaction with BR.
RBC DS contacted Morgan Stanley on the afternoon of August 12 to relay the
results of Poco's board meeting. RBC DS stated that the exchange ratio of 0.245
was not acceptable to the Poco board and suggested an exchange ratio of 0.255.
Morgan Stanley then contacted BR to relay this information. Mr. Shackouls then
conferred with BR's management and financial advisors and contacted Mr. Stewart
by telephone. In the conversation, Mr. Stewart and Mr. Shackouls agreed to a
fixed exchange ratio of 0.25 shares of BR common stock per Poco common share,
subject to the negotiation and execution of a combination agreement, completion
of due diligence and board approvals of both companies.
From August 13 through August 15, representatives of BR and Poco, including
their financial and legal advisors, held numerous meetings to complete their
factual investigations, resolve various open issues, including the accounting
treatment and the exchangeable share structure of the transaction, and finalize
the documentation for the transaction. On August 15, RBC DS conducted a due
diligence session with members of BR's management.
On August 16, the BR board met with the senior management of BR and BR's
financial and legal advisors to review the proposed transaction. BR's management
made presentations regarding Poco and the proposed transaction. Morgan Stanley
reviewed the financial aspects of the acquisition and orally delivered its
opinion that, as of such date, the exchange ratio was fair to BR from a
financial point of view. The material terms of the legal documents to be entered
by BR were reviewed. After discussion and consideration of the factors described
on
CHAPTER ONE -- THE TRANSACTION
18
<PAGE> 26
page 19 under "-- Reasons for the Transaction -- BR's Reasons for the
Transaction," the BR board unanimously approved the transaction.
On August 16, the Poco board met with the senior management of Poco and
Poco's financial and legal advisors to review the proposed transaction. Poco's
management made presentations regarding BR and the proposed transaction. RBC DS
gave its presentation on financial aspects of the acquisition and orally
delivered its opinion that, as of such date, the terms of the transaction were
fair to Poco shareholders from a financial point of view. The material terms of
the legal documentation to be entered into by Poco were reviewed. After
discussion and consideration of the factors described on page 21 under "--
Reasons for the Transaction -- Poco's Reasons for the Transaction," the Poco
board unanimously approved the transaction.
On the afternoon of August 16, BR and Poco executed the combination
agreement and publicly announced the transaction.
REASONS FOR THE TRANSACTION
BR'S REASONS FOR THE TRANSACTION. The BR board considered the following
material factors in unanimously approving the transaction.
Complementary Strategic Transaction. BR believes that the acquisition of
Poco is an important step towards accomplishing BR's fundamental objective of
building long-term shareholder value. BR believes that the Western Canadian
Sedimentary Basin, where Poco's activities are focused, represents a major new
growth area for BR's North American oil and gas exploration and production
activities. The basin is immature relative to many U.S. basins and has excellent
resource potential. There is substantial undeveloped and underdeveloped acreage
available in known natural gas-producing areas in the basin, providing
significant opportunities for further exploration and development in the future.
BR believes that the United States and Canada have become a single market for
natural gas and that additional infrastructure currently under development, such
as the Alliance pipeline in Western Canada, will enhance the value of natural
gas from this region.
Excellent Entry Vehicle. BR believes the acquisition of Poco provides BR
with an immediate, substantial presence in Western Canada, with proved reserves
at December 31, 1998 of 1,873 billion cubic feet of gas equivalent. Poco's oil
and gas properties offer substantial opportunities for growth through continued
exploitation of existing properties and exploration for new reserves. Poco's net
undeveloped acreage at December 31, 1998 of approximately 3.1 million acres
contains numerous exploratory prospects with attractive reserve potential. In
addition, Poco provides a strong platform for further expansion in Canada
through increased exploratory activity and strategic acquisitions.
Attractive Asset Base. BR believes that Poco has an extremely attractive
asset base that provides an outstanding fit with BR's existing assets. Like BR,
Poco's asset base consists primarily of natural gas assets, with natural gas
representing 78% of its 1998 production. Poco's producing properties in its
western region currently contribute approximately 65% of Poco's production base
and provide strong cash flow for further exploitation activity, with up to 150
new wells being drilled annually and approximately 300 locations in the current
inventory of drillable prospects. Poco's deep gas exploration joint venture with
Chevron complements Poco's existing acreage and seismic data within the region,
and will create a combined exploration portfolio of approximately 675,000
undeveloped net acres and will provide access to Chevron's 16,000 kilometers of
2D seismic data and 1,100 square kilometers of 3D seismic data. BR believes that
Poco's northern region properties, which contribute approximately 20% of Poco's
production base, have the potential to add significant reserves and production
in the future.
Balanced Portfolio; Expanded Growth Opportunities. BR believes that the
transaction will combine two companies with highly complementary portfolios.
Poco's properties will add substantial exploitation opportunities and high
potential exploration and frontier prospects. Those assets will add to BR's
balanced portfolio of exploration, exploitation and producing assets and should
increase BR's opportunities for growth in reserves and production.
Well-Managed, Low-Cost Producer. BR believes that Poco is a well-managed,
low-cost producer with high quality production. Poco's net revenue per barrel of
oil equivalent for the year ended December 31, 1998 of
CHAPTER ONE -- THE TRANSACTION
19
<PAGE> 27
C$14.13 was one of the highest among its Canadian competitors. For the same
period, Poco was one of the lowest-cost producers among the group, with costs
per barrel of oil equivalent of C$2.93. As a result, Poco has one of the highest
cash netbacks (realized price less operating costs and general and
administrative expense) per barrel of oil equivalent among leading Canadian oil
and gas companies. In addition, BR believes that Poco's operations maintain high
safety and environmental standards.
Strong Organization. BR believes that Poco's management, technical,
operational and administrative personnel provide an excellent base on which to
build BR's Canadian operations.
Transaction Capitalizes on BR's Technological Expertise. BR believes that
the value of Poco's assets will be enhanced by BR's expertise in key oil and gas
exploration, exploitation and production technologies. Poco's western region
provides substantial opportunities for enhanced completion techniques and its
western and northern regions offer excellent opportunities for deep drilling. BR
has expertise in these technologies, as well as in the 3D seismic,
non-conventional reservoir and sour gas treatment technologies. BR believes this
expertise is important to the successful exploration and exploitation of Poco's
northern region properties.
Strong Financial Position to Exploit Growth Opportunities. The combined
company on a pro forma basis at June 30, 1999 had the lowest debt-to-capital
ratio among U.S. independents, with a debt-to-capital ratio of 45% and a
debt-to-total market capitalization ratio of 23%. The combined company's 1998
operating cash flow exceeded $1.1 billion. This strong balance sheet and
operating cash flow should permit the combined company to explore and exploit
Poco's large inventory of exploration and exploitation prospects more rapidly
than Poco alone, while continuing to exploit and expand BR's existing
exploration and development opportunities in the U.S. and abroad.
Immediate Earnings and Cash Flow Accretion. The transaction will be
immediately accretive to BR's earnings and operating cash flow per share. See
the analysis on page 27 under "-- Opinion of Morgan Stanley."
Enhanced Leadership Position. The transaction will enhance BR's leadership
position among independent oil and gas companies worldwide and among North
American natural gas producers. On a pro forma combined basis, as of December
31, 1998, BR would have ranked first in worldwide proved reserves among all
independents, with worldwide proved reserves of 9.9 trillion cubic feet of gas
equivalent, and second in worldwide daily production among all independents,
with worldwide daily production of 2.8 billion cubic feet of gas equivalent per
day. On the same combined basis, as of December 31, 1998, BR would have ranked
third in North American natural gas reserves among all oil and gas companies,
with combined reserves of 7.3 trillion cubic feet of gas, and fourth in North
American natural gas production among all oil and gas companies, with production
of 2.1 billion cubic feet of gas per day.
Transaction Terms. The BR board considered the terms of the combination
agreement, including the fact that BR has the right to match any competing offer
for Poco. BR will also be entitled to receive a termination fee of U.S. $68
million if the agreement is terminated because of a competing offer for Poco.
Presentation of BR Management; Advice of Financial Advisor. The BR board
considered management's presentation and conclusion that the exchange ratio in
the transaction is fair to BR from a financial point of view. BR also considered
the financial presentation by Morgan Stanley and Morgan Stanley's opinion that
the exchange ratio in the transaction is fair to BR from a financial point of
view. See page 27 under "-- Opinion of Morgan Stanley."
Potential Risks. BR recognized that there are risks associated with the
acquisition of Poco, including that some of the potential benefits described
above may not be realized or that there may be significant costs associated with
realizing these benefits. BR considered the importance of, and risks associated
with, retaining Poco's management and key employees, the uncertainty in
estimating oil and gas reserves, future exploration and development risks, and
the risks resulting from issuing a substantial amount of BR common stock to
Canadian investors who historically have not owned BR stock. Canadian investors
have a limited ability to hold U.S. securities. However, BR believes that the
exchangeable shares will be more attractive to Canadian investors as they
qualify as Canadian property. Factors which may affect future operations of the
combined company are discussed more fully on page 16 under "Risk Factors."
CHAPTER ONE -- THE TRANSACTION
20
<PAGE> 28
The foregoing discussion describes the material information and factors
considered by the BR board. In view of the variety of factors considered in
connection with its evaluation of the transaction, the BR board did not find it
practicable or necessary to and did not quantify or otherwise assign relative
weights to the specific factors considered in reaching its determination. In
addition, individual members of the BR board may have given different weights to
different factors.
The BR board viewed all of the factors described above, other than those
identified under "Potential Risks", as favorable to its approval and
recommendation of the transaction. Although the BR board recognized the matters
described under "Potential Risks" as negative factors in its evaluation of the
transaction, the BR board concluded that the potential benefits of the
transaction substantially outweighed these possible risks, although there can be
no assurance in this regard.
POCO'S REASONS FOR THE TRANSACTION. The Poco board considered the following
material factors in unanimously approving the transaction.
Premium to Trading Price. The consideration offered under the transaction
represents a premium over the recent trading price of Poco common shares.
Liquidity. The exchangeable shares will be exchangeable for BR common
stock which is widely held and listed on the NYSE.
Improved Balance Sheet. BR's strong balance sheet provides substantial
financial flexibility to pursue exploration and development prospects. The
combined company will have a low debt-to-capital ratio of 45% and a
debt-to-total market capitalization ratio of 23% on a pro forma basis at June
30, 1999. As a result, the Poco board believes that the continuing company
should have the financial flexibility to pursue more actively Poco's opportunity
base and more fully develop its potential.
Ability to Participate in the Combined Company. Following the transaction,
Poco shareholders, through their ownership of exchangeable shares or shares of
BR common stock, will own the equivalent of 18% of BR's common stock.
Accordingly, the transaction provides Poco shareholders with the opportunity to
participate in a meaningful way in the ongoing development of Poco's properties
as well as in the development of BR's properties and to continue to participate
in any future improvement in natural gas prices.
Interest in Larger Entity with More Diversified Holdings. Poco
shareholders will acquire an interest in BR which, when combined with Poco's
operations, will be the largest independent oil and gas company worldwide, based
on proved reserves. Following the transaction, the combined company's assets in
the U.S. and Canada and elsewhere in the world will enhance its competitive
position and permit it to allocate its resources to take advantage of attractive
opportunities around the world.
Management. The combined company should benefit from the leadership of
BR's senior management. This team, has a track record of successfully developing
and managing a rapidly growing, profitable oil and gas company over a number of
years. Additionally, BR has indicated its desire that management of Poco
continue to play an important role in the management of the combined company's
Canadian operations, providing for continuity of management of Poco's business
for the benefit of the combined company.
Tax Deferral. The transaction is structured to provide tax deferral to
most Canadian resident holders of Poco common shares, so long as they continue
to hold the exchangeable shares. In addition, while the exchangeable shares are
listed on a Canadian stock exchange they will qualify as Canadian property for
RRSP, RRIF, RESP and other savings and pension plans.
Ability to Consider Competing Offers. The combination agreement does not
preclude the initiation of competing offers by other potential bidders. If
another offer is received by Poco, the Poco board may consider and accept it if
the offer is financially superior to the BR transaction and the offeror has
demonstrated that the funds or other consideration necessary for the offer are
available. The Poco board may only accept the superior offer if it has concluded
in good faith that acceptance of the offer is necessary for the board to act in
a manner consistent with its fiduciary duties under applicable law. Before
accepting the superior offer, Poco must give BR five days' notice. BR has the
right to match any superior offer. Poco may only consider and accept a superior
offer before the transaction is approved by the Poco shareholders and
optionholders. If a superior offer is
CHAPTER ONE -- THE TRANSACTION
21
<PAGE> 29
accepted by the Poco board, Poco is required to pay BR a cash termination fee of
U.S. $68 million. As of the date of this joint proxy statement, Poco has not
received any competing offers.
Dissent Rights. Under the arrangement, the Poco shareholders and Poco
optionholders have the right to dissent.
In reaching its determination, the Poco board also considered and evaluated
information presented by the management of Poco with respect to the transaction.
In this regard, the Poco board considered, among other things:
- information concerning the results of operations, performance, financial
condition and prospects of and the opportunities available to BR, Poco
and the combined company, and the risks involved on a company-by-company
basis, and on a combined basis, and the risks involved in achieving the
full potential of Poco on a stand-alone basis;
- the reserve levels, asset quality and cost structure of BR's and Poco's
businesses;
- the results and scope of the due diligence review conducted by Poco's
management and RBC DS with respect to BR's business and operations;
- information with respect to recent and historical trading prices and
trading multiples of BR common stock and Poco common shares;
- information with respect to recent and historical prices and a range of
potential future price trends of oil and gas;
- the terms of the combination agreement and the exchangeable shares, with
a view, among other things, to assuring that holding an exchangeable
share would be the economic equivalent of holding BR common stock;
- the presentation by and the opinion of RBC DS, with respect to the
fairness from a financial point of view of the terms of the transaction
to holders of Poco common shares; and
- the presentation by and the legal advice of Burnet, Duckworth & Palmer,
with respect to the board's fiduciary duties and obligations in
considering the transaction.
Based on all of these matters, and such other matters as the members of the
Poco board deemed relevant, the Poco board unanimously approved the combination
agreement.
The foregoing discussion of the information and factors considered and
given weight by the Poco board is not intended to be exhaustive but is believed
to include all material factors considered by the Poco board. In addition, in
reaching the determination to approve and recommend the combination agreement,
the Poco board did not assign any relative or specific weights to the foregoing
factors which were considered, and individual directors may have given differing
weights to different factors.
The Poco board realized that there are risks associated with the
transaction, including that some of the potential benefits set forth above may
not be realized or that there may be significant costs associated with realizing
such benefits. The Poco board also considered factors such as BR's ability to
retain Poco's management and key employees, the volatility of oil and gas
prices, the relative volatility of both companies' stock prices, the uncertainty
in estimating oil and gas reserves, future exploration and development risk and
the risks of conducting business in foreign countries. These factors are
discussed more fully in this joint proxy statement on page 16 under "Risk
Factors". However, the Poco board believes that the factors in favor of the
transaction outweigh the risks and potential disadvantages, although there can
be no assurance in this regard.
RECOMMENDATIONS OF BOARDS OF DIRECTORS
BR. The BR board believes that the transaction is in the best interest of
BR shareholders. THE BR BOARD UNANIMOUSLY RECOMMENDS THAT THE BR SHAREHOLDERS
VOTE TO APPROVE THE ISSUANCE OF BR COMMON STOCK IN CONNECTION WITH THE
TRANSACTION.
CHAPTER ONE -- THE TRANSACTION
22
<PAGE> 30
Poco. The Poco board of directors believes that the transaction is in the
best interest of the Poco shareholders and Poco optionholders. THE POCO BOARD
UNANIMOUSLY RECOMMENDS THAT THE POCO SHAREHOLDERS AND POCO OPTIONHOLDERS VOTE TO
APPROVE THE ARRANGEMENT.
In reaching the conclusions stated above, the boards of directors of BR and
Poco considered a number of factors including certain advantages and
disadvantages of proceeding with the transaction. For a discussion of these
considerations, see "-- Reasons for the Transaction."
OPINION OF RBC DOMINION SECURITIES INC.
The following is a summary of the RBC DS opinion. Poco retained RBC DS to
act as a financial advisor to provide advice and assistance in evaluating
transactions and to provide an opinion with respect to the fairness of a
transaction from a financial point of view to the Poco shareholders. RBC DS
verbally advised the Poco board on August 16, 1999, which opinion was confirmed
in writing as at August 16, 1999, that the terms of the transaction between Poco
and BR contemplated by the combination agreement were fair to the holders of
Poco common shares from a financial point of view.
We have attached the full text of the written RBC DS opinion, which sets
forth the assumptions made, matters considered and limitations on the review
undertaken in connection with the RBC DS opinion, as Annex H to this joint proxy
statement. Poco shareholders are urged to, and should, read the RBC DS opinion
in its entirety.
In connection with rendering its opinion, RBC DS reviewed and relied upon:
- the combination agreement dated August 16, 1999 between Poco and BR;
- audited financial statements of Poco and BR for the five years ended
December 31, 1998;
- the unaudited interim reports of Poco and BR for the three and six
months ended June 30, 1999;
- annual reports of Poco and BR for the two years ended December 31, 1997
and 1998;
- the Notices of Annual Meetings of Shareholders and Management
Information Circulars of Poco for the two years ended December 31, 1997
and 1998;
- the Notice of Annual Meeting of Stockholders and Proxy Statement of BR
for the year ended December 31, 1998;
- annual information forms of Poco for the two years ended December 31,
1997 and 1998;
- the Form 10-K of BR for the year ended December 31, 1998;
- Poco's internal management budgets for the year ending December 31,
1999;
- selected BR internal management operational and financial estimates and
forecasts;
- Poco's internal management ten year operational and financial model;
- discussions with senior management of Poco and BR;
- discussions with both Poco's and BR's auditors and legal counsel;
- public information relating to the business, operations, financial
performance and stock trading history of Poco, BR and other selected
public companies considered by RBC DS to be relevant;
- public information with respect to other transactions of a comparable
nature considered by RBC DS to be relevant;
- a report from Poco regarding Poco's petroleum reserves, with an
effective date of December 31, 1998 and updated information with respect
to that report to June 30, 1999;
- information pertaining to Poco's seismic database, natural gas
processing facilities, undeveloped land and income tax pools as provided
by Poco;
CHAPTER ONE -- THE TRANSACTION
23
<PAGE> 31
- information pertaining to the July 22, 1999 farm-in arrangement between
Poco and Chevron Canada Resources;
- representations contained in a certificate addressed to RBC DS, dated as
of the date hereof, from senior officers of Poco as to the completeness
and accuracy of the information upon which the RBC DS opinion is based;
and
- such other corporate, industry and financial market information,
investigations and analyses as RBC DS considered necessary or
appropriate in the circumstances.
RBC DS relied upon and assumed the completeness, accuracy and fair
presentation of all of the information obtained by it from public sources and
provided by senior management of Poco, BR and their respective consultants and
advisors. The RBC DS opinion is conditional upon the completeness, accuracy and
fair presentation of such information. RBC DS has not attempted to verify
independently the completeness, accuracy or fair presentation of such
information. RBC DS was not able to review a draft proxy statement before
rendering its opinion as one had not been prepared at that time. However, RBC DS
has subsequently reviewed this joint proxy statement. RBC DS was not, to the
best of its knowledge, denied access by Poco or BR to any information requested
by RBC DS. RBC DS made a number of assumptions, including that all of the
conditions required to implement the arrangement will be met. The RBC DS opinion
was rendered on the basis of securities markets, economic, financial and general
business conditions prevailing as at the date of the RBC DS opinion and the
condition and prospects, financial and otherwise, of Poco, BR and their
respective subsidiaries and affiliates, as they were reflected in the
information and documents reviewed and as they were represented to RBC DS in
discussions with management of Poco and BR, respectively. In its analyses and in
preparing the RBC DS opinion, RBC DS made numerous assumptions with respect to
industry performance, general business and economic conditions and other
matters, many of which are beyond the control of RBC DS or any other party
involved in the arrangement.
The following is a brief summary of certain financial analyses used by RBC
DS in connection with providing its opinion to the Poco board.
Net Asset Value Analysis. The net asset value approach ascribes a separate
value for each category of asset and liability utilizing the methodology deemed
appropriate by RBC DS in each case; the sum of total assets less total
liabilities yields the NAV. This approach ascribes value to the proved and
probable reserves existing at the time of valuation on the basis of discounted
future after-tax cash flows, and does not anticipate the future addition of
reserves through an ongoing exploration and development program. This approach
is known as a "depletion" or "blowdown" evaluation and is a common method of
evaluation of petroleum interests (reserves and related production facilities)
in the oil and gas industry. Capital expenditures required to develop existing
reserves are deducted from reserve values. Provision is made for general and
administrative expenses required to produce the existing reserves as well as for
costs associated with future well abandonment and reclamation of sites related
to such wells and associated plant and facility equipment. In addition, a value
is ascribed for other material assets utilizing the methodology deemed
appropriate by RBC DS in each case.
RBC DS prepared a NAV analysis of Poco utilizing Poco's internal
engineering report. The engineering report was run at commodity prices which RBC
DS deemed to be reflective of current market views for both natural gas and
crude oil. RBC DS reviewed a number of comparable oil and gas companies and
calculated their respective weighted average cost of capital and, based on those
comparable companies, RBC DS selected discount rates of 8% and 10% to apply to
after-tax cash flows calculated based on the Poco engineering report. Other
assets including undeveloped land, natural gas processing capacity, tax pools,
seismic data bases and the Chevron Canada Resources farm-in were valued based on
public information and discussions with Poco management. The NAV approach,
including taking into account sensitivity analyses described above, generated
values which indicated that the price being paid was a premium to NAV.
Premiums Paid Analysis. RBC DS also analyzed the premium paid for the Poco
common shares under the transaction. On August 13, 1999, the last full trading
day for Poco's shares prior to the announcement of the transaction, the Poco
common shares and the BR common stock closed trading on the TSE and the NYSE at
C$13.15 and $46.6875 per share, respectively. Utilizing a U.S./Canadian dollar
exchange rate of 1.4773, the
CHAPTER ONE -- THE TRANSACTION
24
<PAGE> 32
value to be received per Poco common share under the transaction is C$17.24,
representing a premium of 31.1% to the closing price of the Poco common shares
on such date. The 20 day weighted average of the closing price of the BR common
stock on the NYSE for the 20 days prior to and including August 13, 1999 was
$44.29 per share. Using an average price per share of BR common stock of $44.29
and a 20 day average U.S./Canadian dollar exchange rate of 1.4989, the value of
the consideration to be received under the transaction is C$16.60, which
represents a premium of approximately 28.9% to the 20 day weighted average of
the Poco common shares' closing price on the TSE for the same 20 day period. RBC
DS viewed the premiums as being consistent with the range of premiums for recent
takeover transactions in the oil and gas sector in Canada.
Selected Precedent Transaction Multiples Analysis. RBC DS analyzed certain
information with respect to precedent corporate transactions in the oil and gas
industry which were announced between December 1997 and December 1998 and which
RBC DS considered to be the most relevant to the proposed transaction based upon
either their comparable size or percentage of natural gas production. The
selected transactions were (indicated as purchaser/seller):
- Devon Energy Corporation/Northstar Energy Corporation;
- Renaissance Energy Ltd./Pinnacle Resources Ltd.;
- USX-Marathon Group of USX Corporation/Tarragon Oil and Gas Limited;
- Dominion Energy Inc./Archer Resources Ltd.;
- Union Pacific Resources Group Inc./Norcen Energy Resources Limited; and
- Pioneer Natural Resources Company/Chauvco Resources Ltd.
For each transaction, RBC DS calculated a transaction value multiple based
on different statistics of the target company:
- equity value as a multiple of forecasted discretionary cash flow ("CF")
for the first and second years following the transaction;
- enterprise value as a multiple of forecasted earnings before interest,
taxes, depreciation and amortization ("EBITDA") for the first and second
years following the transaction;
- adjusted enterprise value as a multiple of forecasted daily BOE (barrel
of oil equivalent) production for the first and second years following
the transaction; and
- adjusted enterprise value as a multiple of BOE proved, proved and half
probable and proved and probable reserves.
The following table illustrates the various value multiples for each
transaction:
<TABLE>
<CAPTION>
EQUITY VALUE/ ENTERPRISE VALUE/
FORECASTED FORECASTED
------------- -----------------
EQUITY ENTERPRISE 1 YR. 2 YR. 1 YR. 2 YR.
DATE ACQUIROR TARGET VALUE VALUE CF CF EBITDA EBITDA
- ---- -------- ------ ------ ---------- ----- ----- ------- -------
(C$ MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Dec-98 Devon Energy Northstar $ 893 $1,304 6.8 5.1 8.5 6.5
May-98 Renaissance Pinnacle $ 719 $1,099 6.7 4.7 8.6 6.5
May-98 Marathon Oil Tarragon $1,107 $1,603 8.2 6.3 10.7 7.9
Apr-98 Dominion Energy Archer $ 182 $ 211 5.4 4.3 5.7 4.6
Mar-98 Union Pacific Norcen $3,723 $4,995 6.8 5.9 7.8 6.8
Dec-97 Pioneer Chauvco $1,524 $1,809 8.6 9.5 9.5 n/a
Average 7.1 6.0 8.5 6.5
</TABLE>
CHAPTER ONE -- THE TRANSACTION
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<PAGE> 33
<TABLE>
<CAPTION>
ADJUSTED ENTERPRISE ADJUSTED ENTERPRISE
VALUE/FORECASTED VALUE/BOE RESERVES
----------------------- -----------------------------------
1 YR. BOE 2 YR. BOE PROVEN + 1/2 PROVEN +
DATE ACQUIROR TARGET PRODUCTION PRODUCTION PROVEN PROBABLE PROBABLE
- ---- -------- ------ ---------- ---------- -------- ------------- --------
(C$/BOE/D) (C$/BOE/D) (C$/BOE) (C$/BOE) (C$/BOE)
<S> <C> <C> <C> <C> <C> <C> <C>
Dec-98 Devon Energy Northstar $29,165 $26,629 $10.69 $ 9.04 $ 7.83
May-98 Renaissance Pinnacle $22,531 $20,419 $ 7.41 $ 6.38 $ 5.60
May-98 Marathon Oil Tarragon $36,376 $29,173 $ 7.60 $ 6.31 $ 5.40
Apr-98 Dominion Energy Archer $18,372 $15,310 $10.50 $ 9.13 $ 8.07
Mar-98 Union Pacific Norcen $24,624 $22,474 $ 9.90 $ 8.57 $ 7.56
Dec-97 Pioneer Chauvco $45,901 $37,017 $15.80 $13.18 $11.30
Average $29,495 $25,170 $10.32 $ 8.77 $ 7.63
</TABLE>
These calculations assumed a conversion ratio of 10 thousand cubic feet of
natural gas to one barrel of oil before royalties.
RBC DS compared the precedent transaction value multiples to those proposed
under the transaction. The following value multiples are generated at a purchase
price of C$17.24 per Poco common share:
- equity value as a multiple of discretionary cash flow of 7.7 and 5.9 for
calendar 1999 and 2000, respectively;
- enterprise value as a multiple of EBITDA of 8.7 and 6.9 for calendar
1999 and 2000, respectively;
- adjusted enterprise value as a multiple of forecast daily BOE production
of C$38,445 and C$35,199 for calendar 1999 and 2000, respectively; and
- adjusted enterprise value as a multiple of proved BOE reserves and
proved and probable BOE reserves of C$12.45 and C$8.79 per BOE,
respectively.
RBC DS concluded that the precedent transaction multiple analysis generated
results that are consistent with the price per Poco common share under the
transaction.
Comparable Public Company Analysis. RBC DS also reviewed the trading
multiples of public companies involved in oil and gas production from the
perspective of whether a public market value analysis might exceed NAV or
precedent transaction values. However, RBC DS concluded that public company
multiples implied values that were below NAV and precedent transaction values.
Given the foregoing, and that public company trading values reflect the value of
board lots of shares which represent minority control discount values rather
than corporate transaction values which represent the full consideration for
purchase of an entire company, RBC DS did not directly rely on this methodology,
but used it as a basis for comparison and understanding.
Pro Forma Analysis of the Transaction. Based upon various analyst equity
research forecasts of calendar 1999 and 2000 cash flow and earnings for BR, the
transaction, if completed, would be accretive to BR's forecast cash flow per
share in calendar 1999 and 2000 and earnings per share in calendar 2000.
Further, RBC DS considered and analyzed the potential post announcement trading
price of the BR common stock. Consideration was given to several factors
including:
- post announcement trading premiums/discounts in comparable transactions;
- the pro forma accretion to BR's cash flow per share in calendar 1999 and
2000;
- the amount of new BR common stock being issued in aggregate and relative
to its float;
- BR's research and investor following;
- the strategic reasons for the transaction;
- the research community's expectations for a transaction of this nature;
and
- the current market conditions.
CHAPTER ONE -- THE TRANSACTION
26
<PAGE> 34
From this analysis, RBC DS considered that the market price of the BR
common stock would be an appropriate indicator of the value of the share
consideration offered to Poco shareholders under the arrangement.
RBC DS believes that its analyses must be considered as a whole and that
selecting portions of the analyses or the factors considered by it, without
considering all factors and analyses together, could create a misleading view of
the process underlying the RBC DS opinion. The preparation of a fairness opinion
is a complex process and is not necessarily susceptible to partial analysis or
summary description. Any attempt to do so could lead to undue emphasis on any
particular factor or analysis. The RBC DS opinion is not to be construed as a
recommendation to any Poco shareholder as to whether to vote in favor of the
resolution in respect of the transaction. RBC DS is not expressing any opinion
as to the price at which the exchangeable shares will trade following the
completion of the transaction.
RBC DS is one of Canada's largest investment banking firms, with operations
in all facets of corporate and government finance, mergers and acquisitions,
equity and fixed income sales, and trading and investment research. The RBC DS
opinion represents the opinion of RBC DS and the form and content thereof have
been approved for release by a committee of its directors, each of whom is
experienced in merger, acquisition, divestiture and fairness opinion matters.
Poco selected RBC DS as its financial advisor because it is a nationally
recognized investment banking firm in Canada, has substantial expertise in
mergers and acquisitions in the oil and gas sector, and has extensive knowledge
of Poco and Poco's business.
On July 29, 1999, Poco and RBC DS entered into an engagement agreement
pursuant to which RBC DS was requested to provide financial advisory services to
the Poco board in connection with a transaction. The terms of the engagement
agreement provide that RBC DS is to be paid an aggregate fee equal to 0.35% of
the consideration paid if the transaction is completed, and a fee of
approximately C$0.5 million if the transaction is not completed. Based on RBC
DS's estimate of the value of the consideration on the date of the RBC DS
opinion, the fee payable upon completion of the transaction would be
approximately C$10 million. In addition, RBC DS is to be reimbursed for any
reasonable out-of-pocket expenses and to be indemnified by Poco against certain
liabilities in certain circumstances.
OPINION OF MORGAN STANLEY
BR retained Morgan Stanley to act as its financial advisor in connection
with the transaction contemplated by the combination agreement. Morgan Stanley
was selected based on Morgan Stanley's qualifications, expertise and reputation.
At the meeting of the BR board on August 16, 1999, Morgan Stanley rendered its
oral opinion, subsequently confirmed in writing, that as of August 16, 1999, and
based upon and subject to the various considerations set forth in the opinion,
the exchange ratio pursuant to the combination agreement was fair from a
financial point of view to BR.
THE FULL TEXT OF THE WRITTEN OPINION OF MORGAN STANLEY DATED AUGUST 16,
1999, WHICH SETS FORTH, AMONG OTHER THINGS, ASSUMPTIONS MADE, PROCEDURES
FOLLOWED, MATTERS CONSIDERED AND LIMITATIONS ON THE SCOPE OF THE REVIEW
UNDERTAKEN BY MORGAN STANLEY IN RENDERING ITS OPINION, IS ATTACHED AS ANNEX I TO
THIS JOINT PROXY STATEMENT AND IS INCORPORATED HEREIN BY REFERENCE. HOLDERS OF
BR COMMON STOCK ARE URGED TO, AND SHOULD, READ THE WRITTEN OPINION OF MORGAN
STANLEY CAREFULLY AND IN ITS ENTIRETY. MORGAN STANLEY'S WRITTEN OPINION:
- IS DIRECTED TO THE BR BOARD;
- ADDRESSES ONLY THE FAIRNESS OF THE EXCHANGE RATIO PURSUANT TO THE
COMBINATION AGREEMENT FROM A FINANCIAL POINT OF VIEW TO BR AS OF THE DATE
OF THE WRITTEN OPINION, AND DOES NOT ADDRESS ANY OTHER ASPECT OF THE
TRANSACTION;
- DOES NOT EXPRESS AN OPINION AS TO THE PRICES AT WHICH THE POCO COMMON
SHARES, THE EXCHANGEABLE SHARES OR BR COMMON STOCK WILL TRADE AT ANY
TIME; AND
- DOES NOT CONSTITUTE AN OPINION OR RECOMMENDATION TO ANY SHAREHOLDER OF BR
AS TO HOW SUCH SHAREHOLDER SHOULD VOTE AT THE BR SPECIAL MEETING.
CHAPTER ONE -- THE TRANSACTION
27
<PAGE> 35
THE SUMMARY OF THE WRITTEN OPINION OF MORGAN STANLEY SET FORTH IN THIS
JOINT PROXY STATEMENT IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT
OF THE OPINION.
In connection with rendering its opinion, Morgan Stanley:
- reviewed publicly available financial statements and other information
of Poco and BR;
- reviewed internal financial statements and other financial and operating
data, including internal reserve estimates, concerning Poco and BR
prepared by the managements of Poco and BR;
- analyzed financial forecasts prepared by the managements of Poco and BR;
- discussed the past and current operations and financial condition and
the prospects of Poco, including information relating to strategic,
financial and operational benefits anticipated from the transaction,
with senior executives of Poco;
- discussed the past and current operations and financial condition and
the prospects of BR, including information relating to strategic,
financial and operational benefits anticipated from the transaction,
with senior executives of BR;
- reviewed the pro forma impact of the arrangement on BR's earnings per
share, cash flow, oil and gas reserves and production, consolidated
capitalization and financial ratios;
- reviewed the reported prices and trading activity for the Poco common
shares and the BR common stock;
- compared the financial performance of Poco and BR and the prices and
trading activity of the Poco common shares and the BR common stock with
that of other comparable publicly-traded companies and their securities;
- reviewed the financial terms, to the extent publicly available, of
selected comparable acquisition transactions;
- participated in discussions and negotiations among representatives of
Poco and BR and their financial and legal advisors;
- reviewed the draft combination agreement, plan of arrangement and
related documents; and
- performed such other analyses and considered such other factors as
Morgan Stanley deemed appropriate.
In rendering its opinion, Morgan Stanley assumed and relied upon, without
independent verification, the accuracy and completeness of the information
reviewed by Morgan Stanley for the purposes of its opinion. With respect to the
financial forecasts, Morgan Stanley assumed that they were reasonably prepared
on bases reflecting the best currently available estimates and judgments of the
future financial performance of Poco and BR. Morgan Stanley did not make any
independent valuation or appraisal of the assets or liabilities of Poco or BR,
nor was Morgan Stanley furnished with any such appraisals. With respect to the
reserve estimates referred to in the above paragraph, Morgan Stanley is not an
expert in the engineering evaluation of oil and gas properties and, with the
consent of the BR board, has relied, without independent verification, solely
upon the internal reserve estimates of Poco and BR. In addition, Morgan Stanley
assumed that the transaction would be consummated in accordance with the terms
set forth in the combination agreement. Morgan Stanley's opinion is necessarily
based on economic, market and other conditions as in effect on, and the
information made available to Morgan Stanley as of, August 16, 1999.
The following is a brief summary of the material analyses performed by
Morgan Stanley in connection with its oral opinion and the preparation of its
written opinion letter dated August 16, 1999. These summaries of financial
analyses include information presented in tabular format. In order to fully
understand the financial analyses used by Morgan Stanley, the tables must be
read together with the text of each summary. The tables alone do not constitute
a complete description of the financial analyses.
Historical Share Performance. Morgan Stanley conducted a historical
analysis of the Poco common shares' performance as measured by closing prices
and trading volumes from January 1, 1996 to August 13, 1999. During this period,
based on trading prices on the TSE, the Poco common shares traded at an
intra-day
CHAPTER ONE -- THE TRANSACTION
28
<PAGE> 36
high of C$17.25 and low of C$8.60 per share. The Poco common shares closed at a
price of C$13.40 per share on August 16, 1999. Based on the exchange ratio of
0.25 and BR's common stock closing price of $45.3125 per share on August 16,
1999, the implied acquisition price per Poco common share of C$16.78 represented
a premium of approximately 25%.
Morgan Stanley also compared historical closing prices of the Poco common
shares to The Toronto Stock Exchange Oil & Gas Index for the six month, one
year, three year and five year periods ended August 12, 1999. Poco performed in
line with the TSE Oil & Gas Index for each of the periods analyzed.
Historical Exchange Ratio Analysis. Morgan Stanley reviewed the daily
historical ratios of the closing stock prices per Poco common share divided by
the closing prices per share of BR common stock for the period from August 13,
1996 to August 13, 1999 and as of August 16, 1999. Morgan Stanley calculated the
weighted average of the historical ratios and computed the premium represented
by the exchange ratio of 0.25 over the weighted averages of the historical
ratios for various periods. The following table presents the range of historical
ratios over the periods covered compared to the exchange ratio in the
transaction.
<TABLE>
<CAPTION>
PERCENTAGE
PREMIUM
WEIGHTED REPRESENTED BY
AVERAGE EXCHANGE RATIO OF
TRADING PERIOD HISTORICAL RATIO 0.25 VS. HISTORICAL
- -------------- ---------------- --------------------
<S> <C> <C>
Last 3 years................................................ 0.212 18%
Last 2 years................................................ 0.214 17%
Last 1 year................................................. 0.212 18%
Last 6 months............................................... 0.184 36%
Last 3 months............................................... 0.187 33%
Last 1 month................................................ 0.199 26%
Last 5 days (exclusive of August 16, 1999).................. 0.196 28%
As of August 16, 1999....................................... 0.200 25%
</TABLE>
Contribution Analysis. Morgan Stanley reviewed certain historical and
projected operating and financial information (including, among other things,
oil and gas production volumes and proved reserves, equity market
capitalization, market capitalization of equity plus total debt, EBITDA
(earnings before interest, taxes, depreciation, amortization and exploration
costs), net income and cash flow) for BR, Poco and the pro forma combined entity
resulting from the transaction, without giving effect to any potential synergies
that may result from the transaction and excluding non-recurring integration
related costs or charges which may result from the adoption of the successful
efforts method of accounting by Poco. The analysis was performed utilizing
publicly available information and securities research analyst estimates for the
fiscal years ended 1999 and 2000 for BR and Poco. The analysis indicated that
Poco, the shareholders of which will receive approximately 18% of the pro forma
combined equity market capitalization of the combined company, would represent
20% of the pro forma combined equity market capitalization plus total debt of
the combined company, assuming a 0.25 exchange ratio and the closing stock price
as of August 13, 1999 for BR. Morgan Stanley observed that Poco would
contribute:
- to the estimated 1999 financial results based on securities research
analyst estimates:
- 24% of the pro forma combined EBITDA;
- 25% of the pro forma combined net income; and
- 23% of the pro forma combined cash flow;
- to the actual 1998 financial results:
- 21% of the pro forma combined EBITDA;
- 26% of the pro forma combined net income; and
- 20% of the pro forma combined cash flow;
CHAPTER ONE -- THE TRANSACTION
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<PAGE> 37
- to the estimated 1999 operating results based on securities research
analyst estimates:
- 22% of the pro forma combined oil production;
- 22% of the pro forma combined natural gas production; and
- 22% of the pro forma combined total equivalent production;
- to the actual 1998 production volumes:
- 22% of the pro forma combined oil production;
- 23% of the pro forma combined natural gas production; and
- 22% of the pro forma combined total equivalent production;
- to the proven reserves as of December 31, 1998:
- 21% of the pro forma combined oil reserves;
- 18% of the pro forma combined natural gas reserves; and
- 19% of the pro forma combined total equivalent reserves.
Public Market Valuation. Morgan Stanley reviewed selected financial
information, ratios and public market multiples for the following publicly
traded companies:
- Alberta Energy Company Ltd.;
- Anderson Exploration Ltd.;
- Rio Alto Exploration Ltd.;
- Berkley Petroleum Corp.;
- Paramount Resources Ltd.;
- Penn West Petroleum Ltd.;
- Canadian Hunter Exploration Ltd.;
- Encal Energy Ltd.; and
- Ulster Petroleums Ltd.
The selected companies were chosen because they are publicly traded
companies that for purposes of analysis may be considered similar to Poco.
The multiples and ratios for each of the selected companies were based on
the most recent publicly available information and on closing prices per share
as of August 12, 1999.
The results of these analyses are as follows:
<TABLE>
<CAPTION>
SELECTED
PEER GROUP RANGE VALUATION RANGE
------------------- -------------------
<S> <C> <C>
Price/1999E Cash Flow............................... 6.7 - 10.9 6.5 - 7.5
Price/2000E Cash Flow............................... 5.0 - 6.9 4.5 - 5.5
Adjusted Market Capitalization/1999E EBITDA......... 7.0 - 12.0 7.5 - 8.5
Adjusted Market Capitalization/2000E EBITDA......... 5.3 - 7.8 5.5 - 6.5
Adjusted Price/ BOE Proved.......................... C$8.04 - C$17.90 C$10.00 - C$12.00
Adjusted Price/BOE Proved 50% Probable.............. C$6.38 - C$14.30 C$8.00 - C$10.00
Adjusted Price/BOE Daily Production................. C$26,600 - C$62,100 C$27,500 - C$32,500
</TABLE>
Morgan Stanley applied the selected valuation range in the table above to
estimates prepared by the managements of Poco and BR. The analysis resulted in
an implied exchange ratio range of 0.23 to 0.29. Morgan Stanley defined adjusted
market capitalization as the sum of equity market capitalization, total debt and
preferred stock, minus cash and cash equivalents. Cash flow was defined as the
sum of net income plus deferred taxes, depletion, depreciation, amortization and
dry hole expense. Adjusted price was defined as adjusted market capitalization
less an assumed value for non "oil and gas" property, plant and equipment, less
working capital and other non-current assets, plus other non-current liabilities
(excluding deferred taxes). BOE was defined as a
CHAPTER ONE -- THE TRANSACTION
30
<PAGE> 38
barrel of oil equivalent assuming a conversion ratio of 6 thousand cubic feet of
natural gas to one barrel of oil after royalties.
No company utilized in the peer group comparison analysis as a comparison
is identical to Poco or BR. In evaluating the peer group, Morgan Stanley made
judgments and assumptions with regard to industry performance, general business,
economic, market and financial conditions and other matters, many of which are
beyond the control of Poco or BR, such as the impact of competition on the
business of Poco, BR or the industry generally, industry growth and the absence
of any adverse material change in the financial condition and prospects of Poco,
BR or the industry or in the financial markets in general. Mathematical
analysis, such as determining the average or median, is not in itself a
meaningful method of using peer group data.
Net Asset Value Analysis. Morgan Stanley estimated, at a range of discount
rates and hydrocarbon pricing scenarios, the present value of the future pre-tax
cash flows that Poco could be expected to generate from its proved and probable
reserves as of December 31, 1998. In the analysis, Morgan Stanley assumed four
alternative cases for future oil and natural gas prices. The first scenario was
generated using commodity prices as estimated by Morgan Stanley. The second
scenario was generated using the average futures prices listed on NYMEX on
August 13, 1999. The third and fourth scenarios were calculated using prices as
estimated by the managements of BR and Poco. For each of the four scenarios,
Morgan Stanley calculated the unlevered free cash flows that Poco would be
expected to generate from its proved and probable reserves during the fiscal
years 1999 through 2013 and the value of the remaining proved and probable
reserves projected at 2013 based upon engineering projections prepared by the
management of Poco. The unlevered free cash flows and remaining value of proved
and probable reserves were then discounted to obtain a present value using a
range of discount rates from 8% to 12%. Morgan Stanley further adjusted downward
the present value of probable reserves by 33.3%. Morgan Stanley added to those
estimated values for proved and probable reserves assessments of the value of
certain other assets and liabilities of Poco and BR, including, but not limited
to, other land and acreage, working capital and the book value of debt. These
assessments of the value of certain other assets and liabilities were made by
Morgan Stanley based on information and assumptions provided by Poco's and BR's
managements and on various industry benchmarks. The analysis resulted in an
implied exchange ratio range of 0.23 to 0.27.
Analysis of Selected Precedent Canadian Corporate Transactions. Morgan
Stanley reviewed the prices paid in the following precedent Canadian corporate
transactions with a transaction value in excess of C$500 million:
- the acquisition of Northstar Energy Corporation by Devon Energy
Corporation;
- the acquisition of Pinnacle Resources Ltd. by Renaissance Energy Ltd.;
- the acquisition of Tarragon Oil and Gas Limited by USX-Marathon Group of
USX Corporation;
- the acquisition of Norcen Energy Resources Limited by Union Pacific
Resources Group Inc.;
- the acquisition of Chauvco Resources Ltd. by Pioneer Natural Resources
Company;
- the acquisition of ELAN Energy Inc. by Ranger Oil Limited;
- the acquisition of Stampeder Exploration Ltd. by Gulf Canada Resources
Limited;
- the acquisition of CS Resources Limited by PanCanadian Petroleum Ltd.;
- the acquisition of Wascana Energy Inc. by Canadian Occidental Petroleum
Ltd.;
- the acquisition of Morrison Petroleums Ltd. by Northstar Energy
Corporation;
- the acquisition of Morgan Hydrocarbons Inc. by Stampeder Exploration
Ltd.; and
- the acquisition of Sceptre Resources Limited by Canadian Natural
Resources Limited.
Morgan Stanley observed that the implied transaction multiples for the
above transactions represented a range of adjusted market capitalization to last
twelve months EBITDA of 5.2 to 10.0 and a range of adjusted price/BOE proved of
C$4.79 to C$9.86.
CHAPTER ONE -- THE TRANSACTION
31
<PAGE> 39
Morgan Stanley also reviewed the prices paid for the following precedent
Canadian corporate transactions involving acquisition targets with natural gas
reserves equal to or in excess of 65% of total oil and gas reserves on a BOE
basis:
- the acquisition of Pan East Petroleum Corp. by Poco Petroleums Ltd.;
- the acquisition of Northstar Energy Corporation by Devon Energy
Corporation;
- the acquisition of Canrise Resources Ltd. by Poco Petroleums Ltd.;
- the acquisition of Paragon Petroleum Corporation by Northrock Resources
Ltd.;
- the acquisition of Pembina Resources Limited by Talisman Energy Inc.;
- the acquisition of HCO Energy Ltd. by Pinnacle Resources Ltd.;
- the acquisition of Cimarron Petroleum Ltd. by Newport Petroleum
Corporation; and
- the acquisition of Gardiner Oil and Gas Ltd. by Poco Petroleums Ltd.
The results of these analyses are as follows:
<TABLE>
<CAPTION>
COMPARABLE SELECTED
TRANSACTIONS RANGE VALUATION RANGE
------------------- -------------------
<S> <C> <C>
Price/2000E Cash Flow............................. 4.6 - 12.0 4.5 - 5.5
Adjusted Market Capitalization/Last Twelve Months
EBITDA.......................................... 5.2 - 19.9 8.5 - 9.0
Adjusted Price/BOE Proved......................... C$6.89 - C$9.59 C$9.00 - C$10.00
Adjusted Price/BOE Proved +50% Probable........... C$5.79 - C$8.38 C$7.00 - C$8.00
Adjusted Price/BOE Daily Production............... C$21,300 - C$29,600 C$25,000 - C$30,000
Premium to 20-Day Weighted Average Stock Price.... (4%) - 36% 25% - 35%
</TABLE>
Morgan Stanley applied the selected valuation range in the table above to
estimates prepared by the managements of Poco and BR. The analysis resulted in
an implied exchange ratio range of 0.22 to 0.26.
Pro Forma Acquisition Analysis. Morgan Stanley analyzed the pro forma
impact of the transaction on BR's projected earnings per share and cash flow per
share for the fiscal years ended 1999 and 2000 without giving effect to any
potential synergies that may result from the transaction. The analysis was
performed utilizing estimates prepared by BR management and publicly available
securities research analyst estimates for the fiscal years ended 1999 and 2000
for BR and Poco. Based on these forecasts, and assuming that the transaction is
treated as a pooling transaction, the transaction would be expected to be
modestly accretive to BR's earnings per share and cash flow per share in 1999
and 2000, excluding non-recurring integration related costs or charges which may
result from the adoption of the successful efforts method of accounting by Poco.
No transaction utilized as a comparison in the precedent transactions
analysis is identical to the transaction. In evaluating the transactions listed
above, Morgan Stanley made judgments and assumptions with regard to industry
performance, general business, economic, market and financial conditions and
other matters, many of which are beyond the control of Poco or BR, such as the
impact of competition on Poco, BR or the industry generally, industry growth and
the absence of any adverse material change in the financial condition and
prospects of Poco, BR or the industry or in the financial markets in general.
Mathematical analysis, such as determining the average or median, is not in
itself a meaningful method of using comparable transaction data.
In connection with the review of the transaction by the BR board, Morgan
Stanley performed a variety of financial and comparative analyses for purposes
of its opinion given in connection therewith. The preparation of a fairness
opinion is a complex process and is not necessarily susceptible to partial
analysis or summary description. In arriving at its opinion, Morgan Stanley
considered the results of all of its analyses as a whole and did not attribute
any particular weight to any particular analysis or factor considered by it.
Furthermore, Morgan Stanley believes that selecting any portion of its analyses
or factors considered by it, without considering all analyses and factors as a
whole, would create an incomplete view of the process underlying its opinion. In
CHAPTER ONE -- THE TRANSACTION
32
<PAGE> 40
addition, Morgan Stanley may have given various analyses and factors more or
less weight than other analyses and factors and may have deemed various
assumptions more or less probable than other assumptions, so that the ranges of
valuations resulting from any particular analysis described above should
therefore not be taken to be Morgan Stanley's view of the actual value of Poco
or BR.
In performing its analyses, Morgan Stanley made numerous assumptions with
respect to industry performance, general business and economic conditions and
other matters, many of which are beyond the control of Poco or BR. Any estimates
contained in Morgan Stanley's analysis are not necessarily indicative of future
results or actual values, which may be significantly more or less favorable than
those suggested by such estimates. The analyses were prepared solely as part of
Morgan Stanley's analysis of the fairness of the exchange ratio pursuant to the
combination agreement from a financial point of view to BR and were conducted in
connection with the delivery of the Morgan Stanley opinion to the BR board. The
analyses do not purport to be appraisals or to reflect the prices at which Poco
common shares, the exchangeable shares or BR common stock actually may be valued
or the prices at which their shares or stock may actually trade in the
marketplace. Accordingly, such analyses and estimates are inherently subject to
substantial uncertainty.
In addition, as described above, Morgan Stanley's opinion and presentation
to the BR board was one of many factors taken into consideration by the BR board
in making its decision to approve the transaction. Consequently, the Morgan
Stanley analyses as described above should not be viewed as determinative of the
opinion of the BR board with respect to the value of BR or of whether the BR
board would have been willing to agree to a different exchange ratio. The
exchange ratio pursuant to the combination agreement and other terms of the
combination agreement were determined through arm's-length negotiations between
Poco and BR and were approved by the BR board. Morgan Stanley provided advice to
BR during the course of such negotiations; however, the decision to enter into
the combination agreement and to offer the exchange ratio pursuant to the
combination agreement was solely that of the BR board.
Morgan Stanley is an internationally recognized investment banking and
advisory firm. Morgan Stanley, as part of its investment banking and financial
advisory business, is continuously engaged in the valuation of businesses and
securities in connection with mergers and acquisitions, negotiated
underwritings, competitive biddings, secondary distributions of listed and
unlisted securities, private placements and valuations for corporate and other
purposes. In the ordinary course of Morgan Stanley's trading, brokerage and
financing activities, Morgan Stanley or its affiliates may at any time hold long
or short positions, trade or otherwise effect transactions, for its own account
or for the account of customers, in the equity or debt securities or senior
loans of Poco or BR.
Pursuant to an engagement letter dated -- , 1999, Morgan Stanley
provided financial advisory services and a financial opinion in connection with
the transaction, and BR agreed to pay Morgan Stanley a fee of approximately $9.5
million. BR has also agreed to reimburse Morgan Stanley for its expenses
incurred in performing its services. In addition, BR has agreed to indemnify
Morgan Stanley and its affiliates, their respective directors, officers, agents
and employees and each person, if any, controlling Morgan Stanley or any of its
affiliates against certain liabilities and expenses, including certain
liabilities under the federal securities laws, related to or arising out of
Morgan Stanley's engagement and any related transactions. In the past, Morgan
Stanley and its affiliates have provided financial advisory services for BR and
have received fees for the rendering of these services.
TRANSACTION MECHANICS AND DESCRIPTION OF EXCHANGEABLE SHARES
The following is a summary description of the material terms of:
- the arrangement under section 186 of the Business Corporations Act
(Alberta) which will give effect to the transaction;
- the exchangeable share provisions;
- the form of the support agreement; and
- the form of voting and exchange trust agreement.
CHAPTER ONE -- THE TRANSACTION
33
<PAGE> 41
This summary is qualified in its entirety by the full text of these documents,
which we have included in Annexes D, E, F and G, and which are incorporated
herein by reference.
SUMMARY
Pursuant to the arrangement Poco shareholders will receive:
- exchangeable shares of BR Canada which have economic rights, including
the right to all dividends, and voting attributes, equivalent to BR
common stock, but with effectively no economic or voting rights in BR
Canada; and
- the right to receive BR common stock at any time in exchange for
exchangeable shares on a one-for-one basis.
The rights relating to the exchange or redemption of exchangeable shares
into BR common stock are:
- Shareholder Rights to Exchange or Cause Redemption: the rights, which
are called exchange put rights and retraction rights, to require an
exchange by BR or redemption by BR Canada of exchangeable shares for BR
common stock;
- Automatic Rights: upon the occurrence of specified automatic or
triggering events, rights (which are called the automatic redemption
right, optional exchange right, liquidation right and automatic exchange
right) to receive, by exchange or redemption of exchangeable shares, BR
common stock, without any action by the holders of exchangeable shares;
and
- BR Call Rights: overriding call rights (called retraction call rights,
liquidation call rights and redemption call rights) granted to BR to
require an exchange of exchangeable shares for BR common stock with BR
if a holder exercises retraction rights or in any circumstance where BR
Canada would redeem the exchangeable shares.
BR anticipates that it will exercise its call rights, when available, and
currently foresees no circumstances under which it would not exercise its call
rights. Therefore it is expected that holders of exchangeable shares will only
receive BR common stock through an exchange with BR, as opposed to a redemption
by BR Canada, of exchangeable shares for BR common stock. While the
consideration received upon an exchange or a redemption will be the same, the
tax consequences will be substantially different. See "Information About Tax
Considerations -- Canadian Federal Income Tax Considerations to Poco
Shareholders".
THE PLAN OF ARRANGEMENT
The Arrangement. The transaction will be effected by means of an
arrangement of Poco under the Business Corporations Act (Alberta) in accordance
with the plan of arrangement. We have included a copy of the form of the plan of
arrangement as Annex D, which is incorporated by reference into this joint proxy
statement.
Court Approval of the Arrangement and Completion of the Transaction. An
arrangement of a corporation under Alberta law requires approval by both the
Court of Queen's Bench of Alberta and the shareholders, and, if applicable,
optionholders of the subject corporation. Prior to the mailing of this joint
proxy statement, Poco obtained the Interim Order of the Court, which is attached
as Annex C, providing for the calling and holding of the Poco special meeting
and other procedural matters.
Subject to the approval of the arrangement by the Poco shareholders and
Poco optionholders at the Poco special meeting, the hearing in respect of the
Final Order is scheduled to take place on -- , 1999 at -- (Calgary
time) in the Court of Queen's Bench of Alberta at the Court House, 611 - 4th
Street S.W., Calgary, Alberta, Canada. All Poco shareholders and optionholders
who wish to participate or be represented or to present evidence or arguments at
that hearing must serve and file a notice of appearance as set out in the Notice
of Petition for the Final Order and satisfy any other requirements. At the
hearing of the application in respect of the Final Order, the Court will
consider, among other things, the fairness and reasonableness of the
arrangement. The Court may approve the arrangement as proposed or as amended in
any manner the Court may direct, subject to compliance with such terms and
conditions, if any, as the Court deems fit.
CHAPTER ONE -- THE TRANSACTION
34
<PAGE> 42
Assuming the Final Order is granted and the other conditions to the
combination agreement are satisfied or waived, it is anticipated that the
following will occur substantially simultaneously: articles of arrangement will
be filed with the registrar under the Business Corporations Act (Alberta) to
give effect to the arrangement, the support agreement between BR Canada and BR
substantially in the form of Annex F and the voting and exchange trust agreement
between BR Canada, BR and CIBC Mellon Trust Company, as trustee, substantially
in the form of Annex G will be executed and delivered, and the various other
documents necessary to give effect to the transaction will be executed and
delivered.
Subject to the foregoing, it is presently anticipated that the transaction
will become effective on or about -- , 1999.
RIGHTS RELATING TO THE EXCHANGE OR REDEMPTION OF EXCHANGEABLE SHARES
Shareholder Rights to Receive BR Common Stock: BR will grant the exchange
put right described below to CIBC Mellon Trust Company, as trustee, for the
benefit of the holders of the exchangeable shares. The holders of exchangeable
shares also have the right to retract (i.e., require BR Canada to redeem) any or
all of their exchangeable shares.
- Exchange Put Right. A holder of exchangeable shares is entitled to
require BR to exchange, which is called an exchange put right, all or
any part of the holder's exchangeable shares for an equivalent number of
shares of BR common stock, plus the equivalent amount of all BR
dividends, payable and unpaid, if any. A holder of exchangeable shares
may exercise the exchange put right by presenting written notice to the
trustee accompanied by presentation and surrender of a certificate or
certificates representing the exchangeable shares the holder desires to
have BR redeem, together with such other documents and instruments as
may be required to effect a transfer of exchangeable shares as provided
in the voting and exchange trust agreement among BR, BR Canada and CIBC
Mellon Trust Company as trustee, at the trustee's principal offices in
Calgary, Alberta or Toronto, Ontario. An exchange pursuant to this right
will be completed not later than the close of business on the third
business day following receipt by the trustee of the notice, the
certificates and other required documents.
- Retraction Rights. Subject to applicable law and the retraction call
right of BR, holders of the exchangeable shares are entitled at any time
to retract (i.e., to require BR Canada to redeem) any or all
exchangeable shares owned by them and to receive an equivalent number of
shares of BR common stock plus the equivalent amount of all BR
dividends, payable and unpaid, if any, subject to the retraction call
right of BR described below. Holders of exchangeable shares may effect a
retraction by presenting certificates representing the number of
exchangeable shares the holder desires to retract to BR Canada or the
trustee, together with a duly executed retraction request:
- specifying the number of exchangeable shares the holder desired to
retract;
- stating the retraction date on which the holder desires to have BR
Canada redeem such shares, which must be a business day between five
and ten days from the date of delivery of the request; and
- acknowledging the retraction call right of BR to purchase all but not
less than all the retracted shares directly from the holder and that
the retraction request will be deemed to be a revocable offer by the
holder to sell the retracted shares to BR in accordance with the
retraction call right on the terms and conditions described below.
Upon receipt by BR Canada of a retraction request, BR Canada will
promptly notify BR. In order to exercise its retraction call right, BR
must notify BR Canada of its determination to do so within two business
days of such notification to BR. If BR delivers the call notice within
two business days, and provided that the retraction request is not
revoked by the holder in the manner described below, BR Canada will not
redeem the retracted shares and BR will purchase from the holder and the
holder will sell to BR on the retraction date the retracted shares. In
the event that BR does not deliver to BR Canada a call notice within the
two business days period, and provided that the retraction request is not
revoked by the holder in the manner described below, BR Canada will
redeem the retracted shares on the retraction date.
CHAPTER ONE -- THE TRANSACTION
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A holder of retracted shares may, by notice in writing given by the
holder to BR Canada before the close of business on the business day
immediately preceding the date specified by the holders as the retraction
date, withdraw its retraction request. If the retraction request is
withdrawn, the revocable offer constituted by the retraction request to
sell the retracted shares to BR will be deemed to have been revoked.
If, as a result of liquidity or solvency requirements or other provisions
of applicable law, BR Canada is not permitted to redeem all exchangeable
shares tendered by a retracting holder, BR Canada will redeem only those
exchangeable shares tendered by the holder as would be permitted by
applicable law. This right is subject to BR's liquidation call right
described below. The holder of any exchangeable shares not redeemed by BR
Canada as a consequence of such applicable law or purchased by BR, will
be deemed to have required BR to purchase the unretracted shares in
exchange for an equal number of shares of BR common stock, plus the
equivalent amount of all dividends, payable and unpaid, if any, on the
retraction date pursuant to the exchange right provided for in the voting
and exchange trust agreement described below.
Automatic Rights.
- Redemption of Exchangeable Shares. Subject to applicable law and the
redemption call rights of BR described below, on an automatic redemption
date, described below, BR Canada will redeem all but not less than all
of the then outstanding exchangeable shares in exchange for an equal
number of shares of BR common stock, plus the equivalent amount of all
BR dividends, payable and unpaid, if any. Notwithstanding any proposed
redemption of the exchangeable shares, BR will, pursuant to redemption
call rights, have the overriding right to acquire on an automatic
redemption date all but not less than all of the outstanding
exchangeable shares in exchange for one share of BR common stock for
each exchangeable share, plus the equivalent amount of all BR dividends,
payable and unpaid, if any. An automatic redemption date is the first to
occur of:
- the date selected by the BR Canada board (but no earlier than the
fifth anniversary of the effective date of the arrangement);
- the date selected by the BR Canada board (but no earlier than the
third anniversary of the effective date of the arrangement) at a time
when less than 10% of the number of exchangeable shares issuable on
the effective date of the arrangement are outstanding (other than
exchangeable shares held by BR and entities controlled by BR);
- the date on which the share purchase rights issued pursuant to the BR
rights agreement separate from the BR common stock and become
exercisable;
- the business day prior to the record date for any meeting or vote of
the BR Canada shareholders to consider any matter in which the holders
of exchangeable shares would be entitled to vote as BR Canada
shareholders, but excluding any meeting or vote as described in clause
immediately below; or
- the business day following the day on which the holders of
exchangeable shares fail to take the necessary action at a meeting or
other vote of holders of exchangeable shares, if and to the extent
such action is required, to approve or disapprove, as applicable, any
change to, or in the rights of the holders of, exchangeable shares, if
the approval or disapproval, as applicable, of such change would be
required to maintain the economic and legal equivalence of the
exchangeable shares and the BR common stock.
At least 45 days before an automatic redemption date or before a possible
automatic redemption date which may result from a failure of holders of
exchangeable shares to take necessary action as described above, BR Canada
shall provide the registered holders of exchangeable shares with written
notice of the proposed redemption or possible redemption of the
exchangeable shares by BR Canada. In the case of any notice given in
connection with a possible automatic redemption date, such notice will be
given contingently and will be withdrawn if the contingency does not
occur.
CHAPTER ONE -- THE TRANSACTION
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- Optional Exchange Right. Upon the occurrence and during the continuance
of a BR Canada insolvency event, described below, a holder of
exchangeable shares will be entitled to instruct the trustee to exercise
the right, which we refer to as the optional exchange right, with
respect to any or all of the holder's exchangeable shares, thereby
requiring BR to acquire the exchangeable shares from the holder.
Immediately upon the occurrence of a BR Canada insolvency event or any
event which may, with the passage of time or the giving of notice,
become a BR Canada insolvency event, BR Canada and BR will give written
notice to the trustee. The trustee will then promptly notify each holder
of exchangeable shares of the event or potential event and will advise
the holder of its rights with respect to the optional exchange right.
The consideration for each exchangeable share to be required under the
optional exchange right will be one share of BR common stock plus the
equivalent amount of all BR dividends, payable and unpaid, if any.
"BR Canada insolvency event" means:
- the institution of, or the consent of BR Canada to the institution of,
any proceeding for BR Canada to be adjudicated bankrupt or insolvent
or to be dissolved or wound-up, or the filing of a petition, answer or
consent seeking dissolution or winding-up under bankruptcy insolvency
or analogous laws;
- the failure of BR Canada to contest in good faith any such proceeding
commenced against it within 15 days of becoming aware of the
proceeding;
- the consent of BR Canada to the filing of any such petition or
appointment of a receiver;
- the making by BR Canada of a general assignment for the benefit of
creditors, or the admission in writing of its inability to pay its
debts generally as they become due; or
- BR Canada's not being permitted, pursuant to liquidity or solvency
requirements of applicable law, to redeem any exchangeable shares
pursuant to a retraction request.
If, as a result of liquidity or solvency requirements or other provisions
of applicable law, BR Canada is not permitted to redeem all of the
exchangeable shares tendered for retraction by a holder in accordance
with the exchangeable share provisions as described under "Retraction
Rights" above, the holder will be deemed to have exercised the optional
exchange right with respect to the unredeemed exchangeable shares, and BR
will be required to purchase such shares from the holder in the manner
described above under "Retraction Rights" set forth above.
- Liquidation Right. Subject to BR's liquidation call right described
below, in the event of the liquidation, dissolution or winding-up of BR
Canada or any other distribution of assets of BR Canada among its
shareholders for the purpose of winding-up its affairs, the holders of
exchangeable shares will be entitled to receive for each exchangeable
share one share of BR common stock, together with the equivalent amount
of all BR dividends, payable and unpaid, if any.
- Automatic Exchange Right. In the event of a BR liquidation event
described below, BR will be deemed to have purchased each outstanding
exchangeable share and each holder of exchangeable shares will be deemed
to have sold the exchangeable shares held by it on the basis of one
share of BR common stock, plus the equivalent amount of all BR
dividends, payable and unpaid, if any, for each exchangeable share.
"BR liquidation event" means:
- any determination by the BR board of directors to institute voluntary
liquidation, dissolution or winding-up proceedings with respect to BR
or to effect any other distribution of assets of BR among its
shareholders for the purpose of winding-up its affairs; or
- the earlier of receipt of notice of and BR's otherwise becoming aware
of, any threatened or instituted claim or other proceeding with
respect to the involuntary liquidation, dissolution or winding-up of
BR or to effect any other distribution of assets of BR among its
shareholders for the purpose of winding-up its affairs.
CHAPTER ONE -- THE TRANSACTION
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BR Call Rights. In the circumstances described below, BR will have certain
overriding rights to acquire exchangeable shares from holders by delivering one
share of BR common stock, plus the equivalent amount of all BR dividends,
payable and unpaid, if any, for each exchangeable share acquired. Different
Canadian federal income tax consequences to a holder of exchangeable shares and
to BR Canada may arise depending upon whether the call rights are exercised by
BR or whether the relevant exchangeable shares are redeemed by BR Canada
pursuant to the exchangeable share provisions. See "Information About Tax
Considerations -- Canadian Federal Income Tax Considerations to Poco
Shareholders."
- Retraction Call Right. A holder requesting BR Canada to redeem the
exchangeable shares will be deemed to offer such shares to BR, and BR
will have an overriding retraction call right to acquire all, but not
less than all, of the exchangeable shares that the holder has requested
BR Canada to redeem in exchange for one share of BR common stock, plus
the equivalent amount of all BR dividends, payable and unpaid, if any,
in exchange for each exchangeable share. See "Retraction Rights" above.
- Liquidation Call Right. BR will be granted an overriding liquidation
call right, in the event of and notwithstanding a proposed liquidation,
dissolution or winding-up of BR Canada or any other distribution of the
assets of BR Canada among its shareholders for the purpose of winding-up
its affairs, to acquire all, but not less than all, of the exchangeable
shares then outstanding in exchange for BR common stock, plus the
equivalent amount of all BR dividends, payable and unpaid, if any. Upon
the exercise by BR of the liquidation call right, the holders of the
exchangeable shares will be obligated to transfer their shares to BR.
The acquisition by BR of all of the outstanding exchangeable shares upon
the exercise of the liquidation call right will occur on the effective
date of the voluntary or involuntary liquidation, dissolution or
winding-up of BR Canada.
- Redemption Call Right. BR has an overriding redemption call right to
acquire on an automatic redemption date all, but not less than all, of
the exchangeable shares then outstanding in exchange for BR common
stock, plus the equivalent amount of all BR dividends, payable and paid,
if any, and, upon the exercise by BR of the redemption call right, the
holders of the exchangeable shares will be obligated to transfer their
shares to BR.
- Effect of Call Right Exercise. If BR exercises one or more of its call
rights, it will directly issue BR common stock to holders of
exchangeable shares and will become the holder of the exchangeable
shares. BR will not be entitled to exercise any voting rights attached
to the exchangeable shares it so acquires. If BR declines to exercise
its call rights when applicable, it will be required to issue BR common
stock as BR Canada directs, including to BR Canada, which will, in turn,
transfer the stock to the holders of exchangeable shares in
consideration for the return and cancellation of the exchangeable
shares. In the event BR does not exercise its call rights when
applicable and instead delivers BR common stock as BR Canada directs,
the consideration received by holders of the exchangeable shares would
be the same, while the Canadian tax consequences will be substantially
different. See "Certain Income Tax Considerations -- Canadian Federal
Income Tax Considerations to Poco Shareholders." However, BR anticipates
that it will exercise its call rights, when available, and currently
foresees no circumstances under which it would not exercise its call
rights. In addition, BR does not anticipate any restriction or
limitation on the number of exchangeable shares it would acquire upon
the exercise of its call rights.
ADJUSTMENTS
The exchangeable shares are subject to adjustment or modification in the
event of a stock split or other changes to the capital structure of BR so as to
maintain the initial one-to-one ratio between the exchangeable shares and BR
common stock.
TAX ELECTION
Poco shareholders will be entitled to make an income tax election pursuant
to section 85 of the Income Tax Act (Canada) with respect to the transfer of
their Poco common shares to BR Canada.
CHAPTER ONE -- THE TRANSACTION
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STOCK OPTIONS
Pursuant to the arrangement, each option to purchase Poco common shares
granted under Poco's stock option plan will be converted into an option to
purchase a number of whole shares of BR common stock equal to the number of Poco
common shares subject to such option multiplied by 0.25 at an exercise price per
share of BR common stock equal to the exercise price per share of such option
divided by 0.25, such exercise price to be converted into U.S. dollars based
upon the average Canadian/U.S. dollar exchange rate over a ten trading day
period ending on the second day prior to the conversion of the options. If this
calculation results in a converted option being exercised for a fractional share
of BR common stock, then the number of shares shall be rounded down to the
nearest whole number of shares. Such options will vest in accordance with the
terms of Poco's stock option plan. The obligations of Poco under the converted
options will be assumed by BR and BR will be substituted for Poco under, and as
sponsor of, Poco's stock option plan. The term, expiration date, exerciseability
and all other terms and conditions of the converted options will be otherwise
unchanged.
SPECIAL VOTING STOCK
In order to facilitate the completion of the transaction, the arrangement
will also include the issuance by BR of one share of preferred stock, designated
as special voting stock, to CIBC Mellon Trust Company, the trustee under the
voting and exchange trust agreement. This special voting share will allow
holders of exchangeable shares to vote as if they were BR shareholders. See "BR
Share Capital -- Special Voting Stock" and "-- Voting and Exchange Trust
Agreement."
LETTER OF TRANSMITTAL
Enclosed with copies of this joint proxy statement delivered to the
registered holders of Poco common shares is the Poco letter of transmittal. For
the holder to receive the exchangeable shares for his Poco shares, a holder must
duly complete, sign and return the letter of transmittal, together with his
certificates for Poco shares. See "-- Procedures for Transfer of Share
Certificates by Poco Shareholders and Poco Optionholders."
VOTING AND EXCHANGE TRUST AGREEMENT
The following is a summary description of the material provisions of the
voting and exchange trust agreement among BR, BR Canada and CIBC Mellon Trust
Company, as trustee, and is qualified in its entirety by reference to the full
text of the voting and exchange trust agreement which we have included as Annex
G.
Voting Rights. In accordance with the voting and exchange trust agreement,
the arrangement will include the issuance by BR of one share of special voting
stock to CIBC Mellon Trust Company, the trustee under the agreement, for the
benefit of the holders (other than BR and its subsidiaries) of the exchangeable
shares. The special voting stock will carry a number of votes, exercisable at
any meeting at which BR shareholders are entitled to vote, equal to the number
of outstanding exchangeable shares (other than shares held by BR and its
subsidiaries). With respect to any written consent sought from the BR
shareholders, each vote attached to the special voting stock will be exercisable
in the same manner as set forth above.
Each holder of an exchangeable share on the record date for any meeting at
which BR shareholders are entitled to vote will be entitled to instruct the
trustee to exercise one of the votes attached to the special voting stock for
such exchangeable share. The trustee will exercise each vote attached to the
special voting stock only as directed by the relevant holder and, in the absence
of instructions from a holder as to voting, will not exercise such votes. A
holder may, upon instructing the trustee, obtain a proxy from the trustee
entitling the holder to vote directly at the relevant meeting the votes attached
to the special voting stock to which the holder is entitled.
The trustee will send to the holders of the exchangeable shares the notice
of each meeting at which the BR shareholders are entitled to vote, together with
the related meeting materials and a statement as to the manner in which the
holder may instruct the trustee to exercise the votes attaching to the special
voting stock, at the same time as BR sends such notice and materials to the BR
shareholders. The trustee will also send to the holders copies of all
information statements, interim and annual financial statements, reports and
other materials sent by BR to the BR shareholders at the same time as such
materials are sent to the BR shareholders. To the extent such materials are
provided to the trustee by BR, the trustee will also send to the holders all
materials sent by third
CHAPTER ONE -- THE TRANSACTION
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parties to BR shareholders, including dissident proxy circulars and tender and
exchange offer circulars, as soon as possible after such materials are first
sent to BR shareholders.
All rights of a holder of exchangeable shares to exercise votes attached to
the special voting stock will cease upon the exchange of all such holder's
exchangeable shares for shares of BR common stock.
With the exception of administrative changes for the purpose of adding
covenants for the protection of the holders of the exchangeable shares, making
necessary amendments or curing ambiguities or clerical errors (in each case
provided that the board of directors of each of BR and BR Canada is of the
opinion that such amendments are not prejudicial to the interests of the holders
of the exchangeable shares), the voting and exchange trust agreement may not be
amended without the approval of the holders of the exchangeable shares.
Exchange Put Right, Optional Exchange Right and Automatic Exchange
Right. The voting and exchange trust agreement provides for the exchange put
right, the optional exchange right and the automatic exchange right.
SUPPORT AGREEMENT
The following is a summary description of the material provisions of the
support agreement and is qualified in its entirety by reference to the full text
of the support agreement, which we have included as Annex F.
Under the support agreement, BR will agree that so long as any exchangeable
shares are outstanding:
- it will not declare or pay dividends on the BR common stock unless BR
Canada is able to and simultaneously pays an equivalent dividend on the
exchangeable shares;
- it will cause BR Canada to declare and pay an equivalent dividend on the
exchangeable shares simultaneously with BR's declaration and payment of
dividends on the BR common stock;
- it will advise BR Canada in advance of the declaration of any dividend
on the BR common stock and ensure that the declaration date, record date
and payment date for dividends on the exchangeable shares are the same
as that for the BR common stock;
- it will ensure that the record date for any dividend declared on BR
common stock is not less than ten business days after the declaration
date for such dividends;
- it will take all actions and do all things necessary to ensure that BR
Canada is able to provide to the holders of the exchangeable shares the
equivalent number of shares of BR common stock in the event of a
liquidation, dissolution, or winding-up of BR Canada or any other
distribution of the assets of BR Canada for the purpose of winding-up
its affairs, a retraction request by a holder of exchangeable shares, or
a redemption of exchangeable shares of BR Canada; and
- it will not vote or otherwise take any action or omit to take any action
causing the liquidation, dissolution or winding-up of BR Canada.
The support agreement will also provide that BR will not distribute
additional shares of BR common stock or rights to subscribe therefor or other
property or assets to all or substantially all holders of shares of BR common
stock, nor change the BR common stock nor effect any tender offer, share
exchange offer, issuer bid, take-over bid or similar transaction affecting the
BR common stock, unless the same or an equivalent distribution on or change to
the exchangeable shares (or in the rights of the holders thereof) is made
simultaneously.
BR has agreed that until the expiry of three years from closing, and
provided there remain outstanding exchangeable shares not owned by BR or any
entity controlled by BR, BR will remain the beneficial owner, directly or
indirectly, of all outstanding common shares of BR Canada.
With the exception of administrative changes for the purpose of adding
covenants for the protection of the holders of the exchangeable shares, making
necessary amendments or curing ambiguities or clerical errors (in each case
provided that the board of directors of each of BR and BR Canada is of the
opinion that such amendments are not prejudicial to the interests of the holders
of the exchangeable shares), the support agreement may not be amended without
the approval of the holders of the exchangeable shares.
CHAPTER ONE -- THE TRANSACTION
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Under the support agreement, BR has agreed not to exercise any voting
rights attached to the exchangeable shares owned by it or any entity controlled
by it on any matter considered at meetings of holders of exchangeable shares
(including any approval sought from such holders in respect of matters arising
under the support agreement).
In order for BR to perform in accordance with the support agreement, BR
Canada must notify BR of the occurrence of the following and other events:
- the determination by the BR Canada board to take any action which would
require the approval of the holders of exchangeable shares;
- the determination by the Poco board of a date for the automatic
redemption of the exchangeable shares prior to the fifth anniversary of
the effective date of the transaction;
- the liquidation, dissolution or winding-up of Poco or the distribution
of the assets of Poco for the purpose of winding-up its affairs; and
- BR Canada's receipt of a retraction request from a holder of
exchangeable shares.
DELIVERY OF BR COMMON STOCK
BR will ensure that all shares of BR common stock to be delivered by it
under the support agreement or on the exercise of the rights granted to the
trustee under the voting and exchange trust agreement are duly registered,
qualified or approved under applicable Canadian and United States securities
laws, if required, so that such shares may be freely traded by the holder
thereof (other than any restriction on transfer by reason of a holder being a
"control person" of BR for purposes of Canadian law or an affiliate of BR for
purposes of U.S. law). In addition, BR will take all actions necessary to cause
all such shares of BR common stock to be listed or quoted for trading on all
stock exchanges or quotation systems on which outstanding shares of BR common
stock are then listed or quoted for trading.
THE COMBINATION AGREEMENT
Exchange Ratio. Under the terms of the combination agreement, if the
transaction is completed, each holder of Poco common shares will receive 0.25
exchangeable shares for each Poco common share. Each exchangeable share will
have economic and voting rights equivalent to one share of BR common stock and
will be exchangeable at any time for one share of BR common stock.
Conditions to Closing. The combination agreement provides that the
respective obligations of each party to complete the transaction are subject to
a number of conditions, including the following material conditions:
- approval of the plan of arrangement by the Poco shareholders and
optionholders and approval of the issuance of BR common stock in
connection with the transaction by the BR shareholders;
- receipt of all consents, including the Final Order of the Court of
Queen's Bench of Alberta and any other regulatory approvals legally
required for the consummation of the transaction;
- there being no decree or ruling or statute, rule, regulation or order
threatened, enacted, entered or enforced by any governmental agency that
prohibits or renders illegal the consummation of the transaction;
- there being no temporary restraining order, preliminary injunction,
permanent injunction or other order preventing the consummation of the
transaction nor any pending proceeding seeking any of the foregoing;
- the representations and warranties of the parties being true and correct
in all material respects;
- the parties having performed in all material respects all agreements and
covenants to be performed by them under the combination agreement;
CHAPTER ONE -- THE TRANSACTION
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- the BR common stock to be issued upon the exchange of the exchangeable
shares having been approved for listing on the NYSE; and
- the exchangeable shares having been approved for listing on the TSE or,
in the absence of a listing on the TSE, another recognized Canadian
stock exchange.
Covenants. Under the combination agreement BR and Poco have covenanted as
follows:
- Consents and Approvals. The parties have agreed to apply for and use
their commercially reasonable efforts to obtain all court, regulatory
and other consents and approvals required for the consummation of the
transaction and to use their commercially reasonable efforts to effect
the transactions contemplated by the combination agreement;
- Interim Operations of Poco and BR. Until the earlier of the termination
of the combination agreement or the effective time, Poco has agreed that
it will maintain its business, not take actions outside the ordinary
course, and use its commercially reasonable efforts to consummate the
transaction. BR has agreed to refrain from taking any action which would
be reasonably likely to prevent or materially delay the consummation of
the transaction; and
- Stock Exchange Listing. BR will use its commercially reasonable efforts
to list the exchangeable shares on the TSE or, in the event that a
listing on the TSE is not available, on another recognized Canadian
stock exchange.
No Solicitation. Until the earlier of the effective time or the
termination of the combination agreement, Poco will not, and it will not
authorize or permit any of its officers, directors, employees, financial
advisors, representatives and agents, to directly or indirectly, solicit,
initiate or encourage (including by way of furnishing information) or
participate in or take any other action to facilitate any inquiries or the
making of any proposal which constitutes or may reasonably be expected to lead
to an acquisition proposal from any person, or engage in any discussion,
negotiations or inquiries relating thereto or accept any acquisition proposal,
whether or not initiated by Poco, and in connection therewith, Poco will
exercise all rights to require the return of information regarding Poco
previously provided to such parties and will exercise all rights to require the
destruction of all materials including or incorporating any information
regarding Poco. Notwithstanding the foregoing, Poco may at any time prior to the
time the Poco shareholders have voted to approve the transaction, engage in
discussions or negotiations with a third party who (without any solicitation,
initiation or encouragement, directly or indirectly, by Poco or its subsidiaries
or any of their representatives described above) seeks to initiate such
discussions or negotiations and may furnish such third party information
concerning Poco and its business, properties and assets which has previously
been provided to BR, if, and only to the extent that:
- the third party has first made a bona fide written acquisition proposal
that is a "superior proposal". A "superior proposal" is a proposal that
is demonstrably financially superior to the transactions contemplated by
the combination agreement and the third party has demonstrated that the
funds or other consideration necessary are available, as determined in
good faith by the Poco board after receiving the written advice of its
financial advisors and is not subject to any due diligence conditions
other than confirmatory due diligence and the Poco board has concluded
in good faith, after considering applicable law and receiving the
written advice of outside counsel that such action is necessary for the
Poco board to act in a manner consistent with its fiduciary duties under
applicable law;
- prior to furnishing information to or entering into discussions or
negotiations with the third party, Poco provides prompt notice orally
and in writing to BR specifying the identity of such person or entity
and that it is furnishing information or entering into discussions or
negotiations with such person or entity in respect of a superior
proposal and receives from the third party an executed confidentiality
agreement having confidentiality and standstill terms substantially
similar to those contained in the confidentiality agreement executed by
BR (other than the exclusivity provisions of the BR agreement),
providing full details within 24 hours, of all material terms and
conditions of the superior proposal and any amendments to the proposal
and confirming in writing the determination of the Poco board that the
acquisition proposal constitutes a superior proposal;
CHAPTER ONE -- THE TRANSACTION
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- Poco provides notice within 24 hours to BR at such time as it is
terminating any such discussions or negotiations with such person or
entity; and
- Poco promptly provides to BR any information provided to any such person
or entity whether or not previously made available to BR.
In addition, Poco may comply with rules relating to tender or exchange
offers under the Securities Exchange Act of 1934 (United States) and similar
rules under Canadian securities laws relating to the provision of directors'
circulars, and make appropriate disclosure with respect thereto to the Poco
shareholders.
Poco may accept, recommend, approve or implement a superior proposal from a
third party, but only if prior to such acceptance, recommendation, approval or
implementation, the Poco board has concluded in good faith, after considering
provisions of applicable law and after giving effect to all proposals to adjust
the terms and conditions of the combination agreement and the arrangement which
may be offered by BR during the five day notice period described under "Right to
Match" below and after receiving the written advice of outside counsel, that
such action is necessary for the Poco board to act in a manner consistent with
its fiduciary duties under applicable law and Poco terminates the combination
agreement and concurrently therewith pays the fees described below.
Right to Match. Poco must give BR orally and in writing at least five
days' advance notice of any decision by the Poco board to accept, recommend,
approve or implement a superior proposal, which notice must identify the party
making the superior proposal and must provide full details of all material terms
and conditions thereof and any amendments thereto. Poco must inform BR of the
status (including all terms and conditions thereof) of any discussions and
negotiations with that party. In addition Poco must, and must cause its
financial and legal advisors to, negotiate in good faith with BR to make such
adjustments in the terms and conditions of the combination agreement and the
plan of arrangement as would enable Poco to proceed with the transactions
contemplated by the combination agreement. Before executing any agreement to
implement a superior proposal, Poco must provide BR with copies of such final
documentation executed by the party making the superior proposal. In the event
BR proposes to amend the combination agreement and the arrangement to provide
equivalent value as is provided under the superior proposal, then Poco cannot
enter into any agreement regarding the superior proposal. As used in the
combination agreement, "acquisition proposal" means a proposal or offer (other
than by BR), whether or not subject to a due diligence condition, whether or not
in writing, to acquire in any manner, directly or indirectly, beneficial
ownership (as defined under Rule 13(d) of the Securities Exchange Act) of all or
a material portion of the assets of Poco or any material subsidiary of Poco or
to acquire in any manner, directly or indirectly, more than 9.9% (and for the
purposes of the payment of termination fees by Poco to BR, 20%) of the
outstanding voting shares of Poco whether by an arrangement, amalgamation, a
merger, consolidation or other business transaction, by means of a sale of
shares of capital stock, sale of assets, tender offer or exchange offer or
similar transaction involving Poco or any of its material subsidiaries,
including any single or multi-step transaction or series of related transactions
which is structured to permit such third party to acquire beneficial ownership
of all or a material portion of the assets of Poco or any material subsidiary of
Poco or to acquire in any manner, directly or indirectly, more than 9.9% (and
for the purposes the payment of termination fees by Poco to BR, 20%) of the
outstanding voting shares of Poco (other than the transactions contemplated by
the combination agreement).
Termination. The combination agreement may be terminated by mutual
agreement of the parties at any time prior to the effective time. Also, either
party may terminate the combination agreement prior to the effective time if:
- the other party has breached any representation, warranty, covenant or
agreement contained in the combination agreement, and the breach has
been or could reasonably be expected to be materially adverse to the
terminating party, and such breach has not been cured within 15 business
days after notice (except that no cure period shall be provided for a
breach which by its nature cannot be cured and in no event shall the
cure period extend beyond March 31, 2000);
- all conditions for closing the transaction have not been satisfied or
waived by March 31, 2000 (other than as a result of a breach by the
terminating party);
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- any required approval of the securityholders of Poco or the BR
shareholders has not been obtained; or
- any final and non-appealable order has been entered in any action or
proceeding before any governmental entity that prohibits or makes
illegal the consummation of the transaction.
BR may terminate the combination agreement at any time prior to the
effective time if the Poco board, or any committee thereof, withdraws or
modifies adversely to BR its approval or recommendation of the combination
agreement or the arrangement, or the Poco board, or any committee thereof, fails
to reaffirm its approval or recommendation upon a request by BR to do so or upon
an acquisition proposal in respect of Poco being publicly announced or proposed,
offered or made to the Poco shareholders or to Poco.
Poco may terminate the combination agreement at any time prior to the
effective time if either the BR board, or any committee thereof, withdraws or
modifies adversely to Poco its approval or recommendation of the combination
agreement, the other transactions contemplated thereby, or the arrangement, or
if, prior to the approval of the combination agreement and the arrangement by
the securityholders of Poco, the Poco board accepts, recommends, approves or
implements a superior proposal and otherwise complies with the provisions of the
combination agreement.
Upon termination of the combination agreement in accordance with its terms,
neither party nor its respective officers or directors shall have any further
liability under the agreement except with respect to the termination fees
described below, but the confidentiality agreements dated July 30, 1999, will
survive any termination and neither party will be released from any liability
arising from the willful breach by that party of the combination agreement.
Termination Fees. Termination fees are payable under the combination
agreement as follows:
- if Poco terminates the combination agreement because there has been a
breach of the combination agreement by BR, which has been or could
reasonably be expected to be materially adverse to BR, or if either
party terminates the combination agreement because the required approval
of the BR shareholders has not been obtained, then BR must pay Poco a
cash termination fee of U.S. $7 million at the time of termination;
- if BR terminates the combination agreement because there has been a
breach of the combination agreement by Poco which has been or could
reasonably be expected to be materially adverse to Poco, or if either
party terminates the combination agreement because the required approval
of the securityholders of Poco has not been obtained, then Poco must pay
BR a cash termination fee of U.S. $7 million at the time of termination;
- if an acquisition proposal in respect of Poco is publicly announced or
is proposed, offered or made to the Poco shareholders or to Poco, either
party terminates the combination agreement as a result of the failure of
the securityholders of Poco to approve the combination agreement, and
within twelve months following such termination Poco enters into an
agreement, commitment or understanding with respect to an acquisition
proposal, or an acquisition proposal is consummated, then Poco must pay
BR a cash termination fee of U.S. $61 million payable immediately once
such conditions are satisfied;
- if Poco terminates the combination agreement in connection with a
determination by the Poco board to accept, recommend, approve or
implement a superior proposal, or BR terminates the combination
agreement upon the withdrawal or adverse modification by the Poco board,
or any committee thereof, of its approval or recommendation of the
combination agreement, the other transactions contemplated thereby, or
the arrangement or because the Poco board, or any committee thereof, has
failed to reaffirm its approval or recommendation upon request or upon
an acquisition proposal in respect of Poco being publicly announced or
proposed, offered or made to the Poco shareholders or to Poco, then Poco
must pay BR a cash termination fee of U.S. $68 million at the time of
termination; and
- if Poco terminates the combination agreement as a result of the BR
board, or any committee thereof, withdrawing or adversely modifying its
approval or recommendation of the combination agreement, the other
transactions contemplated thereby, or the arrangement, then BR must pay
to Poco a cash termination fee of U.S. $68 million at the time of
termination.
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Representations and Warranties. The combination agreement contains certain
customary representations and warranties of each of Poco and BR relating to,
among other things:
- the parties' organization, capital structures and qualification;
- required consents;
- periodic securities reports and financial information;
- liabilities and litigation;
- intellectual property rights;
- absence of material adverse changes;
- year 2000 compliance;
- employee matters;
- taxes;
- environmental matters;
- compliance with necessary regulatory or governmental authorities; and
- authority to enter into the combination agreement and to consummate the
transaction.
The foregoing is a summary of the material terms of the combination
agreement. This summary is qualified in its entirety by reference to the
combination agreement, the complete text of which we have included as Annex B to
this joint proxy statement.
DISSENTING SHAREHOLDERS' AND OPTIONHOLDERS' RIGHTS
Under Delaware law, holders of BR common stock will not have appraisal or
dissenters' rights relating to the transaction.
THE FOLLOWING DESCRIPTION OF THE RIGHTS OF DISSENTING HOLDERS OF POCO
COMMON SHARES AND POCO OPTIONS IS NOT A COMPREHENSIVE STATEMENT OF PROCEDURES TO
BE FOLLOWED BY A DISSENTING SHAREHOLDER OR OPTIONHOLDER WHO SEEKS PAYMENT OF THE
FAIR VALUE OF POCO COMMON SHARES OR POCO OPTIONS AND IS QUALIFIED IN ITS
ENTIRETY BY THE INTERIM ORDER AND SECTION 184 OF THE BUSINESS CORPORATIONS ACT
(ALBERTA) WHICH WE HAVE INCLUDED AS ANNEXES C AND J TO THIS JOINT PROXY
STATEMENT. A SHAREHOLDER OR OPTIONHOLDER WHO INTENDS TO EXERCISE THE RIGHT OF
DISSENT AND APPRAISAL SHOULD CAREFULLY CONSIDER AND COMPLY WITH THE PROVISIONS
OF SECTION 184 AS MODIFIED BY THE INTERIM ORDER AND SHOULD SEEK THEIR OWN LEGAL
ADVICE. FAILURE TO COMPLY WITH THE PROVISIONS OF SECTION 184 AS MODIFIED BY THE
INTERIM ORDER AND TO ADHERE TO THE PROCEDURES ESTABLISHED THEREIN MAY RESULT IN
THE LOSS OF ALL RIGHTS THEREUNDER.
The Court hearing the application for the Final Order has the discretion to
alter the rights of dissent described herein based on the evidence presented at
such hearing.
Under the Interim Order, registered holders of Poco common shares or Poco
options are entitled, in addition to any other right they may have, to dissent
and to be paid by Poco the fair value of the Poco common shares or Poco options
held by them, determined as of the close of business on the last business day
before the day on which the resolution from which they dissented was adopted. A
shareholder or optionholder may dissent only with respect of all of the shares
or options held by the shareholder or optionholder or on behalf of any one
beneficial owner and registered in the dissenting shareholder's or
optionholder's name. The demand for appraisal must be executed by or for the
holder of record, fully and correctly, as such holder's name appears on the
holder's share certificates or options. If the shares are owned of record in a
fiduciary capacity, such as by a trustee, guardian or custodian, the demand
should be made in that capacity, and if the shares are owned of record by more
than one person, as in a joint tenancy or a tenancy in common, the demand should
be made by or for all owners of record. An authorized agent, including one or
more joint owners, may execute the demand for appraisal for a holder of record;
however, such agent must identify the record owner or owners and expressly
identify the
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record owner or owners, and expressly disclose in such demand that the agent is
acting as agent for the record owner or owners.
ONLY REGISTERED SHAREHOLDERS OR OPTIONHOLDERS MAY DISSENT. BENEFICIAL
OWNERS OF POCO COMMON SHARES REGISTERED IN THE NAME OF A BROKER, CUSTODIAN,
NOMINEE OR OTHER INTERMEDIARY WHO WISH TO DISSENT, SHOULD BE AWARE THAT THEY MAY
ONLY DO SO THROUGH THE REGISTERED OWNER OF SUCH SHARES. A REGISTERED HOLDER SUCH
AS A BROKER WHO HOLDS POCO COMMON SHARES AS NOMINEE FOR BENEFICIAL OWNERS, SOME
OF WHOM MAY DESIRE TO DEMAND APPRAISAL, MUST EXERCISE DISSENT RIGHTS ON BEHALF
OF SUCH BENEFICIAL OWNERS WITH RESPECT TO THE SHARES HELD FOR SUCH BENEFICIAL
OWNERS. IN SUCH CASE, THE DEMAND FOR APPRAISAL SHOULD SET FORTH THE NUMBER OF
POCO COMMON SHARES COVERED BY IT.
A dissenting holder of Poco common shares or Poco options must send to Poco
a written objection to the resolution in respect of the arrangement, which
written objection must be received by the Vice President, General Counsel and
Secretary of Poco or the chairman of the Poco special meeting at or before the
Poco special meeting. An application may be made to the Court to fix the fair
value of the dissenting shareholder's Poco common shares or optionholder's Poco
options after the effective date of the transaction. If an application to the
Court is made by either Poco or a dissenting shareholder or optionholder, Poco
must, unless the Court otherwise orders, send to each dissenting shareholder or
optionholder a written offer to pay him an amount considered by the Poco board
to be the fair value of the Poco common shares or Poco options. The offer,
unless the Court otherwise orders, will be sent to each dissenting shareholder
or optionholder at least 10 days before the date on which the application is
returnable, if Poco is the applicant, or within 10 days after Poco is served
with notice of the application, if a shareholder or optionholder is the
applicant. The offer will be made on the same terms to each dissenting holder of
Poco common shares or Poco options and will be accompanied by a statement
showing how the fair value was determined.
A dissenting holder of Poco common shares or Poco options may make an
agreement with Poco for the purchase of the holder's Poco common shares or Poco
options in the amount of Poco's offer (or otherwise) at any time before the
Court pronounces an order fixing the fair value of the Poco common shares or
options. A dissenting shareholder or optionholder is not required to give
security for costs in respect of an application and, except in special
circumstances, will not be required to pay the costs of the application or
appraisal. On the application, the court will make an order fixing the fair
value of the Poco common shares and options of all dissenting shareholders or
optionholders who are parties to the application, giving judgment in that amount
against Poco and in favor of each of those dissenting shareholders or
optionholders and fixing the time within which Poco must pay that amount payable
to the dissenting shareholders or optionholders. The court may in its discretion
allow a reasonable rate of interest on the amount payable to each dissenting
shareholder or optionholder calculated from the date on which the shareholder or
optionholder ceases to have any rights as a shareholder or optionholder until
the date of payment.
After the arrangement becomes effective, or after an agreement between Poco
and the dissenting holder of Poco common shares or Poco options is made, or upon
the pronouncement of a court order, whichever first occurs, the dissenting
shareholder or optionholder will cease to have any rights as a shareholder or
optionholder other than the right to be paid the fair value of the Poco common
shares or Poco options in the amount agreed between Poco and the dissenting
shareholder or optionholder or in the amount of the judgment as the case may be.
Until one of these events occurs, the shareholder or optionholder may withdraw
his dissent, or Poco may rescind the resolution in respect of the arrangement
and, in either event, the dissent and appraisal proceedings in respect of that
shareholder or optionholder will be discontinued.
THE COMBINATION AGREEMENT PROVIDES THAT IT IS A CONDITION TO THE
OBLIGATIONS OF BR AND POCO TO COMPLETE THE ARRANGEMENT THAT HOLDERS OF NOT MORE
THAN 5% OF THE ISSUED AND OUTSTANDING POCO COMMON SHARES AND POCO OPTIONS, IN
THE AGGREGATE, EXERCISE THEIR RIGHT OF DISSENT AS DESCRIBED ABOVE.
ANTICIPATED ACCOUNTING TREATMENT
BR and Poco expect the transaction to qualify as a pooling of interests
under the requirements of Opinion No. 16 (Business Combinations) of the
Accounting Principles Board of the American Institute of Certified Public
Accountants, the Financial Accounting Standards Board, and the rules and
regulations of the SEC. Under the
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pooling-of-interests accounting method, the reported balance sheet amounts and
results of operations of the separate companies for prior periods will be
combined, reclassified and conformed, as appropriate, to reflect the financial
position and results of operations for the combined company. See "Selected
Historical and Pro Forma Financial Data".
Each of BR and Poco will use commercially reasonable efforts to obtain a
letter from its independent public accounting firm concurring with the
conclusion of the company's management that the company is eligible to enter
into a combination that qualifies for pooling-of-interests accounting treatment
under U.S. GAAP.
BR and Poco have entered into affiliates' agreements with each Poco
affiliate and BR affiliate. These agreements relate to, among other things, the
ability of BR to account for the transaction as a pooling of interests under
U.S. generally accepted accounting principles.
PROCEDURES FOR TRANSFER BY POCO SHAREHOLDERS AND POCO OPTIONHOLDERS
Poco Shareholders. Enclosed with copies of this joint proxy statement
delivered to you is a Poco letter of transmittal which, when duly completed and
returned together with a certificate for Poco common shares, allows you to
receive exchangeable shares equal to the number of Poco common shares you hold
multiplied by 0.25. See "-- Transaction Mechanics and Description of
Exchangeable Shares."
No certificates representing fractional exchangeable shares will be issued.
In lieu of fractional exchangeable shares, each Poco shareholder who would
otherwise be entitled to receive a fraction of an exchangeable share shall be
paid by BR Canada an amount of cash (rounded to the nearest whole cent) equal to
the Canadian dollar equivalent product of such fraction, multiplied by the
average closing price of the BR common stock on the NYSE for the ten trading
days ended on the last trading date prior to the effective date of the
transaction.
Any use of the mails to transmit a certificate for Poco common shares and a
related Poco letter of transmittal is at the risk of the Poco shareholder. If
these documents are mailed, it is recommended that registered mail, with return
receipt requested, properly insured, be used.
If the transaction is completed, certificates representing the appropriate
number of exchangeable shares issuable to a former Poco shareholder who has
complied with the procedures set out above, together with a cheque in the
amount, if any, payable in lieu of fractional exchangeable shares will, as soon
as practicable after the later of the effective date of the transaction and the
date of receipt of a certificate for Poco common shares and a related Poco
letter of transmittal, be forwarded to the holder at the address specified in
the Poco letter of transmittal by first class mail or made available at the
offices of CIBC Mellon Trust Company for pickup by the holder, if requested by
the holder in the Poco letter of transmittal.
If the transaction does not close, all certificates representing Poco
common shares transmitted with a related Poco letter of transmittal will be
returned to Poco shareholders.
Where a certificate for Poco common shares has been destroyed, lost or
mislaid, the registered holder of that certificate should immediately contact
CIBC Mellon Trust Company regarding the issuance of a replacement certificate.
Poco optionholders. Pursuant to the arrangement which will give effect to
the transaction, each outstanding option to acquire Poco common shares will be
automatically converted into an option to acquire BR common stock, without any
action on the part of the Poco optionholders. Promptly after the transaction
becomes effective, BR will notify each Poco optionholder of all relevant
information. See "-- Transaction Mechanics and Description of Exchangeable
Shares -- Stock Options."
STOCK EXCHANGE LISTINGS
The BR common stock currently trades on the NYSE. On -- , 1999 the
NYSE conditionally approved the listing of the additional shares of BR common
stock issuable upon the exchange of exchangeable shares, and upon the exercise
of the options held by Poco optionholders. The Poco common shares are currently
listed on the Toronto and Montreal exchanges. On -- , 1999 both the Toronto
and Montreal exchanges accepted notice of the proposed transaction and
conditionally approved the listing and posting for trading of the
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exchangeable shares, subject to compliance with all of the requirements of the
exchanges, including distribution of the exchangeable shares to a minimum number
of public shareholders.
ELIGIBILITY FOR INVESTMENT IN CANADA
Exchangeable Shares. In the opinion of Burnet, Duckworth & Palmer,
Canadian counsel to Poco, the exchangeable shares, if listed on a prescribed
stock exchange in Canada (which currently includes the TSE) and if BR Canada
maintains a substantial presence in Canada will be qualified investments and
will not be foreign property under the Income Tax Act (Canada) for trusts
governed by registered retirement savings plans, registered retirement income
funds, registered educational savings plans and deferred profit sharing plans,
for registered pension plans or for certain other persons to whom Part XI of the
Income Tax Act applies.
BR has indicated that it intends to take all actions necessary to cause BR
Canada to maintain the listing of the exchangeable shares. BR Canada will be
considered to have a substantial presence in Canada if it satisfies certain
asset tests or if it maintains an office in Canada and BR Canada, or a
corporation controlled by it, employs more than five employees in Canada full
time in an active conduct of a business, other than an investment activity or a
business carried on through a partnership of which the corporation is not a
majority interest partner. Poco is of the view that following the arrangement BR
Canada will satisfy this substantial presence test and expects that BR Canada
will continue to satisfy the test.
Voting Rights and Exchange Rights. The rights of the holders of
exchangeable shares to direct the voting of the one share of BR special voting
stock by the CIBC Mellon Trust Company, the trustee under the voting and
exchange trust agreement, and the rights granted to the trustee to exchange
exchangeable shares for BR common stock in certain circumstances, will not be a
qualified investment and will be foreign property under the Income Tax Act.
However, as indicated under "Canadian Federal Income Tax Considerations to Poco
Shareholders -- Shareholders Resident in Canada," each of BR and Poco is of the
view that the fair market value of this right is nominal.
BR Common Stock. The BR common stock will be a qualified investment under
the Income Tax Act for trusts governed by registered retirement savings plans,
registered retirement income funds and deferred profit sharing plans provided
such shares remain listed on the NYSE or another prescribed stock exchange. The
BR common stock will be foreign property under the Income Tax Act.
REGULATORY MATTERS
We cannot complete the transaction until the applicable waiting periods
under the Hart-Scott-Rodino Act Antitrust Improvements Act of 1976 (United
States) and the Competition Act (Canada) have expired or been terminated. In
addition, we must make filings and receive approval under the Investment Canada
Act. On -- , BR and Poco made pre-merger filings under the act with the
Federal Trade Commission and the Antitrust Division of the Department of
Justice. On -- , 1999, BR filed a short form notification filing and an
application for an advance ruling certificate under the Competition Act. On
-- , 1999, BR received an advance ruling certificate under the Competition
Act with respect to the transaction. On -- , 1999 BR made a review
application under the Investment Canada Act. BR and Poco expect the applicable
waiting period under the Investment Canada Act to expire prior to the BR special
meeting and the Poco special meeting. On -- , 1999, BR and Poco made an
application to the Alberta Energy and Utilities Board under the Utilities Act
(Alberta) and the Public Utilities Board Act (Alberta).
We do not expect that any of these regulatory approvals, filings or any
other required regulatory filings will delay completion of the transaction.
RESALES OF EXCHANGEABLE SHARES AND BR COMMON STOCK
United States. The issuance of exchangeable shares to holders of Poco
common shares will not be registered under the Securities Act of 1933 (United
States). The exchangeable shares will be issued in reliance upon the exemption
available pursuant to Section 3(a)(10) of the Securities Act. Section 3(a)(10)
exempts securities issued in exchange for one or more outstanding securities
from the general requirement of registration where the terms and conditions of
the issuance and exchange of such securities have been approved by any court of
competent jurisdiction, after a hearing upon the fairness of the terms and
conditions of the issuance and exchange at which all persons to whom the
securities will be issued have the right to appear. The Court is
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48
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authorized to conduct a hearing to determine the fairness of the terms and
conditions of the arrangement, including the proposed issuance of securities in
exchange for other outstanding securities. The Court entered the Interim Order
on -- , 1999 and, subject to the approval of the arrangement by Poco
shareholders and optionholders, a hearing on the fairness of the arrangement
will be held on -- , 1999 by the Court. See "-- Court Approval of the
Arrangement and Completion of the Transaction." Based upon advice of U.S.
counsel, BR and Poco believe that the issuance by Poco of the exchangeable
shares in exchange for the Poco common shares is exempt under Section 3(a)(10)
of the Securities Act.
The exchangeable shares will be freely transferable under U.S. federal
securities laws, except by persons who are affiliates of Poco prior to the
transaction. Shares held by Poco affiliates may be resold only in transactions
permitted by the resale provisions of Rule 145(d)(1), (2), or (3) under the
Securities Act or as otherwise permitted under the Securities Act. Rule
145(d)(1) generally provides that affiliates of Poco may not sell securities of
BR received pursuant to the transaction unless pursuant to an effective
registration statement or the volume, current public information, manner of sale
and timing limitations of Rule 144. These limitations generally require that any
sales made by an affiliate in any three-month period not exceed the greater of
1% of the outstanding shares of BR or the average weekly trading volume over the
four calendar weeks preceding the placement of the sell order and that sales be
made in unsolicited, open market "brokers transactions." Rules 145(d)(2) and (3)
generally provide that these limitations lapse for non-affiliates of BR after a
period of one or two years, depending upon whether certain information continues
to be available with respect to BR.
BR has agreed that it will file and maintain effective the necessary
registration statements covering the issuance of the BR common stock from time
to time in exchange for the exchangeable shares. The shares of BR common stock
issued from time to time in exchange for the exchangeable shares therefore will
be freely transferable under U.S. federal securities laws, subject to
restrictions on persons who are affiliates of BR.
Canada. BR and BR Canada expect to receive rulings or orders of certain
provincial and territorial securities regulatory authorities in Canada providing
exemptions from the registration and prospectus requirements (and the rights and
protections otherwise afforded thereunder):
- to permit the issuance of the exchangeable shares to Poco shareholders;
- to permit the issuance of BR common stock to holders of exchangeable
shares upon the exchange thereof;
- to permit the conversion of the options to acquire Poco common shares
into options to acquire BR common stock; and
- to permit resale of the exchangeable shares, BR common stock issued to
holders of exchangeable shares and BR common stock issued on exercise of
the options which were converted into options to acquire BR common
stock, in those provinces and territories without restriction by a
shareholder other than a "control person," provided that no unusual
effort is made to prepare the market for any such resale or to create a
demand for the securities which are the subject of any such resale and
no extraordinary commission or consideration is paid in respect thereof.
The rulings and orders will provide a rebuttable presumption that a person
or company is a control person where the person or company alone or in a
transaction with others holds more than 20% of the outstanding voting securities
of BR (and for this purpose BR common stock and exchangeable shares will be
considered to be of the same class). BR Canada also expects to receive
exemptions from statutory financial, insider reporting and other reporting
requirements in those provinces and territories on the condition that BR files
with the securities regulatory authorities of those provinces and territories
copies of certain of the reports filed with the SEC and that holders of
exchangeable shares receive materials that are sent to holders of BR common
stock. In Quebec, BR and BR Canada have also applied for an exemption from the
requirements of Title IV of the Securities Act (Quebec), relating to take-over
bids and issuer bids, in respect of the issuance of BR common stock in exchange
for exchangeable shares.
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INTERESTS OF CERTAIN PERSONS IN THE TRANSACTION
Indemnification of Poco Officers and Directors. Pursuant to the
combination agreement, BR has agreed to maintain all rights to indemnification
existing at the time of execution of the combination agreement in favor of the
directors and officers of Poco and its subsidiaries in accordance with the
charter documents and bylaws of each entity and to the fullest extent permitted
under the Business Corporations Act (Alberta) and to continue in effect director
and officer liability insurance for such persons for a period of six years from
the closing.
Poco Options. Pursuant to the arrangement, all Poco options will vest in
accordance with their terms and BR will assume Poco's stock option plan and the
obligations of Poco under each Poco option. Each Poco option will be converted
into an option to purchase shares of BR Common Stock. See "-- Transaction
Mechanics and Description of Exchangeable Shares -- Poco Options."
Rights on Change of Control. Poco has entered into agreements with nine
senior executive officers which provide for a lump sum payment to each of these
individuals in the event their employment with Poco is terminated at any time
without cause or if within three months after the arrangement becoming effective
the officer terminates his employment with Poco. The payment to the officer will
be equal to two times the aggregate of the annual base salary then payable to
the officer, the largest amount of bonus paid to the officer in either of the
two years preceding such termination, the maximum annual contributions of Poco
to the savings plan and the pension plan then payable to the account of the
officer and any car allowance then payable to the officer. The agreements also
provide for the maintenance of Poco's benefit plans for a period of two years
following termination, or payment in lieu thereof, and for the payment of the
reasonable expense of out placement services, relocation expenses and financial
advisory services for the officer following termination. The agreements also
provide that upon termination of employment all unexercised and unvested stock
options then held by the officer shall forthwith vest and become exercisable for
a period of 45 days following termination, subject to any required regulatory
approvals.
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CHAPTER TWO -- CERTAIN FINANCIAL AND
OTHER INFORMATION ABOUT THE COMPANIES
BUSINESS OF BR
BR is a holding company engaged, through its principal subsidiaries,
Burlington Resources Oil & Gas Company and The Louisiana Land and Exploration
Company and their affiliated companies, in exploring for, developing, producing
and marketing oil and natural gas. BR is the largest U.S. independent oil and
gas company based on total proved U.S. reserves, and second largest U.S.
independent oil and gas company based on total proved worldwide reserves, which
were estimated at 8.0 trillion cubic feet of gas equivalent at December 31,
1998.
On July 7, 1988, BR common stock began trading publicly on the NYSE under
the symbol "BR". BR's principal executive offices are located at 5051
Westheimer, Suite 1400, Houston, Texas 77056 and its telephone number is (713)
624-9500.
At December 31, 1998, approximately 90% of BR's total proved oil and gas
reserves were U.S. reserves. Natural gas comprised approximately 80% of BR's
total reserves. BR's U.S. operations are focused in several strategic areas,
including the San Juan Basin of New Mexico, the Mid-Continent region including
the Rocky Mountains, the Gulf Coast onshore and the deepwater province of the
Gulf of Mexico.
BR's international operations are in the early stages of development.
Proved oil and gas reserves associated with BR's international activities
accounted for 10% of BR's total proved reserves at December 31, 1998. Operations
are concentrated in the East Irish Sea, the U.K. and Dutch sectors of the North
Sea, northern South America and north Africa.
A description of the business of BR is included in BR's Form 10-K for the
year ended December 31, 1998.
BUSINESS OF POCO
Poco was incorporated under the Companies Act (Alberta) on November 1,
1979, and was continued under the Business Corporations Act (Alberta) on July 4,
1985.
The Poco common shares began trading publicly on the TSE in 1981 and on the
Montreal Exchange in 1989 under the symbol "POC". Poco's principal executive
offices are located at Suite 3700, 250 - 6th Avenue, S.W., Calgary, Alberta, T2P
3H7 and its telephone number is (403) 260-8000.
Poco's principal business is the acquisition of interests in oil and
natural gas rights and the exploration for, development, production, marketing
and sale of, oil and natural gas. Poco identifies, acts as operator of, and
maintains a large working interest in, a majority of the prospects in which it
participates. Poco is one of Canada's top five independent natural gas
producers. At December 31, 1998, Poco's proved reserves totaled nearly 1.9
trillion cubic feet of natural gas equivalent, with natural gas comprising
approximately 77% of the total.
Poco is one of the few large independent Canadian producers that has
consistently focused on natural gas and natural gas liquids. This strategic
direction was established in 1993 by shifting to the deeper part of the Western
Canadian Sedimentary Basin to target profitable growth of natural gas production
and reserves. This shift was aimed at capturing opportunities in the North
American gas arena which was being opened up by deregulation, pipeline
expansions and plans for new pipeline capacity for exporting volumes to U.S.
markets. In 1998, 78% of average production was natural gas, with the balance
being light crude oil.
A description of the business of Poco is included in Poco's Annual
Information Form for the year ended December 31, 1998.
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THE COMBINED COMPANY
The combined company will be the leading independent oil and gas company
worldwide. At December 31, 1998, BR and Poco had combined pro forma worldwide
proved reserves of approximately 9.9 trillion cubic feet of natural gas
equivalent, ranking the combined entity as the largest independent exploration
and production company in the world and the third largest holder of North
American gas reserves among all oil and gas companies. Converting oil to natural
gas on a one barrel to six thousand cubic feet basis, 79% of the combined
reserves were natural gas and 21% were oil and condensate.
The combined company had:
- 1998 worldwide gas production of 2.1 billion cubic feet per day;
- 1998 oil production of approximately 106 thousand barrels per day;
- 1998 year end total net worldwide undeveloped acreage position of 17.9
million acres, with 3.1 million acres in Canada;
- June 30, 1999 long-term debt of only 45% of the aggregate book
capitalization; and
- pro forma combined 1998 operating cash flow exceeding $1.1 billion.
CERTAIN FINANCIAL INFORMATION
COMPARATIVE PER SHARE MARKET PRICE DATA
The following table sets forth the high and low sales prices and the
aggregate volume of BR common stock, traded under the symbol "BR" on the NYSE,
and of Poco common shares, traded under the symbol "POC" on the TSE, for the
periods indicated. The quotations are as reported in published financial
sources.
<TABLE>
<CAPTION>
BR HIGH LOW VOLUME POCO HIGH LOW VOLUME
-- ---- --- ---------- ---- ------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
1997 1997
Quarter ended March 31....... $54 1/2 $42 5/8 36,000,900 Quarter ended March 31....... C$15.40 C$12.55 33,773,888
Quarter ended June 30........ $48 5/8 $39 3/4 24,041,400 Quarter ended June 30........ $15.50 $12.70 22,009,978
Quarter ended September 30... $53 3/16 $43 5/8 44,344,100 Quarter ended September 30... $14.35 $12.45 35,309,342
Quarter ended December 31.... $53 5/8 $42 1/2 36,704,600 Quarter ended December 31.... $15.00 $10.50 33,111,415
1998 1998
Quarter ended March 31....... $49 1/2 $38 15/16 41,444,300 Quarter ended March 31...... $16.25 $10.00 37,482,881
Quarter ended June 30........ $49 5/8 $38 3/16 35,075,500 Quarter ended June 30........ $17.25 $13.10 21,969,081
Quarter ended September 30... $44 1/2 $29 7/16 49,443,100 Quarter ended September 30... $16.30 $11.00 21,607,425
Quarter ended December 31.... $43 1/8 $32 55,974,500 Quarter ended December 31.... $16.00 $11.80 25,542,825
1999 1999
Quarter ended March 31....... $42 5/16 $29 1/2 58,043,100 Quarter ended March 31....... $14.00 $ 8.60 22,587,369
Quarter ended June 30........ $47 5/8 $38 3/8 44,137,000 Quarter ended June 30........ $13.00 $10.10 48,274,392
July......................... $44 1/2 $40 1/8 12,936,400 July......................... $13.45 $11.50 10,627,151
August....................... $46 3/4 $40 7/8 42,096,000 August....................... $15.65 $12.85 11,645,043
September (through September (through
September -- )......... $ -- $ -- -- September -- )......... $ -- $ -- --
</TABLE>
On August 16, 1999, the last full trading day of BR common stock prior to
the public announcement by BR and Poco of the proposed transaction, the last
reported sales price on the NYSE of BR common stock was $45 5/16, and the high
and low sales prices were $46 1/4 and $44 13/16, respectively. On August 13,
1999, the last full trading day of Poco common shares prior to the public
announcement of the proposed transaction, the last reported sales price of Poco
common shares on the TSE was C$13.15, and the high and low sales prices were
C$13.25 and C$12.85, respectively. On -- , the last reported sales price
per share of BR common stock was $ -- , and the last reported sales price of
Poco common shares was C$ -- .
CHAPTER TWO -- CERTAIN FINANCIAL AND
OTHER INFORMATION ABOUT THE COMPANIES
52
<PAGE> 60
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
THE FOLLOWING UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS ARE
PRESENTED TO GIVE EFFECT TO THE ACQUISITION OF POCO BY BR UNDER THE
POOLING-OF-INTERESTS METHOD OF ACCOUNTING. The balance sheet assumes that the
transaction had been consummated on June 30, 1999. The income statements for
each of the three years in the period ended December 31, 1998 and the six months
ended June 30, 1999 assume that the transaction had been consummated on January
1, 1996. The unaudited pro forma combined financial statements do not reflect
any cost savings or other synergies which may result from the transaction and
are not necessarily indicative of future results of operations or financial
position. Additionally, the unaudited pro forma combined statements of income
exclude non-recurring charges directly attributable to the transaction which
will be charged to operations in the quarter in which the transaction is
consummated. THESE UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS ARE
PRESENTED IN ACCORDANCE WITH U.S. GAAP UNDER THE SUCCESSFUL EFFORTS METHOD OF
ACCOUNTING FOR OIL AND GAS PROPERTIES. The unaudited pro forma combined
financial statements should be read in conjunction with the historical
consolidated financial statements of BR and Poco, including the notes thereto,
incorporated by reference and included in this joint proxy statement.
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
<TABLE>
<CAPTION>
JUNE 30, 1999
-------------------------------------------------------
POCO PRO FORMA PRO FORMA
BR U.S. GAAP(1) ADJUSTMENTS(2) COMBINED
------- ------------- -------------- ---------
(IN MILLIONS)
<S> <C> <C> <C> <C>
ASSETS
Current Assets............................. $ 403 $ 100 $ 503
Oil and Gas and Other Properties -- Net.... 5,327 1,515 $ (293)(a) 6,549
Other Assets............................... 122 6 3(b) 131
------- ------ ------ ------
Total Assets..................... $ 5,852 $1,621 $ (290) $7,183
======= ====== ====== ======
LIABILITIES
Current Liabilities........................ $ 427 $ 59 $ 23(c) $ 509
Long-term Debt............................. 1,988 798 2,786
Deferred Income Taxes...................... 200 128 (128)(b) 200
Other Liabilities and Deferred Credits..... 249 13 262
------- ------ ------ ------
STOCKHOLDERS' EQUITY
Common Stock and Paid-in Capital........... 2,995 974 3,969
Retained Earnings (Deficit)................ 995 (289) (186) 520
Cost of Treasury Stock..................... (1,002) (1,002)
Accumulated Other Comprehensive Loss --
Foreign Currency Translation............. (62) 1 (61)
------- ------ ------ ------
Common Stockholders' Equity................ 2,988 623 (185) 3,426
------- ------ ------ ------
Total Liabilities and Common
Stockholders' Equity........... $ 5,852 $1,621 $ (290) $7,183
======= ====== ====== ======
</TABLE>
See accompanying Notes to Unaudited Pro Forma Combined Condensed Financial
Statements.
CHAPTER TWO -- CERTAIN FINANCIAL AND
OTHER INFORMATION ABOUT THE COMPANIES
53
<PAGE> 61
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1999
-----------------------------------------------------
POCO PRO FORMA PRO FORMA
BR U.S. GAAP(1) ADJUSTMENTS(2) COMBINED
----- ------------- -------------- ---------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Revenues..................................... $ 725 $ 177 $ 902
Costs and Expenses........................... 634 129 $ 6(a) 769
----- ------ ---- ------
Operating Income............................. 91 48 (6) 133
Interest Expense............................. 83 24 107
Other Expense (Income) -- Net................ (9) (9)
----- ------ ---- ------
Income Before Income Taxes................... 8 33 (6) 35
Income Tax Expense........................... 3 15 (2)(a) 16
----- ------ ---- ------
Net Income................................... $ 5 $ 18 $ (4) $ 19
===== ====== ==== ======
Basic Earnings per Common Share.............. $ .03 .12 $ .09
===== ====== ======
Diluted Earnings per Common Share............ $ .03 .12 $ .09
===== ====== ======
Weighted Average Number of Common Shares
Outstanding................................ 177 153 215
===== ====== ======
Weighted Average Number of Common Shares
Outstanding, Including Dilution............ 178 154 216
===== ====== ======
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
------------------------------------------------------
POCO PRO FORMA PRO FORMA
BR U.S. GAAP(1) ADJUSTMENTS(2) COMBINED
------ ------------- -------------- ---------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Revenues.................................... $1,637 $ 372 $2,009
Costs and Expenses.......................... 1,419 621 $ 240(a) 2,280
------ ------ ------ ------
Operating Income (Loss)..................... 218 (249) (240) (271)
Interest Expense............................ 148 44 192
Other Expense (Income) -- Net............... (25) 17 (8)
------ ------ ------ ------
Income (Loss) Before Income Taxes........... 95 (310) (240) (455)
Income Tax Expense (Benefit)................ 9 (124) (108)(a) (223)
------ ------ ------ ------
Net Income (Loss)........................... $ 86 $ (186) $ (132) $ (232)
====== ====== ====== ======
Basic Earnings (Loss) per Common Share...... $ .48 $(1.37) $(1.10)
====== ====== ======
Diluted Earnings (Loss) per Common Share.... $ .48 $(1.37) $(1.09)
====== ====== ======
Weighted Average Number of Common Shares
Outstanding............................... 177 136 211(3)
====== ====== ======
Weighted Average Number of Common Shares
Outstanding, Including Dilution........... 178 136 212(3)
====== ====== ======
</TABLE>
See Accompanying Notes to Unaudited Pro Forma Combined Condensed Financial
Statements.
CHAPTER TWO -- CERTAIN FINANCIAL AND
OTHER INFORMATION ABOUT THE COMPANIES
54
<PAGE> 62
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
------------------------------------------------------
POCO PRO FORMA PRO FORMA
BR U.S. GAAP(1) ADJUSTMENTS(2) COMBINED
------ ------------- -------------- ---------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Revenues.................................... $2,000 $ 375 $2,375
Costs and Expenses.......................... 1,497 250 $ 24(a) 1,771
------ ------ ------ ------
Operating Income............................ 503 125 (24) 604
Interest Expense............................ 142 32 174
Other Expense (Income) -- Net............... (50) 11 (39)
------ ------ ------ ------
Income Before Income Taxes.................. 411 82 (24) 469
Income Tax Expense.......................... 92 36 (12)(a) 116
------ ------ ------ ------
Net Income.................................. $ 319 $ 46 $ (12) $ 353
====== ====== ====== ======
Basic Earnings per Common Share............. $ 1.80 $ .36 $ 1.69
====== ====== ======
Diluted Earnings per Common Share........... $ 1.79 $ .35 $ 1.67
====== ====== ======
Weighted Average Number of Common Shares
Outstanding............................... 177 128 209(b)
====== ====== ======
Weighted Average Number of Common Shares
Outstanding, Including Dilution........... 178 130 211(b)
====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
-------------------------------------------------------
POCO PRO FORMA PRO FORMA
BR U.S. GAAP(1) ADJUSTMENTS(2) COMBINED
------ -------------- -------------- ---------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Revenues................................... $2,200 $ 277 $2,477
Costs and Expenses......................... 1,620 190 $ 24(a) 1,834
------ ------ ------ ------
Operating Income........................... 580 87 (24) 643
Interest Expense........................... 147 23 170
------ ------ ------ ------
Income Before Income Taxes................. 433 64 (24) 473
Income Tax Expense......................... 98 33 (11)(a) 120
------ ------ ------ ------
Net Income................................. $ 335 $ 31 $ (13) $ 353
====== ====== ====== ======
Basic Earnings per Common Share............ $ 1.89 $ .27 $ 1.72
====== ====== ======
Diluted Earnings per Common Share.......... $ 1.88 $ .27 $ 1.70
====== ====== ======
Weighted Average Number of Common Shares
Outstanding.............................. 177 115 206(3)
====== ====== ======
Weighted Average Number of Common Shares
Outstanding, Including Dilution.......... 178 117 207(3)
====== ====== ======
</TABLE>
See Accompanying Notes to Unaudited Pro Forma Combined Condensed Financial
Statements.
CHAPTER TWO -- CERTAIN FINANCIAL AND
OTHER INFORMATION ABOUT THE COMPANIES
55
<PAGE> 63
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
1. CONVERSION OF POCO TO U.S. GAAP AND U.S. DOLLARS
The historical consolidated financial statements of Poco were prepared
under Canadian GAAP and in Canadian dollars. For these unaudited pro forma
combined financial statements, the historical financial information of Poco
has been converted to U.S. GAAP using the full cost method of accounting
for oil and gas properties and converted to U.S. dollars using the June 30,
1999 exchange rate (.6789) for the balance sheet and the average exchange
rates for the six month periods ended June 30, 1999 (.6702), and the years
ended December 31, 1998 (.6743), 1997 (.7223) and 1996 (.7334) for the
statements of operations. See Note 11 to Poco's historical consolidated
financial statements included in Annex K for a description of the
adjustments to convert Poco's financial statements from Canadian GAAP to
U.S. GAAP using the full cost method of accounting for oil and gas
properties.
U.S. GAAP INCOME STATEMENTS -- POCO
<TABLE>
<CAPTION>
PERIOD ENDED JUNE 30, 1999
----------------------------------------------------------
POCO
POCO HISTORICAL
HISTORICAL U.S. GAAP POCO HISTORICAL U.S. GAAP
CANADIAN GAAP ADJUSTMENTS U.S. GAAP U.S. $
------------- ----------- --------------- ----------
IN MILLIONS
<S> <C> <C> <C> <C>
Revenues -- Net of Royalties.......... C$265 C$265 $177
Costs and Expenses.................... 216 C$ (24) 192 129
----- ------ ----- ----
Operating Income...................... 49 24 73 48
Interest Expense...................... 39 (3) 36 24
Other Expense (Income) -- Net......... (12) (12) (9)
----- ------ ----- ----
Income (Loss) Before Income Taxes..... 10 39 49 33
Income Tax Expense (Benefit).......... 6 16 22 15
----- ------ ----- ----
Net Income............................ C$ 4 C$ 23 C$ 27 $ 18
===== ====== ===== ====
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
----------------------------------------------------------
POCO
POCO HISTORICAL
HISTORICAL U.S. GAAP POCO HISTORICAL U.S. GAAP
CANADIAN GAAP ADJUSTMENTS U.S. GAAP U.S. $
------------- ----------- --------------- ----------
IN MILLIONS
<S> <C> <C> <C> <C>
Revenues -- Net of Royalties.......... C$552 C$ 552 $ 372
Costs and Expenses.................... 390 C$ 530 920 621
----- ------ ------ -----
Operating Income...................... 162 (530) (368) (249)
Interest Expense...................... 76 (10) 66 44
Other Expense (Income) -- Net......... 25 25 17
----- ------ ------ -----
Income (Loss) Before Income Taxes..... 86 (545) (459) (310)
Income Tax Expense (Benefit).......... 36 (220) (184) (124)
----- ------ ------ -----
Net Income (Loss)..................... C$ 50 C$(325) C$(275) $(186)
===== ====== ====== =====
</TABLE>
CHAPTER TWO -- CERTAIN FINANCIAL AND
OTHER INFORMATION ABOUT THE COMPANIES
56
<PAGE> 64
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS --
(CONTINUED)
1. CONVERSION OF POCO TO U.S. GAAP AND U.S. DOLLARS (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
-----------------------------------------------------
POCO
POCO POCO HISTORICAL
HISTORICAL U.S. GAAP HISTORICAL U.S. GAAP
CANADIAN GAAP ADJUSTMENTS U.S. GAAP U.S. $
------------- ----------- ---------- ----------
IN MILLIONS
<S> <C> <C> <C> <C>
Revenues -- Net of Royalties............ C$519 C$519 $375
Costs and Expenses...................... 346 346 250
----- ----- ----
Operating Income........................ 173 173 125
Interest Expense........................ 49 C$ (4) 45 32
Other Expense (Income) -- Net........... 15 15 11
----- ----- ----- ----
Income (Loss) Before Income Taxes....... 124 (11) 113 82
Income Tax Expense (Benefit)............ 51 (2) 49 36
----- ----- ----- ----
Net Income (Loss)....................... C$ 73 C$ (9) C$ 64 $ 46
===== ===== ===== ====
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
-----------------------------------------------------
POCO
POCO POCO HISTORICAL
HISTORICAL U.S. GAAP HISTORICAL U.S. GAAP
CANADIAN GAAP ADJUSTMENTS U.S. GAAP U.S. $
------------- ----------- ---------- ----------
IN MILLIONS
<S> <C> <C> <C> <C>
Revenues -- Net of Royalties............ C$378 C$378 $277
Costs and Expenses...................... 264 C$ (5) 259 190
----- ----- ----- ----
Operating Income........................ 114 5 119 87
Interest Expense........................ 34 (2) 32 23
Other Expense (Income) -- Net...........
----- ----- ----- ----
Income (Loss) Before Income Taxes....... 80 7 87 64
Income Tax Expense (Benefit)............ 46 (2) 44 33
----- ----- ----- ----
Net Income.............................. C$ 34 C$ 9 C$ 43 $ 31
===== ===== ===== ====
</TABLE>
CHAPTER TWO -- CERTAIN FINANCIAL AND
OTHER INFORMATION ABOUT THE COMPANIES
57
<PAGE> 65
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED
FINANCIAL STATEMENTS -- (CONTINUED)
U.S. GAAP BALANCE SHEET -- POCO
1. CONVERSION OF POCO TO U.S. GAAP AND U.S. DOLLARS (CONTINUED)
<TABLE>
<CAPTION>
JUNE 30, 1999
-----------------------------------------------------
POCO
POCO POCO HISTORICAL
HISTORICAL U.S. GAAP HISTORICAL U.S. GAAP
CANADIAN GAAP ADJUSTMENTS U.S. GAAP U.S. $
------------- ----------- ---------- ----------
IN MILLIONS
<S> <C> <C> <C> <C>
ASSETS
Current Assets.......................... C$ 148 C$ 148 $ 100
Property, Plant and Equipment........... 2,584 C$(352) 2,232 1,515
Other Assets............................ 27 (18) 9 6
------- ------ ------- ------
C$2,759 C$(370) C$2,389 $1,621
======= ====== ======= ======
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts Payable and Accrued
Liabilities........................... C$ 81 C$ 6 C$ 87 $ 59
Long-Term Debt.......................... 1,101 75 1,176 798
Deferred Income Taxes................... 346 (162) 184 128
Other Liabilities....................... 19 -- 19 13
Shareholders' Equity
Common Shares......................... 1,218 92 1,310 974
Deficit............................... (6) (381) (387) (289)
Accumulated Other Comprehensive
Loss -- Foreign Currency
Translation........................ (62)
------- ------ ------- ------
C$2,759 C$(370) C$2,389 $1,621
======= ====== ======= ======
</TABLE>
CHAPTER TWO -- CERTAIN FINANCIAL AND
OTHER INFORMATION ABOUT THE COMPANIES
58
<PAGE> 66
2. PRO FORMA ADJUSTMENTS
(a) The following adjustments were made to reflect the conversion from the
full cost method of accounting for oil and gas properties to the
successful efforts method of accounting.
<TABLE>
<CAPTION>
YEAR ENDED
PERIOD ENDED DECEMBER 31
JUNE 30 -------------------
1999 1998 1997 1996
------------ ----- ---- ----
<S> <C> <C> <C> <C>
Capitalized exploration costs expensed under the
successful efforts method of accounting............. $ 19 $ 36 $ 31 $ 18
Reversal of impairment of oil and gas properties
recorded under the full cost method of accounting... (359)
Impairment of oil and gas properties under the
successful efforts method of accounting in
accordance with SFAS No. 121........................ 566
Adjustment to record depreciation, depletion and
amortization on a field level basis................. (13) (3) (7) 6
Adjustment to reflect tax effect of pro forma
adjustments......................................... (2) (108) (12) (11)
---- ----- ---- ----
Decrease on net income (loss)......................... $ (4) $(132) $(12) $(13)
==== ===== ==== ====
</TABLE>
The cumulative adjustment to oil and gas properties at June 30, 1999 to
reflect the conversion from the full cost method to the successful efforts
method was a $293 million reduction to oil and gas properties.
(b) To adjust deferred income taxes by $131 million at June 30, 1999 for the
tax effect of the adjustment to convert to the successful efforts method
and reclassify the $3 million debit balance to other assets.
(c) Reflects the estimated direct costs associated with the transaction
between BR and Poco which approximate $35 million ($23 million net of
income tax). These non-recurring costs, which are subject to change, will
be charged to operations in the quarter in which the transaction is
consummated. It is expected that substantially all of the costs related to
this transaction will be paid within one year after the transaction is
consummated.
3. PRO FORMA WEIGHTED AVERAGE SHARES OUTSTANDING
The pro forma weighted average number of Poco common shares outstanding
and weighted average number of common shares outstanding, including
dilution for each period has been calculated using the exchange ratio of
0.25 exchangeable shares for each Poco common share.
CHAPTER TWO -- CERTAIN FINANCIAL AND
OTHER INFORMATION ABOUT THE COMPANIES
59
<PAGE> 67
CHAPTER THREE -- INFORMATION ABOUT THE
BR COMMON STOCK AND THE EXCHANGEABLE SHARES
BR SHARE CAPITAL
The authorized capital stock of BR consists of 325,000,000 shares of BR
common stock and 75,000,000 shares of preferred stock, of which 3,250,000 shares
are designated Series A Junior Participating Preferred Stock. As of June 30,
1999, there were 177,493,347 shares of common stock outstanding held by
approximately 20,704 holders of record, excluding holders whose shares of record
are held by brokers. As of June 30, 1999, there were no shares of preferred
stock issued or outstanding.
BR COMMON STOCK
The holders of BR common stock are entitled to one vote for each share held
of record on all matters submitted to a vote of stockholders. Subject to
preferences that may be applicable to any outstanding preferred stock, holders
of BR common stock are entitled to receive ratably any dividends declared by the
BR board out of legally available funds. In the event of the liquidation,
dissolution or winding up of BR, holders of BR common stock are entitled to
share ratably in all assets remaining after payment of liabilities and the
liquidation preference of any outstanding preferred stock. Holders of BR common
stock have no preemptive rights and have no rights to convert their BR common
stock into any other securities and no redemption provisions apply to the BR
common stock. All of the outstanding shares of BR common stock are fully paid
and nonassessable.
PREFERRED STOCK
The BR certificate of incorporation authorizes the BR board to issue shares
of preferred stock in one or more series. The BR board is authorized to
designate, for each series of preferred stock, the number of shares of such
series, the voting powers, if any, of the shares of such series and the
designations, preferences and relative, participating, optional or other special
rights and the qualifications, limitations or restrictions.
BR has no present plans to issue any of the preferred stock, except for the
one share of special voting stock and as required under the BR rights agreement.
SPECIAL VOTING STOCK
A series of preferred stock, consisting of one share, will be designated as
special voting stock, having a par value of $.01 per share and a liquidation
preference of $0.01. Except as otherwise required by law or BR's certificate of
incorporation, the one share of special voting stock will possess a number of
votes for the election of directors and on all other matters submitted to a vote
of BR shareholders equal to the number of outstanding exchangeable shares from
time to time not owned by BR or any entity controlled by BR. The holders of
shares of BR common stock and the holder of the special voting stock will vote
together as a single class on all matters. In the event of any liquidation,
dissolution or winding-up of BR, all outstanding exchangeable shares will
automatically be exchanged for shares of BR common stock, and the holder of the
special voting stock will not be entitled to receive any assets of BR available
for distribution to its stockholders. The holder of the special voting stock
will not be entitled to receive dividends. Pursuant to the combination
agreement, the one share of special voting stock will be issued to CIBC Mellon
Trust Company, as trustee, under the voting and exchange trust agreement. At
such time as the one share of special voting stock has no votes attached to it
because there are no exchangeable shares outstanding not owned by BR or an
entity controlled by BR, the share of special voting stock will be canceled.
60
<PAGE> 68
BR RIGHTS AGREEMENT
Pursuant to the rights agreement between BR and BankBoston, N.A., as rights
agent, dated as of December 16, 1998, each share of BR common stock currently
has a right associated with it. Generally, each right consists of the right to
purchase, for $200, 1/100 of a share of junior participating preferred stock of
BR. The terms of the rights are set forth in the BR rights agreement.
The rights may be exercised only if the distribution date occurs. The
distribution date is the earlier of either:
- the first date that it is publicly announced that a person or group has
acquired 15% or more of the voting power of BR; or
- the date that is 10 business days (or later date selected by the BR
board) after a person or group begins, or announces an intention to
begin, a tender or exchange offer for 15% or more of the voting power of
BR.
If a person or group acquires 15% or more of the voting power of BR without
the prior approval of the BR board, then the BR shareholders, other than the
acquiror, will be entitled to purchase, for $200, shares of BR common stock, or,
in certain circumstances, cash, property or other securities of BR, with a
market value equal to $400. This is commonly referred to as the "flip-in"
feature of the rights.
If a person or group acquires 15% or more of the voting power of BR without
the prior approval of the BR board and then either acquires BR in a merger or
other business transaction or causes the sale or transfer of more than 50% of
the assets or earning power of BR, then the BR shareholders, other than the
acquiror, will be entitled to purchase, for $200, common stock of the acquiror
with a market value equal to $400. This is commonly referred to as the
"flip-over" feature of the rights.
The rights will expire automatically on December 16, 2008, but BR has the
option of redeeming or exchanging the rights prior to that time.
BR may redeem all of the rights at any time before a person or group
announces that it has acquired 15% or more of the voting power of BR. Each right
may be redeemed at the price of $0.01 per right. If BR were to redeem the
rights, the rights would no longer be exercisable and would terminate.
Furthermore, BR may exchange all or a portion of the rights at any time
after a person or group acquires 15% or more of the voting power of BR, at an
exchange ratio of one share of BR common stock per right. If the BR board were
to order the exchange of the rights, the rights would no longer be exercisable
and would terminate. Until a right is exercised or exchanged, the holder of that
right will not have any rights as a BR shareholder, including the right to vote
or receive dividends, simply as a result of being a holder of that right.
Each 1/100 of a share of junior participating preferred stock that may be
issued upon exercise of a right is intended to be comparable to one share of BR
common stock with respect to dividend, voting, liquidation and other rights. The
junior participating preferred stock will rank junior to all other series of the
preferred stock of BR with respect to dividend payments and distributions of
assets in liquidation. The junior participating preferred stock will not be
redeemable.
PROVISIONS AFFECTING CONTROL
Certificate of Incorporation. Under Delaware law, the approval by the
affirmative vote of the holders of a majority of the outstanding stock of a
corporation entitled to vote on the matter is generally required for a merger,
consolidation or sale, lease or exchange of all or substantially all the
corporation's assets to be consummated. BR's certificate of incorporation
provides certain restrictions on business combinations with interested BR
shareholders or their affiliates. The BR certificate of incorporation requires
the affirmative vote of at least 51% of the voting stock, excluding the vote of
any interested BR shareholder, for the adoption or authorization of a business
combination unless:
- the disinterested directors determine that the interested BR shareholder
is the beneficial owner of at least 80% of the voting stock and has
agreed to vote in favor of the business combination; or
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- the fair market value of the consideration per share to be received by
the BR shareholders in the business combination is equal to or greater
than the consideration paid by an interested BR shareholder in acquiring
the largest number of shares of that class of stock previously acquired
in any one transaction or series of related transactions and the
interested BR shareholder has not received the benefit of any loans,
advances, guarantees, pledges or other financial assistance provided by
BR.
Directors. Delaware law permits the certificate of incorporation or the
by-laws of a corporation to contain provisions governing the number and
qualifications of directors. However, if the certificate of incorporation
contains provisions fixing the number of directors, that number may not be
changed without amending the certificate of incorporation. BR's by-laws state
that the number of directors shall be any number not less than one, determined
from time to time by a vote of a majority of the directors then in office. A
resolution of the BR board currently fixes the number of directors at twelve.
Pursuant to BR's by-laws, directors are elected at the annual meeting of BR
shareholders for a term of one year.
Amendments to the Certificate of Incorporation. Under Delaware law, a
proposed amendment to the certificate of incorporation requires a resolution
adopted by the board of directors and, unless otherwise provided in the
certificate of incorporation, the affirmative vote of the holders of a majority
of the outstanding stock entitled to vote thereon and (if applicable) the
affirmative vote of the holders of a majority of the outstanding stock of each
class entitled to vote thereon as a class. If any amendment would adversely
affect the rights of any holders of shares of a class or series of stock, the
vote of the holders of a majority of all outstanding shares of the class or
series, voting as a class, is also necessary to authorize the amendment. The BR
certificate of incorporation provides that no amendment to the certificate of
incorporation shall amend, alter or repeal the provisions of Article 14 (action
by shareholders without a meeting) or Article 15 (special voting requirements)
without the affirmative vote of not less than 51% of the voting stock (as
defined in the certificate of incorporation).
By-Laws. Under Delaware law, the power to adopt, alter and repeal the
by-laws is vested in the shareholders, except to the extent that a corporation's
certificate of incorporation or by-laws vests this power in the board of
directors. However, the conferral of the power to adopt, alter and repeal the
by-laws upon the directors does not divest the shareholders of their power to
adopt, amend or repeal the by-laws. BR's certificate of incorporation grants the
BR board the power to make and alter the by-laws subject to certain restrictions
and the provisions of the by-laws. With certain exceptions and subject to the
power of the BR shareholders to amend and alter the by-laws, the by-laws may be
altered or repealed:
- by the affirmative vote of the holders of a majority of shares present
and entitled to vote at a meeting of BR shareholders; or
- by the affirmative vote of a majority of the whole board of directors.
Special Meetings. The Delaware General Corporation Law provides that a
special meeting of shareholders may be called by the board of directors or by
any person or persons authorized by a corporation's certificate of incorporation
or by-laws. BR's by-laws provide that special meetings may be called only by the
BR board, the chairman of the BR board, or the president of BR.
No Action by Written Consent of Shareholders. BR's certificate of
incorporation provides that any action by BR shareholders shall be taken at a
meeting of BR shareholders and no action may be taken by written consent of the
BR shareholders.
No Preemptive Rights. The BR certificate of incorporation provides that no
holder of stock of any class shall have any preemptive or preferential right
with respect to any stock of any class or to any securities convertible into
shares of stock.
Delaware Business Combination Law. Section 203 of the Delaware General
Corporation Law generally prohibits a Delaware corporation from engaging in a
business combination (defined as a variety of transactions, including mergers,
asset sales, issuance of stock and other transactions resulting in a financial
benefit to the interested shareholder) with an interested shareholder (generally
a person that is the beneficial owner of 15% or
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more of a corporation's outstanding voting stock) for a period of three years
following the date that such person became an interested shareholder unless:
- prior to the date such person became an interested shareholder, the
board of directors of the corporation approved either the business
combination or the transaction that resulted in the shareholder becoming
an interested shareholder;
- upon consummation of the transaction that resulted in the shareholder
becoming an interested shareholder, the interested shareholder owned at
least 85% of the voting stock of the corporation outstanding at the time
the transaction commenced, excluding stock held by directors who are
also officers of the corporation and employee stock ownership plans that
do not provide employees with the right to determine confidentially
whether shares held subject to the plan will be tendered in a tender or
exchange offer; or
- on or subsequent to the date such person became an interested
shareholder, the business combination is approved by the board of
directors of the corporation and authorized at a meeting of
shareholders, and not by written consent, by the affirmative vote of the
holders of at least 66 2/3% of the outstanding voting stock of the
corporation not owned by the interested shareholder.
A corporation may adopt an amendment to its certificate of incorporation or
by-laws expressly electing not to be governed by Section 203 if, in addition to
any other vote required by law, the amendment is approved by the affirmative
vote of a majority of the shares entitled to vote. However, the amendment
generally will not be effective until 12 months after its adoption and will not
apply to a business combination with an interested shareholder who was such on
or prior to the adoption of the amendment. BR has not adopted an amendment to
its certificate of incorporation or by-laws by which it elects not to be
governed by Section 203.
BR CANADA SHARE CAPITAL
On the completion of the transaction, the share capital of BR Canada will
be as summarized below. This summary is qualified in its entirety by reference
to the share capital of BR Canada and other provisions included in BR Canada's
articles of incorporation which we have attached as Annex E hereto.
COMMON SHARES OF BR CANADA
The holders of BR Canada common shares will be entitled to receive notice
of and to attend all meetings of the shareholders of BR Canada and will be
entitled to one vote for each share held of record on all matters submitted to a
vote of holders of BR Canada common shares. The holders of BR Canada common
shares will be entitled to receive such dividends as may be declared by the BR
Canada board of directors out of funds legally available therefor. Holders of BR
Canada common shares will be entitled upon any liquidation, dissolution or
winding-up of BR Canada, subject to the prior rights of the holders of the
exchangeable shares and to any other shares ranking senior to the BR Canada
common shares, to receive the remaining property and assets of BR Canada ratably
with the holders of the BR Canada common shares.
EXCHANGEABLE SHARES
Ranking. The exchangeable shares will be entitled to a preference over the
BR Canada common shares and any other shares ranking junior to the exchangeable
shares with respect to the payment of dividends and the distribution of assets
in the event of the liquidation, dissolution or winding-up of BR Canada.
Dividends. Holders of exchangeable shares will be entitled to receive
dividends equivalent to dividends paid from time to time by BR on shares of BR
common stock. The declaration date, record date and payment date for dividends
on the exchangeable shares will be the same as that for the corresponding
dividends on the BR common stock.
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Certain Restrictions. Without the approval of the holders of the
exchangeable shares, BR Canada will not:
- pay any dividend on the BR Canada common shares, or any other shares
ranking junior to the exchangeable shares, other than stock dividends
payable in such other shares ranking junior to the exchangeable shares;
- redeem, purchase or make any capital distribution in respect of BR
Canada common shares or any other shares ranking junior to the
exchangeable shares with respect to the payment of dividends or on any
liquidation distribution;
- except as provided for in the rights, privileges, restrictions and
conditions attaching to the exchangeable shares redeem or purchase any
other shares of BR Canada ranking equally with the exchangeable shares
with respect to the payment of dividends or on any liquidation
distribution; or
- amend the articles or bylaws of BR Canada in any manner that would
affect the rights or privileges of the holders of exchangeable shares.
The restrictions in the first three points above will not apply at any time
when the dividends on the outstanding exchangeable shares corresponding to
dividends declared on the BR common stock have been declared and paid in full.
Liquidation. In the event of the liquidation, dissolution or winding-up of
BR Canada, a holder of exchangeable shares will be entitled to receive for each
exchangeable share one share of BR common stock, together with the equivalent
amount of all BR dividends, payable and unpaid, if any.
Retraction Right, Exchange Put Right and Automatic Redemption Right. The
exchangeable share provisions also provide for the retraction right, the
exchange put right and the automatic redemption right. See "Description of the
Transaction -- Transaction Mechanics and Description of Exchangeable Shares".
Voting Rights. Except as required by applicable law, the holders of the
exchangeable shares will not be entitled as such to receive notice of or attend
any meeting of the shareholders of BR Canada or to vote at any such meeting.
Amendment and Approval. The rights, privileges, restrictions and
conditions attaching to the exchangeable shares may be changed only with the
approval of the holders thereof. Any such approval or any other approval or
consent to be given by the holders of the exchangeable shares will be
sufficiently given if given in accordance with applicable law and subject to a
minimum requirement that such approval or consent be evidenced by a resolution
passed by not less than 66 2/3% of the votes cast thereon at a meeting of the
holders of exchangeable shares (other than shares beneficially owned by BR or
entities controlled by BR) duly called and held at which holders of at least 20%
of the then outstanding exchangeable shares are present or represented by proxy.
In the event that no such quorum is present at such meeting within one-half hour
after the time appointed therefor, then the meeting will be adjourned to such
place and time not less than 10 days later as may be designated by the chairman
of such meeting, and the holders of exchangeable shares present or represented
by proxy at the adjourned meeting may transact the business for which the
meeting was originally called. At the adjourned meeting, a resolution passed by
the affirmative vote of not less than 66 2/3% of the votes cast thereon (other
than shares beneficially owned by BR or entities controlled by BR) will
constitute the approval or consent of the holders of the exchangeable shares.
Actions of BR Canada under Support Agreement. Under the exchangeable share
provisions, BR Canada will agree to take all such actions and do all such things
as are necessary or advisable to perform and comply with its obligations under,
and to ensure the performance and compliance by BR with its obligations under,
the support agreement.
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COMPARISON OF SHAREHOLDER RIGHTS
If the transaction is consummated, holders of Poco common shares will
transfer their Poco common shares to BR Canada in consideration for exchangeable
shares. Such holders will have the right to exchange or retract exchangeable
shares for an equivalent number of shares of BR common stock. Poco is a
corporation governed by Alberta law. BR is a corporation organized under
Delaware law. While the rights and privileges of shareholders of an Alberta
corporation are, in many instances, comparable to those of stockholders of a
Delaware corporation, there are certain differences. These differences arise
from differences between Alberta and Delaware law, and between the Poco articles
of amalgamation and bylaws and the BR certificate of incorporation and bylaws.
For a description of the respective rights of the holders of Poco common shares
and BR common stock, see "BR Share Capital."
<TABLE>
<CAPTION>
POCO SHAREHOLDER RIGHTS BR SHAREHOLDER RIGHTS
<S> <C> <C>
VOTE REQUIRED FOR Under Alberta law, the approval of at Under Delaware law, the affirmative vote
EXTRAORDINARY least two-thirds of votes cast at the of a majority of the outstanding stock
TRANSACTIONS meeting is required for extraordinary entitled to vote is required for:
corporate actions, including:
- mergers;
- amalgamations;
- consolidations;
- continuances;
- dissolutions; or
- sales, leases or exchanges of all or
substantially all of the property of a - sales of substantially all of the
corporation; assets of the corporation,
- liquidations and dissolutions; and provided that, unless the corporation's
certificate of incorporation requires
- arrangements (if ordered by a court). otherwise, no vote is required where,
either:
Alberta law may also require the
separate approval by the holders of a - the corporation's certificate of
class or series of shares for incorporation is not amended, the shares
extraordinary corporate actions. of stock of the corporation become
equivalent shares of the surviving
corporation and the stock of the
corporation issued in the merger does
not exceed 20% of the previously
outstanding stock; or
- the merger is with a wholly-owned
subsidiary of the corporation for the
purpose of forming a holding company
and the certificate of incorporation
and bylaws of the holding company
immediately following the merger will
be identical to the certificate of
incorporation and bylaws of the
corporation prior to the merger.
AMENDMENT TO Under Alberta law, the approval of at Under Delaware law, the affirmative vote
GOVERNING DOCUMENTS least two-thirds of the votes cast at of the holders of a majority of the
the meeting is required to amend the outstanding stock entitled to vote is
articles of the corporation. required to approve a proposed amendment
to the certificate of incorporation,
following the adoption of the amendment
by the board of directors of the
corporation, provided that the
certificate of incorporation may provide
for a greater vote.
</TABLE>
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<TABLE>
<CAPTION>
POCO SHAREHOLDER RIGHTS BR SHAREHOLDER RIGHTS
<S> <C> <C>
AMENDMENT TO If the amendment would effect the rights If the amendment would adversely effect
GOVERNING DOCUMENTS of any holders of a class or series of the rights of any holders of a class or
(CONTINUED) shares differently than other shares the series of stock, the amendment also
amendment also requires the approval of requires the approval of a majority of
a majority of the shares of the class or the shares of the class or series.
series.
The BR certificate of incorporation
provides that the affirmative vote of
not less than 51% of the voting stock is
required to amend, alter or repeal the
provisions of article 14 (action by
stockholders without a meeting) or
article 15 (special voting
requirements).
Under Alberta law, the creation, Under Delaware law, shareholders are
amendment or repeal of bylaws requires given the power to adopt, alter and
that, after being approved by the repeal by-laws, provided that the
directors of the corporation, the certificate of incorporation may also
creation, amendment or repeal of the provide such power to the board of
bylaw must be approved by a majority of directors.
the votes of the shareholders of the
corporation at the next shareholder BR's certificate of incorporation
meeting. provides that the BR board may make and
alter by-laws, subject to the provisions
of the by-laws. The by-laws provide that
they may be altered or repealed:
- by the affirmative vote of a majority
of the shares of BR common stock; or
- by the affirmative vote of a majority
of the whole board of directors.
DISSENTERS' RIGHTS Under Alberta law, each of the matters Under Delaware law, holders of shares
listed below will entitle shareholders may dissent from a merger or
to exercise rights of dissent and to be consolidation by demanding payment equal
paid the fair value of their shares; to the fair value of their shares. These
rights of dissent and appraisal only
- any amalgamation with another apply in the event of a merger or
corporation (other than with certain consolidation and not in the case of a
affiliated corporations); sale or transfer of assets or a purchase
of assets for stock
- an amendment to the corporation's
articles to add, change or remove any
provisions restricting or constraining
the issue or transfer of that class of
shares;
- an amendment to the corporation's
articles to add, change or remove any
restriction upon the business or
businesses that the corporation may
carry on;
- a continuance under the laws of
another jurisdiction;
- a sale, lease or exchange of all or
substantially all the property of the
corporation other than in the ordinary
course of business;
- a court may permit shareholders to
dissent in connection with an
application to the court for an order
approving an arrangement; or
- amendments to the articles of a
corporation which require a separate
class or series vote, provided that a
shareholder is not entitled to dissent
if an amendment to the articles is
effected by a court order approving a
reorganization or by a court order
made in connection with an action for
an oppression remedy.
</TABLE>
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<TABLE>
<CAPTION>
POCO SHAREHOLDER RIGHTS BR SHAREHOLDER RIGHTS
<S> <C> <C>
DISSENTERS' Under Delaware law, no dissent or
RIGHTS Alberta law provides these dissent appraisal rights are available if the
(CONTINUED) rights for both listed and unlisted shares are listed on a national
shares. securities exchange or are designated as
a national market system security on an
interdealer quotation system by the
National Association of Securities
Dealers, Inc. or are held of record of
more than two thousand stockholders,
unless the merger or consolidation
converts the shares into something other
than:
- stock of the surviving corporation;
- stock of another corporation that is
either listed on a national securities
exchange or designated as a national
market system security on an
interdealer quotation system by the
National Association of Securities
Dealers, Inc. or held of record by
more than two thousand stockholders;
- cash in lieu of fractional shares; or
- some combination of the above.
OPPRESSION REMEDY Alberta law provides an oppression Delaware law does not provide for a
remedy that allows a complainant who is: similar remedy.
- a present or former shareholder;
- a present or former director or
officer of the corporation or its
affiliates; and
- any other person who in the discretion
of the court is a proper person to make
the application,
to apply to court for relief where:
- any act or omission of the corporation
or an affiliate effects a result;
- the business or affairs of the
corporation or an affiliate are or have
been carried on or conducted in a
manner; or
- the powers of the directors of the
corporation or an affiliate are or have
been exercised in the manner,
that is oppressive or unfairly
prejudicial to or that unfairly
disregards the interest of a
shareholder, creditor, director or
officer.
</TABLE>
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<TABLE>
<CAPTION>
POCO SHAREHOLDER RIGHTS BR SHAREHOLDER RIGHTS
<S> <C> <C>
DERIVATIVE ACTION Under Alberta law, a complainant may not Under Delaware law, a stockholder may
bring an action in the name of, or on bring a derivative action in Delaware on
behalf of a corporation, or intervene in behalf of, and for the benefit of, the
an existing action on behalf of the corporation, provided that:
corporation, unless the complainant has
given reasonable notice to the directors - the stockholder must state in his
of the corporation and the complainant complaint that he was a stockholder of
satisfies the court that: the corporation at the time of the
transaction that is the subject of the
- the directors of the corporation will complaint; and
not bring, diligently prosecute or
defend or discontinue the action; - the stockholder must first make demand
on the corporation that it bring an
- the complainant is acting in good action and the demand be refused,
faith; and unless it is shown that the demand
would have been futile.
- it appears to be in the interest of
the corporation that the action be
brought, prosecuted, defended or
discontinued.
SHAREHOLDER CONSENT Under Alberta law, a written resolution Under Delaware law, unless otherwise
IN LIEU OF MEETING signed by all the shareholders of the provided in the corporation's
corporation who would have been entitled certificate of incorporation, a written
to vote on the resolution at a meeting, consent signed by holders of stock
is effective to approve the resolution. having sufficient votes to approve the
matter at a meeting is effective to
approve the matter.
BR's certificate of incorporation
provides that any action by BR
shareholders must be taken at a meeting
of the BR shareholders and no action may
be taken by the written consent of the
BR shareholders.
DIRECTOR Under Alberta law, at least half of the Delaware law does not have comparable
QUALIFICATIONS directors of a corporation governed by requirements.
the Business Corporations Act (Alberta)
must be resident Canadians. Alberta law
also requires that a corporation whose
securities are publicly traded must have
not fewer than three directors, at least
two of whom are not officers or
employees of the corporation or any of
its affiliates.
FIDUCIARY DUTIES OF Under Alberta law, directors have a duty Under Delaware law, directors have a
DIRECTORS of care and loyalty to the corporation. duty of care and loyalty to the
The duty of care requires that the corporation and its shareholders. The
directors exercise the care, diligence duty of care requires that the directors
and skill that a reasonably prudent act in an informed and deliberative
person would exercise in comparable manner and inform themselves, prior to
circumstances. The duty of loyalty making a business decision, of all
requires directors to act honestly and material information reasonably
in good faith with a view to the best available to them. The duty of loyalty
interests of the corporation. is the duty to act in good faith in a
manner which the directors reasonably
believe to be in the best interests of
the stockholders.
</TABLE>
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<TABLE>
<CAPTION>
POCO SHAREHOLDER RIGHTS BR SHAREHOLDER RIGHTS
<S> <C> <C>
INDEMNIFICATION OF Under Alberta law, except in respect of Delaware law provides that a corporation
OFFICERS AND an action by or on behalf of a may indemnify its present and former
DIRECTORS corporation to procure a judgment in its directors, officers, employees and
favor, which would require court agents against all reasonable expenses
approval, a corporation may indemnify (including attorneys' fees) and, except
present and former directors and in actions initiated by or in the right
officers against costs, charges and of the corporation, against all
expenses (including settlements and judgments, fines and amounts paid in
judgements) provided that: settlement of actions brought against
them, provided that they:
- they acted honestly and in good faith
with a view to the best interests of the - acted in good faith and in a manner
corporation; and which he or she reasonably believed to
be in, or not opposed to, the best
- in the case of a criminal or interests of the corporation; and
administrative action they had
reasonable grounds for believing that - in the case of a criminal proceeding,
their conduct was lawful. had no reasonable cause to believe his
or her conduct was unlawful.
The Poco bylaws provide for The BR certificate of incorporation
indemnification of directors and provides for indemnification of
officers to the fullest extent directors and officers to the fullest
authorized by Alberta law. extent authorized by Delaware law.
Neither Alberta law nor the Poco bylaws Delaware law allows for the advance
expressly provide for advance payment of payment of an indemnitee's expenses
an indemnitee's expenses. prior to the final disposition of an
action, provided that the indemnitee
undertakes to repay any such amount
advanced if it is later determined that
the indemnitee is not entitled to
indemnification with regard to the
action for which the expenses were
advanced.
Poco has entered into indemnity BR has entered into indemnity agreements
agreements with one of its executive with each of its directors and certain
officers and certain other employees. of executive officers.
DIRECTOR LIABILITY Alberta law does not permit the Delaware law provides that the charter
limitation of a director's liability as of a corporation may include a provision
Delaware law does. which limits or eliminates the liability
of directors to the corporation or its
stockholders for monetary damages for
breach of a fiduciary duty, provided
such liability does not arise from
prescribed conduct, including acts or
omissions not in good faith or which
involve intentional misconduct or which
involve a knowing violation of the law.
The BR certificate of incorporation
contains a provision limiting the
liability of its directors to the
fullest extent permitted by Delaware
law.
</TABLE>
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<TABLE>
<CAPTION>
POCO SHAREHOLDER RIGHTS BR SHAREHOLDER RIGHTS
<S> <C> <C>
ANTI-TAKEOVER Alberta law does not contain specific BR is subject to Section 203 of the
PROVISIONS AND anti- takeover provisions with respect Delaware General Corporation Law, which
INTERESTED to business transactions. However, the provides that, if a person acquires 15%
STOCKHOLDER policies of Canadian securities or more of the stock of a Delaware
TRANSACTIONS regulatory authorities, including Policy corporation without the approval of the
9.1 of the Ontario Securities Commission board of directors of that corporation,
and Policy Q-27 of the Quebec Security thereby becoming an "interested
Commission contain requirements in shareholder", that person may not engage
connection with any transaction by which in certain transactions with the
an issuer, directly or indirectly: corporation for a period of three years
unless one of the following three
- acquires or transfers an asset; exceptions applies:
- acquires or issues securities; or - the board of directors approved the
- assumes or transfers a liability, acquisition of stock or the transaction
prior to the time that the person became
from or to, as the case may be, a an interested shareholder;
director, senior officer or holder of
10% or more of the voting securities of - the person became an interested
the issuer, or an affiliate thereof. shareholder and 85% owner of the voting
stock of the corporation in the
Policy 9.1 and Policy Q-27 requires more transaction, excluding voting stock
detailed disclosure in the proxy owned by directors who are also
material sent to security holders in officers and certain employee stock
connection with a transaction as plans; or
described above, including, subject to
certain exceptions, the inclusion of a - the transaction is approved by the
formal valuation of the subject matter board of directors and by the
of the transaction and any non-cash affirmative vote of two- thirds of the
consideration offered therefor. Policy outstanding voting stock which is not
9.1 and Policy Q-27 also requires, owned by the interested shareholder.
subject to certain exceptions, that the
minority shareholders of the issuer BR's certificate of incorporation
separately approve the transaction, by requires the approval by holders of at
either a simple majority or two-thirds least 51% of the voting stock of any
of the votes cast, depending on the business transaction with an interested
circumstances. BR shareholder unless:
- the disinterested directors determined
that the interested BR shareholder holds
80% of the voting stock and has agreed
to vote in favor of the business
transaction; or
- the fair market value of the
consideration to be received by the BR
shareholders in the business
transaction is not less than the
consideration paid by the interested
BR shareholder in acquiring the
largest number of shares previously
acquired in any one transaction and
the interested BR shareholder has not
received the benefit of any financial
assistance from BR.
SHAREHOLDER RIGHTS Poco does not have a shareholder rights Under the BR rights agreement, holders
PLAN plan. of BR common stock have one right with
respect to each share of BR common stock
held, which have certain anti-takeover
effects. The rights will cause
substantial dilution to a person or
group that attempts to acquire BR in a
manner which causes the rights to become
exercisable. See "BR Share Capital -- BR
Rights Agreement".
</TABLE>
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CHAPTER FOUR -- INFORMATION ABOUT TAX CONSIDERATIONS
CANADIAN FEDERAL INCOME TAX CONSIDERATIONS
TO POCO SHAREHOLDERS
INTRODUCTION
Subject to the qualifications and assumptions contained herein, in the
opinion of Burnet, Duckworth & Palmer, Canadian counsel to Poco, the following
is a fair and adequate summary of the material Canadian federal income tax
considerations, as of the date of this joint proxy statement generally
applicable to Poco shareholders who at all relevant times, for purposes of the
Income Tax Act, hold their Poco common shares and will hold their exchangeable
shares and BR common stock as capital property and deal at arm's length with,
and are not affiliated with, Poco or BR. This discussion does not apply to a
holder with respect to whom BR is a foreign affiliate within the meaning of the
Income Tax Act nor to a person who is a financial institution which is subject
to the mark-to-market provisions of the Income Tax Act.
All Poco shareholders should consult their own tax advisors as to whether,
as a matter of fact, they hold their Poco common shares and will hold their
exchangeable shares and BR common stock as capital property for the purposes of
the Income Tax Act. Certain provisions of the Income Tax Act permit, subject to
certain conditions, holders of Poco common shares to deem their Poco common
shares to be capital property.
This discussion is based on the current provisions of the Income Tax Act
and the regulations thereunder, the current provisions of the Canada-United
States Income Tax Convention, 1980 and counsel's understanding of the current
published administrative practices of Revenue Canada. This discussion takes into
account all specific proposed amendments to the Income Tax Act and the
regulations thereunder that have been publicly announced by or on behalf of the
Minister of Finance (Canada) prior to the date hereof and assumes that all such
proposed amendments will be enacted in their present form. No assurances can be
given that the proposed amendments will be enacted in the form proposed, if at
all. However, the Canadian federal income tax considerations generally
applicable to a Poco shareholder with respect to the transaction will not be
different in a materially adverse way if the proposed amendments are not
enacted.
Except for the foregoing, this discussion does not take into account or
anticipate any changes in law, whether by legislative, administrative or
judicial decision or action, nor does it take into account provincial,
territorial or foreign income tax legislation or considerations which may differ
from the Canadian federal income tax considerations described herein.
THIS DISCUSSION IS OF A GENERAL NATURE ONLY. THEREFORE, POCO SHAREHOLDERS
SHOULD CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THEIR PARTICULAR
CIRCUMSTANCES.
For purposes of the Income Tax Act, all amounts relating to the
acquisition, holding or disposition of BR common stock, including dividends,
adjusted cost base and proceeds of disposition, must be converted into Canadian
dollars based on the prevailing United States dollar exchange rate at the time
such amounts arise.
SHAREHOLDERS RESIDENT IN CANADA
The following portion of this discussion is generally applicable to Poco
shareholders who, for the purposes of the Income Tax Act and any applicable
income tax treaty or convention, are resident or deemed to be resident in Canada
at all relevant times.
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DISPOSITION AND ACQUISITION OF ANCILLARY RIGHTS
Each of BR and Poco is of the view, and has advised counsel, that the
ancillary rights provided in the voting and exchange trust agreement and support
agreement, if any, have nominal value and are not allocable for consideration
for the Poco common shares. Such determinations of value are not binding on
Revenue Canada and counsel can express no opinion on matters of factual
determination such as this.
EXCHANGE OF POCO COMMON SHARES FOR EXCHANGEABLE SHARES WHERE NO ELECTION IS
MADE UNDER SECTION 85 OF THE INCOME TAX ACT
Based on the allocation of the consideration for Poco common shares
entirely to exchangeable shares, the exchange of Poco common shares for
exchangeable shares will qualify as a tax-deferred share-for-share exchange
pursuant to section 85.1 of the Income Tax Act, as described below. Poco
shareholders may also effect a tax deferred exchange by making an election under
section 85 of the Income Tax Act. Certain Poco shareholders to whom this opinion
is not specifically addressed and who may be disentitled to the provisions of
section 85.1 of the Income Tax Act may avail themselves of the provisions of
section 85. Poco shareholders are urged to consult their own tax advisors to
determine whether they should make an election under section 85 of the Income
Tax Act, as described below, in order to provide greater certainty as to a tax
deferred exchange.
Pursuant to section 85.1 of the Income Tax Act, a Poco shareholder will not
realize any immediate tax consequences as a result of exchanging Poco common
shares for exchangeable shares provided that such Poco shareholder does not make
a joint election under section 85 of the Income Tax Act in respect of the
exchange as discussed below and does not, in the Poco shareholder's return of
income for the taxation year in which the exchange occurs, include in computing
the Poco shareholder's income, any portion of the capital gain or capital loss,
otherwise determined from such exchange. Instead, the Poco shareholder will be
deemed:
- to have disposed of that holder's Poco common shares for proceeds of
disposition equal to the adjusted cost base to the holder of such shares
immediately before such exchange; and
- to have acquired the exchangeable shares at a cost equal to the deemed
proceeds of disposition of the holder's Poco common shares.
Such cost will generally be averaged with the cost of other exchangeable
shares held by such holder. Pursuant to Revenue Canada's current administrative
practices, a Poco shareholder who receives cash not exceeding C$200 in lieu of a
fraction of an Exchangeable Share, will have the option of recognizing the
capital gain or capital loss arising on the disposition of the fractional share
or alternatively of reducing the adjusted cost base of the exchangeable shares
acquired by the amount of cash so received.
Where a Poco shareholder exchanges Poco common shares for exchangeable
shares and, in the Poco shareholder's return of income for the taxation year in
which such exchange occurs, includes in computing income for that year any
portion of the capital gain or capital loss from such exchange, section 85.1 the
Income Tax Act will not apply. In these circumstances, the Poco shareholder will
be considered to have disposed of all of the holder's Poco common shares so
exchanged for proceeds of disposition equal to their fair market value of the
exchangeable shares received on the exchange and to have acquired the
exchangeable shares at a cost equal to the fair market value. A Poco shareholder
who so chooses to realize a capital gain or capital loss on the exchange will
realize a capital gain (or a capital loss) to the extent that the holder's
proceeds of disposition, net of any reasonable costs of disposition, exceed (or
are less than) the adjusted cost base of that holder's Poco common shares
immediately before the exchange.
The consequences to a Poco shareholder of realizing a capital gain or
capital loss are as described below under "-- Taxation of Capital Gains and
Capital Losses."
EXCHANGE OF POCO COMMON SHARES FOR EXCHANGEABLE SHARES WHERE ELECTION IS
MADE UNDER SECTION 85 OF THE INCOME TAX ACT
A Poco shareholder who disposes of Poco common shares to BR Canada and who
receives exchangeable shares may obtain a full or partial tax deferral by
entering into a joint tax election with BR Canada and filing with Revenue Canada
and, where applicable, a provincial tax authority a joint tax election under
section 85 of the
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Income Tax Act in respect of such Poco common shares and specifying therein an
elected transfer price within the limits described below.
The joint tax election must specify the elected transfer price in respect
of the Poco common shares transferred to BR Canada. The elected transfer price
will be the proceeds of disposition to a former holder of its Poco common shares
and the acquisition cost of its exchangeable shares. The elected transfer price
may not:
- be less than the lesser of the Poco shareholder's adjusted cost base of
those Poco common shares at the time of disposition and the fair market
value of those Poco common shares at that time; and
- exceed the fair market value of those Poco common shares at the time of
disposition.
Elected transfer prices, which do not otherwise comply with the foregoing
limitations, will be automatically adjusted under the Income Tax Act so that
they are in compliance.
BR Canada will execute a joint tax election under subsection 85(1) or (2)
of the Income Tax Act and the corresponding provisions of any applicable
provincial tax legislation forwarded to it by a Poco shareholder. BR Canada
agrees only to execute and to forward such tax election by mail to the Poco
shareholder for filing with Revenue Canada and any applicable provincial tax
authorities. Compliance with the requirements to ensure the validity of a joint
tax election will be the sole responsibility of the Poco shareholder making the
election and BR Canada assumes no liability for the failure to execute and file
a valid election.
POCO SHAREHOLDERS ARE URGED TO CONSULT THEIR OWN ADVISORS AS SOON AS
POSSIBLE REGARDING THE DEADLINES AND PROCEDURES FOR MAKING THE ELECTION WHICH
ARE APPROPRIATE TO THEIR CIRCUMSTANCES.
TAXATION OF CAPITAL GAINS AND CAPITAL LOSSES
Three-quarters of any capital gain must be included in a shareholder's
income for the year of disposition. Three-quarters of any capital loss generally
must be deducted by the holder from capital gains for the year of disposition.
Any capital losses in excess of capital gains for the year of disposition
generally may be carried back up to three taxation years or carried forward
indefinitely and deducted against net capital gains (capital gains less capital
losses) in such other years to the extent and under the circumstances described
in the Income Tax Act.
Capital gains realized by an individual or trust, than other certain
specified trusts, may give rise to alternative minimum tax under the Income Tax
Act.
A shareholder that is throughout the relevant taxation year a
"Canadian-controlled private corporation", as defined in the Income Tax Act, may
be liable to pay an additional refundable tax of 6 2/3% on its "aggregate
investment income" for the year which will include an amount in respect of
taxable capital gains.
If the holder of a Poco common share or an exchangeable share is a
corporation, the amount of any capital loss arising from a disposition or deemed
disposition of such share may be reduced by the amount of dividends received or
deemed to have been received by it on such share to the extent and under
circumstances prescribed by the Income Tax Act. Similar rules may apply where a
corporation is a member of a partnership or a beneficiary of a trust that owns
Poco common shares or exchangeable shares or where a trust or partnership of
which a corporation is a beneficiary or a member is a member of a partnership or
a beneficiary of a trust that owns Poco common shares or exchangeable shares.
Shareholders to whom these rules may be relevant should consult their own tax
advisors.
DIVIDENDS ON EXCHANGEABLE SHARES
In the case of a shareholder who is an individual, dividends received or
deemed to be received on the exchangeable shares will be included in computing
the shareholder's income, and will be subject to the gross-up and dividend tax
credit rules normally applicable to taxable dividends received from taxable
Canadian corporations.
In the case of shareholder that is a corporation other than a "specified
financial institution", as defined in the Income Tax Act, dividends received or
deemed to be received on the exchangeable shares normally will be included in
the corporation's income and deductible in computing its taxable income.
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ABOUT TAX CONSIDERATIONS
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A shareholder that is a "private corporation", as defined in the Income Tax
Act, or any other corporation resident in Canada and controlled or deemed to be
controlled by or for the benefit of an individual or a related group of
individuals may be liable under Part IV of the Income Tax Act to pay a
refundable tax of 33 1/3% of dividends received or deemed to be received on the
exchangeable shares to the extent that such dividends are deductible in
computing the shareholder's taxable income.
The exchangeable shares will be "term preferred shares" as defined in the
Income Tax Act. Consequently, in the case of a shareholder that is a specified
financial institution, a dividend will be deductible in computing its taxable
income only if:
- the specified financial institution did not acquire the exchangeable
shares in the ordinary course of the business carried on by such
institution; or
- in any case, at the time the dividend is received by the specified
financial institution, the exchangeable shares are listed on a
prescribed stock exchange in Canada (which currently includes the TSE)
and the specified financial institution, either alone or together with
persons with whom it does not deal at arm's length, does not receive (or
is not deemed to receive) dividends in respect of more than 10% of the
issued and outstanding exchangeable shares.
In addition, to the extent that a deemed dividend arises on the redemption
of the exchangeable shares by BR Canada, a portion of the dividend may not be
subject to the denial of dividend deduction applicable in respect of term
preferred shares in accordance with the exceptions outlined above. Specified
financial institutions should consult their own tax advisors.
A shareholder that is throughout the relevant taxation year a
"Canadian-controlled private corporation", as defined in the Income Tax Act, may
be liable to pay an additional refundable tax of 6 2/3% on its "aggregate
investment income" for the year which will include dividends or deemed dividends
that are not deductible in computing taxable income.
REDEMPTION OF EXCHANGEABLE SHARES
On the redemption (including a retraction) of an exchangeable share by BR
Canada, the holder of an exchangeable share will be deemed to have received a
dividend equal to the amount, if any, by which the redemption proceeds exceed
the paid-up capital at the time of the exchangeable share so redeemed. For these
purposes, the redemption proceeds will be the fair market value at the time of
the redemption of BR common stock received from BR Canada plus the amount, if
any, of all accrued but unpaid dividends on the exchangeable shares paid on the
redemption. The amount of such deemed dividend generally will be subject to the
same tax treatment accorded to dividends on the exchangeable shares as described
above. On the redemption, the holder of an exchangeable share will also be
considered to have disposed of the exchangeable share, but the amount of the
deemed dividend will be excluded in computing the shareholder's proceeds of
disposition for purposes of computing any capital gain or capital loss arising
on the disposition. In the case of a shareholder that is a corporation, in some
circumstances, the amount of any such deemed dividend may be treated as proceeds
of disposition and not as a dividend. The taxation of capital gains and capital
losses is described above.
EXCHANGE OF EXCHANGEABLE SHARES WITH BR
On the exchange of an exchangeable shares with BR for BR common stock, the
holder will generally realize a capital gain (or a capital loss) equal to the
amount by which the proceeds of disposition of the exchangeable shares, net of
any reasonable costs of disposition, exceed (or are less than) the adjusted cost
base to the holder of the exchangeable shares immediately before the exchange.
For these purposes, the proceeds of disposition will be the fair market value at
the time of exchange of the BR common stock plus any other amount received by
the holder from BR as part of the exchange consideration. The taxation of
capital gains and capital losses is described above.
CHAPTER FOUR -- INFORMATION
ABOUT TAX CONSIDERATIONS
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DIVIDENDS ON BR COMMON STOCK
Dividends on BR common stock will be included in the recipient's income for
the purposes of the Income Tax Act. Such dividends received by an individual
shareholder will not be subject to the gross-up and dividend tax credit rules in
the Income Tax Act. A shareholder that is a corporation will include such
dividends in computing its income and generally will not be entitled to deduct
the amount of such dividends in computing its taxable income. A shareholder that
is throughout the relevant taxation year a "Canadian-controlled private
corporation", as defined in the Income Tax Act, may be liable to pay an
additional refundable tax of 6 2/3% on its "aggregate investment income" for the
year which will include such dividends. United States non-resident withholding
tax on such dividends received by Canadian residents will be generally eligible
for foreign tax credit or deduction treatment, where applicable, under the
Income Tax Act. See "United States Federal Income Tax Considerations to Poco
Shareholders -- Shareholders Not Resident in or Citizens of the United States."
DISPOSITION OF SHARES OF BR COMMON STOCK
The cost of BR common stock received on a retraction, redemption or
exchange of exchangeable shares will be equal to the fair market value of such
shares at the time of such event. The adjusted cost base to a holder of BR
common stock acquired on a retraction, redemption or exchange of exchangeable
shares will be determined by averaging the cost of such shares with the adjusted
cost base of all other BR common stock held by such holder as capital property
immediately before the retraction, redemption or exchange, as the case may be. A
disposition or deemed disposition of BR common stock by a holder will generally
result in a capital gain (or a capital loss) equal to the amount by which the
proceeds of disposition, net of any reasonable costs of disposition, exceed (or
are less than) the adjusted cost base to the holder of such shares immediately
before the disposition. The taxation of capital gains and capital losses is
described above.
FOREIGN PROPERTY INFORMATION REPORTING
A holder of BR common stock who is a "specified Canadian entity" for a
taxation year or fiscal period and whose total cost amount of "specified foreign
property", including such shares, at any time in the year or fiscal period
exceeds C$100,000 will be required to file an information return for the year or
period disclosing prescribed information, including the shareholder's cost
amount, any dividends received in the year, and any gains or losses realized in
the year, in respect of such property. With some exceptions, a taxpayer resident
in Canada in the year will be a specified Canadian entity. A holder of BR common
stock should consult its own advisors about whether it must comply with these
rules.
DISSENTING SHAREHOLDERS
Poco shareholders are permitted to dissent from the arrangement. A
dissenting Poco shareholder will be entitled, in the event the transaction
becomes effective, to be paid by Poco the fair value of the Poco common shares
held by such holder determined as of the appropriate date. See "Description of
the Transaction -- Dissenting Shareholders' and Optionholders' Rights." Such
shareholder may be considered to have realized a deemed dividend to the extent
that the proceeds of disposition exceed the paid-up capital of the Poco common
shares and a capital gain (or a capital loss) to the extent that the proceeds of
disposition less the deemed dividend exceed (or are less than) the adjusted cost
base of the Poco common shares to the holder immediately before payment of the
fair value of the Poco common shares. Alternatively, the entire consideration
received may be viewed as proceeds of disposition of the holder's Poco common
shares. Additional income tax considerations may be relevant to dissenting Poco
shareholders who fail to perfect or withdraw their claims pursuant to the right
of dissent. Dissenting Poco shareholders should consult their own tax advisors.
SHAREHOLDERS NOT RESIDENT IN CANADA
The following portion of the discussion is applicable to Poco shareholders
who, for purposes of the Income Tax Act and any applicable tax treaty or
convention, have not been and will not be resident or deemed to be resident in
Canada at any time while they have held Poco common shares or will hold
exchangeable shares or BR common stock and who will not use or hold the Poco
common shares, exchangeable shares or BR common stock
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ABOUT TAX CONSIDERATIONS
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in the course of carrying on a business (including an insurance business) in
Canada and, except as specifically discussed below, to whom such shares are not
"taxable Canadian property", as defined in the Income Tax Act.
Poco common shares and exchangeable shares will generally not be taxable
Canadian property at a particular time provided that such shares are listed on a
prescribed stock exchange (which exchanges currently include the TSE) and the
holder, persons with whom such holder does not deal at arm's length, or the
holder and such persons, has not owned (or had under option) 25% or more of the
issued shares of any class or series of the capital stock of Poco or BR Canada
at any time within five years preceding the particular time. BR common stock
will generally not constitute taxable Canadian property.
A holder of Poco common shares that are not taxable Canadian property will
not be subject to tax under the Income Tax Act on the exchange of Poco common
shares for exchangeable shares. Similarly, provided the exchangeable shares or
BR common stock are not taxable Canadian property to the holder, the holder will
not be subject to tax under the Income Tax Act on the exchange of exchangeable
shares for BR common stock (except to the extent the exchange gives rise to a
deemed dividend discussed below), or on the sale or other disposition of
exchangeable shares or BR common stock.
In the event that the Poco common shares constitute taxable Canadian
property to a particular non-resident holder thereof, the exchange of Poco
common shares for exchangeable shares should qualify as a tax deferred
share-for-share exchange as described above under "-- Shareholders Resident in
Canada -- Exchange of Poco Common Shares for Exchangeable Shares Where No
Election is Made under Section 85 of the Income Tax Act." However, Poco
shareholders are urged to consult their own tax advisors.
Dividends paid or deemed to be paid on the exchangeable shares are subject
to non-resident withholding tax under the Income Tax Act at the rate of 25%,
although such rate may be reduced under the provisions of an applicable income
tax treaty or convention. For example, under the Canada-U.S. Tax Convention, the
rate is generally reduced to 15% in respect of dividends paid to a person who is
the beneficial owner thereof and who is resident in the United States for
purposes of the Canada-U.S. Tax Convention.
A HOLDER WHOSE EXCHANGEABLE SHARES ARE REDEEMED BY BR CANADA (EITHER UNDER
REDEMPTION RIGHTS OR PURSUANT TO THE RETRACTION RIGHTS) WILL BE DEEMED TO
RECEIVE A DIVIDEND AS DESCRIBED ABOVE UNDER "-- SHAREHOLDERS RESIDENT IN CANADA
- -- REDEMPTION OF EXCHANGEABLE SHARES." ANY SUCH DEEMED DIVIDEND WILL BE SUBJECT
TO WITHHOLDING TAX AS DESCRIBED IN THE PRECEDING PARAGRAPHS.
Poco shareholders are permitted to dissent from the arrangement in the
manner set out in section 184 of the Business Corporations Act (Alberta). A
dissenting Poco shareholder will be entitled, in the event the transaction
becomes effective, to be paid by Poco the fair value of the Poco common shares
held by such holder determined as of the appropriate date. See "Description of
the Transaction -- Dissenting Shareholders' and Optionholders' Rights". A
dissenting shareholder may be considered to have received a dividend equal to
the excess of the consideration received over the paid-up capital of such Poco
common shares and to have received proceeds of disposition equal to the amount
of such paid-up capital for the purpose of computing their capital gain, or in
most instances, their capital loss. Alternatively, dissenting shareholders may
be considered to have realized a capital gain (or a capital loss) based on
redemption proceeds equal to such fair value, computed generally as described
above. Any capital gain realized by a dissenting Poco shareholder would not be
taxed under the Income Tax Act if the Poco common shares in respect of which the
right of dissent is exercised were not taxable Canadian property, as described
above. Additional income tax considerations may be relevant to dissenting Poco
shareholders who fail to perfect or withdraw their claims pursuant to the right
of dissent. Dissenting Poco shareholders should consult their own tax advisors.
CANADIAN FEDERAL INCOME TAX CONSIDERATIONS TO POCO OPTIONHOLDERS
Subject to the qualifications and assumptions contained herein, in the
opinion of Burnet, Duckworth & Palmer, Canadian counsel to Poco, the following
is a fair and adequate summary of the material Canadian federal income tax
considerations, as of the date of this joint proxy statement generally
applicable to the holders of Poco options who at all relevant times, for
purposes of the Income Tax Act and any applicable income tax treaty or
convention, are resident or deemed to be resident in Canada, who are current or
former employees, officers and
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ABOUT TAX CONSIDERATIONS
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directors of Poco and who received the Poco options in respect of, in the course
of, or by virtue of their positions as employees, officers or directors of Poco.
This discussion is based on the current provisions of the Income Tax Act
and the regulations thereunder and counsel's understanding of the current
published administrative practices of Revenue Canada.
This discussion does not take into account or anticipate any changes in
law, whether by legislative, administrative or judicial decision or action, nor
does it take into account provincial, territorial or foreign income tax
legislation or considerations which may differ from the Canadian federal income
tax considerations described herein.
THIS DISCUSSION IS OF A GENERAL NATURE ONLY. THEREFORE, POCO OPTIONHOLDERS
SHOULD CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THEIR PARTICULAR
CIRCUMSTANCES.
EXCHANGE OF POCO OPTIONS FOR OPTIONS TO PURCHASE SHARES OF BR COMMON STOCK
The holders of the Poco options will not realize any immediate tax
consequences as a result of exchanging the Poco options for options to purchase
BR common stock. Instead, for the purposes of the Income Tax Act:
- the Poco optionholder will be deemed not to have disposed of Poco options
and not to have acquired the BR options;
- the BR options will be deemed to be the same as, and a continuation of,
the Poco options; and
- BR will be deemed to be the same corporation as Poco for the purposes
hereof.
UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS TO POCO SHAREHOLDERS
In the opinion of White & Case LLP, U.S. tax counsel to BR, the following
is a summary of the material U.S. federal income tax considerations arising from
and relating to the transaction that are generally applicable to Poco
shareholders that hold Poco common shares as capital assets, including the
receipt, ownership, and disposition of exchangeable shares and the receipt of BR
common stock. This summary is based on:
- the U.S. Internal Revenue Code of 1986, as amended;
- income tax regulations, proposed and final, issued under the U.S.
Code;, and
- judicial and administrative interpretations of the U.S. Code and
regulations;
in each case as in effect and available as of the date of this joint proxy
statement.
These income tax laws, regulations and interpretations, however, may change
at any time, and any change could be retroactive to the date of this joint proxy
statement. These income tax laws and regulations are also subject to various
interpretations, and the U.S. Internal Revenue Service or the U.S. courts could
later disagree with the explanations or conclusions contained in this summary.
For purposes of this summary, a U.S. holder is a beneficial owner of Poco
common shares, exchangeable shares, or BR common stock, as the case may be,
that, for U.S. federal income tax purposes, is:
- a citizen or resident of the U.S., including some former citizens or
residents of the U.S.;
- a partnership or corporation created or organized in or under the
laws of the U.S. or any state thereof, including the District of
Columbia;
- an estate if its income is subject to U.S. federal income taxation
regardless of its source; or
- a trust if it has validly elected to be treated as a United States
person for U.S. federal income tax purposes or if a U.S. court can
exercise primary supervision over its administration, and one or
more United States persons have the authority to control all of its
substantial decisions.
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ABOUT TAX CONSIDERATIONS
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A non-U.S. holder is a beneficial owner of Poco common shares, exchangeable
shares, or BR common stock, as the case may be, other than a U.S. holder.
The tax consequences to the following parties, except as stated below, are
not addressed in this summary:
- persons that may be subject to special tax treatment such as
financial institutions, real estate investment trusts, tax-exempt
organizations, regulated investment companies, insurance companies,
and brokers and dealers or traders in securities or currencies;
- Poco optionholders and persons who acquired Poco common shares
pursuant to an exercise of employee stock options or rights or
otherwise as compensation;
- persons having a functional currency for U.S. federal income tax
purposes other than the U.S. dollar;
- persons that hold or will hold Poco common shares, exchangeable
shares, or BR common stock, as the case may be, as part of a
position in a straddle or as part of a hedging or conversion
transaction; and
- persons that own, or are deemed to own, 5% or more, by voting power
or value, of the outstanding stock of Poco, BR Canada or BR, as the
case may be.
U.S. holders who do not maintain a substantial presence, permanent home or
habitual abode in the U.S. or whose personal and economic relations are not
closer to the U.S. than to any other country (other than Canada) may be unable
to benefit from the provisions of the Canada-United States Income Tax Convention
1980 described herein. These holders should consult their own tax advisors
concerning the availability of benefits under the Canada-U.S. Tax Convention.
No statutory, judicial, or administrative authority exists which directly
addresses some of the U.S. federal income tax consequences of the issuance and
ownership of instruments and rights comparable to the exchangeable shares and
the related rights. Therefore, some aspects of the U.S. federal income tax
treatment of the transaction, including the receipt and ownership of
exchangeable shares and the exchange of exchangeable shares for shares of BR
common stock, are not certain. No advance income tax ruling has been sought or
obtained from the IRS regarding any of the tax consequences of the transaction.
This summary does not address aspects of U.S. taxation other than U.S.
federal income taxation, nor does it address all aspects of U.S. federal income
taxation that may be applicable to particular holders. In addition, this summary
does not address the U.S. state or local tax consequences or the tax
consequences in jurisdictions other than the U.S. of the transaction.
HOLDERS ARE URGED TO CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE U.S.
FEDERAL, STATE, AND LOCAL TAX CONSEQUENCES AND THE NON-U.S. TAX CONSEQUENCES OF
THE TRANSACTION, INCLUDING THE RECEIPT, OWNERSHIP, AND DISPOSITION OF
EXCHANGEABLE SHARES AND THE RELATED RIGHTS.
UNITED STATES HOLDERS
Tax Treatment of the Transaction. In the opinion of White & Case LLP,
although not free from doubt, it is more likely than not that U.S. holders of
Poco common shares that exchange their Poco common shares for exchangeable
shares will not recognize gain or loss on such exchange for U.S. federal income
tax purposes. There is, however, no direct authority addressing the proper
treatment of the transaction for U.S. federal income tax purposes, and,
therefore, White & Case LLP's opinion and the conclusions contained in the
discussion below are subject to significant uncertainty. Accordingly, there can
be no assurance that the IRS will not challenge a U.S. holder's assertion that
the exchange of Poco common shares for exchangeable shares gives rise to no gain
or loss for U.S. federal income tax purposes or that, if challenged, a court
will not agree with the IRS.
CONSEQUENCES IF THE EXCHANGE OF POCO COMMON SHARES FOR EXCHANGEABLE SHARES
IS TAX-FREE
Assuming that the exchange of Poco common shares for exchangeable shares
does not constitute a taxable transaction for U.S. federal income tax purposes,
the following U.S. federal income tax consequences should apply.
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ABOUT TAX CONSIDERATIONS
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Receipt of Exchangeable Shares. Except as otherwise provided below:
- a U.S. holder of Poco common shares who exchanges Poco common shares for
exchangeable shares pursuant to the transaction should not recognize any
gain or loss with respect to the receipt of the exchangeable shares;
- the aggregate tax bases of the exchangeable shares received pursuant to
the transaction by the U.S. holder of Poco common shares should equal the
holder's aggregate tax bases in the Poco common shares surrendered
pursuant to the transaction, reduced by the tax basis allocated to
fractional share interests for which cash is received;
- the holding period of the exchangeable shares received by the U.S. holder
of Poco common shares pursuant to the transaction should include the
holding period of the Poco common shares surrendered in exchange
therefor;
- cash payments in lieu of a fractional exchangeable share will be treated
as if a fractional exchangeable share had been received in the
transaction and then redeemed by BR or BR Canada.
The redemption of the fractional exchangeable share should qualify as a
distribution in full payment in exchange for the fractional share rather than as
a distribution of a dividend. Accordingly, a Poco shareholder receiving cash in
lieu of a fractional share will recognize gain or loss upon payment equal to the
difference, if any, between the shareholder's tax basis in the fractional share,
as described in the second bullet point above, and the amount of cash received.
The gain or loss, if any, will be capital gain or loss. In the case of a
non-corporate U.S. holder of Poco common shares who receives cash in lieu of a
fractional exchangeable share, generally the maximum U.S. federal income tax
rate applicable to any capital gain recognized on the receipt of the cash will
be lower than the maximum U.S. federal income tax rate applicable to ordinary
income if the holder's holding period for the Poco common shares exceeds one
year. The deductibility of capital losses is subject to limitations.
For U.S. federal income tax purposes, any gain recognized by a U.S. holder
on the receipt of cash in lieu of a fractional exchangeable share generally will
be treated as U.S. source gain, except that, under the terms of the Canada-U.S.
Tax Convention, the gain may be treated as sourced in Canada. Any Canadian tax
imposed on the gain generally will be available as a credit against U.S. federal
income taxes, subject to applicable limitations. A U.S. holder that is
ineligible for a foreign tax credit with respect to any Canadian tax paid may be
entitled to deduct the Canadian tax in computing U.S. taxable income.
Voting Rights, Exchange Rights and Call Rights. If the exchange of Poco
common shares for exchangeable shares and the related rights is considered to be
made pursuant to a tax-free reorganization under Section 368(a)(1)(B) of the
U.S. Code in which the exchangeable shares and the related rights, in substance,
are viewed for U.S. federal income tax purposes as constituting BR common stock,
then the voting rights and exchange rights received and any call rights deemed
to be conveyed by Poco shareholders that receive exchangeable shares pursuant to
the transaction should not be treated as having substance separate from the
exchangeable shares. If, however, the exchange of Poco common shares for
exchangeable shares and the related rights is considered to be made pursuant to
a transaction described in Section 351(a) of the U.S. Code in which the
transferee corporation is BR Canada, then the receipt of the voting rights and
exchange rights may result in Poco shareholders being required to recognize gain
on the exchange of Poco common shares for the exchangeable shares and the
related rights, but only to the extent of the fair market value of these rights.
Although the value of the voting rights and exchange rights received and
any call rights deemed to be conveyed by Poco shareholders that receive
exchangeable shares pursuant to the transaction is uncertain, BR and BR Canada
believe that the voting rights, exchange rights, and call rights will have only
nominal value. These determinations of value are not binding on the IRS,
however, and counsel can express no opinion on matters of factual
determinations, such as value. Further, the exchange of some of the call rights
for the voting rights and exchange rights may not be taxable to U.S. holders
because U.S. holders and BR may be deemed to have granted purchase options to
each other, which grants would not generally be treated as taxable events for
U.S. federal income tax purposes. It is possible, however, that the voting
rights, exchange rights, and call rights have greater than nominal value and
that the transfer or receipt of the rights constitutes a taxable exchange or
otherwise generates taxable gain.
CHAPTER FOUR -- INFORMATION
ABOUT TAX CONSIDERATIONS
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Requirement of Notice Filing. Any U.S. holder that receives the
exchangeable shares in exchange for Poco common shares will be required to file
a notice with the IRS on or before the last date for filing a U.S. federal
income tax return for the holder's taxable year in which the transaction occurs.
The notice must contain specific information required by regulations under
Section 367(b) of the U.S. Code, and U.S. holders are advised to consult their
tax advisors for assistance in preparing such notice.
If a U.S. holder required to give notice as described above fails to give
the notice, and if that U.S. holder further fails to establish reasonable cause
for the failure, then the IRS will be required to determine, based on all the
facts and circumstances, whether the exchange of Poco common shares for
exchangeable shares is eligible for nonrecognition treatment. In making this
determination, the IRS may conclude that:
- the exchange is eligible for nonrecognition treatment, despite the
noncompliance;
- the exchange is eligible for nonrecognition treatment, provided some
other conditions imposed by the U.S. Treasury regulations are satisfied;
or
- the exchange is not eligible for nonrecognition treatment, and any gain
recognized will be taken into account for purposes of increasing the tax
basis of the exchangeable shares received pursuant to the transaction.
Nevertheless, the failure of any one U.S. holder to satisfy the filing
requirements referred to above should not bar other U.S. holders that do satisfy
the requirements from receiving nonrecognition treatment with respect to the
exchange of their Poco common shares for exchangeable shares pursuant to the
transaction.
Exchange or Redemption of Exchangeable Shares. A U.S. holder that exchanges
exchangeable shares for shares of BR common stock, including an exchange upon
the occurrence of an automatic redemption date, may be justified in taking the
position that no gain or loss is recognized on the exchange on the grounds that
the initial exchange of Poco common shares for exchangeable shares was made
pursuant to a tax-free reorganization under Section 368(a)(1)(B) of the U.S.
Code in which the exchangeable shares, in substance, constituted BR common
stock, and, therefore, the exchange of the exchangeable shares for shares of BR
common stock is not a taxable event. In that case, the aggregate tax bases of
the BR common stock received pursuant to the exchange by the U.S. holder of
exchangeable shares should equal the holder's aggregate tax bases in the
exchangeable shares surrendered pursuant to the transaction, and the holding
period of the BR common stock received by the U.S. holder of exchangeable shares
pursuant to the exchange should include the holding period of the exchangeable
shares surrendered in exchange.
If, however, the initial exchange of Poco common shares for exchangeable
shares is considered to be made pursuant to a transaction described in Section
351(a) of the U.S. Code in which the transferee corporation is BR Canada, then,
subject to the discussion below, a U.S. holder that exchanges exchangeable
shares for shares of BR common stock, including an exchange upon the occurrence
of an automatic redemption date, may be required to recognize gain or loss equal
to the difference between the fair market value of the shares of BR common stock
received at the time of the exchange and the U.S. holder's aggregate tax bases
in the exchangeable shares exchanged. In that case, the gain or loss, if any,
will be capital gain or loss if the exchangeable shares are held as a capital
asset at the time of the exchange, except that, with respect to any amount
representing accrued but unpaid dividends on the exchangeable shares, ordinary
income may be recognized by the holder thereof. In the case of a non-corporate
U.S. holder of exchangeable shares who receives BR common stock on the exchange,
generally the maximum U.S. federal income tax rate applicable to any capital
gain recognized on the exchange will be lower than the maximum U.S. federal
income tax rate applicable to ordinary income if the holder's holding period for
the Poco common shares exceeds one year. The deductibility of capital losses is
subject to limitations. The U.S. holder's tax basis in the shares of BR common
stock will be the fair market value of the shares of BR common stock received by
the U.S. holder in the exchange, and the holding period will begin on the day
after the exchange.
For U.S. federal income tax purposes, any gain recognized by a U.S. holder
on the exchange of exchangeable shares for shares of BR common stock generally
will be treated as U.S. source gain, except that, under the terms of the
Canada-U.S. Tax Convention, the gain may be treated as sourced in Canada. Any
Canadian tax imposed on the gain generally will be available as a credit against
U.S. federal income taxes, subject to
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ABOUT TAX CONSIDERATIONS
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applicable limitations. A U.S. holder that is ineligible for a foreign tax
credit with respect to any Canadian tax paid may be entitled to deduct the
Canadian tax in computing U.S. taxable income.
In view of this possibility of recognizing gain or loss upon the exchange
of the exchangeable shares for shares of BR common stock, U.S. holders may wish
to consider delaying the exchange until the time when they intend to dispose of
the shares of BR common stock receivable in exchange for their exchangeable
shares or, as discussed below, until the time when BR will own at least 80% of
all the then issued and outstanding exchangeable shares either at the time of or
as a result of the exchange.
Assuming that the initial exchange of Poco common shares for exchangeable
shares is considered to be made pursuant to a transaction described in Section
351(a) of the U.S. Code in which the transferee corporation is BR Canada, the
exchange by a U.S. holder of exchangeable shares for shares of BR common stock
may be characterized as a tax-free exchange under limited circumstances. An
exchange of exchangeable shares for shares of BR common stock generally may be
characterized as a tax-free exchange if, at the time of the exchange: at least
80% of the then outstanding exchangeable shares are held by BR; and in the
exchange, BR, rather than BR Canada, acquires the exchangeable shares in
exchange for shares of BR common stock pursuant to the exercise of its call
rights. In any case, the exchange would not be tax-free unless some other
requirements are satisfied, which, in turn, will depend upon facts and
circumstances existing at the time of the exchange and cannot be accurately
predicted as of the date of this joint proxy statement. If the exchange did
qualify as a tax-free exchange, a U.S. holder's aggregate tax bases in the
shares of BR common stock received would be equal to the holder's aggregate tax
bases in the exchangeable shares exchanged. The holding period of the shares of
BR common stock received by the U.S. holder should include the holding period of
the exchangeable shares exchanged, which, in turn, should include the holding
period of the Poco common shares exchanged pursuant to the transaction, provided
that the Poco common shares and exchangeable shares have been held as capital
assets immediately prior to the transaction and the subsequent exchange,
respectively.
CONSEQUENCES IF THE EXCHANGE OF POCO COMMON SHARES FOR EXCHANGEABLE
SHARES AND THE RELATED RIGHTS IS TAXABLE
Assuming that the exchange of Poco common shares for exchangeable shares
and the related rights pursuant to the transaction constitutes a taxable
transaction for U.S. federal income tax purposes, the following U.S. federal
income tax consequences should apply. There can be no assurance that the IRS
would not challenge the characterization of the transaction discussed below, or
that, in the event of a challenge, a court would not agree with the IRS.
Receipt of Exchangeable Shares. A U.S. holder that receives exchangeable
shares and the related rights in exchange for Poco common shares in the
transaction generally will recognize gain or loss on the receipt of the
exchangeable shares and the related rights. The gain or loss will be equal to
the difference between the fair market value of the exchangeable shares and the
related rights received at the time of the exchange and the U.S. holder's
aggregate adjusted tax bases in the Poco common shares exchanged. The gain or
loss, if any, will be capital gain or loss. In the case of a noncorporate U.S.
holder, generally the maximum marginal U.S. federal income tax rate applicable
to any capital gain recognized on the exchange will be lower than the maximum
marginal U.S. federal income tax rate applicable to ordinary income if the U.S.
holder's holding period for the Poco common shares exceeds one year at the time
of the exchange. A U.S. holder's tax basis in the exchangeable shares and the
related rights will equal the fair market value of the exchangeable shares and
the related rights received by the U.S. holder in the transaction, and the
holder's holding period will begin on the day after the date that the U.S.
holder received the exchangeable shares and the related rights.
For U.S. federal income tax purposes, any gain recognized by a U.S. holder
on the exchange of Poco common shares for exchangeable shares and the related
rights generally will be treated as U.S. source gain, except that, under the
terms of the Canada-U.S. Tax Convention, the gain may be treated as sourced in
Canada. Any Canadian tax imposed on the exchange generally will be available as
a credit against U.S. federal income taxes, subject to applicable limitations. A
U.S. holder that is ineligible for a foreign tax credit with respect to any
Canadian tax paid may be entitled to deduct the Canadian tax in computing U.S.
taxable income.
CHAPTER FOUR -- INFORMATION
ABOUT TAX CONSIDERATIONS
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Exchange or Redemption of Exchangeable Shares. Upon the exercise of a U.S.
holder's rights to exchange, or upon a redemption of a U.S. holder's
exchangeable shares and the related rights for shares of BR common stock, the
holder generally will recognize gain or loss on the receipt of the shares of BR
common stock in exchange for the exchangeable shares and the related rights. The
gain or loss will be equal to the difference between the fair market value of
the shares of BR common stock at the time of the exchange and the U.S. holder's
aggregate adjusted tax bases in the exchangeable shares and the related rights
exchanged. The gain or loss, if any, will be capital gain or loss if the
exchangeable shares are held as a capital asset at the time of the exchange,
except that, with respect to any declared but unpaid dividends on the
exchangeable shares, ordinary income may be recognized by the holder thereof. In
the case of a noncorporate U.S. holder, generally the maximum marginal U.S.
federal income tax rate applicable to any capital gain recognized on the
exchange will be lower than the maximum marginal U.S. federal income tax rate
applicable to ordinary income if the U.S. holder's holding period for the
exchangeable shares and the related rights exceeds one year at the time of the
exchange. A U.S. holder's tax basis in the shares of BR common stock will equal
the fair market value of the shares of BR common stock received by the U.S.
holder in the exchange and the holder's holding period will begin on the day
after the date that the U.S. holder received the shares of BR common stock.
For U.S. federal income tax purposes, any gain recognized by a U.S. holder
on the exchange of exchangeable shares and the related rights for shares of BR
common stock generally will be treated as U.S. source gain, except that, under
the terms of the Canada-U.S. Tax Convention, the gain may be treated as sourced
in Canada. Any Canadian tax imposed on the exchange generally will be available
as a credit against U.S. federal income taxes, subject to applicable
limitations. A U.S. holder that is ineligible for a foreign tax credit with
respect to any Canadian tax paid may be entitled to deduct the Canadian tax in
computing U.S. taxable income.
CONSEQUENCES IRRESPECTIVE OF WHETHER THE EXCHANGE OF POCO COMMON
SHARES FOR EXCHANGEABLE SHARES IS TAX-FREE
Distribution on the Exchangeable Shares. While not free from doubt, BR and
BR Canada intend to treat distributions paid on the exchangeable shares as
distributions from BR Canada, rather than from BR. The following discussion
assumes that these distributions will be treated as distributions from BR
Canada. A U.S. holder of exchangeable shares generally will be required to
include in gross income as dividend income the gross amount of any distribution
paid on the exchangeable shares to the extent the distribution is paid out of
the current or accumulated earnings and profits of BR Canada, as determined
under U.S. federal income tax principles. To the extent that the amount of any
distribution by BR Canada exceeds its current and accumulated earnings and
profits as determined under U.S. federal income tax principles, the excess will
be treated first as a tax-free return of the U.S. holder's adjusted tax basis in
the exchangeable shares and thereafter as capital gain. Assuming eligibility for
benefits under the Canada-U.S. Tax Convention, dividends on the exchangeable
shares will be subject to Canadian withholding tax at a maximum rate of 15%
under the Canada-U.S. Tax Convention. Subject to some limitations of U.S.
federal income tax law, a U.S. holder generally should be entitled to credit
that withholding tax against the holder's U.S. federal income tax liability or
to a deduction in computing U.S. taxable income. The amount of any foreign tax
credit allowable to a U.S. holder for the Canadian withholding tax is subject to
complex limitations. For the purpose of these limitations, dividends on the
exchangeable shares should be treated as foreign source passive income or, in
the case of some holders, foreign source "financial services income".
Dissenters. A U.S. holder who exercises its right to dissent from the
transaction will recognize gain or loss on the exchange of the holder's Poco
common shares for cash in an amount equal to the difference between the amount
of cash received (other than the amounts, if any, which are or are deemed to be
interest for U.S. federal income tax purposes, which amounts will be taxed as
ordinary income) and the holder's aggregate adjusted tax bases in the Poco
common shares exchanged. Any gain or loss recognized on receipt of the cash will
be capital gain or loss. In the case of a non-corporate U.S. holder of Poco
common shares who receives cash pursuant to the exercise of the holder's right
to dissent from the transaction, generally the maximum U.S. federal income tax
rate applicable to any capital gain recognized on the receipt of the cash will
be lower than the maximum U.S. federal
CHAPTER FOUR -- INFORMATION
ABOUT TAX CONSIDERATIONS
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income tax rate applicable to ordinary income if the holder's holding period for
the Poco common shares exceeds one year. The deductibility of capital losses is
subject to limitations.
For U.S. federal income tax purposes, any gain recognized by a U.S. holder
on the receipt of cash pursuant to the exercise of the holder's right to dissent
from the transaction generally will be treated as U.S. source gain, except that,
under the terms of the Canada-U.S. Tax Convention, the gain may be treated as
sourced in Canada. Any Canadian tax imposed on the gain generally will be
available as a credit against U.S. federal income taxes, subject to applicable
limitations. A U.S. holder that is ineligible for a foreign tax credit with
respect to any Canadian tax paid may be entitled to deduct the Canadian tax in
computing U.S. taxable income.
NON-U.S. HOLDERS
Subject to the discussion below under "Backup Withholding Tax and
Information Reporting Requirements," a non-U.S. holder generally will not be
subject to U.S. federal income tax on gain, if any, recognized on the receipt of
the exchangeable shares, on the sale or exchange of the exchangeable shares, or
on the receipt or sale of shares of BR common stock, unless the gain is
effectively connected with a U.S. trade or business of the holder or, in the
case of gains recognized by an individual, the individual is present in the U.S.
for 183 days or more in the taxable year of disposition, and some other
conditions are satisfied.
Subject to the discussion below under "Backup Withholding Tax and
Information Reporting Requirements," while not free from doubt, BR and BR Canada
intend to treat dividends, if any, received by a non-U.S. holder with respect to
exchangeable shares as dividends from BR Canada rather than from BR and as not
subject to U.S. withholding tax, and BR and BR Canada do not intend that BR or
BR Canada will withhold any amounts for tax from those dividends. There is some
possibility, however, that the IRS may assert that U.S. withholding tax is
payable with respect to any dividends paid on the exchangeable shares to non-
U.S. holders. In that case, unless the dividends are effectively connected with
a U.S. trade or business, a non-U.S. holder of exchangeable shares could be
subject to U.S. withholding tax at a rate of 30%, which rate may be reduced by
an income tax treaty in effect between the U.S. and the non-U.S. holder's
country of residence. This reduction generally would result in a withholding tax
of 15% on dividends paid to eligible residents of Canada under the Canada-U.S.
Tax Convention.
Subject to the discussion below under "Backup Withholding Tax and
Information Reporting Requirements," dividends, unless effectively connected
with a U.S. trade or business, received by non-U.S. holders with respect to the
BR common stock generally will be subject to U.S. withholding tax at a rate of
30%, which rate may be subject to reduction by an applicable income tax treaty.
This reduction generally would result in a withholding tax of 15% on dividends
paid to eligible residents of Canada under the Canada-U.S. Tax Convention.
BACKUP WITHHOLDING TAX AND INFORMATION REPORTING REQUIREMENTS
U.S. backup withholding tax and information reporting requirements
generally apply to some payments to particular non-corporate holders of stock.
Information reporting generally will apply to payments of dividends on, and to
proceeds from the sale or redemption of, exchangeable shares or BR common stock,
as the case may be, by a payor or middleman within the U.S. to a holder of
exchangeable shares or BR common stock, as the case may be, other than an exempt
recipient. Exempt recipients include corporations, payees that are not U.S.
persons and that provide an appropriate certification and some other persons. A
payor or middleman within the U.S. will be required to withhold 31% of any
payments to a holder of exchangeable shares or BR common stock, as the case may
be, of the proceeds from the sale or redemption of the shares or stock, as the
case may be, within the U.S., unless the holder is an exempt recipient, if the
holder fails to furnish its correct taxpayer identification number or otherwise
fails to comply with the backup withholding tax requirements.
Income tax regulations issued on October 6, 1997, and an IRS notice issued
on April 29, 1999, would modify some of the rules discussed above generally with
respect to payments on exchangeable shares or BR common stock, as the case may
be, made after December 31, 2000. In particular, a payor or middleman within the
U.S. will be required to withhold 31% of any payments to a holder of
exchangeable shares or BR common stock, as the case may be, of dividends on, or
proceeds from the sale of, exchangeable shares or BR common
CHAPTER FOUR -- INFORMATION
ABOUT TAX CONSIDERATIONS
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stock, as the case may be, within the U.S., unless the holder is an exempt
recipient, if the holder fails to furnish its correct taxpayer identification
number or otherwise fails to comply with, or establish an exemption from, the
backup withholding tax requirements. In the case of payments by a payor or
middleman within the U.S. to a foreign partnership, other than payments to a
foreign partnership that qualifies as a withholding foreign partnership within
the meaning of these income tax regulations and payments to a foreign
partnership that are effectively connected with the conduct of a trade or
business in the U.S., the partners of the partnership will be required to
provide the certification discussed above in order to establish an exemption
from backup withholding tax and information reporting requirements. Moreover, a
payor or middleman may rely on a certification provided by a non-U.S. holder
only if the payor or middleman does not have actual knowledge or a reason to
know that any information or certification stated in the certificate is
unreliable.
THE DISCUSSION OF THE U.S. FEDERAL INCOME TAX CONSEQUENCES SET FORTH ABOVE
IS FOR GENERAL INFORMATION ONLY AND DOES NOT PURPORT TO BE A COMPLETE ANALYSIS
OR LISTING OF ALL POTENTIAL TAX EFFECTS THAT MAY APPLY TO A HOLDER OF POCO
COMMON SHARES. HOLDERS OF POCO COMMON SHARES ARE STRONGLY URGED TO CONSULT THEIR
OWN TAX ADVISORS TO DETERMINE THE PARTICULAR TAX CONSEQUENCES TO THEM OF THE
TRANSACTION, INCLUDING THE APPLICATION AND EFFECT OF U.S. FEDERAL, STATE, LOCAL,
AND OTHER TAX LAWS.
CHAPTER FOUR -- INFORMATION
ABOUT TAX CONSIDERATIONS
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CHAPTER FIVE -- INFORMATION ABOUT THE MEETINGS AND VOTING
THE BR SPECIAL MEETING -- INFORMATION FOR BR SHAREHOLDERS
Solicitation and Voting of Proxies. The accompanying BR proxy is solicited
on behalf of the BR board for use at the BR special meeting, to be held at
-- , on -- , 1999 at -- (Houston time). Only holders of record of
BR common stock at the close of business on -- , 1999 will be entitled to
vote at the BR special meeting. At the close of business on the BR record date,
there were -- shares of BR common stock outstanding and entitled to vote.
Each share entitles the holder to one vote on all matters presented at the BR
special meeting. A majority of the shares, present in person or by proxy, will
constitute a quorum for the transaction of business. Abstentions and broker
non-votes will be considered to be represented for purposes of a quorum. This
joint proxy statement and the accompanying form of proxy were first mailed to BR
shareholders on or about -- , 1999.
Revocability of Proxy. If you have given a proxy you may revoke it at any
time before it is exercised at the BR special meeting, by:
- delivering to the secretary of BR by any means, including facsimile a
written notice stating that the proxy is revoked;
- signing and so delivering a proxy bearing a later date; or
- attending the BR special meeting and voting in person (although
attendance at the BR special meeting will not, by itself, revoke your
proxy).
Expenses of Proxy Solicitation. The expenses of soliciting proxies to be
voted at the BR special meeting will be paid by BR. Following the original
mailing of the proxies and other soliciting materials, BR and/or its agents also
may solicit proxies by mail, telephone, facsimile or in person. Following the
original mailing of the proxies and other soliciting materials, BR will request
brokers, custodians, nominees and other record holders of shares to forward
copies of the proxy and other soliciting materials to persons for whom they hold
such shares and to request authority for the exercise of proxies. In such cases,
BR, upon the request of the record holders, will reimburse such holders for
their reasonable expenses. BR has retained D.F. King & Co., Inc. to aid in the
solicitation of proxies and verify records related to the solicitation at a
maximum fee of $ -- plus expenses.
Voting Rights. You are entitled to one vote for each BR share held as of
the record date. Stockholder approval of the issuance of BR common stock
pursuant to the transaction is required by the rules of the NYSE. Such approval
requires the affirmative vote of a majority of the shares of BR common stock
present and voting at the BR special meeting, assuming a majority of the shares
of BR common stock entitled to vote are represented at the special meeting.
BR will count abstentions in tabulations of votes cast, and an abstention,
therefore, will have the same effect as a vote against the proposal. Under
Delaware case law, broker non-votes (shares which are present at the meeting and
for which a broker or nominee has received no instruction by the beneficial
owner as to how such owner wishes the shares to be voted) are counted for
purposes of determining whether a quorum is present at the meeting but are not
counted for purposes of determining whether a proposal has been approved. Thus,
a broker non-vote will have no effect with regard to the proposal to approve the
stock issuance.
Auditors. PricewaterhouseCoopers LLP, certified public accountants, have
served as the independent accountants of BR since the inception of BR in July
1988. Representatives of PricewaterhouseCoopers LLP plan to attend the BR
special meeting and will be available to answer questions. Its representatives
will also have an opportunity to make a statement at the meeting if they so
desire, although it is not expected that any statement will be made.
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Electronic Proxy Voting. Registered BR shareholders can vote their shares
via (1) a toll-free telephone call from the U.S. and Canada; or (2) the
internet; or (3) by mailing their signed proxy card. The telephone and internet
voting procedures are designed to authenticate shareholders' identities, to
allow shareholders to vote their shares and to confirm that their instructions
have been properly recorded. BR has been advised by counsel that the procedures
which have been put in place are consistent with the requirements of applicable
law. Specific instructions to be followed by any registered shareholder
interested in voting via telephone or the Internet are set forth on the enclosed
proxy card.
Discretionary Authority. The accompanying BR proxy confers discretionary
authority to vote upon any other matters properly brought before the meeting
which were not known to the BR board a reasonable time prior to this
solicitation.
BR Shareholder Proposals. Shareholder proposals to be considered for
inclusion in the proxy statements of BR to be issued in connection with the 2000
annual meeting of BR shareholders must be mailed to Ms. Wendi S. Zerwas,
Corporate Secretary, Burlington Resources Inc., 5051 Westheimer, Suite 1400,
Houston, Texas, 77056-2124 and must be received by the Corporate Secretary on or
before November 8, 1999.
Shareholder proposals submitted outside of the procedures set forth above,
including nominations for directors, must be mailed to Ms. Wendi S. Zerwas,
Corporate Secretary, at the address above and must be received by the Corporate
Secretary on or before December 8, 1999. If a proposal is received after that
date, BR's proxy for the 2000 annual meeting may confer discretionary authority
to vote on such matter without any discussion of the matter in the proxy
statement for the 2000 annual meeting.
THE POCO SPECIAL MEETING -- INFORMATION FOR
POCO SHAREHOLDERS
Solicitation and Voting of Proxies. The accompanying Poco proxy is
solicited on behalf of the Poco board for use at the Poco special meeting. The
solicitation of proxies will be primarily by mail but proxies may also be
solicited personally or by telephone by regular employees of Poco without
special compensation. The cost of solicitation will be borne by Poco. Poco may
also pay brokers or nominees holding Poco common shares in their names or in the
names of their principals for their reasonable expenses in sending solicitation
material to their principals. Poco has retained RBC DS to aid in the
solicitation of proxies and verify records related to the solicitation.
Only registered Poco shareholders and Poco optionholders at the close of
business on -- , 1999 will be entitled to vote at the Poco special meeting,
subject to the provisions of Alberta law regarding transfers of Poco common
shares after the Poco record date. See the "Notice of Special Meeting of
Shareholders and Optionholders" accompanying this joint proxy statement. At the
close of business on the Poco record date, there were -- Poco common shares
outstanding and -- Poco options outstanding in respect of an additional
-- Poco common shares.
A quorum of Poco shareholders and Poco optionholders at the Poco special
meeting will be present if the holders of not less than 5% of the Poco common
shares entitled to vote at the meeting are present, either in person or by duly
appointed proxy.
To be effective, proxies must be received by -- not later than
-- p.m. (Calgary time) on the day preceding the day of the Poco special
meeting, or, if the Poco special meeting is adjourned, not later than 24 hours
(excluding Saturdays, Sundays and holidays) before the time of the Poco special
meeting or any adjournment or postponement thereof.
Appointment of Proxy and Discretionary Authority. AS A POCO SHAREHOLDER OR
POCO OPTIONHOLDER YOU HAVE THE RIGHT TO APPOINT A PERSON WHO NEED NOT BE A
SHAREHOLDER OR OPTIONHOLDER OF POCO, OTHER THAN PERSONS DESIGNATED IN THE FORM
OF PROXY ACCOMPANYING THIS JOINT PROXY STATEMENT, AS NOMINEE TO ATTEND AND ACT
FOR AND ON YOUR BEHALF AT THE POCO SPECIAL MEETING AND MAY EXERCISE SUCH RIGHT
BY INSERTING THE NAME OF SUCH PERSON IN THE BLANK SPACE PROVIDED ON THE FORM OF
PROXY.
CHAPTER FIVE -- INFORMATION
ABOUT THE MEETINGS AND VOTING
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THE FORM OF PROXY ACCOMPANYING THIS JOINT PROXY STATEMENT CONFERS
DISCRETIONARY AUTHORITY UPON THE PROXY NOMINEES WITH RESPECT TO AMENDMENTS OR
VARIATIONS TO THE MATTERS IDENTIFIED IN THE ACCOMPANYING NOTICE OF THE POCO
SPECIAL MEETING AND OTHER MATTERS WHICH MAY PROPERLY COME BEFORE THE POCO
SPECIAL MEETING.
YOUR POCO COMMON SHARES AND POCO OPTIONS REPRESENTED BY PROXIES AT THE POCO
SPECIAL MEETING WILL BE VOTED IN ACCORDANCE WITH YOUR INSTRUCTIONS WHERE YOU
HAVE SPECIFIED A CHOICE WITH RESPECT TO ANY MATTER TO BE VOTED UPON. IN THE
ABSENCE OF SUCH SPECIFICATION, YOUR POCO COMMON SHARES AND POCO OPTIONS WILL BE
VOTED FOR SUCH MATTER OR MATTERS PROPOSED IN THIS JOINT PROXY STATEMENT.
Management of Poco knows of no matters to come before the Poco special
meeting other than the matters referred to in the accompanying notice of the
Poco special meeting. However, if any other matters which are not now known to
management should properly come before the Poco special meeting, the shares and
options represented by proxies in favor of management nominees will be voted on
such matters in accordance with the best judgment of the proxy nominee.
Revocation of Proxies. PROXIES GIVEN BY POCO SHAREHOLDERS OR POCO
OPTIONHOLDERS FOR USE AT THE POCO SPECIAL MEETING MAY BE REVOKED AT ANY TIME
PRIOR TO THEIR USE. A Poco shareholder or Poco optionholder giving a proxy may
revoke the proxy (1) by instrument in writing executed by the shareholder or
optionholder or by his or her attorney authorized in writing, or, if the
shareholder is a corporation, under its corporate seal by an officer or attorney
thereof duly authorized indicating the capacity under which such officer or
attorney is signing, and deposited either at the registered office of Poco (as
set forth in this joint proxy statement) or with CIBC Mellon Trust Company at
either Suite 600, 333 - 7th Avenue S.W., Calgary, Alberta T2P 2Z1 or P.O. Box
12005, Stn. Brm. B, Toronto, Ontario, M7Y 2K5 at any time up to and including
4:00 p.m. (Calgary time) on the last business day preceding the day of the Poco
special meeting, or any adjournment or postponement thereof, or with the
chairman of the Poco special meeting on the day of such Poco special meeting or
adjournment or postponement thereof, (2) by a duly executed proxy bearing a
later date or time than the date or time of the proxy being revoked, (3) by
voting in person at the Poco special meeting (although attendance at the Poco
special meeting will not in and of itself constitute a revocation of a proxy),
or (4) in any other manner permitted by law.
Required Votes. Poco shareholders and Poco optionholders are entitled to
one vote for each share or option held. The special resolution, in the form of
Annex A, in respect of the proposed arrangement set forth in full in Annex D,
must be approved by the affirmative vote of not less than two-thirds of the
aggregate of the votes cast by the holders of Poco common shares and the holders
of Poco options, voting together as a class, present (in person or by proxy) and
entitled to vote at the Poco special meeting.
CHAPTER FIVE -- INFORMATION
ABOUT THE MEETINGS AND VOTING
87
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CHAPTER SIX -- CERTAIN LEGAL AND OTHER INFORMATION
AUDITORS, TRANSFER AGENT AND REGISTRAR
The independent accountants of BR are PricewaterhouseCoopers LLP. The
independent chartered accountants of Poco are KPMG LLP.
Bank Boston, N.A., c/o EquiServe, P.O. Box 8040, Boston, Massachusetts
02266-8040, is transfer agent and registrar for the BR common stock. The
transfer agent for Poco common shares is CIBC Mellon Trust Company at 600,
333-7th Ave. S.W., Calgary, Alberta T2P 2Z1. Concurrently with the closing, CIBC
Mellon Trust Company will be appointed as transfer agent and registrar for the
exchangeable shares. CIBC Mellon Trust Company will also be trustee under the
voting and exchange trust agreement.
LEGAL MATTERS
Certain legal opinions in connection with the transaction have been
provided by White & Case LLP, New York, New York and Burnet, Duckworth & Palmer,
Calgary, Alberta. The partners and associates, as a group, of each of White &
Case LLP and Burnet, Duckworth & Palmer beneficially own less than 1% of either
the outstanding BR common stock or the outstanding Poco common shares.
AVAILABLE INFORMATION
BR files reports, proxy statements and other information with the SEC. You
may read and copy any reports, statements or other information BR files at the
SEC's public reference rooms in Washington, D.C., New York, New York and
Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further information
on the public reference rooms. BR common stock is listed on the NYSE and
reports, proxy statements and other information regarding BR can be inspected at
the offices of the NYSE, 20 Broad Street, New York, New York, 10005. The SEC
maintains a web site that contains all information filed electronically with the
SEC. The address of the SEC's web site is www.sec.gov. The address of BR's web
site is www.br-inc.com.
Poco files reports, proxy statements and other information with the
Canadian securities administrators in each of the provinces of Canada. The
Canadian securities administrators maintain a web site that contains all public
information filed electronically with any Canadian securities administrator. The
address of this web site is www.sedar.com. The address of Poco's web site is
www.pocopete.ca.
No person is authorized to give any information or to make any
representation not contained in this joint proxy statement and, if given or
made, such information or representation should not be relied upon as having
been authorized. This joint proxy statement does not constitute the solicitation
of a proxy, by any person in any jurisdiction in which such a solicitation is
not authorized or in which the person making such solicitation is not qualified
to do so or to any person to whom it is unlawful to make such a solicitation.
Neither delivery of this joint proxy statement nor any distribution of the
securities referred to in this joint proxy statement shall, under any
circumstances, create an implication that there has been no change in the
information set forth herein since the date of this joint proxy statement.
BR is organized under the laws of the State of Delaware, United States. All
but one of the directors and executive officers of BR and many of the experts
named herein are residents of the United States. In addition, substantial
portions of the assets of BR and of such individuals and experts are located
outside of Canada. As a result, it may be difficult or impossible for persons
who become securityholders of BR to effect service of process upon such persons
within Canada with respect to matters arising under Canadian securities laws or
to enforce against them in Canadian courts judgments predicated upon the civil
liability provisions of Canadian securities laws. There is some doubt as to the
enforceability in the United States in original actions, or in actions for
enforcement of judgments of Canadian courts, of civil liabilities predicated
upon the Canadian securities laws. In addition, awards of punitive damages in
actions brought in Canada or elsewhere may be unenforceable in the United
States.
88
<PAGE> 96
DOCUMENTS INCORPORATED BY REFERENCE
The SEC and the Canadian securities administrators allow us to "incorporate
by reference" information into this joint proxy statement, which means that we
can disclose important information to you by referring you to another document
filed separately. The information incorporated by reference is deemed to be part
of this joint proxy statement, except for any information superseded by
information in, or incorporated by reference in, this joint proxy statement.
This joint proxy statement incorporates by reference the documents set forth
below that we have previously filed. These documents contain important
information about our companies and their finances.
The following BR SEC filings are incorporated by reference:
- Annual Report on Form 10-K for the year ended December 31, 1998, filed
on February 26, 1999;
- Quarterly Report on Form 10-Q for the quarter ended March 31, 1999,
filed on May 4, 1999;
- Quarterly Report on Form 10-Q for the quarter ended June 30, 1999 filed
on August 6, 1999;
- Current Report on Form 8-K dated January 5, 1999, filed on January 12,
1999;
- Current Report on Form 8-K dated March 26, 1999, filed on April 9, 1999;
- Current Report on Form 8-K dated March 2, 1999, filed on March 3, 1999;
- Current Report on Form 8-K dated August 18, 1999, filed on August 18,
1999;
- Current Report on Form 8-K dated August 19, 1999, filed on August 19,
1999; and
- Proxy Statement for BR's 1999 Annual Meeting of Stockholders, filed on
February 26, 1999.
Copies of the foregoing documents, or the information contained therein,
are included in the form of this joint proxy statement filed with the Canadian
securities administrators in each of the provinces of Canada and mailed to Poco
shareholders.
The following Poco filings with the Canadian securities administrators are
incorporated by reference:
- The Annual Information Form of Poco dated April 21, 1999, including
Management's Discussion and Analysis incorporated therein;
- The Proxy Statement and Information Circular of Poco dated March 17,
1999 relating to the annual and special meeting of shareholders held on
May 6, 1999;
- The audited comparative consolidated financial statements and notes
thereto of Poco for the years ended December 31, 1998 and December 31,
1997, together with the report of the auditors thereon contained in the
Annual Report of Poco for the year ended December 31, 1998;
- The unaudited interim comparative consolidated financial statements of
Poco contained in the interim report to shareholders for the periods
ended March 31, 1999 and March 31, 1998;
- The unaudited interim comparative consolidated financial statements of
Poco contained in the interim report to shareholders for the periods
ended June 30, 1999 and June 30, 1998; and
- Material Change Report dated August 26, 1999 regarding the transaction.
Copies of these filings, or the information contained therein, are included
in the form of this joint proxy statement filed with the SEC and mailed to BR
shareholders. These filings include disclosure of probable reserves as required
by Canadian securities legislation.
All BR SEC filings made after the date of this joint proxy statement and
before the date of the BR special meeting are incorporated by reference in this
joint proxy statement. Any material change reports (excluding confidential
reports), interim financial statements and information circulars filed by Poco
with the Canadian securities commissions or other similar Canadian regulatory
authorities in all of the provinces of Canada after the date of this joint proxy
statement and prior to the Poco special meeting shall be deemed to be
incorporated by reference into this joint proxy statement.
CHAPTER SIX -- CERTAIN
LEGAL AND OTHER INFORMATION
89
<PAGE> 97
BR has supplied all information contained or incorporated by reference in
this joint proxy statement relating to BR and Poco has supplied all such
information relating to Poco.
We may have sent you some of the documents incorporated by reference, but
you can obtain any of them through us, the SEC at www.sec.gov or the Canadian
securities administrators at www.sedar.com. Documents incorporated by reference
are available from us without charge. Securityholders may obtain documents
incorporated by reference in this joint proxy statement by requesting them in
writing or by telephone from the appropriate party at the following address:
<TABLE>
<S> <C>
Wendi S. Zerwas Kevan S. King
Corporate Secretary Vice President, General Counsel and Secretary
Burlington Resources Inc. Poco Petroleums Ltd.
5051 Westheimer, Suite 1800 3700, 250 - 6th Avenue S.W.
Houston, Texas 77056 Calgary, Alberta T2P 3H7
(713) 624-9500 (403) 260-8000
</TABLE>
Any statement contained in this joint proxy statement or in a document
incorporated or deemed to be incorporated by reference herein shall be deemed to
be modified or superseded for the purposes of this joint proxy statement to the
extent that a statement contained herein or in any other subsequently filed
document which also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. The modifying or superseding statement
need not state that it has modified or superseded a prior statement or include
any other information set forth in the document that it modifies or supersedes.
The making of a modifying or superseding statement shall not be deemed an
admission for any purposes that the modified or superseded statement, when made,
constituted a misrepresentation, an untrue statement of a material fact or an
omission to state a material fact that is required to be stated or that is
necessary to make a statement not misleading in light of the circumstances in
which it was made. Any statement so modified or superseded shall not be deemed
in its unmodified or superseded form to constitute a part of this joint proxy
statement.
You should rely on the information contained or incorporated by reference
in this joint proxy statement to vote at the BR special meeting and the Poco
special meeting. We have not authorized anyone to provide you with information
that is different from that contained in this joint proxy statement. This joint
proxy statement is dated -- , 1999. You should not assume that the information
contained in the joint proxy statement is accurate as of any other date, and
neither the mailing of this joint proxy statement to shareholders nor the
issuance of exchangeable shares or BR common stock in the transaction shall
create any implication to the contrary.
CHAPTER SIX -- CERTAIN
LEGAL AND OTHER INFORMATION
90
<PAGE> 98
CERTIFICATE
The contents of this joint information circular and proxy statement and the
sending thereof to the shareholders and optionholders of Poco have been approved
by the board of directors of Poco.
The foregoing contains no untrue statement of a material fact and does not
omit to state a material fact that is required to be stated or that is necessary
to make a statement not misleading in the light of the circumstances in which it
was made.
<TABLE>
<S> <C>
Craig W. Stewart John W. Ferguson
President and Chief Executive Officer Vice President and Chief Financial Officer
</TABLE>
-- , 1999
Calgary, Alberta
CHAPTER SIX -- CERTAIN
LEGAL AND OTHER INFORMATION
91
<PAGE> 99
ANNEX A
FORM OF ARRANGEMENT RESOLUTION
<PAGE> 100
RESOLUTION FOR CONSIDERATION AT
THE SPECIAL MEETING OF THE SHAREHOLDERS AND OPTIONHOLDERS
OF
POCO PETROLEUMS LTD.
("POCO")
BE IT RESOLVED AS A SPECIAL RESOLUTION THAT:
1. the arrangement involving Poco (the "Arrangement") under section 186 of the
Business Corporations Act (Alberta), as more particularly described in the
Joint Management Information Circular and Proxy Statement of Poco and
Burlington Resources Inc. (the "Joint Proxy Statement") accompanying the
notice of this meeting is hereby authorized, approved and adopted;
2. the plan of arrangement involving Poco, the full text of which is set out
as Annex D to the Joint Proxy Statement is hereby approved and adopted;
3. notwithstanding the passing of this resolution by shareholders and
optionholders or the approval of the Court of Queen's Bench of Alberta, the
Board of Directors of Poco, without further notice to or approval of
shareholders or optionholders, may decide not to proceed with the
Arrangement or may revoke the resolution at any time prior to the
Arrangement becoming effective pursuant to the Business Corporations Act
(Alberta); and
4. the proper officers of Poco are hereby authorized and directed for and on
behalf of Poco to execute or cause to be executed and to deliver or cause
to be delivered all such documents, agreements and instruments and to do or
cause to be done all such other acts and things as such officers of Poco
shall determine to be necessary or desirable in order to carry out the
intent of the foregoing paragraphs of this resolution and the matters
authorized thereby, such determination to be conclusively evidenced by the
execution and delivery of such document, agreement or instrument or the
doing of any such act or thing.
A-1
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ANNEX B
AMENDED AND RESTATED COMBINATION AGREEMENT
<PAGE> 102
AMENDED AND RESTATED COMBINATION AGREEMENT
BURLINGTON RESOURCES INC.
AND
POCO PETROLEUMS LTD.
DATED EFFECTIVE AS OF AUGUST 16, 1999
B-1
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TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
ARTICLE 1
GENERAL
1.1 Plan of Arrangement......................................... B-4
1.2 Adjustments to Exchange Ratio............................... B-4
1.3 Dissenting Shares........................................... B-5
1.4 Other Effects of the Arrangement............................ B-5
1.5 Joint Proxy Statement; Registration Statement............... B-5
1.6 Material Adverse Effect..................................... B-6
1.7 Currency.................................................... B-6
1.8 BCo Sub..................................................... B-6
1.9 Exhibits.................................................... B-6
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF PCO
2.1 Organization and Standing................................... B-6
2.2 Agreement Authorized and its Effect on Other Obligations.... B-7
2.3 Governmental and Third Party Consents....................... B-7
2.4 Capitalization.............................................. B-8
2.5 Securities Reports and Financial Statements, Books and
Records..................................................... B-8
2.6 Liabilities................................................. B-9
2.7 Information Supplied........................................ B-9
2.8 No Defaults................................................. B-9
2.9 Litigation; Investigations.................................. B-10
2.10 Absence of Certain Changes and Events....................... B-10
2.11 Additional PCo Information.................................. B-10
2.12 Certain Agreements.......................................... B-11
2.13 Employee Benefit Plans...................................... B-11
2.14 Intellectual Property....................................... B-11
2.15 Title to Properties......................................... B-11
2.16 Environmental Matters....................................... B-12
2.17 Compliance With Other Laws.................................. B-12
2.18 Taxes....................................................... B-13
2.19 Vote Required............................................... B-13
2.20 Brokers and Finders......................................... B-13
2.21 Disclosure.................................................. B-13
2.22 Fairness Opinion............................................ B-13
2.23 Restrictions on Business Activities......................... B-13
2.24 Year 2000................................................... B-14
2.25 Books and Records........................................... B-14
2.26 Chevron JV.................................................. B-14
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF BCO
3.1 Organization and Standing................................... B-14
3.2 Agreement Authorized and its Effect on Other Obligations.... B-14
3.3 Governmental and Third Party Consents....................... B-15
3.4 Capitalization.............................................. B-15
3.5 Securities Reports and Financial Statements, Books and
Records..................................................... B-16
3.6 Liabilities................................................. B-16
3.7 Information Supplied........................................ B-16
3.8 No Defaults................................................. B-16
3.9 Litigation; Investigations.................................. B-17
3.10 Absence of Certain Changes and Events....................... B-17
3.11 Certain Agreements.......................................... B-17
3.12 Employee Benefit Plans...................................... B-17
3.13 Compliance With Other Laws.................................. B-18
</TABLE>
B-2
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<TABLE>
<S> <C> <C>
3.14 Taxes....................................................... B-18
3.15 Vote Required............................................... B-18
3.16 Brokers and Finders......................................... B-18
3.17 Disclosure.................................................. B-18
3.18 Fairness Opinion............................................ B-19
3.19 Restrictions on Business Activities......................... B-19
3.20 Year 2000................................................... B-19
3.21 Books and Records........................................... B-19
3.22 BCo Sub..................................................... B-19
ARTICLE 4
OBLIGATIONS PENDING EFFECTIVE DATE
4.1 Agreements of BCo and PCo................................... B-19
4.2 Additional Agreements of PCo................................ B-20
4.3 Additional Agreements of BCo................................ B-23
4.4 Public Announcements........................................ B-23
4.5 Comfort Letters............................................. B-23
4.6 Employee Stock Purchase Savings Plan........................ B-23
ARTICLE 5
CONDITIONS PRECEDENT TO OBLIGATIONS
5.1 Conditions Precedent to Obligations of Each Party........... B-24
5.2 Conditions Precedent to Obligations of PCo.................. B-25
5.3 Conditions Precedent to Obligations of BCo.................. B-25
ARTICLE 6
TERMINATION
6.1 Termination................................................. B-26
6.2 Notice of Termination....................................... B-26
6.3 Effect of Termination....................................... B-27
6.4 Termination Fee............................................. B-27
ARTICLE 7
ADDITIONAL AGREEMENTS
7.1 Meetings.................................................... B-27
7.2 The Closing................................................. B-28
7.3 Ancillary Documents/Reservation of Shares................... B-28
7.4 Exchange of Options......................................... B-28
7.5 Indemnification and Related Matters......................... B-28
7.6 Affiliate Agreements........................................ B-29
ARTICLE 8
MISCELLANEOUS
8.1 No Survival of Representations and Warranties............... B-30
8.2 Notices..................................................... B-30
8.3 Interpretation.............................................. B-30
8.4 Severability................................................ B-30
8.5 Counterparts................................................ B-30
8.6 Miscellaneous............................................... B-30
8.7 Governing Law............................................... B-31
8.8 Amendment and Waivers....................................... B-31
8.9 Expenses.................................................... B-31
8.10 Further Assurances.......................................... B-31
</TABLE>
B-3
<PAGE> 105
AMENDED AND RESTATED COMBINATION AGREEMENT
THIS AMENDED AND RESTATED COMBINATION AGREEMENT (this "Agreement") is
entered into effective as of August 16, 1999, between Burlington Resources Inc.,
a Delaware corporation ("BCo"), and Poco Petroleums Ltd., an Alberta corporation
("PCo").
RECITALS
WHEREAS, the respective boards of directors of BCo and PCo each deem it
advisable and in the best interests of their respective stockholders to combine
their respective businesses by BCo, through BCo Sub (as hereinafter defined),
acquiring common shares of PCo pursuant to the Plan of Arrangement (as
hereinafter defined).
WHEREAS, in furtherance of such combination, the respective boards of
directors of BCo and PCo have approved the transactions contemplated by this
Agreement, the board of directors of PCo has agreed to submit the Plan of
Arrangement and the other transactions contemplated hereby to its shareholders
and optionholders (together, "securityholders") and the Court of Queen's Bench
of Alberta (the "Court") for approval, and the board of directors of BCo has
agreed to submit the issuance of the shares of BCo Common Stock, issuable in
connection with the transactions contemplated by this Agreement and the Plan of
Arrangement, to its stockholders for approval.
WHEREAS, it is intended that the transactions contemplated hereby will be
treated as a "pooling of interests" under United States generally accepted
accounting principles.
NOW, THEREFORE, in consideration of the premises and of the
representations, warranties, covenants and agreements herein contained, the
parties hereto, intending to be legally bound, agree as follows:
ARTICLE 1
GENERAL
1.1 PLAN OF ARRANGEMENT
As promptly as practicable after the preliminary Joint Proxy Statement (as
hereinafter defined) is cleared by the United States Securities and Exchange
Commission (the "SEC"), PCo will apply to the Court pursuant to Section 186 of
the Business Corporations Act (Alberta) (the "ABCA") for an interim order in
form and substance reasonably satisfactory to BCo (the "Interim Order")
providing for, among other things, the calling and holding of the PCo
Shareholders Meeting (as hereinafter defined) for the purpose of considering
and, if deemed advisable, approving the arrangement (the "Arrangement") under
Section 186 of the ABCA and pursuant to this Agreement and the Plan of
Arrangement substantially in the form of Exhibit A (the "Plan of Arrangement").
If the PCo securityholders approve the Arrangement and all necessary approvals
of BCo stockholders have been obtained, PCo will take the necessary steps to
submit the Arrangement to the Court and apply for a final order of the Court
approving the Arrangement in such fashion as the Court may direct (the "Final
Order"). At 12:01 a.m. (the "Effective Time") on the date (the "Effective Date")
shown on the articles of arrangement filed with the Registrar under the ABCA
(which articles of arrangement will not be filed with the Registrar under the
ABCA during any 15 business day cure period referred to in Section 6.1(b) or (c)
hereof) giving effect to the Arrangement and other transactions set out in
clauses (a) through (h), inclusive, of Section 2.1 of the Plan of Arrangement,
the Arrangement and such other transactions shall occur and shall be deemed to
occur in the order set out therein without any further act or formality.
1.2 ADJUSTMENTS TO EXCHANGE RATIO
The Exchange Ratio (as defined in the Plan of Arrangement) shall be
adjusted to reflect fully the effect of any stock split, reverse split, stock
dividend (including any dividend or distribution of securities convertible into
BCo Common Stock or PCo Common Shares), merger, reorganization, recapitalization
or other like change with respect to BCo Common Stock or PCo Common Shares
occurring after the date hereof and prior to the Effective Time.
B-4
<PAGE> 106
1.3 DISSENTING SHARES
Holders of PCo Common Shares and options to acquire PCo Common Shares ("PCo
Options") may exercise rights of dissent with respect to such shares in
connection with the Arrangement pursuant to and in the manner set forth in
Section 184 of the ABCA and Section 3.1 of the Plan of Arrangement (such holders
referred to as "Dissenters" or as "Dissenting Shareholders" when referring
exclusively to PCo Shareholders). PCo shall give BCo (i) prompt notice of any
written demands of a right of dissent, withdrawals of such demands, and any
other instruments served pursuant to the ABCA and received by PCo and (ii) the
opportunity to participate in all negotiations and proceedings with respect to
such rights. Without the prior written consent of BCo, except as required by
applicable law, PCo shall not make any payment with respect to any such rights
or offer to settle or settle any such rights.
1.4 OTHER EFFECTS OF THE ARRANGEMENT
At the Effective Time: (a) each PCo Common Share and each PCo Option
outstanding immediately prior to the Effective Time will be exchanged as
provided in the Plan of Arrangement; and (b) the Arrangement will, from and
after the Effective Time, have all of the effects provided by applicable law,
including the ABCA.
1.5 JOINT PROXY STATEMENT; REGISTRATION STATEMENT
(a) As promptly as practicable after execution of this Agreement, BCo and
PCo shall prepare and BCo shall file with the SEC a preliminary joint management
information circular and proxy statement (the "Joint Proxy Statement"), together
with any other documents required by the Securities Act of 1933, as amended (the
"Securities Act"), or the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), in connection with the Arrangement and the other transactions
contemplated hereby. The Joint Proxy Statement shall constitute (i) the
management information circular of PCo with respect to the meeting of
securityholders of PCo relating to the Arrangement and the approval of certain
matters in connection therewith (the "PCo Shareholders Meeting") and (ii) the
proxy statement of BCo with respect to the meeting of stockholders of BCo with
respect to the issuance of BCo Common Stock from time to time in connection with
the transactions contemplated by this Agreement and the Plan of Arrangement (the
"BCo Stockholders Meeting"). As promptly as practicable after the preliminary
Joint Proxy Statement is cleared by the SEC, BCo and PCo shall cause the Joint
Proxy Statement to be mailed to each company's respective securityholders
entitled to vote, as the case may be. As promptly as practicable, BCo shall file
a registration statement (the "Registration Statement") with the SEC to register
the BCo Common Stock to be issued from time to time after the Effective Time
upon exchange of the exchangeable shares to be issued by PCo as contemplated in
the Plan of Arrangement (the "Exchangeable Shares") and BCo and PCo shall use
their reasonable best efforts to cause the Registration Statement to become
effective prior to the Closing. If such Registration Statement is filed and
becomes effective, BCo will use its reasonable best efforts to maintain the
effectiveness of the Registration Statement for so long as any Exchangeable
Shares remain outstanding or until such earlier time as BCo determines to be
necessary on the written advice of its outside counsel.
(b) Each party shall promptly furnish to the other party all information
concerning such party and its securityholders as may be reasonably required in
connection with any action contemplated by this Section 1.5. The Joint Proxy
Statement and the Registration Statement, shall comply in all material respects
with all applicable requirements of law. Each of BCo and PCo will notify the
other promptly of the receipt of any comments from the SEC and of any request by
the SEC for amendments or supplements to the Joint Proxy Statement or the
Registration Statement, or for additional information, and will supply the other
with copies of all correspondence with the SEC with respect to the Joint Proxy
Statement or the Registration Statement. Whenever any event occurs which should
be set forth in an amendment or supplement to the Joint Proxy Statement or the
Registration Statement, BCo or PCo, as the case may be, shall promptly inform
the other of such occurrence and cooperate in filing with the SEC, and/or
mailing to securityholders entitled to vote of BCo and PCo, as may be
applicable, such amendment or supplement.
(c) BCo and PCo shall take any action required to be taken under any
applicable provincial or state securities laws (including "blue sky" laws) in
connection with the issuance of the BCo Common Stock and the
B-5
<PAGE> 107
Arrangement; provided, however, that with respect to the blue sky and Canadian
provincial qualifications, neither BCo nor PCo shall be required to register or
qualify as a foreign corporation or reporting issuer where any such entity is
not now so registered or qualified except as to matters and transactions arising
solely from the offer and sale of the BCo Common Stock or the issuance of the
Exchangeable Shares.
1.6 MATERIAL ADVERSE EFFECT
In this Agreement, the term "Material Adverse Effect" used with respect to
any party means any event, change or effect that is or would reasonably be
expected to be materially adverse to the financial condition, operations,
assets, liabilities, or business of such party and its subsidiaries, taken as a
whole, provided that, a Material Adverse Effect shall not include any adverse
effect resulting from changes in general economic conditions or conditions
generally affecting the industries in which BCo or PCo operate.
1.7 CURRENCY
Unless otherwise specified, all references in this Agreement to "dollars"
or "$" shall mean United States dollars.
1.8 BCO SUB
(a) On or prior to the Effective Date, BCo shall incorporate a new
corporation under the ABCA ("BCo Sub") and shall include the following
provisions in its articles of incorporation:
(i) a class of common voting shares, unlimited in number and having
the terms and conditions set forth in Exhibit B;
(ii) a class of exchangeable shares (the "Exchangeable Shares"),
unlimited in number and having the terms and conditions set forth
in Exhibit B; and
(iii) those other provisions set forth in Exhibit B.
(b) BCo shall cause BCo Sub to complete the transactions contemplated
herein.
1.9 EXHIBITS
The following Exhibits attached hereto are incorporated herein by
reference:
(a) Exhibit A -- Plan of Arrangement;
(b) Exhibit B -- Share Capital and Other Provisions to be included in the
Articles of Incorporation of BCo Sub;
(c) Exhibit C -- Support Agreement;
(d) Exhibit D -- Voting and Exchange Trust Agreement;
(e) Exhibit E -- PCo Affiliates Agreement; and
(f) Exhibit F -- BCo Affiliates Agreement.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF PCO
Except as set forth in a letter dated the date of this Agreement and
delivered by PCo to BCo concurrently herewith (the "PC Disclosure Letter"), PCo
hereby represents and warrants to, and agrees with, BCo that:
2.1 ORGANIZATION AND STANDING
PCo and each body corporate, partnership, joint venture, association or
other business entity of which more than 50% of the total voting power of shares
of stock or units of ownership or beneficial interest entitled to vote in
B-6
<PAGE> 108
the election of directors (or members of a comparable governing body) is owned
or controlled, directly or indirectly, by PCo (the "PCo Subsidiaries"), is an
entity duly organized, validly existing and in good standing under the laws of
the jurisdiction of its incorporation or organization, has full requisite power
and authority to carry on its business as it is currently conducted, and to own,
lease and operate the properties currently owned, leased and operated by it, and
is duly qualified or licensed to do business and is in good standing as a
foreign corporation or organization authorized to do business in all
jurisdictions in which the character of the properties owned or leased or the
nature of the business conducted by it would make such qualification or
licensing necessary, except where the failure to be so qualified or licensed
would not have a Material Adverse Effect on PCo. The PCo Disclosure Letter sets
forth a complete list, as at the date hereof, of the PCo Subsidiaries and the
percentage of each subsidiary's outstanding capital stock or other ownership
interest owned by PCo or another PCo Subsidiary.
2.2 AGREEMENT AUTHORIZED AND ITS EFFECT ON OTHER OBLIGATIONS
(a) PCo has all requisite corporate power and authority to enter into
this Agreement and to perform its obligations hereunder and, subject to approval
of PCo's securityholders and the Court as provided in this Agreement, to
consummate the Arrangement and the other transactions contemplated by this
Agreement. The execution and delivery of this Agreement by PCo and, subject to
approval of PCo's securityholders and the Court as provided in this Agreement,
the consummation by PCo of the Arrangement and the other transactions
contemplated hereby have been unanimously approved by the board of directors of
PCo and have been duly authorized by all other necessary corporate action on the
part of PCo. This Agreement has been duly executed and delivered by PCo and is a
valid and binding obligation of PCo, enforceable in accordance with its terms,
except that such enforceability may be subject to (i) bankruptcy, insolvency,
reorganization or other similar laws affecting or relating to enforcement of
creditors' rights generally and (ii) general equitable principles, and (iii)
that the consummation of the Arrangement is subject to approval of PCo's
securityholders and the Court as provided in this Agreement.
(b) Neither the execution, delivery or performance of this Agreement or
the Arrangement by PCo, nor the consummation of the transactions contemplated
hereby or thereby by PCo nor compliance with the provisions hereof or thereof by
PCo will: (i) conflict with, or result in any violations of, the articles of
amalgamation or bylaws of PCo or any equivalent document of any of the PCo
Subsidiaries, (ii) result in any breach of or cause a default (with or without
notice or lapse of time, or both) under, (iii) give rise to a right of
termination, amendment, cancellation or acceleration of any obligation contained
in, or the loss of any material benefit or the incurrence of any material cost
(including, but not limited to, seismic data transfer fees) under, or (iv)
result in the creation of any lien, charge, mortgage, security interest, option,
preferential purchase right or other right or interest of any other person
(collectively, an "Encumbrance") upon any of the material properties or assets
of PCo or any of the PCo Subsidiaries under, any term, condition or provision of
any loan or credit agreement, note, bond, mortgage, indenture, lease or other
agreement, judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to PCo or any of the PCo Subsidiaries or their respective properties
or assets, other than any such breaches, defaults, rights, losses, or
Encumbrances which, individually or in the aggregate, would not have a Material
Adverse Effect on PCo.
2.3 GOVERNMENTAL AND THIRD PARTY CONSENTS
(a) No consent, approval, order or authorization of, or registration,
declaration or filing with, any court, administrative agency or commission or
other governmental authority or instrumentality, domestic or foreign (each a
"Governmental Entity"), is required to be obtained by PCo or any of the PCo
Subsidiaries in connection with the execution and delivery of this Agreement or
the Plan of Arrangement or the consummation of the transactions contemplated
hereby or thereby, except for: (i) the filing with the applicable Canadian
provincial securities commissions or regulatory authorities (the "Commissions")
and the Court and the mailing to securityholders of PCo of the Joint Proxy
Statement relating to the PCo Shareholders Meeting; (ii) the furnishing to the
SEC of such reports and information under the Exchange Act and the rules and
regulations promulgated by the SEC thereunder, as may be required in connection
with this Agreement and the transactions contemplated hereby (the "SEC
Filings"); (iii) approval by the Court of the Arrangement and the filings of the
articles of
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arrangement and other required arrangement or other documents as required by the
ABCA; (iv) such filings, authorizations, orders and approvals as may be required
under state "control share acquisition," "anti-takeover" or other similar
statutes, any other applicable federal, provincial or state securities laws and
the rules of the NYSE, the Toronto Stock Exchange ("TSE") or the Montreal
Exchange; (v) such filings and notifications as may be necessary under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"); (vi) such notices and filings as may be necessary under the Investment
Canada Act and under the Competition Act (Canada); (vii) such notice, filings,
orders and approvals as may be necessary under the Public Utilities Board Act
(Alberta), Gas Utilities Act (Alberta) or similar legislation in other
applicable provinces; and (viii) where the failure to obtain such consents,
approvals, etc., would not prevent or delay the consummation of the Arrangement
or otherwise prevent PCo from performing its obligations under this Agreement
and would not reasonably be expected to have a Material Adverse Effect on PCo.
(b) Other than as contemplated by Section 2.3(a), no consents,
assignments, waivers, authorizations or other certificates are necessary in
connection with the transactions contemplated hereby to provide for the
continuation in full force and effect of all of PCo's material contracts or
leases or for PCo to consummate the transactions contemplated hereby, except
when the failure to receive such consents or other certificates would not have a
Material Adverse Effect on PCo.
2.4 CAPITALIZATION
(a) The authorized capital of PCo consists of an unlimited number of
common shares ("PCo Common Shares"), an unlimited number of first preferred
shares issuable in series and an unlimited number of second preferred shares
issuable in series (collectively, the "Preferred Shares"). As of August 15,
1999, 153,493,274 PCo Common Shares were issued and outstanding and no Preferred
Shares are issued and outstanding. As of August 15, 1999, an aggregate of
10,172,150 PCo Common Shares were reserved for issuance pursuant to outstanding
PCo Options granted under the Incentive Stock Option Savings Plan of PCo (the
"PCo Option Plan") and PCo Common Shares reserved for issuance pursuant to the
Employee Stock Purchase Savings Plan (the "Savings Plan") and, as at such date,
no other PCo Shares are reserved for issuance pursuant to any outstanding rights
or options and no Preferred Shares are reserved for issuance. Prior to the date
hereof, 3,047,130 of the PCo Options have vested in accordance with their terms
and 7,125,820 remain unvested. The consummation of the transactions contemplated
by this Agreement will automatically accelerate the vesting of any unvested PCo
Options. All of the issued and outstanding PCo Common Shares have been duly
authorized and validly issued, are fully paid and non-assessable, were not
issued in violation of the terms of any agreement or other understanding binding
upon PCo and were issued in compliance with all applicable charter documents of
PCo and all applicable federal, provincial and foreign securities laws, rules
and regulations. There are, and have been, no preemptive rights with respect to
the issuance of the PCo Common Shares or any other capital stock of PCo.
(b) Other than as set forth above, there are no outstanding
subscriptions, options, warrants, convertible securities, calls, commitments,
agreements or rights (contingent or otherwise) of any character to purchase or
otherwise acquire from PCo any shares of, or any securities convertible into,
the capital stock of PCo.
(c) PCo does not have a shareholders rights protection plan or similar
plan or agreement.
2.5 SECURITIES REPORTS AND FINANCIAL STATEMENTS, BOOKS AND RECORDS
(a) PCo has filed all forms, reports, annual reports and documents with
the Commissions required to be filed by it pursuant to relevant Canadian
securities statutes, regulations, policies and rules (collectively, the "PCo
Canadian Securities Reports"), all of which have complied in all material
respects with all applicable requirements of such statutes, regulations,
policies and rules. None of the PCo Canadian Securities Reports, at the time
filed or as subsequently amended, contained any untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary in order to make the statements made therein, in light of the
circumstances under which they were made, not misleading. The financial
statements of PCo contained in the PCo Canadian Securities Reports complied in
all material respects with the then applicable accounting requirements and the
published rules and regulations of the relevant Canadian securities statutes
with respect
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thereto, were prepared in accordance with Canadian generally accepted accounting
principles applied on a consistent basis during the periods involved (except as
may have been indicated in the notes thereto or, in the case of unaudited
statements, as permitted by applicable laws, rules or regulations) and fairly
present (subject, in the case of the unaudited statements, to normal, year-end
audit adjustments) the consolidated financial position of PCo and its
consolidated PCo Subsidiaries as at the respective dates thereof and the
consolidated results of their operations and cash flows for the respective
periods then ended.
(b) PCo has filed all forms, reports, annual reports and documents with
the SEC required to be filed by it pursuant to relevant United States securities
statutes, regulations, policies and rules (collectively, the "PCo United States
Securities Reports"; and together with the PCo Canadian Securities Reports, the
"PCo Securities Reports"), all of which have complied in all material respects
with all applicable requirements of such statutes, regulations, policies and
rules. None of the PCo United States Securities Reports, at the time filed or as
subsequently amended, contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary in
order to make the statements made therein, in light of the circumstances under
which they were made, not misleading. The financial statements of PCo contained
in the PCo United States Securities Reports complied in all material respects
with the then applicable accounting requirements and the published rules and
regulations of the relevant United States securities statutes with respect
thereto, were prepared in accordance with Canadian generally accepted accounting
principles applied on a consistent basis during the periods involved (except as
may have been indicated in the notes thereto or, in the case of unaudited
statements, as permitted by applicable laws, rules or regulations) and fairly
present (subject, in the case of the unaudited statements, to normal, year-end
audit adjustments) the consolidated financial position of PCo and its
consolidated PCo Subsidiaries as at the respective dates thereof and the
consolidated results of their operations and cash flows for the respective
periods then ended.
(c) There has been no change in PCo's accounting policies or the methods
of making accounting estimates or changes in estimates that are material to such
financial statements, except as described in the notes thereto.
2.6 LIABILITIES
Neither PCo nor any PCo Subsidiary has any material liabilities or
obligations, either accrued, absolute, contingent or otherwise, or has any
knowledge of any potential material liabilities or obligations, other than those
disclosed in the PCo Securities Reports or incurred in the ordinary course of
business since June 30, 1999.
2.7 INFORMATION SUPPLIED
None of the information supplied or to be supplied by PCo for inclusion or
incorporation by reference in the Joint Proxy Statement (and, if filed, the
Registration Statement) will, at the time the Joint Proxy Statement is mailed to
the securityholders of PCo and at the time of the PCo Shareholders Meeting (and,
if filed, at the time the Registration Statement is declared effective), contain
any untrue statement which, at the time and in light of the circumstances under
which it is made, is false or misleading with respect to any material fact, or
omit to state any material fact required to be stated therein or necessary in
order to make the statements therein not false or misleading or necessary to
correct any statement in any earlier communication with respect to the
solicitation of a proxy for the same meeting or subject matter which has become
false or misleading. The Joint Proxy Statement will comply as to form in all
material respects with the provisions of the ABCA and applicable United States
and Canadian securities laws and the rules and regulations promulgated
thereunder.
2.8 NO DEFAULTS
Neither PCo nor any PCo Subsidiary is, or has received notice that it would
be with the passage of time, in default or violation of any term, condition or
provision of (a) its articles or bylaws; (b) any judgment, decree or order
applicable to it; or (c) any loan or credit agreement, note, bond, mortgage,
indenture, contract, agreement, lease, license or other instrument to which PCo
or any PCo Subsidiary is now a party or by which it or any of its properties or
assets may be bound, except in the case of item (c) for defaults and violations
which, individually or in the aggregate, would not have a Material Adverse
Effect on PCo.
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2.9 LITIGATION; INVESTIGATIONS
There is no claim, action, suit or proceeding pending, or to the knowledge
of PCo threatened against PCo or any of the PCo Subsidiaries, which would, if
adversely determined, individually or in the aggregate, have a Material Adverse
Effect on PCo, nor is there any judgment, decree, injunction, rule or order of
any Governmental Entity or arbitrator outstanding against PCo or any of the PCo
Subsidiaries having, or which, insofar as reasonably can be foreseen, in the
future could have, any such effect. There is no investigation pending or, to the
knowledge of PCo, threatened, against PCo or any of the PCo Subsidiaries before
any Governmental Entity which could have such effect.
2.10 ABSENCE OF CERTAIN CHANGES AND EVENTS
Since June 30, 1999, there has not been:
(a) Any Material Adverse Effect on PCo;
(b) Any material damage, destruction, or loss to the business or
properties of PCo and the PCo Subsidiaries, taken as a whole, not covered by
insurance;
(c) Any declaration, setting aside or payment of any dividend or other
distribution in respect of the capital stock of PCo, or any direct or indirect
redemption, purchase or any other acquisition by PCo of any such stock;
(d) Any change in the capital stock or in the number of shares or classes
of PCo's authorized or outstanding capital stock as described in Section 2.4
(other than as a result of exercises of PCo Options or issuances of PCo Common
Shares pursuant to the Savings Plan described in Section 2.4(a));
(e) Any material labor dispute or charge of unfair labor practice (other
than routine individual grievances) or, to the knowledge of PCo, any activity or
proceeding by a labor union or by a representative thereof to organize any
employees of PCo or any PCo Subsidiary or any campaign being conducted to
solicit authorization from employees to be represented by such labor union; or
(f) Any other event or condition known to PCo particularly pertaining to
and adversely affecting the operations, assets or business of PCo or any of the
PCo Subsidiaries (other than events or conditions which are of a general or
industry-wide nature and of general public knowledge) which would constitute a
Material Adverse Effect on PCo.
2.11 ADDITIONAL PCO INFORMATION
The PCo Disclosure Letter contains true, complete and correct lists of the
following items with respect to PCo and each of the PCo Subsidiaries, and PCo
has furnished or made available to BCo true, complete and correct copies of all
documents referred to in such lists:
(a) All contracts which involve, or may involve, aggregate payments by
any party thereto of $5 million or more, which payments or obligations are to be
performed in whole or in part after the Effective Time and which are not
cancellable or terminable by PCo without payment or penalty in excess of $5
million;
(b) All material option, bonus, incentive compensation, deferred
compensation, employment agreements, profit-sharing, retirement, pension,
welfare, group insurance, death benefit, or other fringe benefit plans,
arrangements or trust agreements;
(c) All material patents, trademarks, copyrights and other intellectual
property rights owned, licensed or used and all applications therefor;
(d) All material trade names and fictitious names used or held, whether
and where such names are registered and where used;
(e) All material long-term and short-term promissory notes, installment
contracts, loan agreements, credit agreements, operating and finance leases, and
any other material agreements relating thereto or with respect to collateral
securing the same; and
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(f) All material indebtedness, liabilities and commitments of third
parties (other than PCo Subsidiaries) and as to which it is a guarantor,
endorser, co-maker, surety or accommodation maker, or is contingently liable
therefor (excluding liabilities as an endorser of checks and the like in the
ordinary course of business) or has otherwise provided any form of financial
assistance and all letters of credit in excess of $1 million, whether stand-by
or documentary, issued by any third party.
2.12 CERTAIN AGREEMENTS
Except for the PCo employment agreements disclosed under Section 2.11(b) or
the acceleration of vesting of PCo Options, neither the execution and delivery
of this Agreement nor the consummation of the transactions contemplated hereby
will: (a) result in any payment (including severance, unemployment compensation,
parachute payment, bonus or otherwise) becoming due to any director, employee or
independent contractor of PCo or any of the PCo Subsidiaries under any PCo Plan
(as defined in Section 2.13) or otherwise; (b) materially increase any benefits
otherwise payable under any PCo Plan or otherwise; or (c) result in the
acceleration of the time of payment or vesting of any such benefits.
2.13 EMPLOYEE BENEFIT PLANS
All employee benefits plans covering active, former or retired employees of
PCo and the PCo Subsidiaries are listed in the PCo Disclosure Letter (the "PCo
Plans"). PCo has made available to BCo true, complete and correct copies of each
PCo Plan, any related trust agreement, annuity or insurance contract or other
funding vehicle, and: (a) each PCo Plan has been maintained and administered in
material compliance with its terms and is, to the extent required by applicable
law or contract, fully funded without having any deficit or unfunded actuarial
liability or adequate provision has been made therefor; (b) all required
employer contributions under any such plans have been made and the applicable
funds have been funded in accordance with the terms thereof, (c) each PCo Plan
that is required or intended to be qualified under applicable law or registered
or approved by a governmental agency or authority has been so qualified,
registered or approved by the appropriate governmental agency or authority, and
nothing has occurred since the date of the last qualification, registration or
approval to adversely affect, or cause, the appropriate governmental agency or
authority to revoke such qualification, registration or approval; (d) to the
knowledge of PCo after due inquiry, there are no pending or anticipated material
claims against or otherwise involving any of the PCo Plans and no suit, action
or other litigation (excluding claims for benefits incurred in the ordinary
course of PCo Plan activities) has been brought against or with respect to any
PCo Plan; (e) all material contributions, reserves or premium payments required
to be made to the PCo Plans have been made or provided for; and (f) neither PCo
nor any PCo Subsidiary has any material obligations for retiree health and life
benefits under any PCo Plan.
2.14 INTELLECTUAL PROPERTY
PCo or the PCo Subsidiaries own or possess licenses to use all patents,
patent applications, trademarks and service marks (including registrations and
applications therefor), trade names, copyrights and written know-how, trade
secrets and all other similar proprietary data and the goodwill associated
therewith (collectively, the "PCo Intellectual Property") that are either
material to the business of PCo or any PCo Subsidiary or that are necessary for
the manufacture, use, license or sale of any services or products manufactured,
used, licensed or sold by PCo and the PCo Subsidiaries. The PCo Intellectual
Property is owned or licensed by PCo or the PCo Subsidiaries free and clear of
any Encumbrance other than such Encumbrances that would not have a Material
Adverse Effect on PCo. Except in the ordinary course of business, neither PCo
nor any of the PCo Subsidiaries has granted to any other person any license to
use any PCo Intellectual Property. Neither PCo nor any of the PCo Subsidiaries
has received any notice of infringement, misappropriation or conflict with, the
intellectual property rights of others in connection with the use by PCo and the
PCo Subsidiaries of the PCo Intellectual Property.
2.15 TITLE TO PROPERTIES
Except for goods and other property sold, used or otherwise disposed of
since June 30, 1999 in the ordinary course of business for fair value, PCo has
good and defensible title to all its properties, interests in properties and
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assets, real and personal, reflected in its June 30, 1999 financial statements,
free and clear of any Encumbrance, except: (a) Encumbrances reflected in the
balance sheet of PCo as of June 30, 1999; (b) liens for current taxes not yet
due and payable and (c) such imperfections of title, easements and Encumbrances
as would not have a Material Adverse Effect on PCo. All leases pursuant to which
PCo or any PCo Subsidiary leases (whether as lessee or lessor) any real or
personal property are in good standing, valid, and effective; and there is not,
under any such leases, any existing or prospective default or event of default
or event which with notice or lapse of time, or both, would constitute a default
by PCo or any PCo Subsidiary which, individually or in the aggregate, would have
a Material Adverse Effect on PCo and in respect to which PCo or a PCo Subsidiary
has not taken adequate steps to prevent a default from occurring. The buildings
and premises of PCo and each of the PCo Subsidiaries that are used in its
business are in good operating condition and repair, subject only to ordinary
wear and tear. All major items of operating equipment of PCo and the PCo
Subsidiaries are in good operating condition and in a state of reasonable
maintenance and repair, ordinary wear and tear excepted, and are free from any
known defects except as may be repaired by routine maintenance and such minor
defects as do not substantially interfere with the continued use thereof in the
conduct of normal operations.
2.16 ENVIRONMENTAL MATTERS
(a) There are no environmental conditions or circumstances, such as the
presence or release of any hazardous substance, on any property presently or, to
the knowledge of PCo, previously owned or leased by PCo or any of the PCo
Subsidiaries that could reasonably be expected to result in a Material Adverse
Effect on PCo;
(b) PCo and the PCo Subsidiaries have in full force and effect all
material environmental permits, licenses, approvals and other authorizations
required to conduct their operations and are operating in material compliance
thereunder;
(c) PCo's and the PCo Subsidiaries' operations and the use of their
assets do not violate any applicable Canadian federal, provincial or local law,
statute, ordinance, rule, regulation, order or notice requirement pertaining to
(i) the condition or protection of air, groundwater, surface water, soil, or
other environmental media, (ii) the environment, including natural resources or
any activity which affects the environment or (iii) the regulation of any
pollutants, contaminants, waste or other substances (whether or not hazardous or
toxic) (collectively the "Applicable Environmental Laws"), except for violations
which, either singly or in the aggregate, would not result in a Material Adverse
Effect on PCo;
(d) To the knowledge of PCo, none of the operations or assets of PCo or
any PCo Subsidiary has ever been conducted or used by PCo or any PCo Subsidiary
in such a manner as to constitute a violation of any of the Applicable
Environmental Laws, except for violations which, either singly or in the
aggregate, would not result in a Material Adverse Effect on PCo or have been
rectified;
(e) No written notice has been served on PCo or any PCo Subsidiary from
any entity, governmental agency or individual regarding any existing, pending or
threatened investigation or inquiry related to alleged violations under any
Applicable Environmental Laws, or regarding any claims for remedial obligations
or contribution under any Applicable Environmental Laws, other than any of the
foregoing which, either singly or in the aggregate, would not result in a
Material Adverse Effect on PCo; and
(f) PCo does not know of any reason that would preclude it from renewing
or obtaining a reissuance of the material permits, licenses or other
authorizations required pursuant to any Applicable Environmental Laws to operate
and use any of PCo's or the PCo Subsidiaries' assets for their current purposes
and uses.
2.17 COMPLIANCE WITH OTHER LAWS
Neither PCo nor any PCo Subsidiary is in violation of or in default with
respect to, or in alleged violation of or alleged default with respect to any
other applicable law or any applicable rule or regulation, or any writ or decree
of any court or any Governmental Entity or delinquent with respect to any report
required to be filed with any Governmental Entity, except for violations,
defaults and delinquencies which, either singly or in the aggregate, do not and
are not expected to result in a Material Adverse Effect on PCo.
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2.18 TAXES
Except with respect to failures which, in the aggregate, would not result
in a Material Adverse Effect on PCo, proper and accurate federal, provincial,
state and local income, capital, withholding, value added, sales, use,
franchise, gross revenue, turnover, excise, payroll, property, employment,
customs duties and any and all other tax returns, reports, and estimates have
been filed with appropriate governmental agencies, domestic and foreign, by PCo
and each of the PCo Subsidiaries for each period for which any returns, reports,
or estimates were due (taking into account any extensions of time to file before
the date hereof); all taxes shown by such returns to be payable and any other
taxes due and payable have been paid other than those being contested in good
faith by PCo or a PCo Subsidiary; and the tax provision reflected in PCo's
financial statements is adequate, in accordance with Canadian or United States
(if applicable) generally accepted accounting principles, to cover liabilities
of PCo and the PCo Subsidiaries for all taxes, including any interest, penalties
and additions to taxes of any character whatsoever applicable to PCo and the PCo
Subsidiaries or their assets or businesses. Neither PCo nor any PCo Subsidiary
has received any notice of reassessment from Revenue Canada or Alberta Corporate
Tax Administration that would result in a Material Adverse Effect on PCo. There
are no tax liens on any assets of PCo or the PCo Subsidiaries except for taxes
not yet currently due and those which could not reasonably be expected to result
in a Material Adverse Effect on PCo.
2.19 VOTE REQUIRED
Except as may be provided in the Interim Order, at the PCo Shareholders
Meeting at which a quorum is present, the affirmative vote of the holders of
two-thirds of the securityholders present or represented by proxy is required to
approve this Agreement, the Arrangement and the consummation of the transactions
contemplated hereby.
2.20 BROKERS AND FINDERS
Other than RBC Dominion Securities Inc. in accordance with the terms of its
engagement letter dated July 29, 1999, a copy of which has been provided to BCo,
none of PCo or any of the PCo Subsidiaries nor any of their respective
directors, officers or employees has employed any broker or finder or incurred
any liability for any financial advisory fees, brokerage fees, commissions or
similar payments in connection with the transactions contemplated by this
Agreement. The PCo Disclosure Letter includes a description of all of the fees
and other financial obligations and commitments of PCo's engagement arrangement
with such firm.
2.21 DISCLOSURE
No representation or warranty made by PCo in this Agreement or the PCo
Disclosure Letter, nor any document, written information, statement, financial
statement, certificate or Exhibit prepared and furnished or to be prepared and
furnished by PCo or its representatives pursuant hereto or in connection with
the transactions contemplated hereby, when taken together, contains or contained
(as of the date made) any untrue statement of a material fact when made, or
omits or omitted (as of the date made) to state a material fact necessary to
make the statements or facts contained herein or therein not misleading, in any
material way, in light of the circumstances under which they were made.
2.22 FAIRNESS OPINION
PCo's board of directors has received an opinion as of August 16, 1999 (and
have been advised that they will receive a written opinion) from RBC Dominion
Securities Inc. that the Plan of Arrangement is fair from a financial point of
view to PCo securityholders (the "PCo Fairness Opinion").
2.23 RESTRICTIONS ON BUSINESS ACTIVITIES
There is no material agreement, judgment, injunction, order or court decree
binding upon PCo or any PCo Subsidiary that has or could reasonably be expected
to have the effect of prohibiting or materially impairing any current business
practice of PCo or any PCo Subsidiary, any acquisition of property by PCo or any
PCo Subsidiary or the conduct of any current business by PCo or any PCo
Subsidiary.
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2.24 YEAR 2000
PCo has initiated a review of the implications of the Year 2000 on its
business and processes, including an evaluation of key operating and information
systems, field operations and third parties and confirms the status thereof as
set out in the PCo Disclosure Letter.
2.25 BOOKS AND RECORDS
The books, records and accounts of PCo and the PCo Subsidiaries (a) have
been maintained in accordance with good business practices on a basis consistent
with prior years, (b) are stated in reasonable detail and accurately and fairly
reflect the transactions and dispositions of the assets of PCo and the PCo
Subsidiaries and (c) accurately and fairly reflect the basis for the PCo
financial statements. PCo has devised and maintains a system of internal
accounting controls sufficient to provide reasonable assurances that (a)
transactions are executed in accordance with management's general or specific
authorization; and (b) transactions are recorded as necessary (i) to permit
preparation of financial statements in conformity with Canadian generally
accepted accounting principles or any other criteria applicable to such
statements and (ii) to maintain accountability for assets.
2.26 CHEVRON JV
PCo has properly authorized, executed and delivered the Farm-in and Joint
Venture Exploration Program Agreement dated July 19, 1999 with Chevron Canada
Resources (the "Chevron JV") and pursuant to the Chevron JV PCo has the right to
earn 50% of Chevron Canada Resources' working interest in the lands shown on
Schedule "A" to the Chevron JV, amounting to approximately 400,000 net acres.
PCo has a firm commitment to drill 14 wells pursuant to the Chevron JV.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF BCO
Except as set forth in a letter dated the date of this Agreement and
delivered by BCo to PCo concurrently herewith (the "BCo Disclosure Letter"), BCo
hereby represents and warrants to, and agrees with, PCo that:
3.1 ORGANIZATION AND STANDING
BCo and each body corporate, partnership, joint venture, association or
other business entity of which more than 50% of the total voting power of shares
of stock or units of ownership or beneficial interest entitled to vote in the
election of directors (or members of a comparable governing body) is owned or
controlled, directly or indirectly, by BCo (the "BCo Subsidiaries"), is an
entity duly organized, validly existing and in good standing under the laws of
the jurisdiction of its incorporation or organization, has full requisite power
and authority to carry on its business as it is currently conducted, and to own,
lease and operate the properties currently owned, leased and operated by it, and
is duly qualified or licensed to do business and is in good standing as a
foreign corporation or organization authorized to do business in all
jurisdictions in which the character of the properties owned or leased or the
nature of the business conducted by it would make such qualification or
licensing necessary, except where the failure to be so qualified or licensed
would not have a Material Adverse Effect on BCo.
3.2 AGREEMENT AUTHORIZED AND ITS EFFECT ON OTHER OBLIGATIONS
(a) BCo has all requisite corporate power and authority to enter into
this Agreement and to perform its obligations hereunder and, subject to approval
of BCo's stockholders as provided in this Agreement, to consummate the
Arrangement and the other transactions contemplated by this Agreement. The
execution and delivery of this Agreement by BCo and, subject to approval of
BCo's stockholders as provided in this Agreement, the consummation by BCo of the
Arrangement and the other transactions contemplated hereby have been unanimously
approved by the board of directors of BCo and have been duly authorized by all
other necessary corporate action on the part of BCo. This Agreement has been
duly executed and delivered by BCo and is a valid
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and binding obligation of BCo, enforceable in accordance with its terms, except
that such enforceability may be subject to: (i) bankruptcy, insolvency,
reorganization or other similar laws affecting or relating to enforcement of
creditors' rights generally; (ii) general equitable principles; and (iii) that
the consummation of the Arrangement is subject to approval of BCo's stockholders
as provided in this Agreement.
(b) Neither the execution, delivery or performance of this Agreement or
the Arrangement by BCo, nor the consummation of the transactions contemplated
hereby or thereby by BCo nor compliance with the provisions hereof or thereof by
BCo will: (i) conflict with, or result in any violations of, the Certificate of
Incorporation or bylaws of BCo or any equivalent document of any of the BCo
Subsidiaries, (ii) result in any breach of or cause a default (with or without
notice or lapse of time, or both) under, (iii) give rise to a right of
termination, amendment, cancellation or acceleration of any obligation contained
in, or the loss of any material benefit or incurrence of any material cost
under, or (iv) result in the creation of any Encumbrance upon any of the
material properties or assets of BCo or any of the BCo Subsidiaries under, any
term, condition or provision of any loan or credit agreement, note, bond,
mortgage, indenture, lease or other agreement, judgment, order, decree, statute,
law, ordinance, rule or regulation applicable to BCo or any of the BCo
Subsidiaries or their respective properties or assets, other than any such
breaches, defaults, rights, losses, or Encumbrances which, individually or in
the aggregate, would not have a Material Adverse Effect on BCo.
3.3 GOVERNMENTAL AND THIRD PARTY CONSENTS
(a) No consent, approval, order or authorization of, or registration,
declaration or filing with, any Governmental Entity, is required to be obtained
by BCo or any of the BCo Subsidiaries in connection with the execution and
delivery of this Agreement or the Plan of Arrangement or the consummation of the
transactions contemplated hereby or thereby, except for: (i) the filing with the
Commissions and the mailing to stockholders of BCo of the Joint Proxy Statement
relating to the BCo Stockholders Meeting, (ii) the furnishing to the SEC of the
SEC Filings; (iii) approval by the Court of the Arrangement and the filings of
the articles of arrangement and other required arrangement or other documents as
required by the ABCA; (iv) such filings, authorizations, orders and approvals as
may be required under applicable federal, provincial or state securities laws
and the rules of the NYSE; (v) such filings and notifications as may be
necessary under the HSR Act; (vi) such notices and filings as may be necessary
under the Investment Canada Act and under the Competition Act (Canada); (vii)
such notice, filings, orders and approvals as may be necessary under the Public
Utilities Board Act (Alberta), Gas Utilities Act (Alberta) or similar
legislation in other applicable provinces; and (viii) where the failure to
obtain such consents, approvals, etc., would not prevent or delay the
consummation of the Arrangement or otherwise prevent BCo from performing its
obligations under this Agreement and would not reasonably be expected to have a
Material Adverse Effect on BCo.
(b) Other than as contemplated by Section 3.3(a), no consents,
assignments, waivers, authorizations or other certificates are necessary in
connection with the transactions contemplated hereby to provide for the
continuation in full force and effect of all of BCo's material contracts or
leases or for BCo to consummate the transactions contemplated hereby, except
when the failure to receive such consents or other certificates would not have a
Material Adverse Effect on BCo.
3.4 CAPITALIZATION
(a) The authorized capital stock of BCo consists of 325,000,000 shares of
common stock, $0.01 par value ("BCo Common Stock", which term shall include for
all purposes of this Agreement the related BCo Common Stock purchase rights
issued or issuable under that certain Shareholder Rights Plan Agreement dated as
of December 16, 1998 (the "BCo Rights Agreement"), between BCo and BankBoston,
N.A., as Rights Agent, and 75,000,000 shares of preferred stock, par value $.01
per share, issuable in series and of which the board of directors of BCo have
designated 3,250,000 shares as Series A Junior Participating Preferred Stock
("BCo Preferred Stock"). As of July 31, 1999, 177,503,295 shares of BCo Common
Stock were issued and outstanding and 25,292,340 shares of BCo Common Stock were
held by BCo in its treasury. As of July 31, 1999, 25,292,340 shares of BCo
Common Stock were allocated for issuance upon the exercise of stock options then
outstanding under BCo's stock option plans and for future issuance of options
under BCo's stock option plans and BCo has in its authorized capital the number
of shares of BCo Common Stock and BCo Preferred Stock required to be issued
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upon the exercise of the rights provided by the BCo Rights Agreement in
accordance with the terms and conditions thereof. No shares of BCo Preferred
Stock are issued or outstanding. All of the issued and outstanding shares of BCo
Common Stock have been duly authorized and validly issued, are fully paid and
nonassessable, were not issued in violation of the terms of any agreement or
other understanding binding upon BCo and were issued in compliance with all
applicable charter documents of BCo and all applicable federal, state and
foreign securities laws, rules and regulations. There are, and have been, no
preemptive rights with respect to the issuance of the shares of BCo Common Stock
or any other capital stock of BCo.
(b) Other than as set forth above, as of the date of this Agreement,
there are no outstanding subscriptions, options, warrants, convertible
securities, calls, commitments, agreements or rights (contingent or otherwise)
of any character to purchase or otherwise acquire from BCo any shares of, or any
securities convertible into, the capital stock of BCo.
3.5 SECURITIES REPORTS AND FINANCIAL STATEMENTS, BOOKS AND RECORDS
BCo has filed all forms, reports, annual reports and documents required to
be filed by it with the SEC pursuant to relevant United States securities
statutes, regulations, policies and rules (collectively, the "BCo Securities
Reports"), all of which have complied in all material respects with all
applicable requirements of such statutes, regulations, policies and rules. None
of the BCo Securities Reports, at the time filed or as subsequently amended,
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary in order to make the statements
made therein, in light of the circumstances under which they were made, not
misleading. The financial statements of BCo contained in the BCo Securities
Reports complied in all material respects with the then applicable accounting
requirements and the published rules and regulations of the relevant United
States securities statutes with respect thereto, were prepared in accordance
with United States generally accepted accounting principles applied on a
consistent basis during the periods involved (except as may have been indicated
in the notes thereto or, in the case of unaudited statements, as permitted by
applicable laws, rules or regulations) and fairly present (subject, in the case
of the unaudited statements, to normal, year-end audit adjustments) the
consolidated financial position of BCo and its consolidated BCo Subsidiaries as
at the respective dates thereof and the consolidated results of their operations
and cash flows for the respective periods then ended. There has been no change
in BCo's accounting policies or the methods of making accounting estimates or
changes in estimates that are material to such financial statements, except as
described in the notes thereto.
3.6 LIABILITIES
Neither BCo nor any BCo Subsidiary has any material liabilities or
obligations, either accrued, absolute, contingent or otherwise, or has any
knowledge of any potential material liabilities or obligations, other than those
disclosed in the BCo Securities Reports or incurred in the ordinary course of
business since June 30, 1999.
3.7 INFORMATION SUPPLIED
None of the information supplied or to be supplied by BCo for inclusion or
incorporation by reference in the Joint Proxy Statement (and, if filed, the
Registration Statement) will, at the time the Joint Proxy Statement is mailed to
the shareholders of BCo and at the time of the BCo Stockholders Meeting (and, if
filed, at the time the Registration Statement is declared effective), contain
any untrue statement which, at the time and in light of the circumstances under
which it is made, is false or misleading with respect to any material fact or
omit to state any material fact required to be stated therein or necessary in
order to make the statements therein not false or misleading or necessary to
correct any statement in any earlier communication with respect to the
solicitation of a proxy for the same meeting or subject matter which has become
false or misleading. The Joint Proxy Statement will comply as to form in all
material respects with the provisions of the ABCA and applicable United States
and Canadian securities laws and the rules and regulations promulgated
thereunder.
3.8 NO DEFAULTS
Neither BCo nor any BCo Subsidiary is, or has received notice that it would
be with the passage of time, in default or violation of any term, condition or
provision of (a) its charter documents or bylaws; (b) any judgment,
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decree or order applicable to it; or (c) any loan or credit agreement, note,
bond, mortgage, indenture, contract, agreement, lease, license or other
instrument to which BCo or any BCo Subsidiary is now a party or by which it or
any of its properties or assets may be bound, except in the case of item (c) for
defaults and violations which, individually or in the aggregate, would not have
a Material Adverse Effect on BCo.
3.9 LITIGATION; INVESTIGATIONS
There is no claim, action, suit or proceeding pending, or to the knowledge
of BCo threatened against BCo or any of the BCo Subsidiaries, which would, if
adversely determined, individually or in the aggregate, have a Material Adverse
Effect on BCo, nor is there any judgment, decree, injunction, rule or order of
any Governmental Entity or arbitrator outstanding against BCo or any of the BCo
Subsidiaries having, or which, insofar as reasonably can be foreseen, in the
future could have, any such effect. There is no investigation pending or, to the
knowledge of BCo, threatened, against BCo or any of the BCo Subsidiaries before
any Governmental Entity which could have such effect.
3.10 ABSENCE OF CERTAIN CHANGES AND EVENTS
Since June 30, 1999, there has not been any Material Adverse Effect on BCo.
3.11 CERTAIN AGREEMENTS
Neither the execution and delivery of this Agreement nor the consummation
of the transactions contemplated hereby will: (a) result in any payment
(including severance, unemployment compensation, parachute payment, bonus or
otherwise) becoming due to any director, employee or independent contractor of
BCo or any of the BCo Subsidiaries under any BCo Plan (as defined in Section
3.13) or otherwise; (b) materially increase any benefits otherwise payable under
any BCo Plan or otherwise; or (c) result in the acceleration of the time of
payment or vesting of any such benefits.
3.12 EMPLOYEE BENEFIT PLANS
For purposes of Section 3.11 and this Section 3.12, BCo Subsidiaries shall
include any enterprise which, with BCo, forms or formed a controlled group of
corporations, a group of trades or business under common control or an
affiliated service group, within the meaning of Section 414(b), (c) or (m) of
the Internal Revenue Code of 1986, as amended (the "Code"). Each material
employee benefits plans covering active, former or retired employees of BCo and
the BCo Subsidiaries (the "BCo Plans") has been maintained and administered in
material compliance with its terms and is, to the extent required by applicable
law or contract, fully funded without having any deficit or unfunded actuarial
liability or adequate provision has been made therefor; all required employer
contributions under any such plans have been made and the applicable funds have
been funded in accordance with the terms thereof, each BCo Plan that is required
or intended to be qualified under applicable law or registered or approved by a
governmental agency or authority has been so qualified, registered or approved
by the appropriate governmental agency or authority, and nothing has occurred
since the date of the last qualification, registration or approval to adversely
affect, or cause, the appropriate governmental agency or authority to revoke
such qualification, registration or approval; to the extent applicable, the BCo
Plans comply, in all material respects, with the requirements of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), the Code and any
other applicable tax act and other laws, and any BCo Plan intended to be
qualified under Section 401(a) of the Code has been determined by the Internal
Revenue Service to be so qualified and nothing has occurred to cause the loss of
such qualified status; except for the Retirement Plan for Non-Bargaining
Employees of BCo and the Retirement Plan for Former Employees of BCo, no BCo
Plan is covered by Title IV of ERISA or Section 412 of the Code; there are no
pending or anticipated material claims against or otherwise involving any of the
BCo Plans and no suit, action or other litigation (excluding claims for benefits
incurred in the ordinary course of BCo Plan activities) has been brought against
or with respect to any BCo Plan; all material contributions, reserves or premium
payments, required to be made as of the date hereof to the BCo Plans have been
made or provided for; neither BCo nor any BCo Subsidiary has incurred or
reasonably expects to incur any liability under subtitle C or D of Title IV of
ERISA with respect to any "single-employer plan," within the meaning of Section
4001(a)(5) of ERISA, currently or formerly maintained by BCo, any
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BCo Subsidiary or any entity which is considered one employer with BCo under
Section 4001 of ERISA; neither BCo nor any BCo Subsidiary has incurred or
reasonably expects to incur any withdrawal liability under Subtitle E of Title
TV of ERISA with respect to any "multi-employer plan," within the meaning of
Section 4001(a)(3) of ERISA; and neither BCo nor any BCo Subsidiary has any
material obligations for retiree health and life benefits under any BCo Plan.
3.13 COMPLIANCE WITH OTHER LAWS
Neither BCo nor any BCo Subsidiary is in violation of or in default with
respect to, or in alleged violation of or alleged default with respect to any
other applicable law or any applicable rule or regulation, or any writ or decree
of any court or any governmental commission, board, bureau, agency or
instrumentality, or delinquent with respect to any report required to be filed
with any Governmental Entity, except for violations, defaults and delinquencies
which, either singly or in the aggregate, do not and are not expected to result
in a Material Adverse Effect on BCo.
3.14 TAXES
Except with respect to failures which, in the aggregate, would not result
in a Material Adverse Effect on BCo, proper and accurate federal, provincial,
state and local income, capital, withholding, value added, sales, use,
franchise, gross revenue, turnover, excise, payroll, property, employment,
customs duties and any and all other tax returns, reports, and estimates have
been filed with appropriate governmental agencies, domestic and foreign, by BCo
and each of the BCo Subsidiaries for each period for which any returns, reports,
or estimates were due (taking into account any extensions of time to file before
the date hereof); all taxes shown by such returns to be payable and any other
taxes due and payable have been paid other than those being contested in good
faith by BCo or a BCo Subsidiary; and the tax provision reflected in BCo's
financial statements is adequate, in accordance with United States or Canadian
(if applicable) generally accepted accounting principles, to cover liabilities
of BCo and the BCo Subsidiaries for all taxes, including any interest, penalties
and additions to taxes of any character whatsoever applicable to BCo and the BCo
Subsidiaries or their assets or businesses. Neither BCo nor any BCo Subsidiary
has received any notice of reassessment from Revenue Canada or Alberta Corporate
Tax Administration that would result in a Material Adverse Effect on BCo. There
are no tax liens on any assets of BCo or the BCo Subsidiaries except for taxes
not yet currently due and those which could not reasonably be expected to result
in a Material Adverse Effect on BCo.
3.15 VOTE REQUIRED
At a stockholders meeting at which a quorum is present, the affirmative
vote of the holders of a majority of the issued and outstanding shares of BCo
Common Stock is necessary to approve the issuance of the shares of BCo Common
Stock issuable upon exchange of the Exchangeable Shares being issued pursuant to
the Plan of Arrangement.
3.16 BROKERS AND FINDERS
Other than Morgan Stanley & Co. Incorporated, none of BCo or any of the BCo
Subsidiaries nor any of their respective directors, officers or employees has
employed any broker or finder or incurred any liability for any financial
advisory fees, brokerage fees, commissions or similar payments in connection
with the transactions contemplated by this Agreement.
3.17 DISCLOSURE
No representation or warranty made by BCo in this Agreement or the BCo
Disclosure Letter, nor any document, written information, statement, financial
statement, certificate or Exhibit prepared and furnished or to be prepared and
furnished by BCo or its representatives pursuant hereto or in connection with
the transactions contemplated hereby, when taken together, contains or contained
(as of the date made) any untrue statement of a material fact when made, or
omits or omitted (as of the date made) to state a material fact necessary to
make the
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statements or facts contained herein or therein not misleading, in any material
way, in light of the circumstances under which they were made.
3.18 FAIRNESS OPINION
BCo's board of directors has received an opinion, as of August 16, 1999
(and have been advised that they will receive a written opinion) from Morgan
Stanley & Co. Incorporated that the Exchange Ratio is fair from a financial
point of view to BCo (the "BCo Fairness Opinion").
3.19 RESTRICTIONS ON BUSINESS ACTIVITIES
There is no material agreement, judgment, injunction, order or court decree
binding upon BCo or any BCo Subsidiary that has or could reasonably be expected
to have the effect of prohibiting or materially impairing any current business
practice of BCo or any BCo Subsidiary, any acquisition of property by BCo or any
BCo Subsidiary or the conduct of any current business by BCo or any BCo
Subsidiary.
3.20 YEAR 2000
BCo has initiated a review of the implications of the Year 2000 on its
business and processes, including an evaluation of key operating and information
systems, field operations and third parties and confirms the public disclosure
provided by it in respect thereof.
3.21 BOOKS AND RECORDS
The books, records and accounts of BCo and the BCo Subsidiaries (a) have
been maintained in accordance with good business practices on a basis consistent
with prior years, (b) are stated in reasonable detail and accurately and fairly
reflect the transactions and dispositions of the assets of BCo and the BCo
Subsidiaries and (c) accurately and fairly reflect the basis for the BCo
financial statements. BCo has devised and maintains a system of internal
accounting controls sufficient to provide reasonable assurances that (a)
transactions are executed in accordance with management's general or specific
authorization; and (b) transactions are recorded as necessary (i) to permit
preparation of financial statements in conformity with United States generally
accepted accounting principles or any other criteria applicable to such
statements and (ii) to maintain accountability for assets.
3.22 BCO SUB
BCo Sub will be incorporated solely for the purpose of participating in the
transactions contemplated herein, will carry on no other business, and, except
as contemplated herein, will not have any liabilities or obligations, either
accrued, absolute, contingent or otherwise as of the Effective Date.
ARTICLE 4
OBLIGATIONS PENDING EFFECTIVE DATE
4.1 AGREEMENTS OF BCO AND PCO
BCo and PCo agree to take the following actions after the date hereof:
(a) Each party will promptly execute and file or join in the execution
and filing of any application or other document that may be necessary in order
to obtain the authorization, approval or consent of any Governmental Entity
which may be reasonably required, or which the other party may reasonably
request, in connection with the consummation of the transactions contemplated by
this Agreement. Each party will use its reasonable best efforts to promptly
obtain such authorizations, approvals and consents. Without limiting the
generality of the foregoing, as promptly as practicable after the execution of
this Agreement, each party shall make any required filings under the HSR Act and
shall make such filings as are necessary under the Investment Canada Act and the
Competition Act (Canada);
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(b) Each party will allow the other and its agents reasonable access to
the files, books, records, offices and officers of itself and its subsidiaries,
including any and all information relating to such party's tax matters,
contracts, leases, licenses and real, personal and intangible property and
financial condition. Each party will cause its accountants to cooperate with the
other in making available to the other party all financial information
reasonably requested, including the right to examine all working papers
pertaining to tax matters and financial statements prepared or audited by such
accountants. Notwithstanding the foregoing, except as expressly provided for
herein, neither party shall be obligated to make available to the other any of
their respective board of directors' materials relating to the assessment or
evaluation of the transactions contemplated hereby or any alternative
transactions nor any information supplied by any of their respective officers,
directors, employees, financial advisors, legal advisors, representatives and
agents in connection therewith.
(c) BCo and PCo shall cooperate in the preparation and prompt filing by
BCo of the Joint Proxy Statement and the Registration Statement with the SEC;
(d) Each of BCo and PCo will promptly notify the other in writing (i) of
any event occurring subsequent to the date of this Agreement which would render
any representation and warranty of such party contained in this Agreement untrue
or inaccurate in any material respect; (ii) of any event, change or effect
having a Material Adverse Effect on such party; and (iii) of any breach by such
party of any material covenant or agreement contained in this Agreement;
(e) During the term of this Agreement, each of BCo and PCo will use its
reasonable best efforts to satisfy or cause to be satisfied as soon as
reasonably practicable all the conditions precedent that are set forth in
Article 5 hereof, and each of BCo and PCo will use its reasonable best efforts
to cause the Arrangement and the other transactions contemplated by this
Agreement to be consummated as soon as reasonably practicable;
(f) Each of BCo and PCo covenants and agrees that it will use its
reasonable best efforts (including, without limitation, investigations and
consultations with its professional advisors) such that it and its affiliates
will not take or agree to take any action that would prevent BCo from accounting
for the business combination to be effected by the Arrangement as a pooling of
interests in accordance with the United States generally accepted accounting
principles and applicable rules and regulations of the SEC and each of PCo and
BCo agrees to consult with the other and with their respective independent
accountants concerning any potential transaction or other matter or action that
might have such effect forthwith upon such potential transaction, matters or
actions having been identified (after having made all its reasonable best
efforts to make such identification); and
(g) BCo and PCo shall use reasonable best efforts to obtain from
PricewaterhouseCoopers LLP and KPMG LLP on or before August 16, 1999 (and a
re-confirmation thereof on or before the Effective Date) opinions, in form and
substance satisfactory to BCo and PCo, acting reasonably, that the Arrangement
will be treated as a "pooling of interests" for accounting purposes.
4.2 ADDITIONAL AGREEMENTS OF PCO
PCo agrees that, except as expressly contemplated by this Agreement or as
otherwise agreed to in writing by BCo or as set forth in the PCo Disclosure
Letter, from the date hereof to the Effective Date it will, and will cause each
of the PCo Subsidiaries to:
(a) Other than as contemplated by this Agreement, operate its business
only in the usual, regular and ordinary manner and, to the extent consistent
with such operation, use all commercially reasonable efforts to preserve intact
its present business organization, keep available the services of its present
officers and employees, and preserve its relationships with customers,
suppliers, distributors and others having business dealings with it;
(b) Maintain all of its property and assets in customary repair, order,
and condition, reasonable wear and use and damage by fire or unavoidable
casualty excepted;
(c) Maintain its books of account and records in the usual, regular and
ordinary manner, in accordance with generally accepted accounting principles
applied on a consistent basis;
(d) Duly comply in all material respects with all laws applicable to it
and to the conduct of its business;
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(e) Not: (i) enter into any contracts of employment which: (A) cannot be
terminated on notice of 60 days or less; or (B) provide for any severance
payments or benefits covering a period beyond the termination date of such
employment contract, except as may be required by law; or (ii) amend any
employee benefit plan or stock option plan, except as may be required for
compliance with this Agreement or applicable law;
(f) Not incur any borrowings except: (i) the refinancing of indebtedness
now outstanding or additional borrowings under its existing revolving credit
facilities; (ii) the prepayment by customers of amounts due or to become due for
goods sold or services rendered or to be rendered in the future; (iii) trade
payables incurred in the ordinary course of business; or (iv) other borrowings
incurred in the ordinary course of business to finance normal operations;
(g) Not enter into commitments of a capital expenditure nature or incur
any contingent liability which would exceed $7.5 million individually or on a
project basis and in aggregate in accordance with the 1999 capital budget of
PCo, a copy of which has been provided to BCo (and PCo shall not amend such
budget), except: (i) as may be necessary for the maintenance of existing
facilities, machinery and equipment in good operating condition and repair in
the ordinary course of business; or (ii) as may be required by law;
(h) Not sell, dispose of, or encumber, any property or assets, except for
sales, dispositions or Encumbrances in the ordinary course of business
consistent with prior practice;
(i) Maintain insurance upon all its properties and with respect to the
conduct of its business of such kinds and in such amounts as is customary in the
type of business in which it is engaged, but not less than that presently
carried by it;
(j) Not amend its charter documents or bylaws or other organizational
documents or merge or consolidate with or into any other corporation or change
in any manner the rights of its capital stock or the character of its business;
(k) Not issue or sell (except upon the exercise of outstanding options
and pursuant to the Savings Plan), or issue options or rights to subscribe to,
or enter into any contract or commitment to issue or sell, any shares of its
capital stock or subdivide or in any way reclassify any shares of its capital
stock, or acquire, or agree to acquire, any shares of its capital stock;
(l) Not declare or pay any dividend on shares of its capital stock or
make any other distribution of assets to the holders thereof;
(m) Deliver to BCo, within 30 days after the end of each fiscal quarter of
PCo beginning September 30, 1999, and through the Effective Date, unaudited
consolidated balance sheets and related unaudited statements of income and
changes in financial position as of the end of each fiscal quarter of PCo, and
as of the corresponding fiscal quarter of the previous fiscal year. PCo hereby
represents and warrants that such unaudited consolidated financial statements
shall (i) be complete in all material respects except for the omission of notes
and schedules contained in audited financial statements, (ii) present fairly in
all material respects the financial condition of PCo as at the dates indicated
and the results of operations for the respective periods indicated, (iii) shall
have been prepared in accordance with Canadian generally accepted accounting
principles applied on a consistent basis, except as noted therein and (iv) shall
contain all adjustments which PCo considers necessary for a fair presentation of
its results for each respective fiscal period;
(n) PCo shall immediately cease and cause to be terminated any existing
solicitation, initiation, encouragement, activity, discussion or negotiation
with any parties conducted heretofore by PCo, any PCo Subsidiary or their
officers, directors, employees, financial advisors, representatives and agents
("Representatives") with respect to an Acquisition Proposal (as defined herein)
whether or not initiated by PCo and in connection therewith, PCo shall exercise
all rights to require the return of information regarding PCo previously
provided to such parties and shall exercise all rights to require the
destruction of all materials including or incorporating any information
regarding PCo. From and after the date hereof, PCo and the PCo Subsidiaries will
not, and will not authorize or permit any of their Representatives to, directly
or indirectly, solicit, initiate or encourage (including by way of furnishing
information) or participate in or take any other action to facilitate any
inquiries or the making of any proposal which constitutes or may reasonably be
expected to lead to an
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Acquisition Proposal from any person, or engage in any discussion, negotiations
or inquiries relating thereto or accept any Acquisition Proposal; provided,
however, that notwithstanding any other provision hereof, PCo may at any time
prior to the time PCo's shareholders shall have voted to approve the Plan of
Arrangement and the other transactions contemplated thereby (i) engage in
discussions or negotiations with a third party who (without any solicitation,
initiation or encouragement, directly or indirectly, by PCo, any PCo Subsidiary
or the Representatives after the date hereof) seeks to initiate such discussions
or negotiations and may furnish such third party information concerning PCo and
its business, properties and assets which has previously been provided to BCo
if, and only to the extent that: (A) the third party has first made a bona fide
written Acquisition Proposal that is demonstrably financially superior to the
transactions contemplated by this Agreement and has demonstrated that the funds
or other consideration necessary for the Acquisition Proposal are available (as
determined in good faith in each case by PCo's board of directors after
receiving the written advice of its financial advisors) and is not subject to
any due diligence conditions other than confirmatory due diligence (a "Superior
Proposal") and PCo's board of directors has concluded in good faith, after
considering applicable law and receiving the written advice of outside counsel
that such action is necessary for the PCo board of directors to act in a manner
consistent with fiduciary duties under applicable law; (B) prior to furnishing
such information to or entering into discussions or negotiations with such
person or entity, PCo provides prompt notice orally and in writing to BCo
specifying the identity of such person or entity and that it is furnishing
information to or entering into discussions or negotiations with such person or
entity in respect to a Superior Proposal and receives from such person or entity
an executed confidentiality agreement having confidentiality and standstill
terms substantially similar to those contained in the confidentiality agreement
executed by BCo (other than the exclusivity provisions contained therein),
providing full details forthwith, and in any event within 24 hours, of all
material terms and conditions of such Superior Proposal and any amendments
thereto and confirming in writing the determination of PCo's board that the
Acquisition Proposal constitutes a Superior Proposal; (C) PCo provides notice
forthwith and in any event within 24 hours to BCo at such time as it is
terminating any such discussions or negotiations with such person or entity; and
(D) PCo promptly provides to BCo any information provided to any such person or
entity whether or not previously made available to BCo, (ii) comply with Rules
14d-9 and 14e-2 promulgated under the Exchange Act with regard to a tender or
exchange offer, if applicable, and similar rules under applicable Canadian
securities laws relating to the provision of directors' circulars, and make
appropriate disclosure with respect thereto to PCo's shareholders and (iii)
accept, recommend, approve or implement a Superior Proposal from a third party,
but only (in the case of this clause (iii)) if prior to such acceptance,
recommendation, approval or implementation, PCo's board of directors shall have
concluded in good faith, after considering provisions of applicable law and
after giving effect to all proposals to adjust the terms and conditions of this
Agreement and the Arrangement which may be offered by BCo during the five day
notice period set forth below and after receiving the written advice of outside
counsel, that such action is necessary for the PCo board of directors to act in
a manner consistent with fiduciary duties under applicable law and PCo
terminates this Agreement in accordance with Sections 6.1(i) and 6.4 and
concurrently therewith has paid the fees payable thereunder. PCo shall give BCo
orally and in writing at least five days advance notice of any decision by the
Board of PCo to accept, recommend, approve or implement a Superior Proposal
which notice shall identify the party making the Superior Proposal and shall
provide full details of all material terms and conditions thereof and any
amendments thereto. PCo shall inform BCo of the status (including all terms and
conditions thereof) of any discussions and negotiations with such party. In
addition PCo shall, and shall cause its respective financial and legal advisors
to, negotiate in good faith with BCo to make such adjustments in the terms and
conditions of this Agreement and of the Plan of Arrangement as would enable PCo
to proceed with the transactions contemplated hereby. Prior to executing any
agreement to implement a Superior Proposal, PCo shall provide BCo with copies of
such final documentation executed by the party making the Superior Proposal. In
the event BCo proposes to amend this Agreement and the Arrangement to provide
equivalent value as is provided under the Superior Proposal, then PCo shall not
enter into any agreement regarding the Superior Proposal. As used herein,
"Acquisition Proposal" shall mean a proposal or offer (other than by BCo),
whether or not subject to a due diligence condition, whether or not in writing,
to acquire in any manner, directly or indirectly, beneficial ownership (as
defined under Rule 13(d) of the Exchange Act) of all or a material portion of
the assets of PCo or any material PCo Subsidiary or to acquire in any manner,
directly or indirectly, more than 9.9% (and for the purposes of Section 6.4(c),
20%) of the outstanding voting shares of PCo whether by an arrangement,
amalgamation, a merger, consolidation or other business combination, by means of
a sale of shares of capital stock, sale of assets, tender offer or exchange
offer or similar transaction
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involving PCo or any material PCo Subsidiary including without limitation any
single or multi-step transaction or series of related transactions which is
structured to permit such third party to acquire beneficial ownership of all or
a material portion of the assets of PCo or any material PCo Subsidiary or to
acquire in any manner, directly or indirectly, more than 9.9% (and for the
purposes of Section 6.4(c), 20%) of the outstanding voting shares of PCo (other
than the transactions contemplated by this Agreement).
4.3 ADDITIONAL AGREEMENTS OF BCO
BCo agrees that, except as expressly contemplated by this Agreement or
otherwise agreed to in writing by PCo or as set forth in the BCo Disclosure
Letter, from the date hereof to the Effective Date it will, and will cause each
of the BCo Subsidiaries to:
(a) Refrain from taking any action which would be reasonably likely to
prevent or materially delay the consummation of the Arrangement and the other
transactions contemplated by this Agreement; and
(b) Use its reasonable best efforts to cause: (i) the shares of BCo
Common Stock to be issued from time to time after the Effective Time upon
exchange of the Exchangeable Shares to be listed upon the Closing on the NYSE;
and (ii) with the cooperation and assistance of PCo, the Exchangeable Shares to
be listed on the TSE or, in the event that a listing on the TSE is not
available, on another recognized Canadian stock exchange.
4.4 PUBLIC ANNOUNCEMENTS
Neither BCo nor PCo, nor any of their respective affiliates, shall issue or
cause the publication of any press release or other public announcement with
respect to this Agreement, the Arrangement or the other transactions
contemplated hereby without the prior notice to and the opportunity for review
by the other party, except as may be required by law or by any listing agreement
with a national securities exchange or Canadian stock exchange.
4.5 COMFORT LETTERS
(a) Upon request of BCo, PCo shall use its reasonable best efforts to
cause to be delivered to BCo a letter (the "PCo Comfort Letter") of KPMG LLP,
Chartered Accountants, addressed to BCo and dated as of a date within five days
before the earlier of (i) the date the Joint Proxy Statement is first mailed to
each company's respective securityholders; and (ii) if a Registration Statement
is required, the date on which the Registration Statement shall become
effective, in form and substance reasonably satisfactory to BCo and customary in
scope and substance for "comfort" letters delivered by independent public
accountants in connection with proxy statements and registration statements
similar to the Joint Proxy Statement and the Registration Statement.
(b) Upon request of PCo, BCo shall use its reasonable best efforts to
cause to be delivered to PCo a letter (the "BCo Comfort Letter") of
PricewaterhouseCoopers LLP, Independent Accountants, addressed to PCo and dated
as of a date within five days before the earlier of (i) the date the Joint Proxy
Statement is first mailed to each company's respective securityholders; and (ii)
if a Registration Statement is required, the date on which the Registration
Statement shall become effective, in form and substance reasonably satisfactory
to PCo and customary in scope and substance for "comfort" letters delivered by
independent public accountants in connection with proxy statements and
registration statements similar to the Joint Proxy Statement and the
Registration Statement.
4.6 EMPLOYEE STOCK PURCHASE SAVINGS PLAN
PCo shall, on or before the Effective Date, amend or terminate the Savings
Plan in a manner satisfactory to BCo, acting reasonably, such that there shall
be no continuing obligations to issue PCo Common Shares.
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ARTICLE 5
CONDITIONS PRECEDENT TO OBLIGATIONS
5.1 CONDITIONS PRECEDENT TO OBLIGATIONS OF EACH PARTY
The obligations of each party to consummate and effect the transactions
contemplated hereunder shall be subject to the satisfaction or waiver on or
before the Effective Date of the following conditions:
(a) Securityholder Approval. The Arrangement and the other transactions
contemplated hereby shall have been approved and adopted by the PCo
securityholders in accordance with applicable law and PCo's Articles of
Amalgamation and bylaws, and PCo shall not have received on or prior to the
Effective Time notice from the holders of more than 5% of the issued and
outstanding PCo Common Shares and PCo Options, in aggregate, of their intention
to exercise their rights of dissent under section 184 of the ABCA. In addition,
the matters referred to in Section 7.1 shall have been approved by the holders
of shares of the BCo Common Stock in accordance with the rules of the NYSE,
applicable law and BCo's Certificate of Incorporation and bylaws;
(b) No Legal Action. No temporary restraining order, preliminary
injunction or permanent injunction or other order preventing the consummation of
the Arrangement shall have been issued by any Governmental Entity and remain in
effect, nor shall any proceeding seeking any of the foregoing be pending. There
shall be no order, decree or ruling by any governmental agency or threat
thereof, or any statute, rule, regulation or order enacted, entered, enforced or
deemed applicable to the Arrangement, which would prohibit or render illegal the
transactions contemplated by this Agreement;
(c) Court Approval. The Court shall have issued its final order
approving the Arrangement in form and substance reasonably satisfactory to BCo
and PCo (such approvals not to be unreasonably withheld or delayed by BCo or
PCo) and reflecting the terms hereof;
(d) Commissions, etc. All required orders shall have been obtained from
the Commissions and other relevant United States and Canadian securities
regulatory authorities in connection with the Arrangement. All waiting periods
required by HSR shall have expired with respect to the transactions contemplated
by this Agreement, or early termination with respect thereto shall have been
obtained, without the imposition of any governmental request or order requiring
the sale or disposition or holding separate (through a trust or otherwise) of a
material portion of the assets or businesses of PCo or BCo. BCo and PCo shall
each have filed all notices and information (if any) required under Part IX of
the Competition Act (Canada) and the applicable waiting periods and any
extensions thereof shall have expired or the parties shall have received an
Advance Ruling Certificate pursuant to Section 102 of the Competition Act
(Canada) setting out that the Director under such Act is satisfied he would not
have sufficient grounds on which to apply for an order in respect of the
Arrangement. The Arrangement shall have received the allowance or approval or
deemed allowance or approval by the responsible Minister under the Investment
Canada Act in respect of the Arrangement, to the extent such allowance or
approval is required, on terms and conditions satisfactory to the parties;
(e) SEC Matters. The Registration Statement shall have been declared
effective under the Securities Act on or before the Effective Date, and at its
effective date and on the Closing Date the Registration Statement shall not be
the subject of any stop-order or proceedings seeking a stop-order, and the Joint
Proxy Statement shall, on the Closing Date, not be subject to any similar
proceedings commenced or threatened by the SEC or the Commissions; and
(f) Listings. The BCo Common Stock to be issued from time to time after
the Effective Time upon exchange of the Exchangeable Shares shall have been
approved for listing on the NYSE, and the Exchangeable Shares shall be listed on
the TSE or, in the absence of a listing on the TSE, on another recognized
Canadian stock exchange.
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5.2 CONDITIONS PRECEDENT TO OBLIGATIONS OF PCO
The obligations of PCo to consummate and effect the transactions
contemplated hereunder shall be subject to the satisfaction or waiver on or
before the Effective Date of the following conditions:
(a) Representations and Warranties. The representations and warranties
of BCo contained in this Agreement shall be true and correct on the date hereof
and (except to the extent such representations and warranties speak as of a date
earlier than the date hereof and except to give effect to the issuance of shares
of BCo Common Stock on exercise of outstanding options or on exercise of options
granted as permitted hereunder or pursuant to rights under the BCo Rights
Agreement or the grant of options to purchase shares of BCo Common Stock as
permitted hereunder) shall also be true and correct on and as of the Effective
Date, with the same force and effect as if made on and as of the Effective Date
except, where the failure of such representations and warranties to be true and
correct would not have a Material Adverse Effect on BCo;
(b) Covenants. BCo shall have performed and complied in all material
respects with all covenants required by this Agreement to be performed or
complied with by BCo on or before the Effective Date;
(c) Certificate. BCo shall have delivered to PCo a certificate, dated
the Effective Date and signed by its chief executive officer and its chief
financial officer, to the effect set forth in Sections 5.2(a) and (b); and
(d) Affiliates Agreements. BCo shall have furnished copies to PCo of the
BCo affiliates agreements referred to Section 7.6(a).
5.3 CONDITIONS PRECEDENT TO OBLIGATIONS OF BCO
The obligations of BCo to consummate and effect the transactions
contemplated hereunder shall be subject to the satisfaction or waiver on or
before the Effective Date of the following conditions:
(a) Representations and Warranties. The representations and warranties
of PCo contained in this Agreement shall be true and correct on the date hereof
and (except to the extent such representations and warranties speak as of a date
earlier than the date hereof and except to give effect to the issuance of PCo
Common Shares on exercise of outstanding options or on exercise of options
granted as permitted hereunder and the issuance of PCo Common Shares pursuant to
the Savings Plan) shall also be true and correct on and as of the Effective
Date, with the same force and effect as if made on and as of the Effective Date
except, where the failure of such representations and warranties to be true and
correct would not have a Material Adverse Effect on PCo;
(b) Covenants. PCo shall have performed and complied in all material
respects with all covenants required by this Agreement to be performed or
complied with by PCo on or before the Effective Date;
(c) Certificate. PCo shall have delivered to BCo a certificate, dated
the Effective Date and signed by its chief executive officer and its chief
financial officer, to the effect set forth in Sections 5.3(a) and (b);
(d) Affiliates Agreements. PCo shall have furnished copies to BCo of the
PCo affiliates agreements referred to Section 7.6(a); and
(e) Consents of Certain Parties in Privity with PCo. BCo shall have
received all written consents, assignments, waivers, authorizations or other
certificates, if any, necessary to provide for the continuation in full force
and effect of all material contracts and leases of PCo and for PCo to consummate
the transactions contemplated hereby, except when the failure to receive such
consents or other certificates would not have a Material Adverse Effect on PCo.
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ARTICLE 6
TERMINATION
6.1 TERMINATION
This Agreement may be terminated at any time prior to the Effective Time,
whether before or after approval of the transactions contemplated hereby by the
securityholders entitled to vote of BCo or PCo, as follows:
(a) by mutual agreement of PCo and BCo;
(b) by PCo, if there has been a breach by BCo of any representation,
warranty, covenant or agreement set forth in this Agreement on the part of BCo,
or if any representation or warranty of BCo shall have become untrue, in either
case which has or is reasonably expected to have a Material Adverse Effect on
BCo, and which BCo fails to cure within 15 business days after written notice
thereof from PCo (except that no cure period shall be provided for a breach by
BCo which by its nature cannot be cured and in no event shall such cure period
extend beyond the Termination Date);
(c) by BCo, if there has been a breach by PCo of any representation,
warranty, covenant or agreement set forth in this Agreement on the part of PCo,
or if any representation or warranty of PCo shall have become untrue, in either
case which has or is reasonably expected to have a Material Adverse Effect on
PCo, and which PCo fails to cure within 15 business days after written notice
thereof from BCo (except that no cure period shall be provided for a breach by
PCo which by its nature cannot be cured and in no event shall such cure period
extend beyond the Termination Date);
(d) by either party, if all the conditions for Closing the Arrangement
for the benefit of such party shall not have been satisfied or waived on or
before 5:00 p.m., Calgary, Alberta time on March 31, 2000 (the "Termination
Date"), other than as a result of a breach of this Agreement by the terminating
party;
(e) by either party: (i) if the securityholders of PCo do not approve the
Arrangement (and the other matters to be approved at such meeting as provided in
Section 7.1 hereof) at the PCo Shareholders Meeting; or (ii) if the stockholders
of BCo do not approve at the BCo Stockholders Meeting the issuance of BCo Common
Stock issuable upon the exchange of the Exchangeable Shares;
(f) by either party if a final and non-appealable order shall have been
entered in any action or proceeding before any Governmental Entity that prevents
or makes illegal the consummation of the Arrangement;
(g) by PCo if the BCo board of directors or any committee of the BCo
board of directors shall withdraw or modify in any adverse manner its approval
or recommendation of this Agreement, the Arrangement and the other transactions
contemplated hereby;
(h) by BCo if the PCo board of directors or any committee of the PCo
board of directors shall (i) withdraw or modify in any adverse manner its
approval or recommendation in respect of this Agreement, the Arrangement and the
other transactions contemplated hereby or (ii) fails to reaffirm its approval or
recommendation upon request, from time to time, by BCo to do so or upon an
Acquisition Proposal in respect of PCo being publicly announced or is proposed,
offered or made to the PCo Shareholders or to PCo (such reaffirmation to be made
within 10 days of such request being made or such Acquisition Proposal being
publicly announced, proposed, offered or made or immediately prior to the
meeting of PCo Shareholders, whichever occurs first); or
(i) by PCo, prior to the approval of this Agreement, the Arrangement and
the other transactions contemplated hereby by the securityholders of PCo if, as
a result of a Superior Proposal by a party other than BCo or any of its
affiliates, PCo's board of directors determines in accordance with Section
4.2(n) to accept, recommend, approve or implement such Superior Proposal and has
otherwise complied with the provisions of Section 4.2(n) and Section 6.4.
6.2 NOTICE OF TERMINATION
Any termination of this Agreement under Section 6.1 above will be effected
by the delivery of written notice by the terminating party to the other party
hereto.
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6.3 EFFECT OF TERMINATION
Subject to Section 6.4, in the event of termination of this Agreement by
either PCo or BCo pursuant to Section 6.1, this Agreement shall forthwith become
void and have no effect, and there shall be no liability or obligation on the
part of BCo or PCo or their respective officers or directors, except that: (i)
the provisions of Section 6.4(c) shall survive such termination; (ii) the
provisions of the Confidentiality Agreement dated July 30, 1999 shall survive
any such termination; and (iii) no party shall be released or relieved from any
liability arising from the willful breach by such party of any of its
representations, warranties, covenants or agreements as set forth in this
Agreement.
6.4 TERMINATION FEE
(a) If this Agreement is terminated (i) by PCo pursuant to Section
6.1(b), or (ii) by either party pursuant to Section 6.1(e)(ii), then BCo shall
pay to PCo a cash termination fee of $7 million at the time of such termination.
(b) If this Agreement is terminated: (i) by BCo pursuant to Section
6.1(c); or (ii) by either party pursuant to Section 6.1(e)(i) (and Section
6.4(c) is not applicable), then PCo shall pay to BCo a cash termination fee of
$7 million at the time of such termination.
(c) If: (x) an Acquisition Proposal in respect of PCo is publicly
announced or is proposed, offered or made to the PCo Shareholders or to PCo; (y)
this Agreement is terminated by either party pursuant to Section 6.1(e)(i); and
(z) within 12 months following such termination PCo enters into, directly or
indirectly, an agreement, commitment or understanding with respect to an
Acquisition Proposal or an Acquisition Proposal is consummated, then PCo shall
pay to BCo a cash termination fee of $61 million, payable immediately upon
satisfaction of the requirements contained in (x), (y) and (z).
(d) If this Agreement is terminated by PCo pursuant to Section 6.1(i),
then PCo shall pay to BCo upon such termination a cash termination fee of $68
million at the time of such termination.
(e) If this Agreement is terminated by BCo pursuant to Section 6.1(h),
then PCo shall pay to BCo upon such termination a cash termination fee of $68
million at the time of such termination.
(f) If this Agreement is terminated by PCo pursuant to Section 6.1(g)
then BCo shall pay to PCo upon such termination a cash termination fee of $68
million at the time of such termination.
(g) BCo and PCo each agree that the agreements contained in Sections
6.4(a) through 6.4(f) are an integral part of the transactions contemplated by
this Agreement. If either party fails to promptly pay the other party any fee
due under such Sections 6.4(a) through 6.4(f), it shall pay the other party's
costs and expenses (including legal fees and expenses) in connection with any
action, including the filing of any lawsuit or other legal action, taken to
collect payment, together with interest on the amount of any unpaid fee at the
publicly announced prime rate of Canadian Imperial Bank of Commerce from the
date such fee was first due.
ARTICLE 7
ADDITIONAL AGREEMENTS
BCo and PCo each agree to take the following actions after the execution of
this Agreement.
7.1 MEETINGS
PCo and BCo shall each duly call a meeting of its securityholders entitled
to vote to be held within 45 days after the SEC has indicated that it has no
further comments on the Joint Proxy Statement for the purpose of (a) in the case
of PCo, voting upon the Plan of Arrangement and the transactions contemplated
hereby and thereby; and (b) in the case of BCo, voting upon a proposal to
approve the issuance of such number of shares of BCo Common Stock as are
necessary to consummate the Arrangement including those issuable on the exchange
of the Exchangeable Shares, and each shall, through its board of directors,
recommend to its securityholders in the Joint Proxy Statement approval of such
matters and shall coordinate and cooperate with respect to the timing of such
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meetings. Each party may only change such recommendation in the event that the
board of directors of such party concludes, in good faith, after receiving the
written advice of outside counsel that such action is necessary for the board of
directors to act in a manner consistent with its fiduciary duty. The meetings of
securityholders of PCo and BCo will be called for the same day at such times as
will result in the completion of the BCo Stockholders Meeting prior to the
commencement of the PCo Shareholders Meeting.
7.2 THE CLOSING
Subject to the termination of this Agreement as provided in Article 6, the
Closing of the transactions contemplated by this Agreement (the "Closing") will
take place at the offices of Bennett Jones, 4500 Bankers Hall East, 855 - 2nd
Street S.W., Calgary, Alberta, T2P 4K7 on a date (the "Closing Date") and at a
time to be mutually agreed upon by the parties, which date shall be no later
than the first business day after all conditions to Closing set forth herein
shall have been satisfied or waived, unless another place, time and date is
mutually selected by PCo and BCo. Each of BCo and PCo hereby agree to use their
reasonable best efforts to cause their respective Canadian and United States
legal counsel to render opinions, dated as of the Effective Date, in respect of
such matters related to the transactions contemplated by this Agreement and the
Arrangement as may be reasonably requested by the other party. Concurrently with
the Closing, the Plan of Arrangement will be filed with the Registrar under the
ABCA.
7.3 ANCILLARY DOCUMENTS/RESERVATION OF SHARES
(a) Provided all other conditions of this Agreement have been satisfied
or waived, PCo shall, on the Closing Date, file Articles of Arrangement pursuant
to Section 186 of the ABCA to give effect to the Plan of Arrangement.
(b) On the Effective Date:
(i) BCo and BCo Sub shall execute and deliver a Support Agreement
containing the terms and conditions set forth in Exhibit C,
together with such other terms and conditions as may be agreed to
by the parties hereto acting reasonably; and
(ii) BCo, BCo Sub and a Canadian trust company to be mutually
agreeable to BCo and PCo, acting reasonably, shall execute and
deliver a Voting and Exchange Trust Agreement containing the terms
and conditions set forth in Exhibit D, together with such other
terms and conditions as may be agreed to by the parties hereto
acting reasonably.
(c) On or before the Effective Date, BCo will reserve for issuance such
number of shares of BCo Common Stock as shall be necessary to give effect to the
exchanges of options contemplated hereby.
7.4 EXCHANGE OF OPTIONS
Promptly after the Effective Time, BCo will notify in writing each holder
of a PCo Option of the exchange of such PCo Option for an option to purchase BCo
Common Stock in accordance with the Plan of Arrangement.
7.5 INDEMNIFICATION AND RELATED MATTERS
(a) BCo agrees that all rights to indemnification existing in favor of
the present or former directors and officers of PCo (as such) or any of the PCo
Subsidiaries or present or former directors and officers (as such) of PCo or any
of the PCo Subsidiaries serving or who served at PCo's or any of the PCo
Subsidiaries' request as a director, officer, employee, agent or representative
of another corporation, partnership, joint venture, trust, employee benefit plan
or other enterprise (each such present or former director or officer of PCo or
any of the PCo Subsidiaries, an "Indemnified Party"), as provided by contract or
in PCo's charter or bylaws or similar documents of any of the PCo Subsidiaries
in effect as of the date hereof with respect to matters occurring prior to the
Effective Time, shall survive and shall continue in full force and effect and
without modification for a period of not less than the statutes of limitations
applicable to such matters.
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(b) From and after the Effective Time, BCo and PCo, jointly and
severally, shall and BCo shall cause PCo to indemnify and hold harmless to the
fullest extent permitted under the ABCA, each Indemnified Party against any
costs and expenses (including reasonable attorney's fees), judgments, fines,
losses, claims and damages and liabilities, and amounts paid in settlement
thereof with the consent of the indemnifying party, such consent not to be
unreasonably withheld, in connection with any actual or threatened claim,
action, suit, proceeding or investigation that is based on, or arises out of,
the fact that such person is or was a director or officer of PCo or any PCo
Subsidiary (including without limitation with respect to any of the transactions
contemplated hereby or the Arrangement) or who is serving or who served at PCo's
or any of the PCo Subsidiaries' request as a director, officer, employee, agent
or representative of another corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise. In the event of any such claim,
action, suit, proceeding or investigation, BCo shall cause PCo to pay the
reasonable fees and expenses of counsel in advance of the final disposition of
any such claim, action, suit, proceeding or investigation to the fullest extent
permitted by law subject to the limitations imposed by the ABCA. Without
limiting the foregoing, in the event any such claim, action, suit, proceeding or
investigation is brought against any Indemnified Parties, (i) the Indemnified
Parties may retain counsel reasonably satisfactory to BCo and, subject to
limitations imposed by the ABCA, PCo shall (or BCo shall cause PCo to) pay all
reasonable fees and expenses of such counsel for the Indemnified Parties
promptly as statements therefor are received; and (ii) BCo will use all
reasonable efforts to assist in the defense of such matter; provided, however,
that neither PCo nor BCo shall be liable for any settlement effected without its
prior written consent which shall not be unreasonably withheld. Any Indemnified
Party wishing to claim indemnification under this Section 7.5(b), upon learning
of any such claim, action, suit, proceeding or investigation, shall notify BCo
(but the failure to so notify shall not relieve a party from any liability which
it may have under this Section 7.5 (b) unless such failure results in actual
prejudice to such party and then only to the extent of such prejudice). The
Indemnified Parties as a group may retain only one law firm in any jurisdiction
to represent them with respect to each such matter unless such counsel
determines that there is, under applicable standards of professional conduct, a
conflict on any significant issue between the positions of any two or more
Indemnified Parties, in which event additional counsel may be required to be
retained by the Indemnified Parties.
(c) Subject to limitations imposed by the ABCA, provided the Arrangement
becomes effective, PCo shall (or BCo shall cause PCo to) pay all expenses,
including reasonable attorney's fees, as the same may be incurred by any
Indemnified Parties in any action by any Indemnified Party or parties seeking to
enforce the indemnity or other obligations provided for in this Section 7.5;
provided, however, that PCo will be entitled to reimbursement for any advances
made under this Section 7.5 to any Indemnified Party who ultimately proves
unsuccessful in enforcing the indemnity as finally determined by a
non-appealable judgment in a court of competent jurisdiction, and payment of
such expenses in advance of the final disposition of the action shall be made
only upon receipt of any undertaking by the Indemnified Party to reimburse all
amounts advanced if such action ultimately proves unsuccessful.
(d) Provided the Arrangement becomes effective, for a period of six years
after the Effective Date, BCo shall continue in effect director and officer
liability insurance for the benefit of the Indemnified Parties in such amounts,
and with such deductibles, retained amounts, coverages and exclusions as PCo
provides for its own directors and officers at the date hereof.
(e) This Section 7.5, which shall survive the consummation of this
Agreement and the Arrangement, is intended to benefit each person or entity
indemnified hereunder.
7.6 AFFILIATE AGREEMENTS
PCo will use its reasonable best efforts to have its Affiliates sign and
deliver to BCo the PCo Affiliate Agreements in the form of Exhibit E
concurrently with the execution hereof. BCo will use its reasonable best efforts
to have its Affiliates sign and deliver to BCo the BCo Affiliate Agreements in
the form of Exhibit F concurrently with the execution hereof. For purposes of
this Agreement, an "Affiliate" shall have the meaning referred to in SEC
Accounting Series Releases 130 and 135 and in Rule 145 under the Securities Act.
In the event that either BCo or PCo does not succeed in getting its respective
Affiliates to sign and deliver the Affiliate Agreements, such party shall
continue to use its reasonable best efforts to have its Affiliates sign and
deliver the Affiliate Agreements.
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<PAGE> 131
ARTICLE 8
MISCELLANEOUS
8.1 NO SURVIVAL OF REPRESENTATIONS AND WARRANTIES
All representations and warranties of the parties contained in this
Agreement will remain operative and in full force and effect, regardless of any
investigation made by or on behalf of the parties to this Agreement, until the
earlier of the valid termination of this Agreement or the Closing Date,
whereupon such representations and warranties will expire and be of no further
force or effect. All agreements and covenants of the parties shall survive the
Closing Date, except as otherwise set forth in this Agreement.
8.2 NOTICES
All notices and other communications hereunder shall be in writing and
shall be deemed given if delivered personally or by recognized overnight
courier, by facsimile (receipt confirmed) or mailed by certified mail (return
receipt requested) to the parties at the following addresses (or at such other
address for a party as shall be specified by like notice):
(a) if to BCo to: Burlington Resources Inc., 5051 Westheimer, Suite 1400,
Houston, Texas, 77056, Attention: F.J. Plaeger, II, Vice President and General
Counsel, Facsimile No. 713-624-9569, with required copies to Bennett Jones, 4500
Bankers Hall East, 855 - 2nd Street S.W., Calgary, Alberta, T2K 4K7, Attention:
C.P. Spitznagel, Facsimile No. 403-265-7219.
(b) if to PCo to: Poco Petroleums Ltd., 3700 Bow Valley Square IV, 250 -
6th Avenue S.W., Calgary, Alberta, T2P 3H7, Attention: President, Facsimile No.
403-260-8002, with required copies to Burnet, Duckworth & Palmer, 1400, 350 -
7th Avenue S.W., Calgary, Alberta, T2P 3N9, Attention: Grant Zawalsky, Facsimile
No. 403-260-0332.
8.3 INTERPRETATION
When a reference is made in this Agreement to Sections or Exhibits, such
reference shall be to a Section or Exhibit to this Agreement unless otherwise
indicated. The words "include," "includes" and "including" when used therein
shall be deemed in each case to be followed by the words "without limitation."
Any references in this Agreement to "the date hereof" refers to the date of
execution of this Agreement. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
8.4 SEVERABILITY
If any provision of this Agreement or the application thereof to any person
or circumstance is held invalid or unenforceable in any jurisdiction, the
remainder hereof, and the application of such provision to such person or
circumstance in any other jurisdiction or to other persons or circumstances in
any jurisdiction, shall not be affected thereby, and to this end the provisions
of this Agreement shall be severable.
8.5 COUNTERPARTS
This Agreement may be executed in one or more counterparts, all of which
shall be considered one and the same agreement and shall become effective when
one or more counterparts have been signed by each of the parties and delivered
to each of the other parties, it being understood that all parties need not sign
the same counterpart.
8.6 MISCELLANEOUS
This Agreement, which includes the PCo Disclosure Letter, the BCo
Disclosure Letter and the Exhibits hereto and the Confidentiality Agreement
dated July 30, 1999 between BCo and PCo, and any other documents referred to
herein or contemplated hereby (a) constitutes the entire agreement between the
parties with respect to the subject matter hereof and supersede all prior
agreements and understandings, both written and oral, among
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<PAGE> 132
the parties with respect to the subject matter hereof; (b) are not intended to
confer upon any other person any rights or remedies hereunder (except that
Section 7.5 is for the benefit of PCo's directors and officers and is intended
to confer rights on such persons); and (c) shall not be assigned by operation of
law or otherwise except as otherwise specifically provided.
8.7 GOVERNING LAW
This Agreement shall be governed by and construed in accordance with the
laws of the Province of Alberta (regardless of the laws that might otherwise
govern under applicable principles of conflicts of law) as to all matters,
including without limitation validity, construction, effect, performance and
remedies.
8.8 AMENDMENT AND WAIVERS
Any term or provision of this Agreement may be amended, and the observance
of any term of this Agreement may be waived (either generally or in a particular
instance and either retroactively or prospectively) only by a writing signed by
the party to be bound thereby which writing expressly refers to this Agreement
and the operation of the provisions of this Section 8.8. The waiver by a party
of any breach hereof or default in the performance hereof will not be deemed to
constitute a waiver of any other default or any succeeding breach or default.
This Agreement may be amended by the parties hereto at any time before or after
approval of the PCo securityholders, or the BCo stockholders, but, after such
approval, no amendment will be made which by applicable law requires the further
approval of the PCo securityholders or the BCo stockholders without obtaining
such further approval.
8.9 EXPENSES
Except as otherwise provided herein, each party will bear its respective
expenses and legal fees incurred with respect to this Agreement and the
transactions contemplated hereby.
8.10 FURTHER ASSURANCES
Each of the parties hereto will from time to time execute and deliver all
such further documents and instruments and do all such acts and things as the
other parties may reasonably require to effectively carry out or better evidence
or perfect the terms and provisions of this Agreement. The parties agree to
amend the structure of the transactions contemplated hereby if necessary to have
the transactions treated as "pooling of interests" under United States generally
accepted accounting principles, provided that any such amendment will not have
an adverse effect on each party.
IN WITNESS WHEREOF, BCo and PCo have caused this Agreement to be signed by
their respective officers thereunder duly authorized, all as of the date first
written above.
BURLINGTON RESOURCES INC.
Per: /s/ BOBBY S. SHACKOULS
------------------------------------
Chairman, President and Chief
Executive Officer
POCO PETROLEUMS LTD.
Per: /s/ CRAIG W. STEWART
------------------------------------
President and Chief Executive
Officer
Per: /s/ JOHN W. FERGUSON
------------------------------------
Vice President and Chief Financial
Officer
B-31
<PAGE> 133
ANNEX C
INTERIM ORDER
<PAGE> 134
IN THE COURT OF QUEEN'S BENCH OF ALBERTA
JUDICIAL DISTRICT OF CALGARY
IN THE MATTER OF Section 186 of the Business Corporations Act (Alberta), being
Chapter B-15, of the Statutes of Alberta, 1981, as amended;
AND IN THE MATTER OF an Arrangement proposed by Poco Petroleums Ltd., involving
Poco Petroleums Ltd., its shareholders and optionholders, Burlington Resources
Canada Inc. and Burlington Resources Inc.
<TABLE>
<S> <C> <C>
BEFORE THE HONOURABLE -- IN ) AT THE COURT HOUSE, IN THE CITY OF
CHAMBERS ) CALGARY, IN THE PROVINCE OF ALBERTA ON
) -- , THE -- OF -- ,
) 1999.
</TABLE>
INTERIM ORDER
UPON the application by Petition of Poco Petroleums Ltd. ("Poco") pursuant
to Section 186 of the Business Corporations Act (Alberta);
AND UPON reading the said Petition, and the Affidavit of Kevan S. King,
Vice President, General Counsel and Secretary of Poco, and the documents
referred to therein, filed;
AND UPON it appearing that notice of this application has been given to the
Executive Director of the Alberta Securities Commission;
AND UPON hearing counsel for Poco and counsel for Burlington Resources Inc.
("Burlington") and Burlington Resources Canada Inc. ("BR Canada");
IT IS HEREBY ORDERED THAT:
1. Poco shall convene a special meeting (the "Poco Meeting") of the holders of
its issued and outstanding common shares (the "Common Shares") and options
to purchase Common Shares (the "Options") to consider, and if deemed
advisable, to pass, with or without variation, a resolution (the "Poco
Arrangement Resolution") to approve a proposed Plan of Arrangement (the
"Plan of Arrangement") involving Poco, its said holders of Common Shares
(the "Shareholders") and Options (the "Optionholders"), BR Canada and
Burlington, a true copy of which Plan of Arrangement in its substantially
final form is included as Annex -- to Exhibit " -- " to the Affidavit of
-- sworn the -- day of -- , 1999.
2. The Poco Meeting shall be called, held and conducted in accordance with the
Business Corporations Act (Alberta) (the "ABCA") and the Articles and the
By-laws of Poco subject to what may be provided hereafter.
3. The only persons entitled to notice of the Poco Meeting shall be the
registered Shareholders and the Optionholders as they may appear on the
records of Poco as at the close of business on the -- day of -- ,
1999, the directors and auditors of Poco, the Registrar of Corporations
under the ABCA and the Alberta Securities Commission, and the only persons
entitled to be represented and to vote at the Poco Meeting, either in
person or by proxy, shall be such Shareholders and Optionholders, subject
to the provisions of Section 132 of the ABCA.
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<PAGE> 135
4. Poco shall send the Notice of the Special Meeting of Shareholders and
Optionholders, Notice of Petition, and Joint Management Information
Circular and Proxy Statement (the "Proxy Circular") in substantially the
form contained in Exhibit " -- " to the Affidavit of -- , with such
amendments thereto as counsel for Poco may advise are necessary or
desirable, provided that such amendments are not inconsistent with the
terms of this Order, to the Shareholders, to the Optionholders, to the
directors and auditors of Poco, the Registrar of Corporations under the
ABCA and to the Alberta Securities Commission by mailing the same by
prepaid ordinary mail, or by sending the same by direct courier at the
expense of Poco, to such persons at least 21 days prior to the date of the
Poco Meeting, excluding the date of mailing or sending by courier and
excluding the date of the Poco Meeting. Such mailing or sending by courier
shall constitute good and sufficient service of notice of the Petition, the
Poco Meeting and the hearing in respect of the Petition.
5. The accidental omission to give notice of the Poco Meeting, or the
non-receipt of such notice by one or more of the persons specified in
paragraph 4 hereof, shall not invalidate any resolution passed or
proceedings taken at the Poco Meeting.
6. Each Common Share and each Option shall be entitled to one vote on each
matter to be acted upon at the Poco Meeting. The majority required to pass
the Poco Arrangement Resolution shall be not less than two-thirds of the
aggregate votes cast by the Shareholders and the Optionholders (present in
person or by proxy), voting together as a single class, in respect of the
Poco Arrangement Resolution at the Poco Meeting.
7. The Shareholders who are registered Shareholders, and the Optionholders,
shall have the right to dissent from the Poco Arrangement Resolution in
accordance with the provisions of Section 184 of the ABCA, as modified
hereby, and to be paid the fair value of their Common Shares, or Options,
provided that:
(a) notwithstanding subsection 184(5) of the ABCA, the written objection
to the Poco Arrangement Resolution referred to in subsection 184(5)
of the ABCA which is required to be sent to Poco must be received by
the Vice President, General Counsel and Secretary of Poco or the
chairman of the Poco special meeting at or before the Poco special
meeting; and
(b) the holders exercising such right of dissent otherwise comply with
the requirements of Section 184 of the ABCA.
8. Upon approval of the Plan of Arrangement at the Poco Meeting in the manner
set forth in this Order, Poco may apply before this Court for approval of the
Plan of Arrangement, which application (the "Final Application") shall be
heard by this Honourable Court at the Court House, 611 - 4th Street S.W., in
the City of Calgary, on the -- day of -- , 1999 at -- p.m. or
so soon thereafter as counsel may be heard.
9. Any Shareholder, Optionholder and any other interested person may appear on
the application for the approval of the Arrangement, provided that such
holder or person shall file with this Court and serve on the solicitors for
Poco on or before -- , 1999, a Notice of Intention to Appear setting
out the address for service in respect of such holder or person, and
indicating whether such holder or person intends to support or oppose the
application or make submissions thereat together with any evidence or
materials which are to be presented to this Court, such Notice of
Appearance to be effected by delivery, at the addresses set forth below:
<TABLE>
<S> <C>
Burnet Duckworth & Palmer
1400 First Canadian Centre
350 - 7th Avenue S.W.
Calgary, Alberta
T2P 3N9
Attention: Daniel J. McDonald, Q.C.
</TABLE>
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<PAGE> 136
10. In the event the Final Application is adjourned, only those persons who have
filed and served a Notice of Appearance shall be served with notice of the
adjourned date.
11. Poco shall be entitled at any time to seek leave to vary this Order.
--
--------------------------------------
J.C.Q.B.A.
ENTERED this -- day of -- , 1999.
--
- ---------------------------------------------------------
Clerk of the Court of Queen's Bench
of Alberta
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<PAGE> 137
ACTION NO: 99- -- -- , 1999
------------------------------------------------------------
IN THE COURT OF QUEEN'S BENCH
OF ALBERTA
JUDICIAL DISTRICT OF CALGARY
------------------------------------------------------------
IN THE MATTER OF Section 186 of the Business Corporations Act (Alberta), being
Chapter B-15, of the Statutes of Alberta, 1981, as amended;
AND IN THE MATTER OF an Arrangement proposed by Poco Petroleums Ltd., involving
Poco Petroleums Ltd., its shareholders and optionholders, Burlington Resources
Canada Inc. and Burlington Resources Inc.
------------------------------------------------------------
INTERIM ORDER
------------------------------------------------------------
BURNET DUCKWORTH & PALMER
Barristers and Solicitors
1400 First Canadian Centre
350 - 7th Avenue S.W.
CALGARY, Alberta
T2P 3N9
Daniel J. McDonald, Q.C. 260-0100
C-4
<PAGE> 138
ANNEX D
PLAN OF ARRANGEMENT
<PAGE> 139
EXHIBIT A
PLAN OF ARRANGEMENT
UNDER SECTION 186
OF THE BUSINESS CORPORATIONS ACT (ALBERTA)
INVOLVING AND AFFECTING POCO PETROLEUMS LTD.,
THE HOLDERS OF ITS COMMON SHARES AND OPTIONS
ARTICLE 1
INTERPRETATION
1.1 DEFINITIONS
In this Plan of Arrangement unless there is something in the subject matter
or context inconsistent therewith, the following terms shall have the respective
meanings set out below and grammatical variations of such terms shall have
corresponding meanings:
"ABCA" means the Business Corporations Act (Alberta), as amended;
"Arrangement" means the arrangement under section 186 of the ABCA on the
terms and subject to the conditions set out in this Plan of Arrangement, subject
to any amendments thereto made (i) in accordance with Section 8.8 of the
Combination Agreement, (ii) in accordance with Section 6.1 hereof or (iii) at
the direction of the Court in the Final Order;
"Arrangement Resolution" means the special resolution passed by the
Shareholders and the Optionholders at the Meeting;
"Automatic Redemption Date" has the meaning provided in the Exchangeable
Share Provisions;
"Average Closing Price" means the average closing sales price per share
(computed and rounded to the third decimal point) of shares of BCo Common Stock
on the NYSE during the period of 10 consecutive trading days ending on the last
trading day prior to the Effective Date;
"BCo" has the meaning provided in the Exchangeable Share Provisions;
"BCo Common Stock" has the meaning provided in the Exchangeable Share
Provisions;
"BCo Sub" means Burlington Resources Canada Inc., a corporation organized
and existing under the laws of Alberta and any successor corporation;
"Business Day" has the meaning provided in the Exchangeable Share
Provisions;
"Combination Agreement" means the amended and restated combination
agreement by and among BCo and PCo dated effective as of August 16, 1999, as
further amended and restated from time to time, providing for, among other
things, this Plan of Arrangement and the Arrangement;
"Court" means the Court of Queen's Bench of Alberta;
"Depositary" means CIBC Mellon Trust Company at its principal transfer
offices in Calgary, Alberta and Toronto, Ontario;
"Dissent Procedures" has the meaning provided in Section 3.1;
"Effective Date" means the date shown on the certificate of arrangement
issued by the Registrar under the ABCA giving effect to the Arrangement;
"Effective Time" means 12:01 a.m. (Calgary time) on the Effective Date;
"Exchange Ratio" means the ratio of 0.250 Exchangeable Shares for each
whole PCo Common Share, subject to adjustment as provided herein and in
accordance with the Combination Agreement;
"Exchangeable Share Provisions" means the rights, privileges, restrictions
and conditions attaching to the Exchangeable Shares;
"Exchangeable Shares" means the Exchangeable Shares in the capital of BCo
Sub;
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<PAGE> 140
"Final Order" means the final order of the Court approving the Arrangement,
as such order may be amended by the Court at any time and from time to time
prior to the Effective Time;
"Interim Order" means the interim order of the Court in relation to the
Arrangement, as such order may be amended by the Court at any time and from time
to time;
"ITA" means the Income Tax Act (Canada), as amended;
"Measurement Period" means the period of 10 consecutive trading days ending
on the second trading day prior to the date of the Meeting;
"Meeting" means the special meeting of the Shareholders and of the
Optionholders to be held to consider this Plan of Arrangement;
"NYSE" means the New York Stock Exchange;
"Options" means all options to purchase PCo Common Shares outstanding as at
the Effective Date, including all options outstanding under PCo's stock option
plan;
"Optionholders" means holders of Options;
"PCo" means Poco Petroleums Ltd., a corporation organized and existing
under the ABCA;
"PCo Common Shares" means the common shares in the capital of PCo;
"Proxy Statement" means the Joint Management Information Circular and Proxy
Statement of BCo and PCo prepared in connection with the Arrangement;
"Shareholders" means holders of PCo Common Shares;
"Transfer Agent" means the duly appointed transfer agent for the time being
of the Exchangeable Shares, and, if there is more than one such transfer agent,
then the principal Canadian transfer agent;
"Voting and Exchange Trust Agreement" means the agreement so entitled
between BCo, BCo Sub and the Trustee named therein to be dated as of the
Effective Date and provided for in the Combination Agreement; and
"Voting Share" has the meaning ascribed to such term in the Voting and
Exchange Trust Agreement.
1.2 SECTIONS, HEADINGS AND APPENDIXES
The division of this Plan of Arrangement into sections and the insertion of
headings are for reference purposes only and shall not affect the interpretation
of this Plan of Arrangement. Unless otherwise indicated, any reference in this
Plan of Arrangement to a section or an Appendix refers to the specified section
of or Appendix to this Plan of Arrangement. The Appendixes are incorporated
herein and are an integral part hereof.
1.3 NUMBER, GENDER AND PERSONS
In this Plan of Arrangement, unless the context otherwise requires, words
importing the singular number include the plural and vice versa, words importing
any gender include all genders and words importing persons include individuals,
bodies corporate, partnerships, associations, trusts, unincorporated
organizations, governmental bodies and other legal or business entities of any
kind.
1.4 DATE FOR ANY ACTION
In the event that any date on or by which any action is required or
permitted to be taken hereunder is not a Business Day, such action shall be
required or permitted to be taken on or by the next succeeding day which is a
Business Day.
1.5 CURRENCY
Unless otherwise expressly stated herein, all references to currency and
payments in cash or money in this Plan of Arrangement are to United States
dollars.
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<PAGE> 141
1.6 STATUTORY REFERENCES
Any reference in this Plan of Arrangement to a statute includes such
statute as amended, consolidated or re-enacted from time to time, all
regulations made thereunder, all amendments to such regulations from time to
time, and any statute or regulation which supersedes such statute or
regulations.
ARTICLE 2
ARRANGEMENT
2.1 ARRANGEMENT
At the Effective Time, the following transactions shall occur and shall be
deemed to occur in the following order without any further act or formality:
(a) each of the outstanding PCo Common Shares (other than PCo Common
Shares held by Shareholders who have exercised their right of dissent in
accordance with Article 3 hereof and are ultimately entitled to be paid the fair
value of its PCo Common Shares) will, without any further action on behalf of
the holders of such PCo Common Shares, be transferred to BCo Sub in
consideration for a number of shares of Exchangeable Shares determined in
accordance with the Exchange Ratio. Each such holder of PCo Common Shares will
receive only a whole number of Exchangeable Shares resulting from the transfer
of such holder's PCo Common Shares to BCo Sub. In lieu of fractional
Exchangeable Shares, each holder of a PCo Common Share who otherwise would be
entitled to receive such fractional share shall be paid by BCo Sub an amount
determined in accordance herewith in full satisfaction of such fractional
entitlement;
(b) upon the transfer of shares referred to in Section 2.1(a) above: (i)
each holder of a PCo Common Share shall cease to be such a holder, shall have
his name removed from the register of holders of PCo Common Shares and shall
become a holder of the number of fully paid Exchangeable Shares to which he is
entitled as a result of the transfer of shares referred to in Section 2.1(a) and
such holder's name shall be added to the register of holders of such securities
accordingly; and (ii) BCo Sub shall become the legal and beneficial owner of all
of the PCo Common Shares so transferred;
(c) holders of PCo Common Shares who are residents of Canada for the
purposes of the ITA and who receive Exchangeable Shares under Section 2.1(a)
shall be entitled to make an income tax election pursuant to subsection 85(1) of
the ITA with respect to the transfer of their PCo Common Shares to BCo Sub by
providing two signed copies of the necessary election forms to BCo Sub within 90
days following the Effective Date, duly completed with the details of the number
of shares transferred and the applicable agreed amounts for the purposes of such
elections. Thereafter, subject to the election forms complying with the
provisions of the ITA, the forms will be signed by BCo Sub and returned to such
holders of PCo Common Shares for filing with Revenue Canada, Customs, Excise and
Taxation;
(d) BCo shall issue to and deposit with the Depository the Voting Share,
in consideration of the payment to BCo of US $1, to be hereafter held of record
by the Depository as trustee for and on behalf of, and for the use and benefit
of, the holders of the Exchangeable Shares, in accordance with the Voting and
Exchange Trust Agreement; and
(e) each of the then outstanding Options (other than Options held by
holders who have exercised their rights of dissent in accordance with Section
3.1 hereof and who are ultimately entitled to be paid the fair value for such
Options) will, without any further action on the part of any Optionholder: (i)
vest in accordance with the terms and conditions of PCo's stock option plan; and
(ii) be converted into an option to purchase the number of shares of BCo Common
Stock determined by multiplying the number of PCo Common Shares subject to such
Option at the Effective Time by the Exchange Ratio, at an exercise price per
share of BCo Common Stock equal to the exercise price per share of such Option
immediately prior to the Effective Time divided by the Exchange Ratio, and
expressed in U.S. dollars. For the purposes of determining the exercise price
per share of BCo Common Stock, the exercise price per share of PCo Common Shares
subject to such Option shall be adjusted using the Canadian dollar exchange rate
based upon the average of the noon buying rate expressed to the fourth decimal
place for each of the trading days in the Measurement Period, as reported by the
Federal Reserve Bank of
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<PAGE> 142
New York. If the foregoing calculation results in a converted Option being
exercisable for a fraction of a share of BCo Common Stock, then the number of
shares of BCo Common Stock subject to such Option will be rounded down to the
nearest whole number of shares, and the exercise price per whole share of BCo
Common Stock will be as determined above. The obligations of PCo under the
Options as so converted shall be assumed by BCo and BCo shall be substituted for
PCo under, and as sponsor of, PCo's stock option plan. Except as provided in
this paragraph (e), the term and all other terms and conditions of the Options
in effect immediately prior to giving effect to the Arrangement shall govern the
Options.
2.2 ALLOCATION OF CONSIDERATION
The sole consideration to be received by the holders of PCo Common Shares
for the transfer of such shares to BCo Sub contemplated in Section 2.1(a) shall
be the Exchangeable Shares issued in connection with such transfer as
contemplated in Section 2.1(a) and all other rights and benefits received by the
holders of PCo Common Shares in connection with the consummation of the
Arrangement shall be in consideration of the grant by such holders to BCo of
BCo's rights in respect of the Exchangeable Shares and the other consideration
received by BCo from the holders of PCo Common Shares (excluding the PCo Common
Shares).
ARTICLE 3
RIGHTS OF DISSENT
3.1 RIGHTS OF DISSENT
Registered Shareholders and Optionholders may exercise rights of dissent
with respect to their PCo Common Shares or Options pursuant to and in the manner
set forth in section 184 of the ABCA (as modified by the Interim Order) and this
Section 3.1 (the "Dissent Procedures") in connection with the Arrangement, and
holders who duly exercise such rights of dissent and who:
(a) are ultimately entitled to be paid fair value for the PCo Common
Shares or Options shall be deemed to have transferred such PCo Common
Shares or Options to PCo for cancellation on the Effective Date; or
(b) are ultimately not entitled, for any reason, to be paid the fair
value for their PCo Common Shares or Options shall be deemed to have
participated in the Arrangement on the same basis as any nondissenting
Shareholder or Optionholder, as the case may be,
but in no case shall PCo be required to recognize such holders as Shareholders
or Optionholders on and after the Effective Date, and the names of such persons
shall be deleted from the registers of Shareholders or Optionholders on the
Effective Date.
ARTICLE 4
CERTIFICATES AND FRACTIONAL SHARES
4.1 ISSUANCE OF CERTIFICATES REPRESENTING EXCHANGEABLE SHARES
At or promptly after the Effective Time, BCo Sub shall deposit with the
Depositary, for the benefit of the Shareholders who exchanged their PCo Common
Shares pursuant to the Arrangement, certificates representing the Exchangeable
Shares issued pursuant to the Arrangement upon the exchange. Upon surrender to
the Depositary of a certificate which immediately prior to the Effective Time
represented outstanding PCo Common Shares, together with such other documents
and instruments as are required to effect the transfer of the shares formerly
represented by such certificate under the ABCA and the by-laws of PCo and such
additional documents and instruments as the Depositary may reasonably require,
the holder of such surrendered certificate shall be entitled to receive in
exchange therefor, and the Depositary shall forthwith deliver to such holder, a
certificate representing that number (rounded down to the nearest whole number)
of Exchangeable Shares which such holder has the right to receive pursuant to
the Arrangement (together with any dividends or distributions with respect
thereto pursuant to Section 4.2 and any cash in lieu of fractional Exchangeable
Shares pursuant to Section 4.3), and any certificate so surrendered shall
forthwith be canceled. In the event of a transfer of ownership
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<PAGE> 143
of PCo Common Shares which is not registered in the transfer records of PCo, a
certificate representing the proper number of Exchangeable Shares (together with
any dividends or distributions with respect thereto pursuant to Section 4.2 and
any cash in lieu of fractional Exchangeable Shares pursuant to Section 4.3)
shall be delivered to a transferee if the certificate representing such PCo
Common Shares is presented to the Depositary, accompanied by all documents
required to evidence and effect such transfer. Until surrendered as contemplated
by this Section 4.1, each certificate which immediately prior to the Effective
Time represented outstanding PCo Common Shares shall be deemed at any time after
the Effective Time, but subject to Section 4.5, to represent only the right to
receive upon such surrender (a) the certificate representing Exchangeable Shares
as contemplated by this Section 4. 1, (b) a cash payment in lieu of any
fractional Exchangeable Shares as contemplated by Section 4.3 and (c) any
dividends or distributions with a record date after the Effective Time
theretofore paid or payable with respect to Exchangeable Shares as contemplated
by Section 4.2.
4.2 DIVIDENDS AND OTHER DISTRIBUTIONS
No dividends or other distributions declared or made after the Effective
Time with respect to the Exchangeable Shares with a record date after the
Effective Time shall be paid to the holder of any formerly outstanding PCo
Common Shares which were not exchanged pursuant to Section 2.1, and no cash
payment in lieu of fractional shares shall be paid to any such holder pursuant
to Section 4.3 (and no interest will be earned and payable thereon), unless and
until the certificate representing such PCo Common Shares shall be surrendered
in accordance with Section 4.1. Subject to applicable law and to Section 4.5, at
the time of such surrender of any such certificate (or, in the case of clause
(c) below, at the appropriate payment date), there shall be paid to the holder
of the Exchangeable Shares resulting from such exchange, in all cases without
interest, (a) the amount of any cash payable in lieu of a fractional
Exchangeable Share to which such holder is entitled pursuant to Section 4.3, (b)
the amount of dividends or other distributions with a record date after the
Effective Time theretofore paid with respect to such Exchangeable Shares, and
(c) the amount of dividends or other distributions with a record date after the
Effective Time but prior to surrender and a payment date subsequent to surrender
payable with respect to such Exchangeable Shares.
4.3 NO FRACTIONAL SHARES
No certificates or scrip representing fractional Exchangeable Shares shall
be issued upon the surrender for exchange of certificates pursuant to Section
4.1, and such fractional interests shall not entitle the owner thereof to vote
or to possess or exercise any rights as a security holder of BCo Sub. In lieu of
any such fractional interests, each person entitled thereto will receive an
amount of cash (rounded to the nearest whole cent), without interest, equal to
the product of (a) such fractional interest, multiplied by (b) the Average
Closing Price, such amount to be provided to the Depositary by BCo Sub upon
request.
4.4 LOST CERTIFICATES
If any certificate which immediately prior to the Effective Time
represented outstanding PCo Common Shares which were exchanged pursuant to
Section 2.1 has been lost, stolen or destroyed, upon the making of an affidavit
of that fact by the person claiming such certificate to be lost, stolen or
destroyed, the Depositary will issue in exchange for such lost, stolen or
destroyed certificate, certificates representing Exchangeable Shares (together
with any dividends or distributions with respect thereto pursuant to Section 4.2
and any cash in lieu of fractional Exchangeable Shares pursuant to Section 4.3)
deliverable in respect thereof as determined in accordance with Section 2.1.
When seeking such certificate and payment in exchange for any lost, stolen or
destroyed certificate, the person to whom certificates representing Exchangeable
Shares are to be issued shall, as a condition precedent to the issuance thereof,
give a bond satisfactory to BCo Sub, BCo and the Transfer Agent, as the case may
be, in such sum as BCo Sub may direct or otherwise indemnify BCo Sub, BCo and
the Transfer Agent in a manner satisfactory to BCo Sub, BCo and the Transfer
Agent against any claim that may be made against BCo Sub, BCo or the Transfer
Agent with respect to the certificate alleged to have been lost, stolen or
destroyed.
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4.5 EXTINGUISHMENT OF RIGHTS
Any certificate which immediately prior to the Effective Time represented
outstanding PCo Common Shares which were exchanged pursuant to Section 2.1 and
has not been deposited, with all other instruments required by Section 4.1, on
or prior to the tenth anniversary of the Effective Date shall cease to represent
a claim or interest of any kind or nature as a Shareholder or a holder of
Exchangeable Shares or shares of BCo Common Stock. On such date, the
Exchangeable Shares (and any dividends or distributions with respect thereto and
any cash pursuant to Section 4.3) to which the former registered holder of the
certificate referred to in the preceding sentence was ultimately entitled (or,
if the Automatic Redemption Date has occurred, the resulting shares of BCo
Common Stock) shall be deemed to have been surrendered to BCo Sub (or, in the
event that the Automatic Redemption Date has occurred, BCo), together with all
entitlements to dividends, distributions, cash and interest thereon held for
such former registered holder, for no consideration and such shares shall
thereupon be canceled and the name of the former registered holder shall be
removed from the register of holders of such shares.
ARTICLE 5
AMENDMENT
5.1 PLAN OF ARRANGEMENT AMENDMENT
PCo reserves the right to amend, modify and/or supplement this Plan of
Arrangement from time to time at any time prior to the Effective Time provided
that any such amendment, modification or supplement must be contained in a
written document that is (a) agreed to by BCo and BCo Sub, (b) filed with the
Court and, if made following the Meeting, approved by the Court and (c)
communicated to Shareholders and Optionholders in the manner required by the
Court (if so required).
Any amendment, modification or supplement to this Plan of Arrangement may
be proposed by PCo at any time prior to or at the Meeting (provided that BCo and
BCo Sub shall have consented thereto) with or without any other prior notice or
communication, and if so proposed and accepted by the persons voting at the
Meeting (other than as may be required under the Interim Order), shall become
part of this Plan of Arrangement for all purposes.
Any amendment, modification or supplement to this Plan of Arrangement which
is approved by the Court following the Meeting shall be effective only (a) if it
is consented to by PCo, (b) if it is consented to by BCo and BCo Sub and (c) if
required by the Court or applicable law, it is consented to by the Shareholders,
Optionholders or the holders of Exchangeable Shares, as the case may be.
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ANNEX E
SHARE CAPITAL AND OTHER PROVISIONS
<PAGE> 146
EXHIBIT B
SHARE CAPITAL AND OTHER PROVISIONS
TO BE INCLUDED IN THE ARTICLES OF INCORPORATION OF BCO SUB
A. SHARE CAPITAL
PROVISIONS ATTACHING TO THE COMMON SHARES
The common shares ("Common Shares") in the capital of the Corporation shall
have attached thereto the following rights, privileges, restrictions and
conditions:
DIVIDENDS
Subject to the prior rights of the Exchangeable Shares and any other shares
ranking prior to the Common Shares, holders of Common Shares have a right to
receive dividends when declared by the Board of Directors out of property of the
Corporation legally available therefor.
LIQUIDATION
Subject to the prior rights of the Exchangeable Shares and any other shares
ranking prior to the Common Shares, the holders of Common Shares shall, upon any
liquidation, dissolution or winding-up of the Corporation, whether voluntary or
involuntary, or other distribution of the assets of the Corporation for the
purpose of winding-up its affairs, be entitled to receive the remaining property
and assets of the Corporation.
VOTING
The holders of the Common Shares shall be entitled to receive notice of and
to attend all meetings of shareholders (other than separate meetings of other
classes or series of shares), and shall be entitled to one vote for each Common
Share held.
PROVISIONS ATTACHING TO THE EXCHANGEABLE SHARES
The Exchangeable Shares in the capital of the Corporation shall have the
following rights, privileges, restrictions and conditions:
ARTICLE 1
INTERPRETATION
1.1 FOR THE PURPOSES OF THESE RIGHTS, PRIVILEGES, RESTRICTIONS AND CONDITIONS:
"Act" means the Business Corporations Act (Alberta), as amended,
consolidated or reenacted from time to time.
"Aggregate Equivalent Vote Amount" means, with respect to any matter,
proposition or question on which holders of BCo Common Stock are entitled to
vote, consent or otherwise act, the product of (i) the number of Exchangeable
Shares then issued and outstanding and held by holders (other than BCo and its
Subsidiaries) multiplied by (ii) the number of votes to which a holder of one
share of BCo Common Stock is entitled with respect to such matter, proposition
or question.
"Automatic Redemption Date" means the date for the automatic redemption by
the Corporation of Exchangeable Shares pursuant to Article 7 of these share
provisions, which date shall be the first to occur of (a) the date, if any,
selected pursuant to this clause (a) by the Board of Directors of the
Corporation, such date to be no earlier than the fifth anniversary of the
Effective Date of the Arrangement, (b) the date selected by the Board of
Directors of the Corporation (such date to be no earlier than the third
anniversary of the Effective Date of the Arrangement) at a time when less than
10% of the number of Exchangeable Shares issuable on the Effective Date (other
than Exchangeable Shares held by BCo and its Subsidiaries, and as such number of
shares
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may be adjusted as deemed appropriate by the Board of Directors to give effect
to any subdivision or consolidation of or stock dividend on the Exchangeable
Shares, any issuance or distribution of rights to acquire Exchangeable Shares or
securities exchangeable for or convertible into or carrying rights to acquire
Exchangeable Shares, any issue or distribution of other securities or rights or
evidences of indebtedness or assets, or any other capital reorganization or
other transaction involving or affecting the Exchangeable Shares) are
outstanding, (c) the Business Day prior to the record date for any meeting or
vote of the shareholders of the Corporation to consider any matter on which the
holders of Exchangeable Shares would be entitled to vote as shareholders of the
Corporation, but excluding any meeting or vote as described in clause (d) below,
(d) the Business Day following the day on which the holders of Exchangeable
Shares fail to take the necessary action at a meeting or other vote of holders
of Exchangeable Shares, if and to the extent such action is required, to approve
or disapprove, as applicable, any change to, or in the rights of the holders of,
Exchangeable Shares, if the approval or disapproval, as applicable, of such
change would be required to maintain the economic and legal equivalence of the
Exchangeable Shares and the BCo Common Stock or (e) the date on which the share
purchase rights issued pursuant to the Rights Agreement, dated as of December
16, 1998, between BCo and BankBoston, N.A. (or pursuant to any similar successor
or replacement rights agreement) would separate from the shares of BCo Common
Stock and become exercisable.
"BCo" means Burlington Resources Inc., a corporation organized and existing
under the laws of the State of Delaware and includes any successor corporation
or any corporation in which the holders of BCo Common Stock hold securities
resulting from the application of Section 2.7 of the Support Agreement;
"BCo Call Notice" has the meaning provided in Section 6.3.
"BCo Common Stock" means the shares of common stock of BCo, with a par
value of U.S. $0. 01 per share, having voting rights of one vote per share, and
any other securities resulting from the application of Section 2.7 of the
Support Agreement.
"BCo Dividend Declaration Date" means the date on which the board of
directors of BCo declares any dividend on the BCo Common Stock.
"BCo Special Share" means the one share of Special Voting Stock of BCo,
with a par value of U.S. $0.01, and having voting rights at meetings of holders
of BCo Common Stock equal to the Aggregate Equivalent Voting Amount.
"Board of Directors" means the board of directors of the Corporation and
any committee thereof acting within its authority.
"Business Day" means any day other than a Saturday, a Sunday or a day when
banks are not open for business in either or both of Houston, Texas and Calgary,
Alberta.
"Common Shares" means the common shares in the capital of the Corporation.
"Corporation" means Burlington Resources Canada Inc., a corporation
organized and existing under the Act and includes any successor corporation.
"Current Market Price" means, in respect of a share of BCo Common Stock on
any date, the average of the closing sale prices per share (computed and rounded
to the third decimal point) of shares of BCo Common Stock during the period of
20 consecutive trading days ending not more than five trading days before such
date on the New York Stock Exchange, or, if BCo Common Stock is not then traded
on the New York Stock Exchange, on such other principal U.S. stock exchange or
automated quotation system on which the BCo Common Stock is listed or quoted, as
the case may be, as may be selected by the Board of Directors for such purpose;
provided, however, that if, in the opinion of the Board of Directors the public
distribution or trading activity of BCo Common Stock during such period does not
create a market which reflects the fair market value of a share of BCo Common
Stock, then the Current Market Price of a share of BCo Common Stock shall be
determined by the Board of Directors based upon the advice of such qualified
independent financial advisors as the Board of Directors may deem to be
appropriate, and provided further than any such selection, opinion or
determination by the Board of Directors shall be conclusive and binding.
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"Exchange Put Date" has the meaning provided in Section 8.2.
"Exchange Put Right" has the meaning provided in Section 8.1.
"Exchangeable Share Consideration" means, for any acquisition of or
redemption of or distribution of assets of the Corporation in respect of or
purchase pursuant to these share provisions, the Plan of Arrangement, the
Support Agreement or the Voting and Exchange Trust Agreement:
(a) certificates representing the aggregate number of shares of BCo
Common Stock deliverable in connection with such action;
(b) a cheque or cheques payable at par at any branch of the bankers of
the payor in the amount of all declared, payable and unpaid, and all
undeclared but payable, cash dividends deliverable in connection with
such action; and
(c) such stock or other property constituting any declared and unpaid,
and all undeclared but payable, non-cash dividends deliverable in
connection with such action,
provided that (i) that part of the consideration which represents (a) above,
shall be fully paid and satisfied by the delivery of one share of BCo Common
Stock for each one Exchangeable Share, such share to be duly issued as a fully
paid and non-assessable share, (ii) that part of the consideration which
represents (c), above, unpaid shall be fully paid and satisfied by delivery of
such non-cash items, and (iii) any such consideration shall be delivered free
and clear of any lien, claim, encumbrance, security interest or adverse claim or
interest less any tax required to be deducted and withheld therefrom and without
interest.
"Exchangeable Share Price" means, for each Exchangeable Share, an amount
equal to the aggregate of:
(a) the Current Market Price of a share of BCo Common Stock; plus
(b) an additional amount equal to the full amount of all cash dividends
declared, payable and unpaid on such Exchangeable Share; plus
(c) an additional amount equal to all dividends declared and payable on
BCo Common Stock which have not been declared on Exchangeable Shares in
accordance herewith; plus
(d) an additional amount representing non-cash dividends declared,
payable and unpaid on such Exchangeable Share.
"Exchangeable Shares" means the Exchangeable Shares of the Corporation
having the rights, privileges, restrictions and conditions set forth herein.
"Liquidation Amount" has the meaning provided in Section 5.1.
"Liquidation Call Right" has the meaning provided in the Articles of
Incorporation of the Corporation.
"Liquidation Date" has the meaning provided in Section 5.1.
"PCo" means Poco Petroleums Ltd., a corporation organized and existing
under the Act.
"Plan of Arrangement" means the plan of arrangement involving and affecting
PCo, BCo and the holders of common shares and options of PCo under section 186
of the Act contemplated in the Amended and Restated Combination Agreement by and
among BCo and PCo, dated effective as of August 16, 1999, as further amended and
restated from time to time.
"Purchase Price" has the meaning provided in Section 6.3.
"Redemption Call Purchase Price" has the meaning provided in the Articles
of Incorporation of the Corporation.
"Redemption Call Right" has the meaning provided in the Articles of
Incorporation of the Corporation.
"Redemption Price" has the meaning provided in Section 7.1.
"Retracted Shares" has the meaning provided in subsection 6.1 (a).
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"Retraction Call Right" has the meaning provided in subsection 6.1 (c).
"Retraction Date" has the meaning provided in subsection 6.1 (b).
"Retraction Price" has the meaning provided in Section 6.1.
"Retraction Request" has the meaning provided in Section 6.1.
"Subsidiary", in relation to any person, means any body corporate,
partnership, joint venture, association or other entity of which more than 50%
of the total voting power of shares of stock or units of ownership or beneficial
interest entitled to vote in the election of directors (or members of a
comparable governing body) is owned or controlled, directly or indirectly, by
such person.
"Support Agreement" means the Support Agreement between BCo and the
Corporation, made as of -- , 1999.
"Transfer Agent" means the duly appointed transfer agent for the time being
of the Exchangeable Shares, and, if there is more than one such transfer agent,
then the principal Canadian transfer agent.
"Trustee" means the Trustee appointed under the Voting and Exchange Trust
Agreement, and any successor trustee.
"Voting and Exchange Trust Agreement" means the Voting and Exchange Trust
Agreement among the Corporation, BCo and the Trustee, made as of -- , 1999.
ARTICLE 2
RANKING OF EXCHANGEABLE SHARES
2.1 The Exchangeable Shares shall be entitled to a preference over the Common
Shares and any other shares ranking junior to the Exchangeable Shares, with
respect to the payment of dividends and the distribution of assets in the event
of the liquidation, dissolution or winding-up of the Corporation, whether
voluntary or involuntary, or any other distribution of the assets of the
Corporation among its shareholders for the purpose of winding-up its affairs.
ARTICLE 3
DIVIDENDS
3.1 A holder of an Exchangeable Share shall be entitled to receive and the Board
of Directors shall, subject to applicable law, on each BCo Dividend Declaration
Date, declare a dividend on each Exchangeable Share (a) in the case of a cash
dividend declared on the BCo Common Stock, in an amount in cash for each
Exchangeable Share equal to the cash dividend declared on each share of BCo
Common Stock, (b) in the case of a stock dividend declared on the BCo Common
Stock to be paid in BCo Common Stock, in such number of Exchangeable Shares for
each Exchangeable Share as is equal to the number of shares of BCo Common Stock
to be paid on each share of BCo Common Stock, (c) in the case of a dividend
declared on the BCo Common Stock in property other than cash or securities of
BCo, in such type and amount of property for each Exchangeable Share as is the
same as the type and amount of property declared as a dividend on each share of
BCo Common Stock or (d) in the case of a dividend declared on the BCo Common
Stock to be paid in securities of BCo other than BCo Common Stock, in such
number of either such securities or economically equivalent securities of the
Corporation, as the Board of Directors determines, for each Exchangeable Share
as is equal to the number of securities of BCo to be paid on each share of BCo
Common Stock. Such dividends shall be paid out of money, assets or property of
the Corporation properly applicable to the payment of dividends, or out of
authorized but unissued shares of the Corporation.
3.2 Cheques of the Corporation payable at par at any branch of the bankers of
the Corporation shall be issued in respect of any cash dividends contemplated by
subsection 3.1 (a) hereof and the sending of such a cheque to each holder of an
Exchangeable Share (less any tax required to be deducted and withheld from such
dividends paid or credited by the Corporation) shall satisfy the cash dividends
represented thereby unless the cheque is not paid on
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presentation. Certificates registered in the name of the registered holder of
Exchangeable Shares shall be issued or transferred in respect of any stock
dividends contemplated by subsections 3.1 (b) or (d) hereof and the sending of
such a certificate to each holder of an Exchangeable Share shall satisfy the
stock dividend represented thereby or dividend payable in other securities
represented thereby. Such other type and amount of property in respect of any
dividends contemplated by subsection 3.1 (c) hereof shall be issued, distributed
or transferred by the Corporation in such manner as it shall determine and the
issuance, distribution or transfer thereof by the Corporation to each holder of
an Exchangeable Share shall satisfy the dividend represented thereby. In all
cases, any such dividends shall be subject to any reduction or adjustment for
tax required to be deducted and withheld from such dividends paid or credited by
the Corporation. No holder of an Exchangeable Share shall be entitled to recover
by action or other legal process against the Corporation any dividend which is
represented by a cheque that has not been duly presented to the Corporation's
bankers for payment or which otherwise remains unclaimed for a period of six
years from the date on which such dividend was payable.
3.3 The record date for the determination of the holders of Exchangeable Shares
entitled to receive payment of, and the payment date for, any dividend declared
on the Exchangeable Shares under Section 3.1 hereof shall be the same dates as
the record date and payment date, respectively, for the corresponding dividend
declared on the BCo Common Stock.
3.4 If on any payment date for any dividends declared on the Exchangeable Shares
under Section 3.1 hereof the dividends are not paid in full on all of the
Exchangeable Shares then outstanding, any such dividends which remain unpaid
shall be paid on a subsequent date or dates determined by the Board of Directors
on which the Corporation shall have sufficient moneys, assets or property
properly applicable to the payment of such dividends.
3.5 Except as provided in this Article 3, the holders of Exchangeable Shares
shall not be entitled to receive dividends in respect thereof.
ARTICLE 4
CERTAIN RESTRICTIONS
4.1 So long as any of the Exchangeable Shares are outstanding, the Corporation
shall not at any time without, but may at any time with, the approval of the
holders of the Exchangeable Shares given as specified in Article 10 of these
share provisions:
(a) pay any dividends on the Common Shares, or any other shares ranking
junior to the Exchangeable Shares, other than stock dividends payable in
any such other shares ranking junior to the Exchangeable Shares;
(b) redeem or purchase or make any capital distribution in respect of
Common Shares or any other shares ranking junior to the Exchangeable
Shares with respect to the payment of dividends or on any liquidation
distribution;
(c) redeem or purchase any other shares of the Corporation ranking
equally with the Exchangeable Shares with respect of the payment of
dividends or on any liquidation distribution; or
(d) amend the articles or by-laws of the Corporation, in either case in
any manner that would affect the rights or privileges of the holders of
the Exchangeable Shares.
The restrictions in subsections 4.1 (a), 4.1 (b) and 4.1 (c) above shall
not apply if all dividends on the outstanding Exchangeable Shares corresponding
to dividends declared with a record date on or following the effective date of
the Plan of Arrangement on the BCo Common Stock shall have been declared on the
Exchangeable Shares and paid in full. Nothing herein shall be interpreted to
restrict the Corporation from issuing additional Common Shares or Exchangeable
Shares.
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ARTICLE 5
DISTRIBUTION ON LIQUIDATION
5.1 In the event of the liquidation, dissolution or winding-up of the
Corporation or any other distribution of the assets of the Corporation among its
shareholders for the purpose of winding-up its affairs, a holder of Exchangeable
Shares shall be entitled, subject to applicable law, to receive from the assets
of the Corporation in respect of each Exchangeable Share held by such holder on
the effective date of such liquidation, dissolution or winding-up (the
"Liquidation Date"), before any distribution of any part of the assets of the
Corporation to the holders of the Common Shares or any other shares ranking
junior to the Exchangeable Shares, an amount equal to the Exchangeable Share
Price applicable on the last Business Day prior to the Liquidation Date (the
"Liquidation Amount") in accordance with Section 5.2. In connection with payment
of the Liquidation Amount, the Corporation shall be entitled to liquidate some
of the BCo Common Stock which would otherwise be deliverable as Exchangeable
Share Consideration to the particular holder of Exchangeable Shares in order to
fund any statutory withholding tax obligation.
5.2 On or promptly after the Liquidation Date, and subject to the exercise by
BCo of the Liquidation Call Right, the Corporation shall cause to be delivered
to the holders of the Exchangeable Shares the Liquidation Amount for each such
Exchangeable Share upon presentation and surrender of the certificates
representing such Exchangeable Shares, together with such other documents and
instruments as may be required to effect a transfer of Exchangeable Shares under
applicable law and the by-laws of the Corporation and such additional documents
and instruments as the Transfer Agent may reasonably require, at the registered
office of the Corporation or at any office of the Transfer Agent as may be
specified by the Corporation in Schedule A hereto or by notice to the holders of
the Exchangeable Shares. Payment of the total Liquidation Amount for such
Exchangeable Shares shall be made by delivery to each holder, at the address of
the holder recorded in the securities register of the Corporation for the
Exchangeable Shares or by holding for pick up by the holder at the registered
office of the Corporation or at any office of the Transfer Agent as may be
specified by the Corporation in Schedule A hereto or by notice to the holders of
Exchangeable Shares, on behalf of the Corporation of the Exchangeable Share
Consideration representing the total Liquidation Amount. On and after the
Liquidation Date, the holders of the Exchangeable Shares shall cease to be
holders of such Exchangeable Shares and shall not be entitled to exercise any of
the rights of holders in respect thereof, other than the right to receive their
proportionate part of the total Liquidation Amount, unless payment of the total
Liquidation Amount for such Exchangeable Shares shall not be made upon
presentation and surrender of share certificates in accordance with the
foregoing provisions, in which case the rights of the holders shall remain
unaffected until the total Liquidation Amount has been paid in the manner
hereinbefore provided. The Corporation shall have the right at any time on or
after the Liquidation Date to deposit or cause to be deposited the Exchangeable
Share Consideration in respect of the Exchangeable Shares represented by
certificates that have not at the Liquidation Date been surrendered by the
holders thereof in a custodial account or for safe keeping, in the case of
non-cash items, with any chartered bank or trust company in Canada. Upon such
deposit being made, the rights of the holders of Exchangeable Shares after such
deposit shall be limited to receiving their proportionate part of the total
Liquidation Amount for such Exchangeable Shares so deposited, against
presentation and surrender of the said certificates held by them, respectively,
in accordance with the foregoing provisions. Upon such payment or deposit of
such Exchangeable Share Consideration, the holders of the Exchangeable Shares
shall thereafter be considered and deemed for all purposes to be the holders of
the BCo Common Stock delivered to them. Notwithstanding the foregoing, until
such payment or deposit of such Exchangeable Share Consideration, the holder
shall be deemed to still be a holder of Exchangeable Shares for purposes of all
voting rights with respect thereto under the Voting and Exchange Trust
Agreement.
5.3 After the Corporation has satisfied its obligations to pay the holders of
the Exchangeable Shares the Liquidation Amount per Exchangeable Share, such
holders shall not be entitled to share in any further distribution of the assets
of the Corporation.
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ARTICLE 6
RETRACTION OF EXCHANGEABLE SHARES BY HOLDER
6.1 A holder of Exchangeable Shares shall be entitled at any time, subject to
the exercise by BCo of the Retraction Call Right and otherwise upon compliance
with the provisions of this Article 6, to require the Corporation to redeem any
or all of the Exchangeable Shares registered in the name of such holder for an
amount equal to the Exchangeable Share Price applicable on the last Business Day
prior to the Retraction Date (the "Retraction Price") in accordance with Section
6.4. In connection with payment of the Retraction Price, the Corporation shall
be entitled to liquidate some of the BCo Common Stock that would otherwise be
deliverable as Exchangeable Share Consideration to the particular holder of
Exchangeable Shares in order to fund any statutory withholding tax obligation.
To effect such redemption, the holder shall present and surrender at the
registered office of the Corporation or at any office of the Transfer Agent as
may be specified by the Corporation in Schedule A hereto or by notice to the
holders of Exchangeable Shares the certificate or certificates representing the
Exchangeable Shares which the holder desires to have the Corporation redeem,
together with such other documents and instruments as may be required to effect
a transfer of Exchangeable Shares under applicable law and the by-laws of the
Corporation and such additional documents and instruments as the Transfer Agent
may reasonably require, and together with a duly executed statement (the
"Retraction Request") in the form of Schedule "A" hereto or in such other form
as may be acceptable to the Corporation:
(a) specifying that the holder desires to have all or any number
specified therein of the Exchangeable Shares represented by such
certificate or certificates (the "Retracted Shares") redeemed by the
Corporation;
(b) stating the Business Day on which the holder desires to have the
Corporation redeem the Retracted Shares (the "Retraction Date"),
provided that the Retraction Date shall be not less than five Business
Days nor more than 10 Business Days after the date on which the
Retraction Request is received by the Corporation and further provided
that, in the event that no such Business Day is specified by the holder
in the Retraction Request, the Retraction Date shall be deemed to be the
tenth Business Day after the date on which the Retraction Request is
received by the Corporation; and
(c) acknowledging the overriding right (the "Retraction Call Right") of
BCo to purchase all but not less than all the Retracted Shares directly
from the holder and that the Retraction Request shall be deemed to be a
revocable offer by the holder to sell the Retracted Shares in accordance
with the Retraction Call Right on the terms and conditions set out in
Section 6.3 below.
6.2 Subject to the exercise by BCo of the Retraction Call Right, upon receipt by
the Corporation or the Transfer Agent in the manner specified in Section 6.1
hereof of a certificate or certificates representing the number of Exchangeable
Shares which the holder desires to have the Corporation redeem, together with a
Retraction Request, and provided that the Retraction Request is not revoked by
the holder in the manner specified in Section 6.7, the Corporation shall redeem
the Retracted Shares effective at the close of business on the Retraction Date
and shall cause to be delivered to such holder the total Retraction Price with
respect to such shares in accordance with Section 6.4 hereof. If only a part of
the Exchangeable Shares represented by any certificate are redeemed or purchased
by BCo pursuant to the Retraction Call right, a new certificate for the balance
of such Exchangeable Shares shall be issued to the holder at the expense of the
Corporation.
6.3 Upon receipt by the Corporation of a Retraction Request, the Corporation
shall immediately notify BCo thereof. In order to exercise the Retraction Call
Right, BCo must notify the Corporation in writing of its determination to do so
(the "BCo Call Notice") within two Business Days of such notification. If BCo
does not so notify the Corporation within such two Business Days, the
Corporation will notify the holder as soon as possible thereafter that BCo will
not exercise the Retraction Call Right. If BCo delivers the BCo Call Notice
within such two Business Days, and provided that the Retraction Request is not
revoked by the holder in the manner specified in Section 6.7, the Retraction
Request shall thereupon be considered only to be an offer by the holder to sell
the Retracted Shares to BCo in accordance with the Retraction Call Right. In
such event, the Corporation shall not redeem the Retracted Shares and BCo shall
purchase from such holder and such holder shall sell to BCo on the Retraction
Date the Retracted Shares for a purchase price per share (the "Purchase Price")
equal to the Retraction Price. For the purposes of completing a purchase
pursuant to the Retraction Call
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Right, BCo shall deposit with the Transfer Agent, on or before the Retraction
Date, the Exchangeable Share Consideration representing the total Purchase
Price. Provided that such Exchangeable Share Consideration has been so deposited
with the Transfer Agent, the closing of the purchase and sale of the Retracted
Shares pursuant to the Retraction Call Right shall be deemed to have occurred as
at the close of business on the Retraction Date and, for greater certainty, no
redemption by the Corporation of such Retracted Shares shall take place on the
Retraction Date. In the event that BCo does not deliver a BCo Call Notice within
two Business Days or otherwise comply with these Exchangeable Share provisions
in respect thereto, and provided that Retraction Request is not revoked by the
holder in the manner specified in Section 6.7, the Corporation shall redeem the
Retracted Shares on the Retraction Date and in the manner otherwise contemplated
in this Article 6.
6.4 The Corporation or BCo, as the case may be, shall deliver or cause the
Transfer Agent to deliver to the relevant holder, at the address of the holder
recorded in the securities register of the Corporation for the Exchangeable
Shares or at the address specified in the holder's Retraction Request or by
holding for pick up by the holder at the registered office of the Corporation or
at any office of the Transfer Agent as may be specified by the Corporation in
Schedule A hereto or by notice to the holders of Exchangeable Shares, the
Exchangeable Share Consideration representing the total Retraction Price or the
total Purchase Price, as the case may be, and such delivery of such Exchangeable
Share Consideration to the Transfer Agent shall be deemed to be payment of and
shall satisfy and discharge all liability for the total Retraction Price or
total Purchase Price, as the case may be, except as to any cheque included
therein which is not paid on due presentation.
6.5 On and after the close of business on the Retraction Date, the holder of the
Retracted Shares shall cease to be a holder of such Retracted Shares and shall
not be entitled to exercise any of the rights of a holder in respect thereof,
other than the right to receive such holder's proportionate part of the total
Retraction Price or total Purchase Price, as the case may be, unless upon
presentation and surrender of certificates in accordance with the foregoing
provisions, payment of the total Retraction Price or the total Purchase Price,
as the case may be, shall not be made, in which case the rights of such holder
shall remain unaffected until the Exchangeable Share Consideration representing
the total Retraction Price or the total Purchase Price, as the case may be, has
been paid in the manner hereinbefore provided. On and after the close of
business on the Retraction Date, provided that presentation and surrender of
certificates and payment of the Exchangeable Share Consideration representing
the total Retraction Price or the total Purchase Price, as the case may be, has
been made in accordance with the foregoing provisions, the holder of the
Retracted Shares so redeemed by the Corporation or purchased by BCo shall
thereafter be considered and deemed for all purposes to be a holder of the BCo
Common Stock delivered to it. Notwithstanding the foregoing, until such payment
of such Exchangeable Share Consideration to the holder, the holder shall be
deemed to still be a holder of Exchangeable Shares for purposes of all voting
rights with respect thereto under the Voting and Exchange Trust Agreement.
6.6 Notwithstanding any other provision of this Article 6, the Corporation shall
not be obligated to redeem Retracted Shares specified by a holder in a
Retraction Request to the extent that such redemption of Retracted Shares would
be contrary to liquidity or solvency requirements or other provisions of
applicable law. If the Corporation believes that on any Retraction Date it would
not be permitted by any of such provisions to redeem the Retracted Shares
tendered for redemption on such date, and provided that BCo shall not have
exercised the Retraction Call Right with respect to the Retracted Shares, the
Corporation shall only be obligated to redeem Retracted Shares specified by a
holder in a Retraction Request to the extent of the maximum number that may be
so redeemed (rounded down to a whole number of shares) as would not be contrary
to such provisions and shall notify the holder at least two Business Days prior
to the Retraction Date as to the number of Retracted Shares which will not be
redeemed by the Corporation. In any case in which the redemption by the
Corporation of Retracted Shares would be contrary to liquidity or solvency
requirements or other provisions of applicable law, the Corporation shall redeem
Retracted Shares in accordance with Section 6.2 of these share provisions on a
pro rata basis and shall issue to each holder of Retracted Shares a new
certificate, at the expense of the Corporation, representing the Retracted
Shares not redeemed by the Corporation pursuant to Section 6.2 hereof. Provided
that the Retraction Request is not revoked by the holder in the manner specified
in Section 6.7, the holder of any such Retracted Shares not redeemed by the
Corporation pursuant to Section 6.2 of these share provisions as a result of
liquidity or solvency requirements or applicable law shall be deemed by giving
the Retraction Request to require BCo to purchase such Retracted Shares from
such holder on the Retraction Date or as soon as practicable
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thereafter on payment by BCo to such holder of the Purchase Price for each such
Retracted Share, all as more specifically provided in the Voting and Exchange
Trust Agreement, and BCo shall make such purchase.
6.7 A holder of Retracted Shares may, by notice in writing given by the holder
to the Corporation before the close of business on the Business Day immediately
preceding the Retraction Date, withdraw its Retraction Request in which event
such Retraction Request shall be null and void and, for greater certainty, the
revocable offer constituted by the Retraction Request to sell the Retracted
Shares to BCo shall be deemed to have been revoked.
ARTICLE 7
REDEMPTION OF EXCHANGEABLE SHARES BY THE CORPORATION
7.1 Subject to applicable law, and if BCo does not exercise the Redemption Call
Right, the Corporation shall on the Automatic Redemption Date redeem the whole
of the then outstanding Exchangeable Shares for an amount equal to the
Exchangeable Share Price applicable on the last Business Day prior to the
Automatic Redemption Date (the "Redemption Price") in accordance with Section
7.3. In connection with payment of the Redemption Price, the Corporation shall
be entitled to liquidate some of the BCo Common Stock which would otherwise be
deliverable as Exchangeable Share Consideration to the particular holder of
Exchangeable Shares in order to fund any statutory withholding tax obligation.
7.2 In any case of a redemption of Exchangeable Shares under this Article 7, the
Corporation, or the Transfer Agent on behalf of the Corporation, shall, at least
45 days before an Automatic Redemption Date or before a possible Automatic
Redemption Date which may result from a failure of the holders of Exchangeable
Shares to take necessary action as described in clause (d) of the definition of
Automatic Redemption Date send or cause to be sent to each holder of
Exchangeable Shares a notice in writing of the redemption or possible redemption
by the Corporation or the purchase by BCo under the Redemption Call Right, as
the case may be, of the Exchangeable Shares held by such holder. Such notice
shall set out the Redemption Price or the Redemption Call Purchase Price, as the
case may be, the Automatic Redemption Date and, if applicable, particulars of
the Redemption Call Right. In the case of any notice given in connection with a
possible Automatic Redemption Date, such notice will be given contingently and
will be withdrawn if the contingency does not occur.
7.3 On or after the Automatic Redemption Date and subject to the exercise by BCo
of the Redemption Call Right, the Corporation shall cause to be delivered to the
holders of the Exchangeable Shares to be redeemed the Redemption Price for each
such Exchangeable Share upon presentation and surrender at the registered office
of the Corporation or at any office of the Transfer Agent as may be specified by
the Corporation in such notice of the certificates representing such
Exchangeable Shares, together with such other documents and instruments as may
be required to effect a transfer of Exchangeable Shares under applicable law and
the by-laws of the Corporation and such additional documents and instruments as
the Transfer Agent may reasonably require. Payment of the total Redemption Price
for such Exchangeable Shares shall be made by delivery to each holder, at the
address of the holder recorded in the securities register or at any office of
the Transfer Agent as may be specified by the Corporation in such notice, on
behalf of the Corporation, of the Exchangeable Share Consideration representing
the total Redemption Price. On and after the Automatic Redemption Date, the
holders of the Exchangeable Shares called for redemption shall cease to be
holders of such Exchangeable Shares and shall not be entitled to exercise any of
the rights of holders in respect thereof, other than the right to receive their
proportionate part of the total Redemption Price, unless payment of the total
Redemption Price for such Exchangeable Shares shall not be made upon
presentation and surrender of certificates in accordance with the foregoing
provisions, in which case the rights of the holders shall remain unaffected
until the total Redemption Price has been paid in the manner hereinbefore
provided. The Corporation shall have the right at any time after the sending of
notice of its intention to redeem the Exchangeable Shares as aforesaid to
deposit or cause to be deposited the Exchangeable Share Consideration with
respect to the Exchangeable Shares so called for redemption, or of such of the
said Exchangeable Shares represented by certificates that have not at the date
of such deposit been surrendered by the holders thereof in connection with such
redemption, in a custodial account or for safe keeping, in the case of non-cash
items, with any chartered bank or trust company in Canada named in such notice.
Upon the later of such deposit being made and the Automatic Redemption Date, the
Exchangeable Shares in respect whereof such
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deposit shall have been made shall be redeemed and the rights of the holders
thereof after such deposit or Automatic Redemption Date, as the case may be,
shall be limited to receiving their proportionate part of the total Redemption
Price for such Exchangeable Shares so deposited, against presentation and
surrender of the said certificates held by them, respectively, in accordance
with the foregoing provisions. Upon such payment or deposit of such Exchangeable
Share Consideration, the holders of the Exchangeable Shares shall thereafter be
considered and deemed for all purposes to be holders of the BCo Common Stock
delivered to them. Notwithstanding the foregoing, until such payment or deposit
of such Exchangeable Share Consideration is made, the holder shall be deemed to
still be a holder of Exchangeable Shares for purposes of all voting rights with
respect thereto under the Voting and Exchange Trust Agreement.
ARTICLE 8
EXCHANGE PUT RIGHT
8.1 Upon and subject to the terms and conditions contained in these share
provisions and the Voting and Exchange Trust Agreement:
(a) a holder of Exchangeable Shares shall have the right (the "Exchange
Put Right") at any time to require BCo to purchase all or any part of
the Exchangeable Shares of the holder; and
(b) upon the exercise by the holder of the Exchange Put Right and
provided that, at the time of purchase, the Exchangeable Shares are
listed on a recognized Canadian stock exchange, the holder shall be
required to sell to BCo, and BCo shall be required to purchase from the
holder, that number of Exchangeable Shares in respect of which the
Exchange Put Right is exercised, in consideration of the payment by BCo
of the Exchangeable Share Price applicable thereto (which shall be the
Exchangeable Share Price applicable on the last Business Day prior to
receipt of notice required under section 8.2) and delivery by or on
behalf of BCo of the Exchangeable Share Consideration representing the
total applicable Exchangeable Share Price. In connection with payment of
the Exchangeable Share Consideration, the Corporation shall be entitled
to liquidate some of the BCo Common Stock which would otherwise be
deliverable to the particular holder of Exchangeable Shares in order to
fund any statutory withholding tax obligation.
8.2 The Exchange Put Right provided in section 8.1 hereof and in Article 5 of
the Voting and Exchange Trust Agreement may be exercised at any time by notice
in writing given by the holder to and received by the Trustee (the date of such
receipt, the "Exchange Put Date") and accompanied by presentation and surrender
of the certificates representing such Exchangeable Shares, together with such
documents and instruments as may be required to effect a transfer of
Exchangeable Shares under the Act and the by-laws of the Corporation and such
additional documents and instruments as the Trustee may reasonably require, at
the principal transfer offices in Calgary, Alberta and Toronto, Ontario of the
Trustee, or at such other office or offices of the Trustee or of other persons
designated by the Trustee for that purpose as may from time to time be
maintained by the Trustee for that purpose. Such notice may be (i) in the form
of the panel, if any, on the certificates representing Exchangeable Shares, (ii)
in the form of the notice and election contained in any letter of transmittal
distributed or made available by the Corporation for that purpose, or (iii) in
other form satisfactory to the Trustee (or such other persons aforesaid), shall
stipulate the number of Exchangeable Shares in respect of which the right is
exercised (which may not exceed the number of shares represented by certificates
surrendered to the Trustee), shall be irrevocable unless the exchange is not
completed in accordance herewith and with the Voting and Exchange Trust
Agreement and shall constitute the holder's authorization to the Trustee (and
such other persons aforesaid) to effect the exchange on behalf of the holder.
8.3 The completion of the sale and purchase referred to in section 8.1 shall be
required to occur, and BCo shall be required to take all actions on its part
necessary to permit it to occur, not later than the close of business on the
third Business Day following the Exchange Put Date.
8.4 The surrender by the holder of Exchangeable Shares under section 8.2 shall
constitute the representation, warranty and covenant of the holder that the
Exchangeable Shares so purchased are sold free and clear of any lien,
encumbrance, security interest or adverse claim or interest.
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8.5 If a part only of the Exchangeable Shares represented by any certificate are
to be sold and purchased pursuant to the exercise of the Exchange Put Right, a
new certificate for the balance of such Exchangeable Shares shall be issued to
the holder at the expense of the Corporation.
8.6 Upon receipt by the Trustee of the notice, certificates and other documents
or instruments required by section 8.2, the Trustee shall deliver or cause to be
delivered, on behalf of BCo and subject to receipt by the Trustee from BCo of
the applicable Exchangeable Share Consideration, to the relevant holder at the
address of the holder specified in the notice or by holding for pick-up by the
holder at the registered office of the Corporation or at any office of the
Trustee (or other persons aforesaid) maintained for that purpose, the
Exchangeable Share Consideration representing the total applicable Exchangeable
Share Price, within the time stipulated in section 8.3. Delivery by BCo to the
Trustee of such Exchangeable Share Consideration shall be deemed to be payment
of and shall satisfy and discharge all liability for the total applicable
Exchangeable Share Price, except as to any cheque included therein which is not
paid on due presentation.
8.7 On and after the close of business on the Exchange Put Date, the holder of
the Exchangeable Shares in respect of which the Exchange Put Right is exercised
shall not be entitled to exercise any of the rights of a holder in respect
thereof, other than the right to receive the total applicable Exchangeable Share
Price, unless upon presentation and surrender of certificates in accordance with
the foregoing provisions, payment of the Exchangeable Share Consideration shall
not be made, in which case the rights of such holder shall remain unaffected
until such payment has been made. On and after the close of business on the
Exchange Put Date provided that presentation and surrender of certificates and
payment of the Exchangeable Share Consideration has been made in accordance with
the foregoing provisions, the holder of the Exchangeable Shares so purchased by
BCo shall thereafter be considered and deemed for all purposes to be a holder of
the BCo Common Stock delivered to it. Notwithstanding the foregoing, until
payment of the Exchangeable Share Consideration to the holder, the holder shall
be deemed to still be a holder of Exchangeable Shares for purposes of all voting
rights with respect thereto under the Voting and Exchange Trust Agreement.
ARTICLE 9
VOTING RIGHTS
9.1 Except as required by applicable law and the provisions hereof, the holders
of the Exchangeable Shares shall not be entitled as such to receive notice of or
to attend any meeting of the shareholders of the Corporation or to vote at any
such meeting.
ARTICLE 10
AMENDMENT AND APPROVAL
10.1 The rights, privileges, restrictions and conditions attaching to the
Exchangeable Shares may be added to, changed or removed but, except as
hereinafter provided, only with the approval of the holders of the Exchangeable
Shares given as hereinafter specified.
10.2 Any approval given by the holders of the Exchangeable Shares to add to,
change or remove any right, privilege, restriction or condition attaching to the
Exchangeable Shares or any other matter requiring the approval or consent of the
holders of the Exchangeable Shares shall be deemed to have been sufficiently
given if it shall have been given in accordance with applicable law subject to a
minimum requirement that such approval be evidenced by resolution passed by not
less than 66 2/3% of the votes cast on such resolution by persons represented in
person or by proxy at a meeting of holders of Exchangeable Shares (excluding
Exchangeable Shares beneficially owned by BCo or its Subsidiaries) duly called
and held at which the holders of at least 20% of the outstanding Exchangeable
Shares at that time are present or represented by proxy. If at any such meeting
the holders of at least 20% of the outstanding Exchangeable Shares at that time
are not present or represented by proxy within one-half hour after the time
appointed for such meeting, then the meeting shall be adjourned to such date not
less than 10 days thereafter and to such time and place as may be designated by
the Chairman of such meeting. At such adjourned meeting, the holders of
Exchangeable Shares present or represented by proxy thereat may transact the
business for which the meeting was originally called and a resolution passed
thereat by the
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affirmative vote of not less than 66 2/3% of the votes cast on such resolution
by persons represented in person or by proxy at such meeting (excluding
Exchangeable Shares beneficially owned by BCo or its Subsidiaries) shall
constitute the approval or consent of the holders of the Exchangeable Shares.
For the purposes of this section, any spoiled votes, illegible votes, defective
votes and abstinences shall be deemed to be votes not cast.
ARTICLE 11
RECIPROCAL CHANGES, ETC. IN RESPECT OF BCO COMMON STOCK
11.1 (a) Each holder of an Exchangeable Share acknowledges that the Support
Agreement provides, in part, that BCo will not:
(i) issue or distribute shares of BCo Common Stock (or securities
exchangeable for or convertible into or carry rights to acquire
shares of BCo Common Stock) to the holders of all or substantially
all of the then outstanding shares of BCo Common Stock by way of
stock dividend or other distribution; or
(ii) issue or distribute rights, options or warrants to the holders of
all or substantially all of the then outstanding shares of BCo
Common Stock entitling them to subscribe for or to purchase shares
of BCo Common Stock (or securities exchangeable for or convertible
into or carrying rights to acquire shares of BCo Common Stock); or
(iii) issue or distribute to the holders of all or substantially all of
the then outstanding shares of BCo Common Stock (A) shares or
securities of BCo of any class other than BCo Common Stock (other
than shares convertible into or exchangeable for or carrying rights
to acquire shares of BCo Common Stock), (B) rights, options or
warrants other than those referred to in subsection 11.1 (a) (ii)
above, (C) evidences of indebtedness of BCo or (D) assets of BCo;
unless
(iv) one or both of BCo and the Corporation is permitted under
applicable law to issue or distribute the economic equivalent on a
per share basis of such rights, options, warrants, securities,
shares, evidences of indebtedness or other assets to the holders of
the Exchangeable Shares; and
(v) one or both of BCo and the Corporation shall issue or distribute
the economic equivalent on a per share basis of such rights,
options, warrants, securities, shares, evidences of indebtedness or
other assets simultaneously to the holders of the Exchangeable
Shares.
(b) Each holder of an Exchangeable Share acknowledges that the Support
Agreement further provides, in part, that BCo will not:
(i) subdivide, redivide or change the then outstanding shares of BCo
Common Stock into a greater number of shares of BCo Common Stock;
or
(ii) reduce, combine or consolidate or change the then outstanding
shares of BCo Common Stock into a lesser number of shares of BCo
Common Stock; or
(iii) reclassify or otherwise change the shares of BCo Common Stock or
effect an amalgamation, merger, reorganization or other transaction
involving or affecting the shares of BCo Common Stock;
unless
(iv) the Corporation is permitted under applicable law to
simultaneously make the same or an economically equivalent change
to, or in the rights of the holders of, the Exchangeable Shares;
and
(v) the same or an economically equivalent change is simultaneously
made to, or in the rights of the holders of, the Exchangeable
Shares.
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The Support Agreement further provides, in part, that, with the exception
of certain ministerial amendments, the aforesaid provisions of the Support
Agreement shall not be changed without the approval of the holders of the
Exchangeable Shares given in accordance with Article 10 of these share
provisions.
ARTICLE 12
ACTIONS BY THE CORPORATION UNDER SUPPORT AGREEMENT
12.1 The Corporation will take all such actions and do all such things as shall
be necessary or advisable to perform and comply with and to ensure performance
and compliance by BCo with all provisions of the Support Agreement, the Voting
Trust and Exchange Agreement and BCo's Certificate of Incorporation applicable
to the Corporation and BCo, respectively, in accordance with the terms thereof
including, without limitation, taking all such actions and doing all such things
as shall be necessary or advisable to enforce to the fullest extent possible for
the direct benefit of the Corporation all rights and benefits in favour of the
Corporation under or pursuant thereto.
12.2 The Corporation shall not propose, agree to or otherwise give effect to any
amendment to, or waiver or forgiveness of its rights or obligations under, the
Support Agreement, the Voting Trust and Exchange Agreement or BCo's Certificate
of Incorporation without the approval of the holders of the Exchangeable Shares
given in accordance with Article 10 of these share provisions other than such
amendments, waivers and/or forgiveness as may be necessary or advisable for the
purpose of:
(a) adding to the covenants of the other party or parties to such
agreement for the protection of the Corporation or the holders of
Exchangeable Shares; or
(b) making such provisions or modifications not inconsistent with such
agreement or certificate as may be necessary or desirable with respect
to matters or questions arising thereunder which, in the opinion of the
Board of Directors, it may be expedient to make, provided that the Board
of Directors shall be of the opinion, after consultation with counsel,
that such provisions and modifications will not be prejudicial to the
interests of the holders of the Exchangeable Shares; or
(c) making such changes in or corrections to such agreement or
certificate which, on the advice of counsel to the Corporation, are
required for the purpose of curing or correcting any ambiguity or defect
or inconsistent provision or clerical omission or mistake or manifest
error contained therein, provided that the Board of Directors shall be
of the opinion, after consultation with counsel, that such changes or
corrections will not be prejudicial to the interests of the holders of
the Exchangeable Shares.
ARTICLE 13
LEGEND
13.1 The certificates evidencing the Exchangeable Shares shall contain or have
affixed thereto a legend, in form and on terms approved by the Board of
Directors, with respect to the Support Agreement, the provisions of the Plan of
Arrangement relating to the Liquidation Call Right, the Retraction Call Right
and the Redemption Call Right, and the Voting and Exchange Trust Agreement
(including the provisions with respect to the voting rights and exchange
provisions thereunder).
ARTICLE 14
MISCELLANEOUS
14.1 Any notice, request or other communication to be given to the Corporation
by a holder of Exchangeable Shares shall be in writing and shall be valid and
effective if given by mail (postage prepaid) or by telecopy or by delivery to
the registered office of the Corporation and addressed to the attention of the
President. Any such notice, request or other communication, if given by mail,
telecopy or delivery, shall only be deemed to have been given and received upon
actual receipt thereof by the Corporation.
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14.2 Any presentation and surrender by a holder of Exchangeable Shares to the
Corporation or the Transfer Agent of certificates representing Exchangeable
Shares in connection with the liquidation, dissolution or winding-up of the
Corporation or the retraction, redemption or exchange of Exchangeable Shares
shall be made by registered mail (postage prepaid) or by delivery to the
registered office of the Corporation or to such office of the Transfer Agent as
may be specified by the Corporation, in each case addressed to the attention of
the President of the Corporation. Any such presentation and surrender of
certificates shall only be deemed to have been made and to be effective upon
actual receipt thereof by the Corporation or the Transfer Agent, as the case may
be, and the method of any such presentation and surrender of certificates shall
be at the sole risk of the holder.
14.3 Any notice, request or other communication to be given to a holder of
Exchangeable Shares by or on behalf of the Corporation shall be in writing and
shall be valid and effective if given by mail (postage prepaid) or by delivery
to the address of the holder recorded in the securities register of the
Corporation or, in the event of the address of any such holder not being so
recorded, then at the last address of such holder known to the Corporation. Any
such notice, request or other communication, if given by mail, shall be deemed
to have been given and received on the fifth Business Day following the date of
mailing and, if given by delivery, shall be deemed to have been given and
received on the date of delivery. Accidental failure or omission to give any
notice, request or other communication to one or more holders of Exchangeable
Shares shall not invalidate or otherwise alter or affect any action or
proceeding to be or intended to be taken by the Corporation.
14.4 For greater certainty, the Corporation shall not be required for any
purpose under these share provisions to recognize or take account of persons who
are not so recorded in such securities register.
14.5 All Exchangeable Shares acquired by the Corporation upon the redemption or
retraction thereof shall be canceled.
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SCHEDULE A
RETRACTION REQUEST
To the Corporation and Burlington Resources Inc. ("BCo")
This request is given pursuant to Article 6 of the provisions (the "Share
Provisions") attaching to the Exchangeable Shares of the Corporation and all
capitalized words and expressions used in this request which are defined in the
Share Provisions have the meaning attributed to such words and expressions in
such Share Provisions.
The undersigned hereby notifies the Corporation that, subject to the
Retraction Call Right referred to below, the undersigned requests the
Corporation to redeem in accordance with Article 6 of the Share Provisions:
[ ] all share(s) represented by the accompanying certificate(s); or
[ ] share(s) only.
The undersigned hereby notifies the Corporation that the Retraction Date
shall be
NOTE: The Retraction Date must be a Business Day and must not be less than five
Business Days nor more than 10 Business Days after the date upon which
this notice and the accompanying shares are received at the registered
office of the Corporation or at any office of the Transfer Agent as may be
specified in this Retraction Request or as may be specified by the
Corporation by notice to the holders of the Exchangeable Shares. In the
event that no such Business Day is correctly specified above, the
Retraction Date shall be deemed to be the tenth Business Day after the
date on which this request is received by the Corporation.
The undersigned acknowledges the Retraction Call Right of BCo to purchase
all but not less than all the Retracted Shares from the undersigned and that
this request shall be deemed to be a revocable offer by the undersigned to sell
the Retracted Shares to BCo in accordance with the Retraction Call Right on the
Retraction Date for the Retraction Price and on the other terms and conditions
set out in Section 6.3 of the Share Provisions. If BCo determines not to
exercise the Retraction Call Right, the Corporation will notify the undersigned
of such fact as soon as possible. This retraction request, and offer to sell the
Retracted Shares to BCo, may be revoked and withdrawn by the undersigned by
notice in writing given to the Corporation at any time before the close of
business on the Business Date immediately preceding the Retraction Date.
The undersigned acknowledges that if, as a result of liquidity or solvency
provisions of applicable law, the Corporation is unable to redeem all Retracted
Shares, the undersigned will be deemed to have exercised the Exchange Right (as
defined in the Voting and Exchange Trust Agreement) so as to require BCo to
purchase the unredeemed Retracted Shares.
The undersigned hereby represents and warrants to the Corporation and BCo
that the undersigned has good title to, and owns, the share(s) represented by
the accompanying certificate free and clear of all liens, claims, encumbrances,
security interests and adverse claims or interests.
<TABLE>
<S> <C> <C>
- ---------------------- -------------------------------------------- --------------------------------------------
(Date) (Signature of Shareholder) (Guarantee of Signature)
</TABLE>
[ ] Please check box if the legal or beneficial owner of the Retracted Shares
is a non-resident of Canada.
[ ] Please check box if the securities and any cheque(s) or other non-cash
assets resulting from the retraction of the Retracted Shares are to be held
for pick-up by the shareholder at the principal transfer offices of CIBC
Mellon Trust Company (the "Transfer Agent") in Calgary, Alberta or
Toronto, Ontario, failing
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which the securities and any cheque(s) or other non-cash assets will be
delivered to the shareholder in accordance with the share provisions.
NOTE: This panel must be completed and the accompanying certificate, together
with such additional documents as the Transfer Agent may require, must be
deposited with the Transfer Agent at its principal transfer offices in
Calgary, Alberta or Toronto, Ontario. The securities and any cheque(s) or
other non-cash assets resulting from the retraction or purchase of the
Retracted Shares will be issued and registered in, and made payable to, or
transferred into, respectively, the name of the shareholder as it appears
on the register of the Corporation and the securities, cheque (s) and
other non-cash assets resulting from such retraction or purchase will be
delivered to the shareholder in accordance with the Share Provisions.
<TABLE>
<S> <C>
- -------------------------------------------------------- --------------------------------------------------------
Name of Person in Whose Name Securities or Cheque(s) or Date
Other Non-cash Assets Are To Be Registered, Issued or
Delivered (please print)
- -------------------------------------------------------- --------------------------------------------------------
Street Address or P.O. Box Signature of Shareholder
- -------------------------------------------------------- --------------------------------------------------------
City, Province Signature Guaranteed by
</TABLE>
NOTE: If this retraction request is for less than all of the share(s)
represented by the accompanying certificate, a certificate representing
the remaining shares of the Corporation will be issued and registered in
the name of the shareholder as it appears on the register of the
Corporation or its lawful transferee.
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B. OTHER PROVISIONS
1.1 MEETINGS
Meetings of shareholders of the Corporation shall be held in the location
determined by the directors of the Corporation, and may be held in Houston,
Texas, or at any location within Alberta.
1.2 DEFINITIONS
Unless there is something in the subject matter or context inconsistent
therewith in Sections 1.3, 1.4 and 1.5 below, the following terms shall have the
respective meanings set out below and grammatical variations of such terms shall
have corresponding meanings:
"ABCA" means the Business Corporations Act (Alberta), as amended;
"Automatic Redemption Date" has the meaning provided in the Exchangeable
Share Provisions;
"BCo" has the meaning provided in the Exchangeable Share Provisions;
"BCo Common Stock" has the meaning provided in the Exchangeable Share
Provisions;
"Business Day" has the meaning provided in the Exchangeable Share
Provisions;
"Exchange Put Right" has the meaning provided in the Exchangeable Share
Provisions;
"Exchangeable Share Consideration" has the meaning provided in the
Exchangeable Share Provisions;
"Exchangeable Share Price" has the meaning provided in the Exchangeable
Share Provisions;
"Exchangeable Share Provisions" means the rights, privileges, restrictions
and conditions attaching to the Exchangeable Shares;
"Exchangeable Shares" means the Exchangeable Shares in the capital of the
Corporation;
"Liquidation Call Purchase Price" has the meaning provided in Section 1.3;
"Liquidation Call Right" has the meaning provided in Section 1.3;
"Liquidation Date" has the meaning provided in the Exchangeable Share
Provisions;
"Redemption Call Purchase Price" has the meaning provided in Section 1.4;
"Redemption Call Right" has the meaning provided in Section 1.4;
"Subsidiary" has the meaning provided in the Exchangeable Share Provisions;
"Transfer Agent" means the duly appointed transfer agent for the time being
of the Exchangeable Shares, and, if there is more than one such transfer agent,
then the principal Canadian transfer agent; and
"Voting and Exchange Trust Agreement" has the meaning provided in the
Exchangeable Share Provisions.
1.3 BCO LIQUIDATION CALL RIGHT
(a) BCo shall have the overriding right (the "Liquidation Call Right"),
in the event of and notwithstanding any proposed liquidation,
dissolution or winding-up of the Corporation as referred to in Article 5
of the Exchangeable Share Provisions, to purchase from all but not less
than all of the holders (other than BCo or any Subsidiary thereof) of
Exchangeable Shares on the Liquidation Date all but not less than all of
the Exchangeable Shares held by such holders on payment by BCo to each
holder of the Exchangeable Share Price applicable on the last Business
Day prior to the Liquidation Date (the "Liquidation Call Purchase
Price") in accordance with subsection 1.3(c). In the event of the
exercise of the Liquidation Call Right by BCo, each holder shall be
obligated to sell all the Exchangeable Shares held by such holder to BCo
on the Liquidation Date on payment by BCo to the holder of the
Liquidation Call Purchase Price for each such share.
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(b) To exercise the Liquidation Call Right, BCo must notify the
Corporation's Transfer Agent in writing, as agent for the holders of
Exchangeable Shares, and the Corporation of BCo's intention to exercise
such right at least 55 days before the Liquidation Date in the case of a
voluntary liquidation, dissolution or winding-up of the Corporation and
at least five Business Days before the Liquidation Date in the case of
an involuntary liquidation, dissolution or winding-up of the
Corporation. The Transfer Agent will notify the holders of Exchangeable
Shares as to whether or not BCo has exercised the Liquidation Call Right
forthwith after the expiry of the date by which the same may be
exercised by BCo. If BCo exercises the Liquidation Call Right, on the
Liquidation Date, BCo will purchase and the holders will sell all of the
Exchangeable Shares then outstanding for a price per share equal to the
Liquidation Call Purchase Price.
(c) For the purposes of completing the purchase of the Exchangeable
Shares pursuant to the Liquidation Call Right, BCo shall deposit with
the Transfer Agent, on or before the Liquidation Date, the Exchangeable
Share Consideration representing the total Liquidation Call Purchase
Price. Provided that such Exchangeable Share Consideration has been so
deposited with the Transfer Agent, on and after the Liquidation Date,
the right of each holder of Exchangeable Shares will be limited to
receiving such holder's proportionate part of the total Liquidation Call
Purchase Price payable by BCo, without interest, upon presentation and
surrender by the holder of certificates representing the Exchangeable
Shares held by such holder and the holder shall, on and after the
Liquidation Date, be considered and deemed for all purposes to be the
holder of the BCo Common Stock delivered to such holder. Upon surrender
to the Transfer Agent of a certificate or certificates representing
Exchangeable Shares, together with such other documents and instruments
as may be required to effect a transfer of Exchangeable Shares under the
ABCA and the by-laws of the Corporation and such additional documents
and instruments as the Transfer Agent may reasonably require, the holder
of such surrendered certificate or certificates shall be entitled to
receive in exchange therefor, and the Transfer Agent on behalf of BCo
shall deliver to such holder, the Exchangeable Share Consideration to
which such holder is entitled. If BCo does not exercise the Liquidation
Call Right in the manner described above, on the Liquidation Date, the
holders of the Exchangeable Shares will be entitled to receive in
exchange therefor the liquidation price otherwise payable by the
Corporation in connection with the liquidation, dissolution or
winding-up of the Corporation pursuant to Article 5 of the Exchangeable
Share Provisions. Notwithstanding the foregoing, until such Exchangeable
Share Consideration is delivered to the holder, the holder shall be
deemed to still be a holder of Exchangeable Shares for purposes of all
voting rights with respect thereto under the Voting and Exchange Trust
Agreement.
1.4 BCO REDEMPTION CALL RIGHT
(a) BCo shall have the overriding right (the "Redemption Call Right"),
notwithstanding any proposed redemption of the Exchangeable Shares by
the Corporation pursuant to Article 7 of the Exchangeable Share
Provisions, to purchase from all but not less than all of the holders
(other than BCo or any Subsidiary thereof) of Exchangeable Shares on the
Automatic Redemption Date all but not less than all of the Exchangeable
Shares held by each such holder on payment by BCo to the holder of the
Exchangeable Share Price applicable on the last Business Day prior to
the Automatic Redemption Date (the "Redemption Call Purchase Price") in
accordance with subsection 1.4(c). In the event of the exercise of the
Redemption Call Right by BCo, each holder shall be obligated to sell all
the Exchangeable Shares held by the holder to BCo on the Automatic
Redemption Date on payment by BCo to the holder of the Redemption Call
Purchase Price for each such share.
(b) To exercise the Redemption Call Right, BCo must notify the Transfer
Agent in writing, as agent for the holders of Exchangeable Shares, and
the Corporation of the Corporation's intention to exercise such right
not later than the date by which the Corporation is required to give
notice of the Automatic Redemption Date. The Transfer Agent will notify
the holders of the Exchangeable Shares as to whether or not BCo has
exercised the Redemption Call Right forthwith after the date by which
the same may be exercised by BCo. If BCo exercises the Redemption Call
Right, on the Automatic
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Redemption Date, BCo will purchase and the holders will sell all of the
Exchangeable Shares then outstanding for a price per share equal to the
Redemption Call Purchase Price.
(c) For the purposes of completing the purchase of the Exchangeable
Shares pursuant to the Redemption Call Right, BCo shall deposit with the
Transfer Agent, on or before the Automatic Redemption Date, the
Exchangeable Share Consideration representing the total Redemption Call
Purchase Price. Provided that such Exchangeable Share Consideration has
been so deposited with the Transfer Agent, on and after the Automatic
Redemption Date, the rights of each holder of Exchangeable Shares will
be limited to receiving such holder's proportionate part of the total
Redemption Call Purchase Price payable by BCo upon presentation and
surrender by the holder of certificates representing the Exchangeable
Shares held by such holder and the holder shall on and after the
Automatic Redemption Date be considered and deemed for all purposes to
be the holder of the BCo Common Stock delivered to such holder. Upon
surrender to the Transfer Agent of a certificate or certificates
representing Exchangeable Shares, together with such other documents and
instruments as may be required to effect a transfer of Exchangeable
Shares under the ABCA and the by-laws of the Corporation and such
additional documents and instruments as the Transfer Agent may
reasonably require, the holder of such surrendered certificate or
certificates shall be entitled to receive in exchange therefor, and the
Transfer Agent on behalf of BCo shall deliver to such holder, the
Exchangeable Share Consideration to which such holder is entitled. If
BCo does not exercise the Redemption Call Right in the manner described
above, on the Automatic Redemption Date, the holders of the Exchangeable
Shares will be entitled to receive in exchange therefor the redemption
price otherwise payable by the Corporation in connection with the
redemption of the Exchangeable Shares pursuant to Article 7 of the
Exchangeable Share Provisions. Notwithstanding the foregoing, until such
Exchangeable Share Consideration is delivered to the holder, the holder
shall be deemed to still be a holder of Exchangeable Shares for purposes
of all voting rights with respect thereto under the Voting and Exchange
Trust Agreement.
1.5 EXCHANGE PUT RIGHT
Upon and subject to the terms and conditions contained in the Exchangeable
Share Provisions and the Voting and Exchange Trust Agreement, a holder of
Exchangeable Shares shall have the Exchange Put Right.
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ANNEX F
FORM OF SUPPORT AGREEMENT
<PAGE> 166
EXHIBIT C
SUPPORT AGREEMENT
THIS SUPPORT AGREEMENT is entered into as of --, 1999, between BURLINGTON
RESOURCES INC., a Delaware corporation ("BCo"), and Burlington Canada Resources
Inc., an Alberta corporation ("BCo Sub").
RECITALS
WHEREAS, pursuant to an Amended and Restated Combination Agreement dated
effective as of August 16, 1999, by and between BCo and Poco Petroleums Ltd.
("PCo") (such agreement, as it may be further amended or restated, is
hereinafter referred to as the "Combination Agreement"), the parties agreed that
on the Effective Date (as defined in the Combination Agreement), BCo and BCo Sub
would execute and deliver a Support Agreement containing the terms and
conditions set forth in Exhibit C to the Combination Agreement together with
such other terms and conditions as may be agreed to by the parties to the
Combination Agreement acting reasonably.
WHEREAS, pursuant to an arrangement (the "Arrangement") effected by
Articles of Arrangement dated -- , 1999 filed pursuant to the Business
Corporations Act (Alberta) (or any successor or other corporate statute by which
PCo may in the future be governed) (the "Act") each issued and outstanding
common share of PCo (a "PCo Common Share") was exchanged for issued and
outstanding Exchangeable Shares of BCo Sub (the "Exchangeable Shares").
WHEREAS, the Articles of Incorporation of BCo Sub set forth the rights,
privileges, restrictions and conditions (collectively, the "Exchangeable Share
Provisions") attaching to the Exchangeable Shares.
WHEREAS, the parties hereto desire to make appropriate provision and to
establish a procedure whereby BCo will take certain actions and make certain
payments and deliveries necessary to ensure that BCo Sub will be able to make
certain payments and to deliver or cause to be delivered shares of BCo Common
Stock in satisfaction of the obligations of BCo Sub under the Exchangeable Share
Provisions with respect to the payment and satisfaction of dividends,
Liquidation Amounts, Retraction Prices and Redemption Prices, all in accordance
with the Exchangeable Share Provisions.
NOW, THEREFORE, in consideration of the respective covenants and agreements
provided in this agreement and for other good and valuable consideration (the
receipt and sufficiency of which are hereby acknowledged), the parties agree as
follows:
ARTICLE 1
DEFINITIONS AND INTERPRETATION
1.1 DEFINED TERMS
Each term denoted herein by initial capital letters and not otherwise
defined herein shall have the meaning attributed thereto in the Exchangeable
Share Provisions, unless the context requires otherwise.
1.2 INTERPRETATION NOT AFFECTED BY HEADINGS, ETC.
The division of this agreement into articles, sections and paragraphs and
the insertion of headings are for convenience of reference only and shall not
affect the construction or interpretation of this agreement.
1.3 NUMBER, GENDER, ETC.
Words importing the singular number only shall include the plural and vice
versa. Words importing the use of any gender shall include all genders.
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1.4 DATE FOR ANY ACTION
If any date on which any action is required to be taken under this
agreement is not a Business Day, such action shall be required to be taken on
the next succeeding Business Day.
ARTICLE 2
COVENANTS OF BCO AND BCO SUB
2.1 COVENANTS OF BCO REGARDING EXCHANGEABLE SHARES
So long as any Exchangeable Shares are outstanding, BCo will:
(a) not declare or pay any dividend on BCo Common Stock unless (i) BCo
Sub will have sufficient assets, funds and other property available to
enable the due declaration and the due and punctual payment in
accordance with applicable law of an equivalent dividend on the
Exchangeable Shares and (ii) subsection 2.1 (b) shall be complied with
in connection with such dividend;
(b) cause BCo Sub to declare simultaneously with the declaration of any
dividend on BCo Common Stock an equivalent dividend on the Exchangeable
Shares and, when such dividend is paid on BCo Common Stock, cause BCo
Sub to pay simultaneously therewith such equivalent dividend on the
Exchangeable Shares, in each case in accordance with the Exchangeable
Share Provisions;
(c) advise BCo Sub sufficiently in advance of the declaration by BCo of
any dividend on BCo Common Stock and take all such other actions as are
necessary, in cooperation with BCo Sub, to ensure that the respective
declaration date, record date and payment date for a dividend on the
Exchangeable Shares shall be the same as the record date, declaration
date and payment date for the corresponding dividend on BCo Common Stock
and that such dividend on the Exchangeable Shares will correspond with
any requirement of the principal stock exchange on which the
Exchangeable Shares are listed;
(d) ensure that the record date for any dividend declared on BCo Common
Stock is not less than ten Business Days after the declaration date for
such dividend;
(e) take all such actions and do all such things as are necessary or
desirable to enable and permit BCo Sub, in accordance with applicable
law, to pay and otherwise perform its obligations with respect to the
satisfaction of the Liquidation Amount in respect of each issued and
outstanding Exchangeable Share upon the liquidation, dissolution or
winding-up of BCo Sub or any other distribution of the assets of BCo Sub
for the purpose of winding-up its affairs, including without limitation
all such actions and all such things as are necessary or desirable to
enable and permit BCo Sub to cause to be delivered shares of BCo Common
Stock to the holders of Exchangeable Shares in accordance with the
provisions of Article 5 of the Exchangeable Share Provisions;
(f) take all such actions and do all such things as are necessary or
desirable to enable and permit BCo Sub, in accordance with applicable
law, to pay and otherwise perform its obligations with respect to the
satisfaction of the Retraction Price and the Redemption Price, including
without limitation all such actions and all such things as are necessary
or desirable to enable and permit BCo Sub to cause to be delivered
shares of BCo Common Stock to the holders of Exchangeable Shares, upon
the retraction or redemption of the Exchangeable Shares in accordance
with the provisions of Article 6 or Article 7 of the Exchangeable Share
Provisions, as the case may be; and
(g) not exercise its vote as a direct or indirect shareholder to initiate
the voluntary liquidation, dissolution or winding-up of BCo Sub nor take
any action or omit to take any action that is designed to result in the
liquidation, dissolution or winding-up of BCo Sub.
2.2 SEGREGATION OF FUNDS
BCo will cause BCo Sub to deposit a sufficient amount of funds in a
separate account and segregate a sufficient amount of such assets and other
property as is necessary to enable BCo Sub to pay or otherwise satisfy
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the applicable dividends, Liquidation Amount, Retraction Price or Redemption
Price, in each case for the benefit of holders from time to time of the
Exchangeable Shares, and BCo Sub will use such funds, assets and other property
so segregated exclusively for the payment of dividends and the payment or other
satisfaction of the Liquidation Amount, the Retraction Price or the Redemption
Price, as applicable, net of any corresponding withholding tax obligations and
for the remittance of such withholding tax obligations.
2.3 RESERVATION OF SHARES OF BCO COMMON STOCK
BCo hereby represents, warrants and covenants that it has irrevocably
reserved for issuance and will at all times keep available, free from
pre-emptive and other rights, out of its authorized and unissued capital stock
such number of shares of BCo Common Stock (or other shares or securities into
which BCo Common Stock may be reclassified or changed as contemplated by section
2.7 hereof) (i) as is equal to the sum of (A) the number of Exchangeable Shares
issued and outstanding from time to time and (B) the number of Exchangeable
Shares issuable upon the exercise of all rights to acquire Exchangeable Shares
outstanding from time to time and (ii) as are now and may hereafter be required
to enable and permit BCo Sub to meet its obligations hereunder, under the Voting
and Exchange Trust Agreement, under the Exchangeable Share Provisions and under
any other security or commitment pursuant to the Arrangement with respect to
which BCo may now or hereafter be required to issue shares of BCo Common Stock.
2.4 NOTIFICATION OF CERTAIN EVENTS
In order to assist BCo to comply with its obligations hereunder, BCo Sub
will give BCo notice of each of the following events at the time set forth
below:
(a) immediately, in the event of any determination by the Board of
Directors of BCo Sub to take any action which would require a vote of
the holders of Exchangeable Shares for approval;
(b) immediately, upon the earlier of (i) receipt by BCo Sub of notice of,
and (ii) BCo Sub otherwise becoming aware of, any threatened or
instituted claim, suit, petition or other proceedings with respect to
the involuntary liquidation, dissolution or winding-up of BCo Sub or to
effect any other distribution of the assets of BCo Sub among its
shareholders for the purpose of winding-up its affairs;
(c) immediately, upon receipt by BCo Sub of a Retraction Request (as
defined in the Exchangeable Share Provisions);
(d) at least 130 days prior to any Automatic Redemption Date determined
by the Board of Directors of BCo Sub in accordance with clause (b) of
the definition of Automatic Redemption Date in the Exchangeable Share
Provisions;
(e) as soon as practicable upon the issuance by BCo Sub of any
Exchangeable Shares or rights to acquire Exchangeable Shares; and
(f) in the event of any determination by the Board of Directors of BCo
Sub to institute voluntary liquidation, dissolution or winding-up
proceedings with respect to BCo Sub or to effect any other distribution
of the assets of BCo Sub among its shareholders for the purpose of
winding-up its affairs, at least 60 days prior to the proposed effective
date of such liquidation, dissolution, winding-up or other distribution.
2.5 DELIVERY OF SHARES OF BCO COMMON STOCK
In furtherance of its obligations hereunder, upon notice of any event which
requires BCo Sub to cause to be delivered shares of BCo Common Stock to any
holder of Exchangeable Shares, BCo shall forthwith issue and deliver the
requisite shares of BCo Common Stock to or to the order of the former holder of
the surrendered Exchangeable Shares, as BCo Sub shall direct. All such shares of
BCo Common Stock shall be duly issued as fully paid and non-assessable and shall
be free and clear of any lien, claim, encumbrance, security interest or adverse
claim or interest.
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2.6 QUALIFICATION OF SHARES OF BCO COMMON STOCK
BCo covenants that if any shares of BCo Common Stock (or other shares or
securities into which BCo Common Stock may be reclassified or changed as
contemplated by Section 2.7 hereof) to be issued and delivered hereunder
(including for greater certainty, pursuant to the Exchangeable Share Provisions,
or pursuant to the Exchange Put Right, the Exchange Right or the Automatic
Exchange Rights (all as defined in the Voting and Exchange Trust Agreement))
require registration or qualification with or approval of or the filing of any
document including any prospectus or similar document, the taking of any
proceeding with or the obtaining of any order, ruling or consent from any
governmental or regulatory authority under any Canadian or United States
federal, provincial or state law or regulation or pursuant to the rules and
regulations of any regulatory authority, or the fulfillment of any other legal
requirement (collectively, the "Applicable Laws") before such shares (or other
shares or securities into which BCo Common Stock may be reclassified or changed
as contemplated by Section 2.7 hereof) may be issued and delivered by BCo to the
initial holder thereof (other than BCo Sub) or in order that such shares may be
freely traded thereafter (other than any restrictions on transfer by reason of a
holder being a "control person" of BCo for purposes of Canadian federal or
provincial securities law or an "affiliate" of BCo for purposes of United States
federal or state securities law), BCo will in good faith expeditiously take all
such actions and do all such things as are necessary to cause such shares of BCo
Common Stock (or other shares or securities into which BCo Common Stock may be
reclassified or changed as contemplated by Section 2.7 hereof) to be and remain
duly registered, qualified or approved. BCo represents and warrants that it has
in good faith taken all actions and done all things as are necessary under
Applicable Laws as they exist on the date hereof to cause the shares of BCo
Common Stock (or other shares or securities into which BCo Common Stock may be
reclassified or changed as contemplated by Section 2.7 hereof) to be issued and
delivered hereunder (including, for greater certainty, pursuant to the
Exchangeable Share Provisions, or pursuant to the Exchange Put Right, the
Exchange Right and the Automatic Exchange Rights) to be freely tradeable
thereafter (other than restrictions on transfer by reason of a holder being a
"control person" of BCo for the purposes of Canadian federal and provincial
securities law or an "affiliate" of BCo for purposes of United States federal or
state securities law). BCo will in good faith expeditiously take all such
actions and do all such things as are necessary to cause all shares of BCo
Common Stock (or other shares or securities into which BCo Common Stock may be
reclassified or changed as contemplated by Section 2.7 hereof) to be delivered
hereunder (including, for greater certainty, pursuant to Exchangeable Share
Provisions, or pursuant to the Exchange Put Right, the Exchange Right or the
Automatic Exchange Rights) to be listed, quoted or posted for trading on all
stock exchanges and quotation systems on which such shares are listed, quoted or
posted for trading at such time. BCo will in good faith expeditiously take all
such action and do all such things as are necessary to cause all Exchangeable
Shares to be and to continue to be listed and posted for trading on The Toronto
Stock Exchange or, in the event that a listing on The Toronto Stock Exchange is
not available, on another recognized Canadian stock exchange.
2.7 EQUIVALENCE
(a) BCo will not:
(i) issue or distribute shares of BCo Common Stock (or securities
exchangeable for or convertible into or carrying rights to acquire
shares of BCo Common Stock) to the holders of all or substantially
all of the then outstanding shares of BCo Common Stock by way of
stock dividend or other distribution; or
(ii) issue or distribute rights, options or warrants to the holders of
all or substantially all of the then outstanding shares of BCo
Common Stock entitling them to subscribe for or to purchase shares
of BCo Common Stock (or securities exchangeable for or convertible
into or carrying rights to acquire shares of BCo Common Stock); or
(iii) issue or distribute to the holders of all or substantially all of
the then outstanding shares of BCo Common Stock (A) shares or
securities of BCo of any class other than BCo Common Stock (other
than shares convertible into or exchangeable for or carrying rights
to acquire shares of BCo Common Stock), (B) rights, options or
warrants other than those referred to in subsection 2.7 (a) (ii)
above, (C) evidences of indebtedness of BCo or (D) assets of BCo;
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unless
(iv) one or both of BCo and BCo Sub is permitted under applicable law
to issue or distribute the economic equivalent on a per share basis
of such rights, options, warrants, securities, shares, evidences of
indebtedness or other assets to the holders of the Exchangeable
Shares; and
(v) one or both of BCo and BCo Sub shall issue or distribute the
economic equivalent on a per share basis of such rights, options,
warrants, securities, shares, evidences of indebtedness or other
assets simultaneously to the holders of the Exchangeable Shares.
(b) BCo will not:
(i) subdivide, redivide or change the then outstanding shares of BCo
Common Stock into a greater number of shares of BCo Common Stock;
or
(ii) reduce, combine or consolidate or change the then outstanding
shares of BCo Common Stock into a lesser number of shares of BCo
Common Stock; or
(iii) reclassify or otherwise change the shares of BCo Common Stock or
effect an amalgamation, merger, reorganization or other transaction
involving or affecting the shares of BCo Common Stock;
unless
(iv) BCo Sub is permitted under applicable law to simultaneously make
the same or an economically equivalent change to, or in the rights
of the holders of, the Exchangeable Shares; and
(v) the same or an economically equivalent change is simultaneously
made to, or in the rights of the holders of, the Exchangeable
Shares.
(c) BCo will ensure that the record date for any event referred to in
section 2.7 (a) or 2.7 (b) above, or (if no record date is applicable
for such event) the effective date for any such event, is not less than
10 Business Days after the date on which such event is declared or
announced by BCo (with simultaneous notice thereof to be given by BCo to
BCo Sub).
2.8 TENDER OFFERS, ETC.
In the event that a tender offer, share exchange offer, issuer bid,
take-over bid or similar transaction with respect to BCo Common Stock (an
"Offer") is proposed by BCo or is proposed to BCo or its shareholders and is
recommended by the Board of Directors of BCo, or is otherwise effected or to be
effected with the consent or approval of the Board of Directors of BCo, BCo
shall, in good faith, take all such actions and do all such things as are
necessary or desirable to enable and permit holders of Exchangeable Shares to
participate in such Offer to the same extent and on an equivalent basis as the
holders of shares of BCo Common Stock, without discrimination, including,
without limiting the generality of the foregoing, BCo will use its good faith
efforts expeditiously to (and shall, in the case of a transaction proposed by
BCo or where BCo is a participant in the negotiation thereof) ensure that
holders of Exchangeable Shares may participate in all such Offers without being
required to retract Exchangeable Shares as against BCo Sub (or, if so required,
to ensure that any such retraction shall be effective only upon, and shall be
conditional upon, the closing of the Offer and only to the extent necessary to
tender or deposit to the Offer).
2.9 OWNERSHIP OF OUTSTANDING SHARES
Without the prior approval of BCo Sub and the prior approval of the holders
of the Exchangeable Shares given in accordance with Section 10.2 of the
Exchangeable Share Provisions, BCo covenants and agrees in favor of BCo Sub
that, as long as any outstanding Exchangeable Shares are owned by any person or
entity other than BCo or any of its Subsidiaries, BCo will be and remain the
direct or indirect beneficial owner of all issued and outstanding common shares
of BCo Sub. Notwithstanding the foregoing, this Section 2.9 shall not require
BCo to own the common shares of BCo Sub longer than that date which is three
years following the date hereof.
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2.10 BCO NOT TO VOTE EXCHANGEABLE SHARES
BCo covenants and agrees that it will appoint and cause to be appointed
proxy holders with respect to all Exchangeable Shares held by BCo and its
Subsidiaries for the sole purpose of attending each meeting of holders of
Exchangeable Shares in order to be counted as part of the quorum for each such
meeting. BCo further covenants and agrees that it will not, and will cause its
Subsidiaries not to, exercise any voting rights which may be exercisable by
holders of Exchangeable Shares from time to time pursuant to the Exchangeable
Share Provisions or pursuant to the provisions of the Act with respect to any
Exchangeable Shares held by it or by its Subsidiaries in respect of any matter
considered at any meeting of holders of Exchangeable Shares.
2.11 DUE PERFORMANCE
On and after the Effective Date, BCo shall duly and timely perform all of
its obligations provided for in connection with the Plan of Arrangement and the
Articles of Incorporation of BCo Sub, including any obligations that may arise
upon the exercise of BCo's rights under the Exchangeable Share Provisions.
ARTICLE 3
GENERAL
3.1 TERM
This agreement shall come into force and be effective as of the date hereof
and shall terminate and be of no further force and effect at such time as no
Exchangeable Shares (or securities or rights convertible into or exchangeable
for or carrying rights to acquire Exchangeable Shares) are held by any party
other than BCo and any of its Subsidiaries.
3.2 CHANGES IN CAPITAL OF BCO AND BCO SUB
Notwithstanding the provisions of section 3.4 hereof, at all times after
the occurrence of any event effected pursuant to section 2.7 or 2.8 hereof, as a
result of which either BCo Common Stock or the Exchangeable Shares or both are
in any way changed, this agreement shall forthwith be amended and modified as
necessary in order that it shall apply with full force and effect, mutatis
mutandis, to all new securities into which BCo Common Stock or the Exchangeable
Shares or both are so changed, and the parties hereto shall as soon as possible
execute and deliver an agreement in writing giving effect to and evidencing such
necessary amendments and modifications.
3.3 SEVERABILITY
If any provision of this agreement is held to be invalid, illegal or
unenforceable, the validity, legality or enforceability of the remainder of this
agreement shall not in any way be affected or impaired thereby and this
agreement shall be carried out as nearly as possible in accordance with its
original terms and conditions.
3.4 AMENDMENTS, MODIFICATIONS, ETC.
This agreement may not be amended, modified or waived except by an
agreement in writing executed by BCo Sub and BCo and approved by the holders of
the Exchangeable Shares in accordance with Section 10.2 of the Exchangeable
Share Provisions.
3.5 MINISTERIAL AMENDMENTS
Notwithstanding the provisions of section 3.4, the parties to this
agreement may in writing, at any time and from time to time, without the
approval of the holders of the Exchangeable Shares, amend or modify this
agreement for the purposes of:
(a) adding to the covenants of either or both parties for the protection
of the holders of the Exchangeable Shares;
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(b) making such amendments or modifications not inconsistent with this
agreement as may be necessary or desirable with respect to matters or
questions which, in the opinion of the board of directors of each of BCo
Sub and BCo, it may be expedient to make, provided that each such board
of directors shall be of the opinion that such amendments or
modifications will not be prejudicial to the interests of the holders of
the Exchangeable Shares; or
(c) making such changes or corrections which, on the advice of counsel to
BCo Sub and BCo, are required for the purpose of curing or correcting
any ambiguity or defect or inconsistent provision or clerical omission
or mistake or manifest error; provided that the boards of directors of
each of BCo Sub and BCo shall be of the opinion that such changes or
corrections will not be prejudicial to the interests of the holders of
the Exchangeable Shares.
3.6 MEETING TO CONSIDER AMENDMENTS
BCo Sub, at the request of BCo, shall call a meeting or meetings of the
holders of the Exchangeable Shares for the purpose of considering any proposed
amendment or modification requiring approval of such shareholders. Any such
meeting or meetings shall be called and held in accordance with the by-laws of
BCo Sub, the Exchangeable Share Provisions and all Applicable Laws.
3.7 AMENDMENTS ONLY IN WRITING
No amendment to or modification or waiver of any of the provisions of this
agreement otherwise permitted hereunder shall be effective unless made in
writing and signed by both of the parties hereto.
3.8 INUREMENT
This agreement shall be binding upon and inure to the benefit of the
parties hereto and the holders, from time to time, of Exchangeable Shares and
each of their respective heirs, successors and assigns.
3.9 NOTICES TO PARTIES
All notices and other communications between the parties shall be in
writing and shall be deemed to have been given if delivered personally or by
confirmed telecopy to the parties at the following addresses (or at such other
address for either such party as shall be specified in like notice):
<TABLE>
<S> <C> <C>
(a) if to BCo to: Burlington Resources Inc.
5051 Westheimer, Suite 1400
Houston, Texas 77056
Attention: F.J. Plaeger, II
Vice President and General Counsel
Facsimile No. 713-624-9569
(b) if to BCo Sub to: Burlington Resources Canada Inc.
3700, 250 - 6th Avenue, S.W.
Calgary, Alberta T2P 3H7
Attention: Vice President, General Counsel and Secretary
Facsimile No. 403-263-2708
</TABLE>
Any notice or other communication given personally shall be deemed to have been
given and received upon delivery thereof and if given by telecopy shall be
deemed to have been given and received on the date of confirmed receipt thereof,
unless such day is not a Business Day, in which case it shall be deemed to have
been given and received upon the immediately following Business Day.
3.10 COUNTERPARTS
This agreement may be executed in counterparts, each of which shall be
deemed an original, and all of which taken together shall constitute one and the
same instrument.
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3.11 JURISDICTION
This agreement shall be construed and enforced in accordance with the laws
of the Province of Alberta and the federal laws of Canada applicable therein.
3.12 ATTORNMENT
BCo agrees that any action or proceeding arising out of or relating to this
agreement may be instituted in the courts of the Province of Alberta, waives any
objection which it may have now or hereafter to the venue of any such action or
proceeding, irrevocably submits to the jurisdiction of such courts in any such
action or proceeding, agrees to be bound by any judgment of such courts and not
to seek, and hereby waives, any review of the merits of any such judgment by the
courts of any other jurisdiction and hereby appoints BCo Sub at its registered
office in the Province of Alberta as BCo's attorney for service of process.
IN WITNESS WHEREOF, BCo and BCo Sub have caused this agreement to be signed
by their respective officers thereunder duly authorized, all as of the date
first written above.
BURLINGTON RESOURCES INC.
By: __________________________________
--
--
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BURLINGTON CANADA RESOURCES INC.
By: __________________________________
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ANNEX G
VOTING AND EXCHANGE
TRUST AGREEMENT
<PAGE> 175
EXHIBIT D
VOTING AND EXCHANGE TRUST AGREEMENT
THIS VOTING AND EXCHANGE TRUST AGREEMENT is entered into as of -- ,
1999, by and between Burlington Resources Inc., a Delaware corporation ("BCo"),
Burlington Resources Canada Inc., an Alberta corporation ("BCo Sub"), and CIBC
Mellon Trust Company, a Canadian trust company ("Trustee").
WHEREAS, pursuant to an Amended and Restated Combination Agreement dated
effective as of August 16, 1999 by and between BCo and Poco Petroleums Ltd.
("PCo") (such agreement as it may be further amended or restated is hereinafter
referred to as the "Combination Agreement"), the parties agreed that on the
Effective Date (as defined in the Combination Agreement), BCo and BCo Sub would
execute and deliver a Voting and Exchange Trust Agreement containing the terms
and conditions set forth in Exhibit D to the Combination Agreement together with
such other terms and conditions as may be agreed to by the parties to the
Combination Agreement acting reasonably.
WHEREAS, pursuant to an arrangement (the "Arrangement") effected by
Articles of Arrangement dated --, 1999 filed pursuant to the Business
Corporations Act (Alberta) (or any successor or other corporate statute by which
PCo may in the future be governed) (the "Act"), each issued and outstanding
common share of PCo (a "PCo Common Share") was exchanged for issued and
outstanding Exchangeable Shares of BCo Sub (the "Exchangeable Shares").
WHEREAS, the Articles of Incorporation of BCo Sub set forth the rights,
privileges, restrictions and conditions attaching to the Exchangeable Shares
(collectively, the "Exchangeable Share Provisions").
WHEREAS, BCo is to provide voting rights in BCo to each holder (other than
BCo and its Subsidiaries) from time to time of Exchangeable Shares, such voting
rights per Exchangeable Share to be equivalent to the voting rights per share of
BCo Common Stock.
WHEREAS, BCo is to grant to and in favor of the holders (other than BCo and
its Subsidiaries) from time to time of Exchangeable Shares the right, in the
circumstances set forth herein, to require BCo to purchase from each such holder
all or any part of the Exchangeable Shares held by the holder.
WHEREAS, the parties desire to make appropriate provision and to establish
a procedure whereby voting rights in BCo shall be exercisable by holders (other
than BCo and its Subsidiaries) from time to time of Exchangeable Shares by and
through the Trustee, which will hold legal title to one share of BCo Special
Voting Stock (the "BCo Special Voting Stock") to which voting rights attach for
the benefit of such holders and whereby the rights to require BCo to purchase
Exchangeable Shares from the holders thereof (other than BCo and its
Subsidiaries) shall be exercisable by such holders from time to time of
Exchangeable Shares by and through the Trustee, which will hold legal title to
such rights for the benefit of such holders.
WHEREAS, these recitals and any statements of fact in this agreement are
made by BCo and BCo Sub and not by the Trustee.
NOW THEREFORE, in consideration of the respective covenants and agreements
provided in this agreement and for other good and valuable consideration (the
receipt and sufficiency of which are hereby acknowledged), the parties agree as
follows:
ARTICLE 1
DEFINITIONS AND INTERPRETATION
1.1 DEFINITIONS
In this agreement, the following terms shall have the following meanings:
"Aggregate Equivalent Vote Amount" means, with respect to any matter,
proposition or question on which holders of BCo Common Stock are entitled to
vote, consent or otherwise act, the product of (i) the number of shares of
Exchangeable Shares issued and outstanding and held by Holders multiplied by
(ii) the Equivalent Vote Amount.
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"Arrangement" has the meaning provided in the recitals hereto.
"Automatic Exchange Rights" means the benefit of the obligation of BCo to
effect the automatic exchange of shares of BCo Common Stock for Exchangeable
Shares pursuant to Section 5.12 hereof.
"Board of Directors" means the Board of Directors of BCo Sub.
"Business Day" has the meaning provided in the Exchangeable Share
Provisions.
"BCo Common Stock" has the meaning provided in the Exchangeable Share
Provisions.
"BCo Consent" has the meaning provided in Section 4.2 hereof.
"BCo Meeting" has the meaning provided in Section 4.2 hereof.
"BCo Special Voting Stock" has the meaning provided in the recitals hereto.
"BCo Successor" has the meaning provided in subsection 11. 1 (a) hereof.
"Equivalent Vote Amount" means, with respect any matter, proposition or
question on which holders of BCo Common Stock are entitled to vote, consent or
otherwise act, the number of votes to which a holder of one share of BCo Common
Stock is entitled with respect to such matter, proposition or question.
"Exchange Put Right" has the meaning provided in the Exchangeable Share
Provisions.
"Exchange Right" has the meaning provided in Article 5 hereof.
"Exchangeable Share Consideration" has the meaning provided in the
Exchangeable Share Provisions.
"Exchangeable Share Price" has the meaning provided in the Exchangeable
Share Provisions.
"Exchangeable Share Provisions" has the meaning provided in the recitals
hereto.
"Exchangeable Shares" has the meaning provided in the recitals hereto.
"Holder Votes" has the meaning provided in Section 4.2 hereof.
"Holders" means the registered holders from time to time of Exchangeable
Shares, other than BCo and its Subsidiaries.
"Insolvency Event" means the institution by BCo Sub of any proceeding to be
adjudicated a bankrupt or insolvent or to be dissolved or wound-up, or the
consent of BCo Sub to the institution of bankruptcy, insolvency, dissolution or
winding-up proceedings against it, or the filing of a petition, answer or
consent seeking dissolution or winding-up under any bankruptcy, insolvency or
analogous laws, including without limitation the Companies Creditors Arrangement
Act (Canada) and the Bankruptcy and Insolvency Act (Canada), and the failure by
BCo Sub to contest in good faith any such proceedings commenced in respect of
BCo Sub within 15 days of becoming aware thereof, or the consent by BCo Sub to
the filing of any such petition or to the appointment of a receiver, or the
making by BCo Sub of a general assignment for the benefit of creditors, or the
admission in writing by BCo Sub of its inability to pay its debts generally as
they become due, or BCo Sub's not being permitted, pursuant to liquidity or
solvency requirements of applicable law, to redeem any Retracted Shares pursuant
to Section 6.6 of the Exchangeable Share Provisions.
"Liquidation Call Right" has the meaning provided in the Exchangeable Share
Provisions.
"Liquidation Event" has the meaning provided in subsection 5.12(b) hereof.
"Liquidation Event Effective Time" has the meaning provided in subsection
5.12(c) hereof.
"List" has the meaning provided in Section 4.6 hereof.
"Officer's Certificate" means, with respect to BCo or BCo Sub, as the case
may be, a certificate signed by any one of the Chairman of the Board, the
Vice-Chairman of the Board (if there be one), the President or any
Vice-President of BCo or BCo Sub, as the case may be.
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"Person" includes an individual, body corporate, partnership, company,
unincorporated syndicate or organization, trust, trustee, executor,
administrator and other legal representative.
"Plan of Arrangement" has the meaning provided in the Exchangeable Share
Provisions.
"Redemption Call Right" has the meaning provided in the Exchangeable Share
Provisions.
"Retracted Shares" has the meaning provided in Section 5.7 hereof.
"Retraction Call Right" has the meaning provided in the Exchangeable Share
Provisions.
"Subsidiary" has the meaning provided in the Exchangeable Share Provisions.
"Support Agreement" means that certain support agreement made as of even
date hereof by and between BCo and BCo Sub.
"Trust" means the trust created by this agreement.
"Trust Estate" means the Voting Share, any other securities, the Exchange
Put Right, the Exchange Right, the Automatic Exchange Rights and any money or
other property which may be held by the Trustee from time to time pursuant to
this agreement.
"Trustee" means CIBC Mellon Trust Company and, subject to the provisions of
Article 10 hereof, includes any successor trustee or permitted assigns.
"Voting Rights" means the voting rights attached to the Voting Share.
"Voting Share" means the one share of BCo Special Voting Stock, U.S. $0.01
par value, issued by BCo to and deposited with the Trustee, which entitles the
holder of record to a number of votes at meetings of holders of BCo Common Stock
equal to the Aggregate Equivalent Vote Amount.
1.2 INTERPRETATION NOT AFFECTED BY HEADINGS, ETC.
The division of this agreement into articles, sections and paragraphs and
the insertion of headings are for convenience of reference only and shall not
affect the construction or interpretation of this agreement.
1.3 NUMBER, GENDER, ETC.
Words importing the singular number only shall include the plural and vice
versa. Words importing the use of any gender shall include all genders.
1.4 DATE FOR ANY ACTION
If any date on which any action is required to be taken under this
agreement is not a Business Day, such action shall be required to be taken on
the next succeeding Business Day.
1.5 PAYMENTS
All payments to be made hereunder will be made without interest and less
any tax required by Canadian law to be deducted or withheld.
ARTICLE 2
PURPOSE OF AGREEMENT
The purpose of this agreement is to create the Trust for the benefit of the
Holders, as herein provided. The Trustee will hold the Voting Share in order to
enable the Trustee to exercise the Voting Rights and will hold the Exchange Put
Right, the Exchange Right and the Automatic Exchange Rights in order to enable
the Trustee to exercise such rights, in each case as trustee for and on behalf
of the Holders as provided in this agreement.
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ARTICLE 3
VOTING SHARE
3.1 ISSUANCE AND OWNERSHIP OF THE VOTING SHARE
BCo hereby issues to and deposits with the Trustee the Voting Share to be
hereafter held of record by the Trustee as trustee for and on behalf of, and for
the use and benefit of, the Holders and in accordance with the provisions of
this agreement. BCo hereby acknowledges receipt from the Trustee as trustee for
and on behalf of the Holders of good and valuable consideration (and the
adequacy thereof) for the issuance of the Voting Share by BCo to the Trustee.
During the term of the Trust and subject to the terms and conditions of this
agreement, the Trustee shall possess and be vested with full legal ownership of
the Voting Share and shall be entitled to exercise all of the rights and powers
of an owner with respect to the Voting Share, provided that the Trustee shall:
(a) hold the Voting Share and the legal title thereto as trustee solely
for the use and benefit of the Holders in accordance with the provisions
of this agreement; and
(b) except as specifically authorized by this agreement, have no power or
authority to sell, transfer, vote or otherwise deal in or with the
Voting Share, and the Voting Share shall not be used or disposed of by
the Trustee for any purpose other than the purposes for which this Trust
is created pursuant to this agreement.
3.2 LEGENDED SHARE CERTIFICATES
BCo Sub will cause each certificate representing Exchangeable Shares to
bear an appropriate legend notifying the Holders of their right to instruct the
Trustee with respect to the exercise of the Voting Rights with respect to the
Exchangeable Shares held by a Holder.
3.3 SAFE KEEPING OF CERTIFICATE
The certificate representing the Voting Share shall at all times be held in
safe keeping by the Trustee or its agent.
ARTICLE 4
EXERCISE OF VOTING RIGHTS
4.1 VOTING RIGHTS
The Trustee, as the holder of record of the Voting Share, shall be entitled
to all of the Voting Rights, including the right to consent to or to vote in
person or by proxy the Voting Share, on any matter, question or proposition
whatsoever that may properly come before the stockholders of BCo at a BCo
Meeting or in connection with a BCo Consent (in each case, as hereinafter
defined). The Voting Rights shall be and remain vested in and exercised by the
Trustee. Subject to Section 7.15 hereof, the Trustee shall exercise the Voting
Rights only on the basis of instructions received pursuant to this Article 4
from Holders entitled to instruct the Trustee as to the voting thereof at the
time at which a BCo Consent is sought or a BCo Meeting is held. To the extent
that no instructions are received from a Holder with respect to the Voting
Rights to which such Holder is entitled, the Trustee shall not exercise or
permit the exercise of such Holder's Voting Rights.
4.2 NUMBER OF VOTES
With respect to all meetings of stockholders of BCo at which holders of
shares of BCo Common Stock are entitled to vote (a "BCo Meeting") and with
respect to all written consents sought by BCo from its stockholders including
the holders of shares of BCo Common Stock (a "BCo Consent"), each Holder shall
be entitled to instruct the Trustee to cast and exercise, in the manner
instructed, a number of votes equal to the Equivalent Vote Amount for each
Exchangeable Share owned of record by such Holder on the record date established
by BCo or by applicable law for such BCo Meeting or BCo Consent, as the case may
be, (the "Holder Votes") in respect of
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each matter, question or proposition to be voted on at such BCo Meeting or to be
consented to in connection with such BCo Consent.
4.3 MAILINGS TO SHAREHOLDERS
With respect to each BCo Meeting and BCo Consent, the Trustee will mail or
cause to be mailed (or otherwise communicate in the same manner as BCo utilizes
in communications to holders of BCo Common Stock, subject to the Trustee's
ability to provide this method of communication and upon being advised in
writing of such method) to each of the Holders named in the List on the same day
as the initial mailing or notice (or other communication) with respect thereto
is given by BCo to its stockholders:
(a) a copy of such notice, together with any proxy or information
statement and related materials to be provided to stockholders of BCo;
(b) a statement that such Holder is entitled to instruct the Trustee as
to the exercise of the Holder Votes with respect to such BCo Meeting or
BCo Consent, as the case may be, or, pursuant to Section 4.7 hereof, to
attend such BCo Meeting and to exercise personally the Holder Votes
thereat;
(c) a statement as to the manner in which such instructions may be given
to the Trustee, including an express indication that instructions may be
given to the Trustee to give:
(i) a proxy to such Holder or such Holder's designee to exercise
personally the Holder Votes; or
(ii) a proxy to a designated agent or other representative of the
management of BCo to exercise such Holder Votes;
(d) a statement that if no such instructions are received from the
Holder, the Holder Votes to which such Holder is entitled will not be
exercised;
(e) a form of direction whereby the Holder may so direct and instruct the
Trustee as contemplated herein; and
(f) a statement of (i) the time and date by which such instructions must
be received by the Trustee in order to be binding upon it, which in the
case of a BCo Meeting shall not be earlier than the close of business on
the Business Day prior to such meeting, and (ii) the method for revoking
or amending such instructions.
The materials referred to above are to be provided by BCo to the Trustee,
but shall be subject to review and comment by the Trustee.
For the purpose of determining Holder Votes to which a Holder is entitled
in respect of any such BCo Meeting or BCo Consent, the number of Exchangeable
Shares owned of record by the Holder shall be determined at the close of
business on the record date established by BCo or by applicable law for purposes
of determining stockholders entitled to vote at such BCo Meeting or to give
written consent in connection with such BCo Consent. BCo will notify the Trustee
in writing of any decision of the board of directors of BCo with respect to the
calling of any such BCo Meeting or the seeking of any such BCo Consent and shall
provide all necessary information and materials to the Trustee in each case
promptly and in any event in sufficient time to enable the Trustee to perform
its obligations contemplated by this Section 4.3.
4.4 COPIES OF STOCKHOLDER INFORMATION
BCo will deliver to the Trustee copies of all proxy materials, (including
notices of BCo Meetings, but excluding proxies to vote shares of BCo Common
Stock), information statements, reports (including without limitation all
interim and annual financial statements) and other written communications that
are to be distributed from time to time to holders of BCo Common Stock in
sufficient quantities and in sufficient time so as to enable the Trustee to send
those materials to each Holder at the same time as such materials are first sent
to holders of BCo Common Stock. The Trustee will mail or otherwise send to each
Holder, at the expense of BCo, copies of all such materials (and all materials
specifically directed to the Holders or to the Trustee for the benefit of the
Holders by BCo) received by the Trustee from BCo at the same time as such
materials are first sent to holders of
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BCo Common Stock. The Trustee will make copies of all such materials available
for inspection by any Holder at the Trustee's principal transfer office in the
cities of Calgary and Toronto.
4.5 OTHER MATERIALS
Immediately after receipt by BCo or any stockholder of BCo of any material
sent or given generally to the holders of BCo Common Stock by or on behalf of a
third party, including without limitation dissident proxy and information
circulars (and related information and material) and tender and exchange offer
circulars (and related information and material), BCo shall use its reasonable
best efforts to obtain and deliver to the Trustee copies thereof in sufficient
quantities so as to enable the Trustee to forward such material (unless the same
has been provided directly to Holders by such third party) to each Holder as
soon as possible thereafter. As soon as practicable after receipt thereof, the
Trustee will mail or otherwise send to each Holder, at the expense of BCo,
copies of all such materials received by the Trustee from BCo. The Trustee will
also make copies of all such materials available for inspection by any Holder at
the Trustee's principal transfer office in the cities of Calgary and Toronto.
4.6 LIST OF PERSONS ENTITLED TO VOTE
BCo Sub shall, (i) prior to each annual, general or special BCo Meeting or
the seeking of any BCo Consent and (ii) forthwith upon each request made at any
time by the Trustee in writing, prepare or cause to be prepared a list (a
"List") of the names and addresses of the Holders arranged in alphabetical order
and showing the number of Exchangeable Shares held of record by each such
Holder, in each case at the close of business on the date specified by the
Trustee in such request or, in the case of a List prepared in connection with a
BCo Meeting or a BCo Consent, at the close of business on the record date
established by BCo or pursuant to applicable law for determining the holders of
BCo Common Stock entitled to receive notice of and/or to vote at such BCo
Meeting or to give consent in connection with such BCo Consent. Each such List
shall be delivered to the Trustee promptly after receipt by BCo Sub of such
request or the record date for such meeting or seeking of consent, as the case
may be, and in any event within sufficient time as to enable the Trustee to
perform its obligations under this agreement. BCo agrees to give BCo Sub written
notice (with a copy to the Trustee) of the calling of any BCo Meeting or the
seeking of any BCo Consent, together with the record dates therefor,
sufficiently prior to the date of the calling of such meeting or seeking of such
consent so as to enable BCo Sub to perform its obligations under this Section
4.6.
4.7 ENTITLEMENT TO DIRECT VOTES
Any Holder named in a List prepared in connection with any BCo Meeting or
any BCo Consent will be entitled (i) to instruct the Trustee in the manner
described in Section 4.3 hereof with respect to the exercise of the Holder Votes
to which such Holder is entitled or (ii) to attend such meeting and personally
to exercise thereat (or to exercise with respect to any written consent), as the
proxy of the Trustee, the Holder Votes to which such Holder is entitled.
4.8 VOTING BY TRUSTEE, AND ATTENDANCE OF TRUSTEE REPRESENTATIVE, AT MEETING
(a) In connection with each BCo Meeting and BCo Consent, the Trustee
shall exercise, either in person or by proxy, in accordance with the
instructions received from a Holder pursuant to Section 4.3 hereof, the Holder
Votes as to which such Holder is entitled to direct the vote (or any lesser
number thereof as may be set forth in the instructions); provided, however, that
such written instructions are received by the Trustee from the Holder prior to
the time and date fixed by it for receipt of such instructions in the notice
given by the Trustee to the Holder pursuant to Section 4.3 hereof.
(b) The Trustee shall cause such representatives as are empowered by it
to sign and deliver, on behalf of the Trustee, proxies for Voting Rights to
attend each BCo Meeting. Upon submission by a Holder (or its designee) of
identification satisfactory to the Trustee's representatives, and at the
Holder's request, such
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representatives shall sign and deliver to such Holder (or its designee) a proxy
to exercise personally the Holder Votes as to which such Holder is otherwise
entitled hereunder to direct the vote, if such Holder either:
(i) has not previously given the Trustee instructions pursuant to
Section 4.3 hereof in respect of such meeting, or
(ii) submits to the Trustee's representatives written revocation of
any such previous instructions.
At such meeting, the Holder exercising such Holder Votes shall have the
same rights as the Trustee to speak at the meeting in respect of any matter,
question or proposition, to vote by way of ballot at the meeting in respect of
any matter, question or proposition and to vote at such meeting by way of a show
of hands in respect of any matter, question or proposition.
4.9 DISTRIBUTION OF WRITTEN MATERIALS
Any written materials to be distributed by the Trustee to the Holders
pursuant to this agreement shall be delivered or sent by mail (or otherwise
communicated in the same manner as BCo utilizes in communications to holders of
BCo Common Stock subject to the Trustee's ability to provide this method of
communication and upon being advised in writing of such method) to each Holder
at its address as shown on the books of BCo Sub . BCo Sub shall provide or cause
to be provided to the Trustee for this purpose, on a timely basis and without
charge or other expense:
(a) current lists of the Holders; and
(b) on the request of the Trustee, mailing labels to enable the Trustee
to carry out its duties under this agreement.
The materials referred to above are to be provided by BCo Sub to the
Trustee, but shall be subject to review and comment by the Trustee.
4.10 TERMINATION OF VOTING RIGHTS
Except as otherwise provided herein or in the Exchangeable Share
Provisions, all of the rights of a Holder with respect to the Holder Votes
exercisable in respect of the Exchangeable Shares held by such Holder, including
the right to instruct the Trustee as to the voting of or to vote personally such
Holder Votes, shall be deemed to be surrendered by the Holder to BCo, and such
Holder Votes and the Voting Rights represented thereby shall cease immediately,
upon the delivery by such Holder to the Trustee of the certificates representing
such Exchangeable Shares in connection with the exercise by the Holder of the
Exchange Put Right or the Exchange Right or the occurrence of the automatic
exchange of Exchangeable Shares for shares of BCo Common Stock, as specified in
Article 5 hereof (unless in any case BCo shall not have delivered the
Exchangeable Share Consideration deliverable in exchange therefor to the Trustee
for delivery to the Holders), or upon the redemption of Exchangeable Shares
pursuant to Article 6 or Article 7 of the Exchangeable Share Provisions, or upon
the effective date of the liquidation, dissolution or winding-up of BCo Sub or
any other distribution of the assets of BCo Sub among its shareholders for the
purpose of winding up its affairs pursuant to Article 5 of the Exchangeable
Share Provisions, or upon the purchase of Exchangeable Shares from the holder
thereof by BCo pursuant to the exercise by BCo of the Retraction Call Right, the
Redemption Call Right or the Liquidation Call Right.
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ARTICLE 5
EXCHANGE RIGHT AND AUTOMATIC EXCHANGE
5.1 GRANT AND OWNERSHIP OF THE EXCHANGE PUT RIGHT, EXCHANGE RIGHT AND AUTOMATIC
EXCHANGE RIGHT
BCo hereby grants to the Trustee as trustee for and on behalf of, and for
the use and benefit of, the Holders:
(a) the Exchange Put Right;
(b) the right (the "Exchange Right"), upon the occurrence and during the
continuance of an Insolvency Event, to require BCo to purchase from each
or any Holder all or any part of the Exchangeable Shares held by the
Holders; and
(c) the Automatic Exchange Rights,
all in accordance with the provisions of this agreement and the
Exchangeable Share Provisions, as the case may be. BCo hereby acknowledges
receipt from the Trustee as trustee for and on behalf of the Holders of
good and valuable consideration (and the adequacy thereof) for the grant of
the Exchange Put Right, the Exchange Right and the Automatic Exchange
Rights by BCo to the Trustee. During the term of the Trust and subject to
the terms and conditions of this agreement, the Trustee shall possess and
be vested with full legal ownership of the Exchange Put Right, the Exchange
Right and the Automatic Exchange Rights and shall be entitled to exercise
all of the rights and powers of an owner with respect to the Exchange Put
Right, the Exchange Right and the Automatic Exchange Rights, provided that
the Trustee shall:
(d) hold the Exchange Put Right, the Exchange Right and the Automatic
Exchange Rights and the legal title thereto as trustee solely for the
use and benefit of the Holders in accordance with the provisions of this
agreement; and
(e) except as specifically authorized by this agreement, have no power or
authority to exercise or otherwise deal in or with the Exchange Put
Right, the Exchange Right or the Automatic Exchange Rights, and the
Trustee shall not exercise any such rights for any purpose other than
the purposes for which this Trust is created pursuant to this agreement.
5.2 LEGENDED SHARE CERTIFICATES
BCo Sub will cause each certificate representing Exchangeable Shares to
bear an appropriate legend notifying the Holders of:
(a) their right to instruct the Trustee with respect to the exercise of
the Exchange Put Right and the Exchange Right in respect of the
Exchangeable Shares held by a Holder; and
(b) the Automatic Exchange Rights.
5.3 GENERAL EXERCISE OF EXCHANGE PUT RIGHT AND THE EXCHANGE RIGHT
The Exchange Put Right and the Exchange Right shall be and remain vested in
and exercised by the Trustee. Subject to Section 7.15 hereof, the Trustee shall
exercise the Exchange Put Right and the Exchange Right only on the basis of
instructions received pursuant to this Article 5 from Holders entitled to
instruct the Trustee as to the exercise thereof. To the extent that no
instructions are received from a Holder with respect to the Exchange Put Right
and the Exchange Right, the Trustee shall not exercise or permit the exercise of
the Exchange Put Right and the Exchange Right.
5.4 PURCHASE PRICE
The purchase price payable by BCo for each Exchangeable Share to be
purchased by BCo (i) under the Exchange Put Right shall be the amount determined
under the Exchangeable Share Provisions; and (ii) under the Exchange Right shall
be an amount equal to the Exchangeable Share Price on the last Business Day
prior to the day of closing of the purchase and sale of such Exchangeable Share
under the Exchange Right. In connection with each exercise of the Exchange
Right, BCo will provide to the Trustee an Officer's Certificate setting forth
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the calculation of the applicable Exchangeable Share Price for each Exchangeable
Share. The applicable Exchangeable Share Price for each such Exchangeable Share
so purchased may be satisfied only by BCo's issuing and delivering or causing to
be delivered to the Trustee, on behalf of the relevant Holder, the applicable
Exchangeable Share Consideration representing the total applicable Exchangeable
Share Price.
5.5 EXERCISE INSTRUCTIONS FOR EXCHANGE RIGHT
Subject to the terms and conditions herein set forth, a Holder shall be
entitled, upon the occurrence and during the continuance of an Insolvency Event,
to instruct the Trustee to exercise the Exchange Right with respect to all or
any part of the Exchangeable Shares registered in the name of such Holder on the
books of BCo Sub. To cause the exercise of the Exchange Right by the Trustee,
the Holder shall deliver to the Trustee, in person or by certified or registered
mail, at its principal transfer offices in Calgary, Alberta and Toronto, Ontario
or at such other places in Canada as the Trustee may from time to time designate
by written notice to the Holders, the certificates representing the Exchangeable
Shares which such Holder desires BCo to purchase, duly endorsed in blank, and
accompanied by such other documents and instruments as may be required to effect
a transfer of Exchangeable Shares under applicable law and the by-laws of BCo
Sub and such additional documents and instruments as the Trustee may reasonably
require, together with:
(a) a duly completed form of notice of exercise of the Exchange Right,
contained on the reverse of or attached to the Exchangeable Share
certificates, stating:
(i) that the Holder thereby instructs the Trustee to exercise the
Exchange Right so as to require BCo to purchase from the Holder the
number of Exchangeable Shares specified therein,
(ii) that such Holder has good title to and owns all such Exchangeable
Shares to be acquired by BCo free and clear of all liens, claims,
encumbrances, security interests and adverse claims or interests,
(iii) the names in which the certificates representing BCo Common Stock
issuable in connection with the exercise of the Exchange Right are
to be issued, and
(iv) the names and addresses of the persons to whom the Exchangeable
Share Consideration should be delivered; and
(b) payment (or evidence satisfactory to the Trustee, BCo Sub and BCo of
payment) of the taxes (if any) payable as contemplated by Section 5.8 of
this agreement.
If only a part of the Exchangeable Shares represented by any certificate or
certificates delivered to the Trustee are to be purchased by BCo under the
Exchange Right, a new certificate for the balance of such Exchangeable Shares
shall be issued to the Holder at the expense of BCo Sub.
5.6 DELIVERY OF EXCHANGEABLE SHARE CONSIDERATION; EFFECT OF EXERCISE
Promptly after receipt of the certificates representing the Exchangeable
Shares which the Holder desires BCo to purchase under the Exchange Put Right or
the Exchange Right (together with such documents and instruments of transfer and
a duly completed form of notice of exercise of the Exchange Put Right or the
Exchange Right), duly endorsed for transfer to BCo, the Trustee shall notify BCo
and BCo Sub of its receipt of the same, which notice to BCo and BCo Sub shall
constitute exercise of the Exchange Put Right or the Exchange Right by the
Trustee on behalf of the Holder of such Exchangeable Shares, and BCo shall
immediately thereafter deliver or cause to be delivered to the Trustee, for
delivery to the Holder of such Exchangeable Shares (or to such other persons, if
any, properly designated by such Holder), the Exchangeable Share Consideration
deliverable in connection with the exercise of the Exchange Put Right or the
Exchange Right; provided, however, that no such delivery shall be made unless
and until the Holder requesting the same shall have paid (or provided evidence
satisfactory to the Trustee, BCo Sub and BCo of the payment of) the taxes (if
any) payable as contemplated by Section 5.8 of this agreement. Immediately upon
the giving of notice by the Trustee to BCo and BCo Sub of the exercise of the
Exchange Put Right or the Exchange Right, as provided in this Section 5.6, (i)
the closing of the transaction of purchase and sale contemplated by the Exchange
Put Right or the Exchange Right shall be deemed
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to have occurred, (ii) BCo shall be required to take all action necessary to
permit it to occur, including delivery to the Trustee of the relevant
Exchangeable Share Consideration, no later than the close of business on the
third Business Day following the receipt by the Trustee of notice, certificates
and other documents as aforesaid and (iii) the Holder of such Exchangeable
Shares shall be deemed to have transferred to BCo all of its right, title and
interest in and to such Exchangeable Shares and the related interest in the
Trust Estate, shall cease to be a holder of such Exchangeable Shares and shall
not be entitled to exercise any of the rights of a holder in respect thereof,
other than the right to receive his proportionate part of the total purchase
price therefor, unless such Exchangeable Share Consideration is not delivered by
BCo to the Trustee by the date specified above, in which case the rights of the
Holder shall remain unaffected until such Exchangeable Share Consideration is
delivered by BCo and any cheque included therein is paid. Concurrently with such
Holder ceasing to be a holder of Exchangeable Shares, the Holder shall be
considered and deemed for all purposes to be the holder of the shares of BCo
Common Stock delivered to it pursuant to the Exchange Put Right or the Exchange
Right. Notwithstanding the foregoing, until the Exchangeable Share Consideration
is delivered to the Holder, the Holder shall be deemed to still be a holder of
the sold Exchangeable Shares for purposes of voting rights with respect thereto
under this agreement.
5.7 EXERCISE OF EXCHANGE RIGHT SUBSEQUENT TO RETRACTION
In the event that a Holder has exercised its right under Article 6 of the
Exchangeable Share Provisions to require BCo Sub to redeem any or all of the
Exchangeable Shares held by the Holder (the "Retracted Shares") and is notified
by BCo Sub pursuant to Section 6.6 of the Exchangeable Share Provisions that BCo
Sub will not be permitted as a result of liquidity or solvency provisions of
applicable law to redeem all such Retracted Shares, subject to receipt by the
Trustee of written notice to that effect from BCo Sub and provided that BCo
shall not have exercised the Retraction Call Right with respect to the Retracted
Shares and that the Holder has not revoked the retraction request delivered by
the Holder to BCo Sub pursuant to Section 6.1 of the Exchangeable Share
Provisions, the retraction request will constitute and will be deemed to
constitute notice from the Holder to the Trustee instructing the Trustee to
exercise the Exchange Right with respect to those Retracted Shares which BCo Sub
is unable to redeem. In any such event, BCo Sub hereby agrees with the Trustee
and in favour of the Holder immediately to notify the Trustee of such
prohibition against BCo Sub's redeeming all of the Retracted Shares and
immediately to forward or cause to be forwarded to the Trustee all relevant
materials delivered by the Holder to BCo Sub or to the transfer agent of the
Exchangeable Shares (including without limitation a copy of the retraction
request delivered pursuant to Section 6.1 of the Exchangeable Share Provisions)
in connection with such proposed redemption of the Retracted Shares, and the
Trustee will thereupon exercise the Exchange Right with respect to the Retracted
Shares which BCo Sub is not permitted to redeem and will require BCo to purchase
such shares in accordance with the provisions of this Article 5.
5.8 STAMP OR OTHER TRANSFER TAXES
Upon any sale of Exchangeable Shares to BCo pursuant to the Exchange Put
Right, the Exchange Right or the Automatic Exchange Rights, the share
certificate or certificates representing BCo Common Stock to be delivered as
Exchangeable Share Consideration in connection with the payment of the total
purchase price therefor shall be issued in the name of the Holder of the
Exchangeable Shares so sold or in such names as such Holder may otherwise direct
in writing without charge to the holder of the Exchangeable Shares so sold,
provided, however, that such Holder:
(a) shall pay (and neither BCo, BCo Sub nor the Trustee shall be
required to pay) any documentary, stamp, transfer or other similar taxes
that may be payable in respect of any transfer involved in the issuance or
delivery of such shares to a person other than such Holder; or
(b) shall have established to the satisfaction of the Trustee, BCo
and BCo Sub that such taxes, if any, have been paid.
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5.9 NOTICE OF INSOLVENCY EVENT
Immediately upon the occurrence of an Insolvency Event or any event which
with the giving of notice or the passage of time or both would be an Insolvency
Event, BCo Sub and BCo shall give written notice thereof to the Trustee. As soon
as practicable after receiving notice from BCo Sub or BCo of the occurrence of
an Insolvency Event, the Trustee will mail to each Holder, at the expense of
BCo, a notice of such Insolvency Event in the form provided by BCo, which notice
shall contain a brief statement of the right of the Holders with respect to the
Exchange Right.
5.10 QUALIFICATION OF BCO COMMON STOCK
BCo covenants that if any shares of BCo Common Stock to be issued and
delivered pursuant to the Exchange Put Right, the Exchange Right or the
Automatic Exchange Rights require registration or qualification with or approval
of or the filing of any document including any prospectus or similar document,
the taking of any proceeding with or the obtaining of any order, ruling or
consent from any governmental or regulatory authority under any Canadian or
United States federal, provincial or state law or regulation or pursuant to the
rules and regulations of any regulatory authority, or the fulfillment of any
other legal requirement (collectively, the "Applicable Laws") before such shares
may be issued and delivered by BCo to the initial holder thereof (other than BCo
Sub) or in order that such shares may be freely traded thereafter (other than
any restrictions on transfer by reason of a holder being a "control person" of
BCo for purposes of Canadian federal or provincial securities law or an
"affiliate" of BCo for purposes of United States federal or state securities
law), BCo will in good faith expeditiously take all such actions and do all such
things as are necessary to cause such shares of BCo Common Stock to be and
remain duly registered, qualified or approved. BCo represents and warrants that
it has in good faith taken all actions and done all things as are necessary
under Applicable Laws as they exist on the date hereof to cause the shares of
BCo Common Stock to be issued and delivered pursuant to the Exchange Put Right,
the Exchange Right and the Automatic Exchange Rights and to be freely tradeable
thereafter (other than restrictions on transfer by reason of a holder being a
"control person" of BCo for the purposes of Canadian federal and provincial
securities law or an "affiliate" of BCo for the purposes of United States
federal or state securities law). BCo will in good faith expeditiously take all
such actions and do all such things as are necessary to cause all shares of BCo
Common Stock to be delivered pursuant to the Exchange Put Right, the Exchange
Right or the Automatic Exchange Rights to be listed, quoted or posted for
trading on all stock exchanges and quotation systems on which such shares are
listed, quoted or posted for trading at such time.
5.11 RESERVATION OF SHARES OF BCO COMMON STOCK
BCo hereby represents, warrants and covenants that it has irrevocably
reserved for issuance and will at all times keep available, free from
pre-emptive and other rights, out of its authorized and unissued capital stock
such number of shares of BCo Common Stock:
(a) as is equal to the sum of
(i) the number of Exchangeable Shares issued and outstanding from time
to time, and
(ii) the number of Exchangeable Shares issuable upon the exercise of
all rights to acquire Exchangeable Shares outstanding from time to
time; and
(b) as are now and may hereafter be required to enable and permit BCo Sub
to meet its obligations hereunder, under the Certificate of Incorporation of
BCo, under the Support Agreement, under the Exchangeable Share Provisions and
under any other security or commitment pursuant to the Arrangement with respect
to which BCo may now or hereafter be required to issue shares of BCo Common
Stock.
5.12 AUTOMATIC EXCHANGE ON LIQUIDATION OF BCO
(a) BCo will give the Trustee written notice of each of the following
events at the time set forth below:
(i) in the event of any determination by the board of directors of BCo
to institute voluntary liquidation, dissolution or winding-up
proceedings with respect to BCo or to effect any other
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distribution of assets of BCo among its stockholders for the
purpose of winding-up its affairs, at least 60 days prior to the
proposed effective date of such liquidation, dissolution,
winding-up or other distribution; and
(ii) immediately, upon the earlier of
(A) receipt by BCo of notice of, and
(B) BCo's otherwise becoming aware of any threatened or instituted
claim, suit, petition or other proceedings with respect to the
involuntary liquidation, dissolution or winding-up of BCo or to
effect any other distribution of assets of BCo among its
stockholders for the purpose of winding up its affairs.
(b) Immediately following receipt by the Trustee from BCo of notice of
any event (a "Liquidation Event") contemplated by Section 5.12(a) above, the
Trustee will give notice thereof to the Holders. Such notice will be provided by
BCo to the Trustee and shall include a brief description of the automatic
exchange of Exchangeable Shares for shares of BCo Common Stock provided for in
Section 5.12(c) below.
(c) In order that the Holders will be able to participate on a pro rata
basis with the holders of BCo Common Stock in the distribution of assets of BCo
in connection with a Liquidation Event, immediately prior to the effective time
(the "Liquidation Event Effective Time") of a Liquidation Event, all of the then
outstanding Exchangeable Shares shall be automatically exchanged for shares of
BCo Common Stock. To effect such automatic exchange, BCo shall be deemed to have
purchased each Exchangeable Share outstanding immediately prior to the
Liquidation Event Effective Time and held by Holders, and each Holder shall be
deemed to have sold the Exchangeable Shares held by it at such time, for a
purchase price per share equal to the Exchangeable Share Price applicable at
such time. In connection with such automatic exchange, BCo will provide to the
Trustee an Officer's Certificate setting forth the calculation of the purchase
price for each Exchangeable Share.
(d) The closing of the transaction of purchase and sale contemplated by
Section 5.12(c) above shall be deemed to have occurred immediately prior to the
Liquidation Event Effective Time, and each Holder of Exchangeable Shares shall
be deemed to have transferred to BCo all of the Holder's right, title and
interest in and to such Exchangeable Shares and the related interest in the
Trust Estate and shall cease to be a holder of such Exchangeable Shares, and BCo
shall deliver to the Holder the Exchangeable Share Consideration deliverable
upon the automatic exchange of Exchangeable Shares. Concurrently with such
Holder's ceasing to be a holder of Exchangeable Shares, the Holder shall be
considered and deemed for all purposes to be the holder of the shares of BCo
Common Stock issued to it pursuant to the automatic exchange of Exchangeable
Shares for BCo Common Stock, and the certificates held by the Holder previously
representing the Exchangeable Shares exchanged by the Holder with BCo pursuant
to such automatic exchange shall thereafter be deemed to represent the shares of
BCo Common Stock issued to the Holder by BCo pursuant to such automatic
exchange. Upon the request of a Holder and the surrender by the Holder of
Exchangeable Share certificates deemed to represent shares of BCo Common Stock,
duly endorsed in blank and accompanied by such instruments of transfer as BCo
may reasonably require, BCo shall deliver or cause to be delivered to the Holder
certificates representing the shares of BCo Common Stock of which the Holder is
the holder. Notwithstanding the foregoing, until each Holder is actually entered
on the register of holders of BCo Common Stock, such Holder shall be deemed to
still be a holder of the transferred Exchangeable Shares for purposes of all
voting rights with respect thereto under this agreement.
ARTICLE 6
RESTRICTIONS ON ISSUANCE OF BCO SPECIAL VOTING STOCK
During the term of this agreement, BCo will not issue any shares of BCo
Special Voting Stock in addition to the Voting Share.
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ARTICLE 7
CONCERNING THE TRUSTEE
7.1 POWERS AND DUTIES OF THE TRUSTEE
The rights, powers and authorities of the Trustee under this agreement, in
its capacity as trustee of the Trust, shall include:
(a) receipt and deposit of the Voting Share from BCo as trustee for and
on behalf of the Holders in accordance with the provisions of this
agreement;
(b) granting proxies and distributing materials to Holders as provided in
this agreement;
(c) voting the Holder Votes in accordance with the provisions of this
agreement;
(d) receiving the grant of the Exchange Put Right and the Exchange Right
and the Automatic Exchange Rights from BCo as trustee for and on behalf
of the Holders in accordance with the provisions of this agreement;
(e) exercising the Exchange Put Right and the Exchange Right and
enforcing the benefit of the Automatic Exchange Rights, in each case in
accordance with the provisions of this agreement, and in connection
therewith receiving from Holders Exchangeable Shares and other requisite
documents and distributing to such Holders the shares of BCo Common
Stock and cheques, if any, to which such Holders are entitled upon the
exercise of the Exchange Put Right and the Exchange Right or pursuant to
the Automatic Exchange Rights, as the case may be;
(f) holding title to the Trust Estate;
(g) investing any moneys forming, from time to time, a part of the Trust
Estate as provided in this agreement;
(h) taking action at the direction of a Holder or Holders to enforce the
obligations of BCo under this agreement; and
(i) taking such other actions and doing such other things as are
specifically provided in this agreement.
In the exercise of such rights, powers and authorities, the Trustee shall
have (and is granted) such incidental and additional rights, powers and
authority not in conflict with any of the provisions of this agreement as the
Trustee, acting in good faith and in the reasonable exercise of its discretion,
may deem necessary, appropriate or desirable to effect the purpose of the Trust.
Any exercise of such discretionary rights, powers and authorities by the Trustee
shall be final, conclusive and binding upon all persons. For greater certainty,
the Trustee shall have only those duties as are set out specifically in this
agreement. The Trustee in exercising its rights, powers, duties and authorities
hereunder shall act honestly and in good faith with a view to the best interests
of the Holders and shall exercise the care, diligence and skill that a
reasonably prudent trustee would exercise in comparable circumstances. The
Trustee shall not be bound to give any notice or do or take any act, action or
proceeding by virtue of the powers conferred on it hereby unless and until it
shall be specifically required to do so under the terms hereof nor shall the
Trustee be required to take any notice of, or to do or to take any act, action
or proceeding as a result of any default or breach of any provision hereunder,
unless and until notified in writing of such default or breach, which notices
shall distinctly specify the default or breach desired to be brought to the
attention of the Trustee and in the absence of such notice the Trustee may for
all purposes of this agreement conclusively assume that no default or breach has
been made in the observance or performance of any of the representations,
warranties, covenants, agreements or conditions contained herein.
7.2 NO CONFLICT OF INTEREST
The Trustee represents to BCo Sub and BCo that at the date of execution and
delivery of this agreement there exists no material conflict of interest in the
role of the Trustee as a fiduciary hereunder and the role of the Trustee in any
other capacity. The Trustee shall, within 90 days after it becomes aware that
such a material conflict of interest exists, either eliminate such material
conflict of interest or resign in the manner and with the
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effect specified in Article 10 hereof. If, notwithstanding the foregoing
provisions of this Section 7.2, the Trustee has such a material conflict of
interest, the validity and enforceability of this agreement shall not be
affected in any manner whatsoever by reason only of the existence of such
material conflict of interest. If the Trustee contravenes the foregoing
provisions of this Section 7.2, any interested party may apply to the superior
court of the province in which BCo Sub has its registered office for an order
that the Trustee be replaced as trustee hereunder.
7.3 DEALINGS WITH TRANSFER AGENTS, REGISTRARS, ETC.
BCo Sub and BCo irrevocably authorize the Trustee, from time to time, to:
(a) consult, communicate and otherwise deal with the respective
registrars and transfer agents, and with any such subsequent registrar
or transfer agent, of the Exchangeable Shares and BCo Common Stock; and
(b) requisition, from time to time,
(i) from any such registrar or transfer agent any information readily
available from the records maintained by it which the Trustee may
reasonably require for the discharge of its duties and
responsibilities under this agreement, and
(ii) from the transfer agent of BCo Common Stock, and any subsequent
transfer agent of such shares, to complete the exercise from time
to time of the Exchange Put Right, the Exchange Right and the
Automatic Exchange Rights in the manner specified in Article 5
hereof, the share certificates issuable upon such exercise.
BCo Sub and BCo irrevocably authorize their respective registrars and
transfer agents to comply with all such requests. BCo covenants that it will
supply its transfer agent with duly executed share certificates for the purpose
of completing the exercise from time to time of the Exchange Put Right, the
Exchange Right and the Automatic Exchange Rights, in each case pursuant to
Article 5 hereof.
7.4 BOOKS AND RECORDS
The Trustee shall keep available for inspection by BCo and BCo Sub, at the
Trustee's principal transfer office in Calgary, Alberta, correct and complete
books and records of account relating to the Trustee's actions under this
agreement, including without limitation all information relating to mailings and
instructions to and from Holders and all transactions pursuant to the Voting
Rights, the Exchange Put Right, the Exchange Right and the Automatic Exchange
Rights for the term of this agreement. On or before March 31, 2000, and on or
before March 31 in every year thereafter, so long as the Voting Share is on
deposit with the Trustee, the Trustee shall transmit to BCo and BCo Sub a brief
report, dated as of the preceding December 31, with respect to:
(a) the property and funds comprising the Trust Estate as of that date;
(b) the number of exercises of the Exchange Put Right and the Exchange
Right, if any, and the aggregate number of Exchangeable Shares received
by the Trustee on behalf of Holders in consideration of the issue and
delivery by BCo of shares of BCo Common Stock in connection with the
Exchange Put Right and the Exchange Right, during the calendar year
ended on such date; and
(c) all other actions taken by the Trustee in the performance of its
duties under this agreement which it had not previously reported.
7.5 INCOME TAX RETURNS AND REPORTS
The Trustee shall, to the extent necessary, prepare and file on behalf of
the Trust appropriate United States and Canadian income tax returns and any
other returns or reports as may be required by applicable law or pursuant to the
rules and regulations of any securities exchange or other trading system through
which the Exchangeable Shares are traded and, in connection therewith, may
obtain the advice and assistance of such
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experts as the Trustee may consider necessary or advisable. If requested by the
Trustee, BCo shall retain such experts for purposes of providing such advice and
assistance.
7.6 INDEMNIFICATION PRIOR TO CERTAIN ACTIONS BY TRUSTEE
The Trustee shall exercise any or all of the rights, duties, powers or
authorities vested in it by this agreement at the request, order or direction of
any Holder upon such Holder's furnishing to the Trustee reasonable funding,
security and indemnity against the costs, expenses and liabilities which may be
incurred by the Trustee therein or thereby; provided that no Holder shall be
obligated to furnish to the Trustee any such funding, security or indemnity in
connection with the exercise by the Trustee of any of its rights, duties, powers
and authorities with respect to the Voting Share pursuant to Article 4 hereof,
subject to Section 7.15 hereof, and with respect to the Exchange Put Right and
the Exchange Right pursuant to Article 5 hereof, subject to Section 7.15 hereof,
and with respect to the Automatic Exchange Rights pursuant to Article 5 hereof.
None of the provisions contained in this agreement shall require the Trustee to
expend or risk its own funds or otherwise incur financial liability in the
exercise of any of its rights, powers, duties or authorities unless funded,
given funds, security and indemnified as aforesaid.
7.7 ACTIONS BY HOLDERS
No Holder shall have the right to institute any action, suit or proceeding
or to exercise any other remedy authorized by this agreement for the purpose of
enforcing any of its rights or for the execution of any trust or power hereunder
unless the Holder has requested the Trustee to take or institute such action,
suit or proceeding and furnished the Trustee with the funding, security and
indemnity referred to in Section 7.6 hereof and the Trustee shall have failed to
act within a reasonable time thereafter. In such case, but not otherwise, the
Holder shall be entitled to take proceedings in any court of competent
jurisdiction such as the Trustee might have taken; it being understood and
intended that no one or more Holders shall have any right in any manner
whatsoever to affect, disturb or prejudice the rights hereby created by any such
action, or to enforce any right hereunder or under the Voting Rights, the
Exchange Put Right, the Exchange Right or the Automatic Exchange Rights, except
subject to the conditions and in the manner herein provided, and that all powers
and trusts hereunder shall be exercised and all proceedings at law shall be
instituted, had and maintained by the Trustee, except only as herein provided,
and in any event for the equal benefit of all Holders.
7.8 RELIANCE UPON DECLARATIONS
The Trustee shall not be considered to be in contravention of any of its
rights, powers, duties and authorities hereunder if, when required, it acts and
relies in good faith upon lists, mailing labels, notices, statutory
declarations, certificates, opinions, reports or other papers or documents
furnished pursuant to the provisions hereof or required by the Trustee to be
furnished to it in the exercise of its rights, powers, duties and authorities
hereunder, and such lists, mailing labels, notices, statutory declarations,
certificates, opinions, reports or other papers or documents comply with the
provisions of Section 7.9 hereof, if applicable, and with any other applicable
provisions of this agreement.
7.9 EVIDENCE AND AUTHORITY TO TRUSTEE
BCo Sub and/or BCo shall furnish to the Trustee evidence of compliance with
the conditions provided for in this agreement relating to any action or step
required or permitted to be taken by BCo Sub and/or BCo or the Trustee under
this agreement or as a result of any obligation imposed under this agreement,
including, without limitation, in respect of the Voting Rights or the Exchange
Put Right, the Exchange Right or the Automatic Exchange Rights and the taking of
any other action to be taken by the Trustee at the request of or on the
application of BCo Sub and/or BCo forthwith if and when:
(a) such evidence is required by any other section of this agreement to
be furnished to the Trustee in accordance with the terms of this Section
7.9; or
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(b) the Trustee, in the exercise of its rights, powers, duties and
authorities under this agreement, gives BCo Sub and/or BCo written
notice requiring it to furnish such evidence in relation to any
particular action or obligation specified in such notice.
Such evidence shall consist of an Officer's Certificate of BCo Sub and/or
BCo or a statutory declaration or a certificate made by persons entitled to sign
an Officer's Certificate stating that any such condition has been complied with
in accordance with the terms of this agreement.
Whenever such evidence relates to a matter other than the Voting Rights or
the Exchange Put Right, the Exchange Right or the Automatic Exchange Rights, and
except as otherwise specifically provided herein, such evidence may consist of a
report or opinion of any solicitor, auditor, accountant, appraiser, valuer,
engineer or other expert or any other person whose qualifications give authority
to a statement made by him, provided that, if such report or opinion is
furnished by a director, officer or employee of BCo Sub and/or BCo, it shall be
in the form of an Officer's Certificate or a statutory declaration.
Each statutory declaration, certificate, opinion or report furnished to the
Trustee as evidence of compliance with a condition provided for in this
agreement shall include a statement by the person giving the evidence:
(i) declaring that such person has read and understands the provisions of
this agreement relating to the condition in question;
(ii) describing the nature and scope of the examination or investigation
upon which such person based the statutory declaration, certificate,
statement or opinion; and
(iii) declaring that such person has made such examination or
investigation as such person believes is necessary to enable such person
to make the statements or give the opinions contained or expressed
therein.
7.10 EXPERTS, ADVISERS AND AGENTS
The Trustee may:
(a) in relation to these presents act and rely on the opinion or advice
of or information obtained from or prepared by any solicitor, auditor,
accountant, appraiser, valuer, engineer or other expert, whether
retained by the Trustee or by BCo Sub and/or BCo or otherwise, and may
employ such assistants as may be necessary to the proper determination
and discharge of its powers and duties and determination of its rights
hereunder and may pay proper and reasonable compensation for all such
legal and other advice or assistance as aforesaid; and
(b) employ such agents and other assistants as it may reasonably require
for the proper determination and discharge of its powers and duties
hereunder, and may pay reasonable remuneration for all services
performed for it (and shall be entitled to receive reasonable
remuneration for all services performed by it) in the discharge of the
trusts hereof and compensation for all disbursements, costs and expenses
made or incurred by it in the determination and discharge of its duties
hereunder and in the management of the Trust.
7.11 INVESTMENT OF MONEYS HELD BY TRUSTEE
Unless otherwise provided in this agreement, any moneys held by or on
behalf of the Trustee which under the terms of this agreement may or ought to be
invested or which may be on deposit with the Trustee or which may be in the
hands of the Trustee, may be invested and reinvested in the name or under the
control of the Trustee in securities in which, under the laws of the Province of
Alberta, trustees are authorized to invest trust moneys; provided that such
securities are stated to mature within two years after their purchase by the
Trustee, and the Trustee shall so invest such moneys on the written direction of
BCo Sub. Pending the investment of any moneys as hereinbefore provided, such
moneys may be deposited in the name of the Trustee in any chartered bank in
Canada or, with the consent of BCo Sub, in the deposit department of the Trustee
or any other loan or trust company authorized to accept deposits under the laws
of Canada or any province thereof at the rate of interest then current on
similar deposits.
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7.12 TRUSTEE NOT REQUIRED TO GIVE SECURITY
The Trustee shall not be required to give any bond or security in respect
of the execution of the trusts, rights, duties, powers and authorities of this
agreement or otherwise in respect of the premises.
7.13 TRUSTEE NOT BOUND TO ACT ON REQUEST
Except as in this agreement otherwise specifically provided, the Trustee
shall not be bound to act in accordance with any direction or request of BCo Sub
and/or BCo or of the directors thereof until a duly authenticated copy of the
instrument or resolution containing such direction or request shall have been
delivered to the Trustee, and the Trustee shall be empowered to act and rely
upon any such copy purporting to be authenticated and believed by the Trustee to
be genuine.
7.14 AUTHORITY TO CARRY ON BUSINESS
The Trustee represents to BCo Sub and BCo that at the date of execution and
delivery by it of this agreement it is authorized to carry on the business of a
trust company in the Province of Alberta but if, notwithstanding the provisions
of this Section 7.14, it ceases to be so authorized to carry on business, the
validity and enforceability of this agreement and the Voting Rights, the
Exchange Put Right, the Exchange Right and the Automatic Exchange Rights shall
not be affected in any manner whatsoever by reason only of such event; provided,
however, the Trustee shall, within 90 days after ceasing to be authorized to
carry on the business of a trust company in the Province of Alberta, either
become so authorized or resign in the manner and with the effect specified in
Article 10 hereof.
7.15 CONFLICTING CLAIMS
If conflicting claims or demands are made or asserted with respect to any
interest of any Holder in any Exchangeable Shares, including any disagreement
between the heirs, representatives, successors or assigns succeeding to all or
any part of the interest of any Holder in any Exchangeable Shares resulting in
conflicting claims or demands being made in connection with such interest, then
the Trustee shall be entitled, at its sole discretion, to refuse to recognize or
to comply with any such claim or demand. In so refusing, the Trustee may elect
not to exercise any Voting Rights, Exchange Put Right, Exchange Right or
Automatic Exchange Rights subject to such conflicting claims or demands and, in
so doing, the Trustee shall not be or become liable to any person on account of
such election or its failure or refusal to comply with any such conflicting
claims or demands. The Trustee shall be entitled to continue to refrain from
acting and to refuse to act until:
(a) the rights of all adverse claimants with respect to the Voting
Rights, Exchange Put Right, Exchange Right or Automatic Exchange Rights
subject to such conflicting claims or demands have been adjudicated by a
final judgment of a court of competent jurisdiction; or
(b) all differences with respect to the Voting Rights, the Exchange Put
Right, Exchange Right or Automatic Exchange Rights subject to such
conflicting claims or demands have been conclusively settled by a valid
written agreement binding on all such adverse claimants, and the Trustee
shall have been furnished with an executed copy of such agreement.
If the Trustee elects to recognize any claim or comply with any demand made
by any such adverse claimant, it may in its discretion require such claimant to
furnish such surety bond or other security satisfactory to the Trustee as it
shall deem appropriate fully to indemnify it as between all conflicting claims
or demands.
7.16 ACCEPTANCE OF TRUST
The Trustee hereby accepts the Trust created and provided for by and in
this agreement and agrees to perform the same upon the terms and conditions
herein set forth and to hold all rights, privileges and benefits conferred
hereby and by law in trust for the various persons who shall from time to time
be Holders, subject to all the terms and conditions herein set forth.
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ARTICLE 8
COMPENSATION
BCo and BCo Sub jointly and severally agree to pay to the Trustee
reasonable compensation for all of the services rendered by it under this
agreement and will reimburse the Trustee for all reasonable expenses (including
but not limited to taxes, compensation paid to experts, agents and advisors, and
travel expenses) and disbursements, including the cost and expense of any suit
or litigation of any character and any proceedings before any governmental
agency, reasonably incurred by the Trustee in connection with its rights and
duties under this agreement; provided that BCo and BCo Sub shall have no
obligation to reimburse the Trustee for any expenses or disbursements paid,
incurred or suffered by the Trustee in any suit or litigation in which the
Trustee is determined to have acted in bad faith or with negligence or willful
misconduct.
ARTICLE 9
INDEMNIFICATION AND LIMITATION OF LIABILITY
9.1 INDEMNIFICATION OF THE TRUSTEE
BCo and BCo Sub jointly and severally agree to indemnify and hold harmless
the Trustee and each of its directors, officers, employees and agents appointed
and acting in accordance with this agreement (collectively, the "Indemnified
Parties") against all claims, losses, damages, costs, penalties, fines and
reasonable expenses (including reasonable expenses of the Trustee's legal
counsel) which, without fraud, negligence, willful misconduct or bad faith on
the part of such Indemnified Party, may be paid, incurred or suffered by the
Indemnified Party by reason of or as a result of the Trustee's acceptance or
administration of the Trust, its compliance with its duties set forth in this
agreement, or any written or oral instructions delivered to the Trustee by BCo
or BCo Sub pursuant hereto. In no case shall BCo or BCo Sub be liable under this
indemnity for any claim against any of the Indemnified Parties unless BCo and
BCo Sub shall be notified by the Trustee of the written assertion of a claim or
of any action commenced against the Indemnified Parties, promptly after any of
the Indemnified Parties shall have received any such written assertion of a
claim or shall have been served with a summons or other first legal process
giving information as to the nature and basis of the claim. Subject to (ii)
below, BCo and BCo Sub shall be entitled to participate at their own expense in
the defense and, if BCo or BCo Sub so elect at any time after receipt of such
notice, either of them may assume the defense of any suit brought to enforce any
such claim. The Trustee shall have the right to employ separate counsel in any
such suit and participate in the defense thereof, but the fees and expenses of
such counsel shall be at the expense of the Trustee unless: (i) the employment
of such counsel has been authorized by BCo or BCo Sub, such authorization not to
be unreasonably withheld; or (ii) the named parties to any such suit include
both the Trustee and BCo or BCo Sub and the Trustee shall have been advised by
counsel acceptable to BCo or BCo Sub that there may be one or more legal
defenses available to the Trustee that are different from or in addition to
those available to BCo or BCo Sub and that an actual or potential conflict of
interest exists (in which case BCo and BCo Sub shall not have the right to
assume the defense of such suit on behalf of the Trustee, but shall be liable to
pay the reasonable fees and expenses of counsel for the Trustee). This indemnity
shall survive the resignation or removal of the Trustee and the termination of
the trust.
9.2 LIMITATION OF LIABILITY
The Trustee shall not be held liable for any loss which may occur by reason
of depreciation of the value of any part of the Trust Estate or any loss
incurred on any investment of funds pursuant to this agreement, except to the
extent that such loss is attributable to the fraud, negligence, willful
misconduct or bad faith on the part of the Trustee.
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ARTICLE 10
CHANGE OF TRUSTEE
10.1 RESIGNATION
The Trustee, or any trustee hereafter appointed, may at any time resign by
giving written notice of such resignation to BCo and BCo Sub specifying the date
on which it desires to resign, provided that such notice shall never be given
less than 60 days before such desired resignation date unless BCo and BCo Sub
otherwise agree and provided further that such resignation shall not take effect
until the date of the appointment of a successor trustee and the acceptance of
such appointment by the successor trustee. Upon receiving such notice of
resignation, BCo and BCo Sub shall promptly appoint a successor trustee by
written instrument, in duplicate, one copy of which shall be delivered to the
resigning trustee and one copy to the successor trustee. Failing acceptance by a
successor trustee, a successor trustee may be appointed by an order of the
superior court of the province in which BCo Sub has its registered office upon
application of one or more of the parties hereto.
10.2 REMOVAL
The Trustee, or any trustee hereafter appointed, may be removed with or
without cause, at any time on 60 days prior notice by written instrument
executed by BCo and BCo Sub, in duplicate, one copy of which shall be delivered
to the trustee so removed and one copy to the successor trustee; provided that,
in connection with such removal, provision is made for a replacement trustee
similar to that contemplated in Section 10.1.
10.3 SUCCESSOR TRUSTEE
Any successor trustee appointed as provided under this agreement shall
execute, acknowledge and deliver to BCo and BCo Sub and to its predecessor
trustee an instrument accepting such appointment. Thereupon the resignation or
removal of the predecessor trustee shall become effective and such successor
trustee, without any further act, deed or conveyance, shall become vested with
all the rights, powers, duties and obligations of its predecessor under this
agreement, with like effect as if originally named as trustee in this agreement.
However, on the written request of BCo and BCo Sub or of the successor trustee,
the trustee ceasing to act shall, upon payment of any amounts then due it
pursuant to the provisions of this agreement, execute and deliver an instrument
transferring to such successor trustee all the rights and powers of the trustee
so ceasing to act. Upon the request of any such successor trustee, BCo, BCo Sub
and such predecessor trustee shall execute any and all instruments in writing
for more fully and certainly vesting in and confirming to such successor trustee
all such rights and powers.
10.4 NOTICE OF SUCCESSOR TRUSTEE
Upon acceptance of appointment by a successor trustee as provided herein,
BCo and BCo Sub shall cause to be mailed notice of the succession of such
trustee hereunder to each Holder specified in a List. If BCo or BCo Sub shall
fail to cause such notice to be mailed within 10 days after acceptance of
appointment by the successor trustee, the successor trustee shall cause such
notice to be mailed at the expense of BCo and BCo Sub.
ARTICLE 11
BCO SUCCESSORS
11.1 CERTAIN REQUIREMENTS IN RESPECT OF COMBINATION, ETC.
BCo shall not enter into any transaction (whether by way of reconstruction,
reorganization, consolidation, merger, transfer, sale, lease or otherwise)
whereby all or substantially all of its undertaking, property and assets would
become the property of any other Person or, in the case of a merger, of the
continuing corporation resulting therefrom, but may do so if:
(a) such other Person or continuing corporation (the "BCo Successor"), by
operation of law, becomes, without further action, bound by the terms
and provisions of this agreement or, if not so bound, executes, prior to
or contemporaneously with the consummation of such transaction an
agreement
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supplemental hereto and such other instruments (if any) as are
satisfactory to the Trustee and in the opinion of legal counsel to the
Trustee are necessary or advisable to evidence the assumption by the BCo
Successor of liability for all moneys payable and property deliverable
hereunder, the covenant of such BCo Successor to pay and deliver or
cause to be delivered the same and its agreement to observe and perform
all the covenants and obligations of BCo under this agreement; and
(b) such transaction shall, to the satisfaction of the Trustee and in the
opinion of legal counsel to the Trustee, be upon such terms which
substantially preserve and do not impair in any material respect any of
the rights, duties, powers and authorities of the Trustee or of the
Holders hereunder.
11.2 VESTING OF POWERS IN SUCCESSOR
Whenever the conditions of Section 11.1 hereof have been duly observed and
performed, the Trustee, if required by Section 11.1 hereof, the BCo Successor
and BCo Sub shall execute and deliver the supplemental agreement provided for in
Article 12 hereof, and thereupon the BCo Successor shall possess and from time
to time may exercise each and every right and power of BCo under this agreement
in the name of BCo or otherwise and any act or proceeding by any provision of
this agreement required to be done or performed by the board of directors of BCo
or any officers of BCo may be done and performed with like force and effect by
the directors or officers of such BCo Successor.
11.3 WHOLLY-OWNED SUBSIDIARIES
Nothing herein shall be construed as preventing the amalgamation or merger
of any wholly-owned subsidiary of BCo with or into BCo or the winding-up,
liquidation or dissolution of any wholly-owned subsidiary of BCo provided that
all of the assets of such subsidiary are transferred to BCo or another
wholly-owned subsidiary of BCo, and any such transactions are expressly
permitted by this Article 11.
ARTICLE 12
AMENDMENTS AND SUPPLEMENTAL AGREEMENTS
12.1 AMENDMENTS, MODIFICATIONS, ETC.
Subject to Sections 12.2 and 12.4, this agreement may not be amended,
modified or waived except by an agreement in writing executed by BCo Sub, BCo
and the Trustee and approved by the Holders in accordance with Section 10.2 of
the Exchangeable Share Provisions. No amendment to or modification or waiver of
any of the provisions of this agreement otherwise permitted hereunder shall be
effective unless made in writing and signed by all of the parties hereto.
12.2 MINISTERIAL AMENDMENTS
Notwithstanding the provisions of Section 12.1 hereof, the parties to this
agreement may in writing, at any time and from time to time, without the
approval of the Holders, amend or modify this agreement for the purposes of:
(a) adding to the covenants of any or all of the parties hereto for the
protection of the Holders hereunder subject to the receipt by the
Trustee of an opinion of counsel that the addition of the proposed
covenant is not prejudicial to the interests of the holders as a whole
or the Trustee;
(b) making such amendments or modifications not inconsistent with this
agreement as may be necessary or desirable with respect to matters or
questions which, in the opinion of the board of directors of each of BCo
and BCo Sub and in the opinion of the Trustee and its counsel, having in
mind the best interests of the Holders as a whole, it may be expedient
to make, provided that such boards of directors and the Trustee and its
counsel shall be of the opinion that such amendments and modifications
will not be prejudicial to the interests of the Holders as a whole; or
(c) making such changes or corrections which, on the advice of counsel to
BCo Sub, BCo and the Trustee, are required for the purpose of curing or
correcting any ambiguity or defect or inconsistent
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provision or clerical omission or mistake or manifest error; provided
that the Trustee and its counsel and the board of directors of each of
BCo Sub and BCo shall be of the opinion that such changes or corrections
will not be prejudicial to the interests of the Holders as a whole.
12.3 MEETING TO CONSIDER AMENDMENTS
BCo Sub, at the request of BCo, shall call a meeting or meetings of the
Holders for the purpose of considering any proposed amendment or modification
requiring approval pursuant hereto. Any such meeting or meetings shall be called
and held in accordance with the by-laws of BCo Sub, the Exchangeable Share
Provisions and all applicable laws.
12.4 CHANGES IN CAPITAL OF BCO AND BCO SUB
At all times after the occurrence of any event effected pursuant to Section
2.7 or Section 2.8 of the Support Agreement, as a result of which either BCo
Common Stock or the Exchangeable Shares or both are in any way changed, this
agreement shall forthwith be amended and modified as necessary in order that it
shall apply with full force and effect, mutatis mutandis, to all new securities
into which BCo Common Stock or the Exchangeable Shares or both are so changed,
and the parties hereto shall execute and deliver a supplemental agreement giving
effect to and evidencing such necessary amendments and modifications.
12.5 EXECUTION OF SUPPLEMENTAL AGREEMENTS
From time to time, BCo Sub (when authorized by a resolution of its Board of
Directors), BCo (when authorized by a resolution of its board of directors) and
the Trustee may, subject to the provisions of these presents, and they shall,
when so directed by these presents, execute and deliver by their proper
officers, agreements or other instruments supplemental hereto, which thereafter
shall form part hereof, for any one or more of the following purposes:
(a) evidencing the succession of any BCo Successors to BCo and the
covenants of and obligations assumed by each such BCo Successor in
accordance with the provisions of Article 11 and the successor of any
successor trustee in accordance with the provisions of Article 10;
(b) making any additions to, deletions from or alterations of the
provisions of this agreement or the Voting Rights, the Exchange Right or
the Automatic Exchange Rights which, in the opinion of the Trustee and
its counsel, will not be prejudicial to the interests of the Holders as
a whole or are in the opinion of counsel to the Trustee necessary or
advisable in order to incorporate, reflect or comply with any
legislation the provisions of which apply to BCo, BCo Sub, the Trustee
or this agreement; and
(c) for any other purposes not inconsistent with the provisions of this
agreement, including without limitation to make or evidence any
amendment or modification to this agreement as contemplated hereby,
provided that, in the opinion of the Trustee and its counsel, the rights
of the Trustee and the Holders as a whole will not be prejudiced
thereby.
ARTICLE 13
TERMINATION
13.1 TERM
The Trust created by this agreement shall continue until the earliest to
occur of the following events:
(a) no outstanding Exchangeable Shares are held by a Holder;
(b) each of BCo Sub and BCo elects in writing to terminate the Trust and
such termination is approved by the Holders of the Exchangeable Shares
in accordance with Section 10.1 of the Exchangeable Share Provisions;
and
(c) 21 years after the death of the last survivor of the descendants of
His Majesty King George VI of the United Kingdom of Great Britain and
Northern Ireland living on the date of the creation of the Trust.
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13.2 SURVIVAL OF AGREEMENT
This agreement shall survive any termination of the Trust and shall
continue until there are no Exchangeable Shares outstanding held by a Holder;
provided, however, that the provisions of Articles 8 and 9 hereof shall survive
any such termination of this agreement.
ARTICLE 14
GENERAL
14.1 SEVERABILITY
If any provision of this agreement is held to be invalid, illegal or
unenforceable, the validity, legality or enforceability of the remainder of this
agreement shall not in any way be affected or impaired thereby, and the
agreement shall be carried out as nearly as possible in accordance with its
original terms and conditions.
14.2 INUREMENT
This agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and permitted assigns and to the
benefit of the Holders.
14.3 NOTICES TO PARTIES
All notices and other communications between the parties hereunder shall be
in writing and shall be deemed to have been given if delivered personally or by
confirmed telecopy to the parties at the following addresses (or at such other
address for such party as shall be specified in like notice):
(a) if to BCo to:
Burlington Resources Inc.
5051 Westheimer, Suite 1400
Houston, Texas 77056
Attention: F.J. Plaeger, II
Vice President and General Counsel
Facsimile No. 713-624-9569
(b) if to BCo Sub to:
Burlington Resources Canada Inc.
3700, 250 - 6th Avenue, S.W.
Calgary, Alberta T2P 3H7
Attention: Vice President, General Counsel and Secretary
Facsimile No. 403-263-2708
(c) if to the Trustee to:
CIBC Mellon Trust Company
600, 333 - 7th Avenue S.W.
Calgary, Alberta T2P 2Z1
Any notice or other communication given personally shall be deemed to have
been given and received upon delivery thereof, and if given by telecopy shall be
deemed to have been given and received on the date of receipt thereof unless
such day is not a Business Day in which case it shall be deemed to have been
given and received upon the immediately following Business Day.
14.4 NOTICE TO HOLDERS
Any and all notices to be given and any documents to be sent to any Holders
may be given or sent to the address of such Holder shown on the register of
Holders of Exchangeable Shares in any manner permitted by the Exchangeable Share
Provisions and shall be deemed to be received (if given or sent in such manner)
at the time
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specified in such Exchangeable Share Provisions, the provisions of which
Exchangeable Share Provisions shall apply mutatis mutandis to notices or
documents as aforesaid sent to such Holders.
14.5 RISK OF PAYMENTS BY POST
Whenever payments are to be made or documents are to be sent to any Holder
by the Trustee, by BCo Sub or by BCo or by such Holder to the Trustee or to BCo
or BCo Sub, the making of such payment or sending of such document sent through
the mail shall be at the risk of BCo Sub or BCo, in the case of payments made or
documents sent by the Trustee or BCo Sub or BCo, and the Holder, in the case of
payments made or documents sent by the Holder.
14.6 COUNTERPARTS
This agreement may be executed in counterparts, each of which shall be
deemed an original, but all of which taken together shall constitute one and the
same instrument.
14.7 JURISDICTION
This agreement shall be construed and enforced in accordance with the laws
of the Province of Alberta and the federal laws of Canada applicable therein.
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14.8 ATTORNMENT
BCo agrees that any action or proceeding arising out of or relating to this
agreement may be instituted in the courts of Alberta, waives any objection which
it may have now or hereafter to the venue of any such action or proceeding,
irrevocably submits to the jurisdiction of such courts in any such action or
proceeding, agrees to be bound by any judgment of such courts and agrees not to
seek, and hereby waives, any review of the merits of any such judgment by the
courts of any other jurisdiction and hereby appoints BCo Sub at its registered
office in the Province of Alberta as BCo's attorney for service of process.
IN WITNESS WHEREOF, the parties hereby have caused this agreement to be
duly executed as of the date first above written.
BURLINGTON RESOURCES INC.
By:_________________________________
--
--
BURLINGTON RESOURCES CANADA INC.
By:_________________________________
--
--
CIBC MELLON TRUST COMPANY
By:_________________________________
(name)
(title)
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ANNEX H
RBC DOMINION SECURITIES INC.
FAIRNESS OPINION
<PAGE> 200
[RBC LETTERHEAD]
August 16, 1999
The Board of Directors
Poco Petroleums Ltd.
3700 Bow Valley Square IV
250 - 6th Avenue S.W.
Calgary, Alberta
T2P 3H7
To Members of the Board of Directors:
RBC Dominion Securities Inc. ("RBC DS") understands that Burlington
Resources Inc. ("Burlington") has entered into an agreement to acquire all of
the issued and outstanding common shares (the "Common Shares") of Poco
Petroleums Ltd. ("Poco" or the "Company") pursuant to a plan of arrangement (the
"Arrangement"), as provided in the combination agreement between Burlington and
Poco, dated as of August 16, 1999 (the "Combination Agreement"). The terms of
the Arrangement will be more fully described in a Joint Management Information
Circular and Proxy Statement (the "Circular") which will be mailed to
shareholders of the Company in connection with the Arrangement.
The Company, under the direction of the board of directors (the "Board") of
the Company, has retained RBC DS to act as financial advisor to provide advice
and assistance to the Board in evaluating the Arrangement, including the
preparation and delivery to the Board of its opinion as to the fairness of the
Arrangement from a financial point of view to the holders of the Common Shares
(the "Fairness Opinion"). RBC DS has not prepared a valuation of the Company,
Burlington or any of their respective subsidiaries or assets and the Fairness
Opinion should not be construed as such.
ENGAGEMENT
RBC DS was formally engaged by the Board through an agreement between the
Company and RBC DS (the "Engagement Agreement") dated as of July 29, 1999. As
defined in the Engagement Agreement, RBC DS is to be paid a fee based upon the
total equity transaction value at the completion of the Arrangement. In
addition, RBC DS is to be reimbursed for its reasonable out-of-pocket expenses
and to be indemnified by the Company in certain circumstances. RBC DS consents
to the inclusion of the Fairness Opinion in its entirety and a summary thereof
in the Circular and the filing thereof with the securities commissions or
similar regulatory authorities in each province of Canada and the United States.
RELATIONSHIP WITH INTERESTED PARTIES
Neither RBC DS, nor any of its affiliates is an insider, associate or
affiliate (as those terms are defined in the Securities Act (Ontario) (the
"Act")) of the Company, Burlington or any of their respective associates or
affiliates. RBC DS has not been engaged to provide financial advisory services
to Burlington in the past two years. RBC DS has been engaged by the Company to
provide financial advisory services within the past two years in connection with
the purchase of Pan East Petroleum Corp. and other assignments. There are no
understandings, agreements or commitments between RBC DS and the Company,
Burlington or any of their respective associates or affiliates with respect to
any future business dealings. RBC DS may, in the future, in the ordinary course
of its business, perform financial advisory or investment banking services for
the Company,
Member of Royal Bank Financial Group
<PAGE> 201
Burlington or any of their respective associates or affiliates. The Royal Bank
of Canada, the shareholder of RBC DS, provides banking services to the Company
in the normal course of business.
RBC DS acts as a trader and dealer, both as principal and agent, in major
financial markets and, as such, may have had and may in the future have
positions in the securities of the Company, Burlington or any of their
respective associates or affiliates and, from time to time, may have executed or
may execute transactions on behalf of such companies or clients for which it
received or may receive compensation. As an investment dealer, RBC DS conducts
research on securities and may, in the ordinary course of its business, provide
research reports and investment advice to its clients on investment matters,
including with respect to the Company, Burlington or the Arrangement.
CREDENTIALS OF RBC DOMINION SECURITIES
RBC DS is one of Canada's largest investment banking firms, with operations
in all facets of corporate and government finance, mergers and acquisitions,
equity and fixed income sales and trading and investment research. The Fairness
Opinion expressed herein represents the opinion of RBC DS and the form and
content herein have been approved for release by a committee of its directors,
each of whom is experienced in merger, acquisition, divestiture and valuation
matters.
SCOPE OF REVIEW
In connection with our Fairness Opinion, we have reviewed and relied upon
or carried out, among other things, the following:
1. the Combination Agreement;
2. audited financial statements of the Company and Burlington for the
five years ended December 31, 1998;
3. the unaudited interim reports of the Company and Burlington for the
three and six months ended June 30, 1999;
4. annual reports of the Company and Burlington for the two years
ended December 31, 1997 and 1998;
5. the Notices of Annual Meetings of Shareholders and Management
Information Circulars of the Company for the two years ended December 31,
1997 and 1998;
6. the Notice of Annual Meeting of Stockholders and Proxy Statement of
Burlington for the year ended December 31, 1998;
7. annual information forms of the Company for the two years ended
December 31, 1997 and 1998;
8. the Form 10-K of Burlington for the year ended December 31, 1998;
9. Poco's internal management budgets for the year ending December 31,
1999;
10. selected Burlington internal management operational and financial
estimates and forecasts;
11. Poco's internal management ten year operational and financial
model;
12. discussions with senior management of Poco and Burlington;
13. discussions with both Poco's and Burlington's auditors and legal
counsel;
14. public information relating to the business, operations, financial
performance and stock trading history of Poco, Burlington and other
selected public companies considered by us to be relevant;
15. public information with respect to other transactions of a
comparable nature considered by us to be relevant;
RBC Dominion Securities
2
<PAGE> 202
16. a report from Poco regarding Poco's petroleum reserves, with an
effective date of December 31, 1998 and updated information with respect to
that report to June 30, 1999;
17. information pertaining to the Company's seismic database, natural
gas processing facilities, undeveloped land and income tax pools as
provided by the Company;
18. information pertaining to the July 22, 1999 farm-in agreement
between Poco and Chevron Canada Resources;
19. representations contained in a certificate addressed to us, dated
as of the date hereof, from senior officers of the Company as to the
completeness and accuracy of the information upon which the Fairness
Opinion is based; and
20. such other corporate, industry and financial market information,
investigations and analyses as RBC DS considered necessary or appropriate
in the circumstances.
RBC DS has not, to the best of its knowledge, been denied access by the
Company or Burlington to any information requested by RBC DS. RBC DS' also
conducted a verbal due diligence session with certain members of Burlington's
senior management team. RBC DS was not, to the best of its knowledge, denied any
information or access which was requested at such session.
PRIOR VALUATIONS
The Company and Burlington have represented to RBC DS that there have not
been any prior valuations (as defined in Ontario Securities Commission Policy
9.1) of the Company, Burlington or their material assets or securities,
respectively, in the past twenty-four month period.
ASSUMPTIONS AND LIMITATIONS
With the Board's approval and as provided for in the Engagement Agreement,
RBC DS has relied upon the completeness, accuracy and fair presentation of all
of the financial and other information, data, advice, opinions or
representations obtained by it from public sources, senior management of the
Company and Burlington and their respective consultants and advisors
(collectively, the "Information"). The Fairness Opinion is conditional upon such
completeness, accuracy and fair presentation of such Information. Subject to the
exercise of professional judgment and except as expressly described herein, we
have not attempted to verify independently the completeness, accuracy or fair
presentation of any of the Information.
Senior officers of the Company have represented to RBC DS in a certificate
delivered as of the date hereof, among other things, that (i) the Information
(as defined above) provided in writing by the Company or any of its subsidiaries
or their respective agents to RBC DS relating to the Company or any of its
subsidiaries or to the Arrangement, for the purpose of preparing the Fairness
Opinion was, at the date the Information was provided to RBC DS, and is, except
as has been disclosed in writing to RBC DS, complete, true and correct in all
material respects, and did not, and does not, contain any untrue statement of a
material fact in respect of the Company, its subsidiaries or the Arrangement,
and did not, and does not, omit to state a material fact in respect of the
Company, its subsidiaries or the Arrangement necessary to make the Information
not misleading in light of the circumstances under which the Information was
made or provided; and that (ii) since the dates on which the Information was
provided to RBC DS, except as disclosed in writing to RBC DS, or as publicly
disclosed by the Company, there has been no material change, financial or
otherwise, in the financial condition, assets, liabilities (contingent or
otherwise), business, operations or prospects of the Company or any if its
subsidiaries and no material change has occurred in the Information or any part
thereof which would have, or which would reasonably be expected to have, a
material effect on the Fairness Opinion.
In preparing the Fairness Opinion, RBC DS has made several assumptions,
including that all of the conditions required to implement the Arrangement will
be met and that the disclosure provided or incorporated by reference in the
Circular with respect to the Company, Burlington, their respective subsidiaries
and affiliates and the Arrangement is accurate in all material respects.
RBC Dominion Securities
3
<PAGE> 203
The Fairness Opinion is rendered on the basis of securities markets,
economic, financial and general business conditions prevailing as at the date
hereof and the condition and prospects, financial and otherwise, of the Company,
Burlington and their respective subsidiaries and affiliates, as they were
reflected in the Information and as they have been represented to RBC DS in
discussions with management of the Company and Burlington. In its analyses and
in preparing the Fairness Opinion, RBC DS made numerous assumptions with respect
to industry performance, general business and economic conditions and other
matters, many of which are beyond the control of RBC DS or any party involved in
the Arrangement.
The Fairness Opinion has been provided for the use of the Board and may not
be used by any other person or relied upon by any other person other than the
Board without the express prior written consent of RBC DS. The Fairness Opinion
is given as of the date hereof and RBC DS disclaims any undertaking or
obligation to advise any person of any change in any fact or matter affecting
its Fairness Opinion which may come or be brought to RBC DS' attention after the
date hereof. Without limiting the foregoing, in the event that there is any
material change in any fact or matter affecting the Fairness Opinion after the
date hereof, RBC DS reserves the right to change, modify or withdraw its
Fairness Opinion.
RBC DS believes that its analyses must be considered as a whole and that
selecting portions of the analyses or the factors considered by it, without
considering all factors and analyses together, could create a misleading view of
the process underlying the Fairness Opinion. The preparation of a fairness
opinion is a complex process and is not necessarily susceptible to partial
analysis or summary description. Any attempt to do so could lead to undue
emphasis on any particular factor or analysis. The Fairness Opinion is not to be
construed as a recommendation to any holder of Common Shares as to whether to
vote in favour of the Arrangement.
FAIRNESS CONCLUSION
Based upon and subject to the foregoing, RBC DS is of the opinion that, as
of the date hereof, the Arrangement is fair from a financial point of view to
the holders of Common Shares.
Yours very truly,
RBC DOMINION SECURITIES INC.
RBC DOMINION SECURITIES
4
<PAGE> 204
ANNEX I
MORGAN STANLEY & CO. INCORPORATED
FAIRNESS OPINION
<PAGE> 205
[MORGAN STANLEY DEAN WITTER]
1585 BROADWAY
NEW YORK, NEW YORK 10036
(212) 761-4000
August 16, 1999
Board of Directors
Burlington Resources Inc.
5051 Westheimer.
Houston, TX 77056
Members of the Board:
We understand that Poco Petroleums Ltd. ("Poco" or the "Company") and
Burlington Resources Inc. ("BR") propose to enter into a Combination Agreement
substantially in the form of the draft dated August 16, 1999 (the "Combination
Agreement"), pursuant to which, among other things, Poco will become an indirect
wholly owned subsidiary of BR (the "Combination"), and each common share of Poco
(the "Company Shares"), issued and outstanding at the effective time of the
Combination, other than shares held by BR or any subsidiary of BR or as to which
dissenters' rights have been perfected, will be exchanged for 0.25 (the
"Exchange Ratio") of an Exchangeable Share (the "Exchangeable Shares"). Each
exchangeable share of which will be exchangeable by the holder thereof for one
share of Common Stock of BR ("BR Common Stock"). The terms and conditions of the
Combination are more fully set forth in the Combination Agreement.
You have asked for our opinion as to whether the Exchange Ratio pursuant to
the Combination Agreement is fair from a financial point of view to BR.
For purposes of the opinion set forth herein, we have:
(i) reviewed certain publicly available financial statements and other
information of the Company and BR, respectively;
(ii) reviewed certain internal financial statements and other
financial and operating data, including internal reserve estimates,
concerning the Company and BR, prepared by the managements of the Company
and BR, respectively;
(iii) analyzed certain financial forecasts prepared by the managements
of the Company and BR, respectively;
(iv) discussed the past and current operations and financial condition
and the prospects of the Company, including information relating to certain
strategic, financial and operational benefits anticipated from the
Combination, with senior executives of the Company;
(v) discussed the past and current operations and financial condition
and the prospects of BR, including information relating to certain
strategic, financial and operational benefits anticipated from the
Combination, with senior executives of BR;
(vi) reviewed the pro forma impact of the Combination on BR's earnings
per share, cash flow, oil and gas reserves and production, consolidated
capitalization and financial ratios;
(vii) reviewed the reported prices and trading activity for the
Company Shares and BR Common Stock, respectively;
(viii) compared the financial performance of the Company and BR and
the prices and trading activity of the Company Shares and BR Common Stock
with that of certain other comparable publicly-traded companies and their
securities;
(ix) reviewed the financial terms, to the extent publicly available,
of certain comparable business combination transactions deemed relevant;
(x) participated in discussions and negotiations among representatives
of the Company and BR and their financial and legal advisors;
I-1
<PAGE> 206
MORGAN STANLEY DEAN WITTER
(xi) reviewed the draft of the Combination Agreement, the Plan of
Arrangement, and certain related documents; and
(xii) performed such other analyses and considered such other factors
as we have deemed appropriate.
We have assumed and relied upon without independent verification the
accuracy and completeness of the information reviewed by us for the purposes of
this opinion. With respect to the financial forecasts, we have assumed that they
have been reasonably prepared on bases reflecting the best currently available
estimates and judgments of the future financial performance of the Company and
BR, respectively. We have not made any independent valuation or appraisal of the
assets or liabilities of the Company or BR; nor have we been furnished with any
such appraisals. With respect to the reserve estimates referred to in (ii) and
(vi) above, we are not experts in the engineering evaluation of oil and gas
properties and, with your consent, have relied, without independent
verification, solely upon the internal reserve estimates of the Company and BR,
respectively. In addition, we have assumed that the Combination will be
consummated in accordance with the terms set forth in the Combination Agreement.
Our opinion is necessarily based on economic, market and other conditions as in
effect on, and the information made available to us as of, the date hereof.
We have acted as financial advisor to the Board of Directors of BR in
connection with this transaction and will receive a fee for our services. In the
past, Morgan Stanley & Co. Incorporated and its affiliates have provided
financial advisory and financing services to BR and have received fees for the
rendering of these services.
It is understood that this letter is for the information of the Board of
Directors of BR only and may not be used for any other purpose without our prior
written consent, except that this opinion may be included in its entirety in any
filing made by BR in respect of the Combination with any securities regulatory
authority in the United States or Canada.
We are expressing no opinion herein as to the prices at which the Company
Shares, the Exchangeable Shares or BR Common Stock will trade at any time. In
addition, Morgan Stanley expresses no opinion or recommendation as to how the
holders of BR Common Stock should vote at the shareholders' meeting held in
connection with the Combination.
Based upon and subject to the foregoing, we are of the opinion on the date
hereof that the Exchange Ratio pursuant to the Combination Agreement is fair
from a financial point of view to BR.
Very truly yours,
MORGAN STANLEY & CO. INCORPORATED
By:
----------------------------------
Michael J. Dickman
Managing Director
I-2
<PAGE> 207
ANNEX J
SECTION 184 OF THE ABCA
<PAGE> 208
SECTION 184 OF THE BUSINESS CORPORATIONS ACT (ALBERTA)
184(1) Subject to sections 185 and 234, a holder of shares of any class of a
corporation may dissent if the corporation resolves to
(a) amend its articles under section 167 and 168 to add, change or
remove any provisions restricting or constraining the issue or
transfer of shares of that class,
(b) amend its articles under section 167 to add, change or remove any
restrictions on the business or businesses that the corporation
may carry on,
(c) amalgamate with another corporation, otherwise than under section
178 or 180.1,
(d) be continued under the laws of another jurisdiction under section
182, or
(e) sell, lease or exchange all or substantially all its property
under section 183.
(2) A holder of shares of any class of series of shares entitled to vote
under section 170, other than section 170 (1)(a), may dissent if the corporation
resolves to amend its articles in a manner described in that section.
(3) In addition to any other right he may have, but subject to subsection
(20), a shareholder entitled to dissent under this section and who complies with
this section is entitled to be paid by the corporation the fair value of the
shares held by him in respect of which he dissents, determined as of the close
of business on the last business day before the day on which the resolution from
which he dissents was adopted.
(4) A dissenting shareholder may only claim under this section with
respect to all the shares of a class held by him or on behalf of any one
beneficial owner and registered in the name of the dissenting shareholder.
(5) A dissenting shareholder shall send to the corporation a written
objection to a resolution referred to in subsection (1) or (2)
(a) at or before any meeting of shareholders at which the resolution
is to be voted on, or
(b) if the corporation did not send notice to the shareholder of the
purpose of the meeting or of his right to dissent, within a
reasonable time after he learns that the resolution was adopted
and of his right to dissent.
(6) An application may be made to the Court by originating notice after
the adoption of a resolution referred to in subsection (1) or (2),
(a) by the corporation, or
(b) by a shareholder if he has sent an objection to the corporation
under subsection (5),
to fix the fair value in accordance with subsection (3) of the shares of a
shareholder who dissents under this section.
(7) If an application is made under subsection (6), the corporation
shall, unless the Court otherwise orders, send to each dissenting shareholder a
written offer to pay him an amount considered by the directors to be the fair
value of the shares.
(8) Unless the Court otherwise orders, an offer referred to in subsection
(7) shall be sent to each dissenting shareholder
(a) at least 10 days before the date on which the application is
returnable, if the corporation is the applicant, or
(b) within 10 days after the corporation is served with a copy of the
originating notice, if a shareholder is the applicant.
(9) Every offer made under subsection (7) shall
(a) be made on the same terms, and
(b) contain or be accompanied by a statement showing how the fair
value was determined.
(10) A dissenting shareholder may make an agreement with the corporation
for the purchase of his shares by the corporation, in the amount of the
corporation's offer under subsection (7) or otherwise, at any time before the
Court pronounces an order fixing the fair value of the shares.
J-1
<PAGE> 209
(11) A dissenting shareholder
(a) is not required to give security for costs in respect of an
application under subsection (6), and
(b) except in special circumstances shall not be required to pay the
costs of the application or appraisal.
(12) In connection with an application under subsection (6), the Court may
give directions for
(a) joining as parties all dissenting shareholders whose shares have
not been purchased by the corporation and for the representation
of dissenting shareholders who, in the opinion of the Court, are
in need of representation,
(b) the trial of issues and interlocutory matters, including pleadings
and examination for discovery,
(c) the payment to the shareholder of all or part of the sum offered
by the corporation for the shares,
(d) the deposit of the share certificates with the Court or with the
corporation or its transfer agent,
(e) the appointment and payment of independent appraisers, and the
procedures to be followed by them,
(f) the service of documents, and
(g) the burden of proof on the parties.
(13) On an application under subsection (6), the Court shall make an order
(a) fixing the fair value of the shares in accordance with subsection
(3) of all dissenting shareholders who are parties to the
application,
(b) giving judgment in that amount against the corporation and in
favour of each of those dissenting shareholders, and
(c) fixing the time within which the corporation must pay that amount
to a shareholder.
(14) On
(a) the action approved by the resolution from which the shareholder
dissents becoming effective,
(b) the making of an agreement under subsection (10) between the
corporation and the dissenting shareholder as to the payment to be
made by the corporation for his shares, whether by the acceptance
of the corporation's offer under subsection (7) or otherwise, or
(c) the pronouncement of an order under subsection (13),
whichever first occurs, the shareholder ceases to have any rights as a
shareholder other than the right to be paid the fair value of his shares in the
amount agreed to between the corporation and the shareholder or in the amount of
the judgment, as the case may be.
(15) Subsection (14)(a) does not apply to a shareholder referred to in
subsection (5)(b).
(16) Until one of the events mentioned in subsection (14) occurs,
(a) the shareholder may withdraw his dissent, or
(b) the corporation may rescind the resolution,
and in either event proceedings under this section shall be
discontinued.
(17) The Court may in its discretion allow a reasonable rate of interest
on the amount payable to each dissenting shareholder, from the date on which the
shareholder ceases to have any rights as a shareholder by reason of subsection
(14) until the date of payment.
(18) If subsection (20) applies, the corporation shall, within 10 days
after
(a) the pronouncement of an order under subsection (13), or
(b) the making of an agreement between the shareholder and the
corporation as to the payment to be made for his shares,
notify each dissenting shareholder that it is unable lawfully to pay dissenting
shareholders for their shares.
J-2
<PAGE> 210
(19) Notwithstanding that a judgment has been given in favour of a
dissenting shareholder under subsection (13)(b), if subsection (20) applies, the
dissenting shareholder, by written notice delivered to the corporation within 30
days after receiving the notice under subsection (18), may withdraw his notice
of objection, in which case the corporation is deemed to consent to the
withdrawal and the shareholder is reinstated to his full rights as a
shareholder, failing which he retains a status as a claimant against the
corporation, to be paid as soon as the corporation is lawfully able to do so or,
in a liquidation, to be ranked subordinate to the rights of the creditors of the
corporation but in priority to its shareholders.
(20) A corporation shall not make a payment to a dissenting shareholder
under this section if there are reasonable grounds for believing that
(a) the corporation is or would after the payment be unable to pay its
liabilities as they become due, or
(b) the realizable value of the corporation's assets would thereby be
less than the aggregate of its liabilities.
J-3
<PAGE> 211
ANNEX K
ADDITIONAL DOCUMENTS INCLUDED:
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Proxy Statement and Information Circular for Poco's
Annual and Special Meeting of Shareholders held on
May 6, 1999. ....................................... K-1
Poco's Annual Information Form dated April 21,
1999. .............................................. K-17
Poco Selected Historical Financial Data under Canadian
and U.S. GAAP. ..................................... K-33
Poco Management's Discussion and Analysis of Financial
Condition and Results of Operations. ............... K-36
Poco Audited Financial Statements for the years ended
December 31, 1998, 1997 and 1996 and Unaudited
Financial Statements for the periods ended June 30,
1999 and June 30, 1998. ............................ K-43
</TABLE>
<PAGE> 212
POCO PETROLEUMS LTD.
PROXY STATEMENT AND INFORMATION CIRCULAR
FOR POCO'S ANNUAL AND
SPECIAL MEETING OF SHAREHOLDERS
HELD ON MAY 6, 1999
K-1
<PAGE> 213
POCO PETROLEUMS LTD.
3700, 250 - 6TH AVE. S.W.
CALGARY, ALBERTA
T2P 3H7
INFORMATION CIRCULAR -- PROXY STATEMENT
MARCH 17, 1999
GENERAL INFORMATION
THIS INFORMATION CIRCULAR -- PROXY STATEMENT IS FURNISHED IN CONNECTION
WITH THE SOLICITATION OF PROXIES BY THE MANAGEMENT OF POCO PETROLEUMS LTD.
(hereinafter sometimes called "Poco" or the "Corporation") for use at the Annual
and Special Meeting of holders of Common Shares of the Corporation (the
"Meeting") to be held on Thursday, the 6th day of May, 1999, at 2:00 p.m.
(Calgary time), at the Metropolitan Centre, 333 - Fourth Avenue, SW, Calgary,
Alberta, and at any adjournment thereof, for the purposes set forth in the
Notice of Meeting. Instruments of proxy must be addressed to the Vice President,
General Counsel & Secretary of the Corporation and mailed or deposited with CIBC
Mellon Trust Company at either 600, 333 - 7th Avenue, SW, Calgary, Alberta, T2P
2Z1 or P.O. Box 12005, Stn. Brm. B, Toronto, Ontario, M7Y 2K5, to the attention
of the Proxy Department, so as to be received not less than 24 hours, excluding
Saturdays and holidays, before the time fixed for holding the Meeting at which
the person named in such instrument proposes to vote or any adjournment thereof.
No instrument appointing a proxy shall be valid after the expiration of 12
months from the date of its execution. The close of business on March 17, 1999,
has been fixed as the record date for the determination of shareholders entitled
to receive notice of and to vote at the Meeting or any adjournments thereof;
provided that, to the extent such a shareholder transfers the ownership of any
shares after that date and the transferee of those shares establishes ownership
of such shares and demands at any time before the Meeting that the transferee's
name be included in the shareholders' list, such transferee will be entitled to
vote such shares at the Meeting.
The instrument appointing a proxy shall be in writing and shall be executed
by the shareholder or the shareholder's attorney authorized in writing or, if
the shareholder is a corporation, under its corporate seal or by an officer or
attorney thereof duly authorized.
THE SHAREHOLDER SUBMITTING THE PROXY SHALL HAVE THE RIGHT TO APPOINT A
PROXYHOLDER (WHO NEED NOT BE A SHAREHOLDER OF THE CORPORATION) TO REPRESENT THE
SHAREHOLDER AT THE MEETING OTHER THAN THE PERSON OR PERSONS DESIGNATED IN THE
FORM OF PROXY FURNISHED BY THE CORPORATION. TO EXERCISE THIS RIGHT THE
SHAREHOLDER MAY INSERT THE NAME OF THE DESIRED REPRESENTATIVE IN THE BLANK SPACE
PROVIDED IN THE PROXY AND STRIKE OUT THE OTHER NAMES OR MAY SUBMIT ANOTHER
APPROPRIATE FORM OF PROXY.
ADVICE TO BENEFICIAL HOLDERS OF COMMON SHARES
THE INFORMATION SET FORTH IN THIS SECTION IS OF SIGNIFICANT IMPORTANCE TO
MANY SHAREHOLDERS WHO DO NOT HOLD THEIR COMMON SHARES IN THEIR OWN NAME
(REFERRED TO IN THIS CIRCULAR AS "BENEFICIAL SHAREHOLDERS"). Beneficial
Shareholders should note that only proxies deposited by Shareholders whose names
appear on the records of Poco as the registered holders of Common Shares can be
recognized and acted upon at the Meeting. If Common Shares are listed in an
account statement provided to a Shareholder by a broker, then in almost all
cases those Common Shares will not be registered in the Shareholder's name on
the records of Poco. Such Common Shares will more likely be registered under the
name of the Shareholder's broker or an agent of that broker. In Canada, the vast
majority of such Common Shares are registered under the name of CDS & Co. (the
registration name of The Canadian Depositary for Securities Limited, which acts
as nominees for many Canadian brokerage firms). Common Shares held by brokers or
their nominees can only be voted (for or against resolutions) upon the
instructions of the Beneficial Shareholder. Without specific instructions, the
broker/nominees are prohibited from voting shares for their clients. The
directors and officers of Poco do not know for whose benefit the Common Shares
registered in the name of CDS & Co. are held.
K-2
<PAGE> 214
Applicable regulatory policy requires intermediaries/brokers to seek voting
instructions from Beneficial Shareholders in advance of shareholders' meetings.
Every intermediary/broker has its own mailing procedures and provides its own
return instructions, which should be carefully followed by Beneficial
Shareholders in order to ensure that their shares are voted at the Meeting.
Often, the form of proxy supplied to a Beneficial Shareholder by its broker is
identical to the form of proxy provided to registered Shareholders. However, its
purpose is limited to instructing the registered Shareholder how to vote on
behalf of the Beneficial Shareholder. The majority of brokers now delegate
responsibility for obtaining instructions from clients to Independent Investor
Communications Corporation ("IICC"). IICC typically applies a special sticker to
the proxy forms, mails those forms to the Beneficial Shareholders and asks
Beneficial Shareholders to return the proxy forms to IICC. IICC then tabulates
the results of all instructions received and provides appropriate instructions
respecting the voting of shares to be represented at the Meeting. A BENEFICIAL
SHAREHOLDER RECEIVING A PROXY WITH AN IICC STICKER ON IT CANNOT USE THAT PROXY
TO VOTE SHARES DIRECTLY AT THE MEETING AS THE PROXY MUST BE RETURNED TO IICC
WELL IN ADVANCE OF THE MEETING IN ORDER TO HAVE THE SHARES VOTED.
REVOCABILITY OF PROXY
An instrument of proxy may be revoked by the person giving it at any time
prior to the exercise thereof. If a person who has given a proxy attends
personally at the Meeting at which such proxy is to be voted, such person may
revoke the proxy and vote in person. In addition to revocation in any other
manner permitted by law, a proxy may be revoked by instrument in writing
executed by the shareholder or the shareholder's attorney authorized in writing
or, if the shareholder is a corporation, under its corporate seal or by an
officer or attorney thereof duly authorized. Any revocation must be deposited
either at the registered office of the Corporation at any time up to and
including the last business day preceding the day of the Meeting, or any
adjournment thereof, or with the Chairman of the Meeting on the day of the
Meeting or any adjournment thereof. Upon either of such deposits being received
the proxy is revoked.
PERSON MAKING THE SOLICITATION
This solicitation of proxies is made on behalf of the management of the
Corporation. The costs incurred in the preparation and mailing of the Notice of
Meeting, Form of Proxy and this Information Circular -- Proxy Statement will be
borne by the Corporation. In addition to the use of the mails, proxies may be
solicited by personal interviews, telephone, telecopier or other means by
directors, officers and employees of the Corporation, none of whom will be
specifically remunerated therefor.
EXERCISE OF DISCRETION BY PROXIES
The Common Shares represented by proxies in favour of management proxy
nominees will be voted at the Meeting in respect of which such proxy is provided
and, where the shareholder specifies a choice with respect to any matter to be
acted upon, the Common Shares will be voted in accordance with the specification
so made. IN THE ABSENCE OF SUCH SPECIFICATION, SUCH COMMON SHARES WILL BE VOTED
IN FAVOUR OF ALL MATTERS HEREIN DESCRIBED. THE ENCLOSED FORM OF PROXY CONFERS
DISCRETIONARY AUTHORITY UPON THE PERSONS NAMED THEREIN WITH RESPECT TO
AMENDMENTS OR VARIATIONS TO MATTERS IDENTIFIED IN THE NOTICE OF MEETING AND WITH
RESPECT TO OTHER MATTERS WHICH MAY PROPERLY COME BEFORE THE MEETING OR ANY
ADJOURNMENT THEREOF. AT THE TIME OF PRINTING THIS INFORMATION CIRCULAR-PROXY
STATEMENT, THE MANAGEMENT OF THE CORPORATION KNOWS OF NO SUCH AMENDMENT,
VARIATION OR OTHER MATTER. HOWEVER, IF ANY OTHER MATTER PROPERLY COMES BEFORE
THE MEETING, THE FORM OF PROXY FURNISHED BY THE CORPORATION WILL BE VOTED ON
SUCH MATTER IN ACCORDANCE WITH THE BEST JUDGEMENT OF THE PERSON OR PERSONS
VOTING THE PROXY.
VOTING SHARES AND PRINCIPAL HOLDERS THEREOF
The Corporation is authorized to issue an unlimited number of First
Preferred Shares without nominal or par value; an unlimited number of Second
Preferred Shares without nominal or par value; and an unlimited number of Common
Shares without nominal or par value. The holders of Common Shares are entitled
to vote at the Meeting in respect of all items of business to be conducted at
the Meeting.
As at the close of business on March 17, 1999, the record date for the
determination of the shareholders entitled to receive notice of and to vote at
the Meeting, the Corporation had outstanding 153,259,928 Common
K-3
<PAGE> 215
Shares. Each Common Share confers upon the holder thereof the right to one vote.
To the extent a shareholder transfers the ownership of any shares after March
17, 1999, and the transferee of those shares establishes ownership of such
shares and demands at any time before the Meeting that the transferee's name be
included in the shareholders' list, such transferee will be entitled to vote
such shares at the Meeting.
A quorum of Common Shareholders at the Meeting will be present if the
holder or holders of not less than 5% of the Common Shares entitled to vote at
the Meeting are present in person or represented by proxy.
To the knowledge of the directors and officers of the Corporation, as at
March 17, 1999, no shareholder beneficially owns, directly or indirectly, or
exercises control or direction over Common Shares carrying more than 10% of the
voting rights attached to all of the issued and outstanding Common Shares of the
Corporation.
BUSINESS OF THE MEETING
ELECTION OF DIRECTORS
There are presently ten directors of the Corporation, all of whom retire
from office at the Meeting. There are ten directors to be elected at the
Meeting, such directors to hold office until the next annual meeting or until
their successors are elected or appointed.
Unless otherwise directed, it is the intention of management to vote
proxies in the accompanying Form of Proxy in favour of the election as directors
of the ten nominees hereinafter set forth, each of whom has been a director
since the last annual meeting of the shareholders of the Corporation, provided
that in the event that a vacancy among such nominees occurs because of death or
for any reason prior to the Meeting, the proxy shall not be voted with respect
to such vacancy:
<TABLE>
<S> <C> <C>
Donald D. Barkwell Edward A. Galvin Lloyd C. Swift
William E. Bradford F.K. Roy Gillespie W. Bruce Woods
Lyle F. Dunkley Craig W. Stewart John R.
Yarnell
John J. Fleming
</TABLE>
Information is given below with respect to each nominee for election as a
director, including the length of time he has been a director. The statements
below as to voting securities beneficially owned, directly or indirectly, or
over which control or direction is exercised, are based upon information
furnished to the Corporation by the respective nominees.
NOMINEES FOR ELECTION AS DIRECTORS
<TABLE>
<CAPTION>
VOTING SHARES
BENEFICIALLY OWNED,
DIRECTLY OR
NAME AND MUNICIPALITY INDIRECTLY, AS OF THE
OF RESIDENCE DATE HEREOF DIRECTOR SINCE PRINCIPAL OCCUPATION
- --------------------- --------------------- -------------- --------------------
<S> <C> <C> <C>
DONALD D. BARKWELL(1).......... 46,995 Common May, 1988 President, Barkwell Investments
Calgary, Alberta Ltd. (private investment
corporation)
WILLIAM E. BRADFORD(1)(2)...... 1,000 Common April, 1993 Executive Businessman
Toronto, Ontario
LYLE F. DUNKLEY(1)............. 49,614 Common May, 1998 Executive Businessman
Tisdale, Saskatchewan
JOHN J. FLEMING(3)............. 65,000 Common November, 1979 Director & Vice Chairman,
Calgary, Alberta TransAtlantic Petroleum Corp.
(oil and gas corporation)
EDWARD A. GALVIN(2)............ 705,547 Common November, 1979 President, Medpath Oil & Gas
Calgary, Alberta Ltd. (oil and gas corporation)
F.K. ROY GILLESPIE(1)(2)....... 48,750 Common June, 1991 President, Trans-Empire Fuel
Calgary, Alberta Ltd. (private investment
corporation)
</TABLE>
K-4
<PAGE> 216
<TABLE>
<CAPTION>
VOTING SHARES
BENEFICIALLY OWNED,
DIRECTLY OR
NAME AND MUNICIPALITY INDIRECTLY, AS OF THE
OF RESIDENCE DATE HEREOF DIRECTOR SINCE PRINCIPAL OCCUPATION
- --------------------- --------------------- -------------- --------------------
<S> <C> <C> <C>
CRAIG W. STEWART............... 113,916 Common November, 1992 President and Chief Executive
Calgary, Alberta Officer, Poco Petroleums Ltd.
LLOYD C. SWIFT(3).............. 10,000 Common May, 1996 President, Square Butte
Calgary, Alberta Resources Inc. (oil and gas
financial advisor)
W. BRUCE WOODS(3).............. 9,000 Common November, 1980 President, St. James Properties
Calgary, Alberta Ltd. (private investment
corporation)
JOHN R. YARNELL(3)............. 10,000 Common March, 1993 President, Yarnell Companies
Toronto, Ontario Inc. (investment and management
firm)
</TABLE>
- ---------------
NOTES:
(1) Denotes member of the Management Resources Committee
(2) Denotes member of the Committee on Director Affairs
(3) Denotes member of the Audit Committee
The Corporation does not have an Executive Committee.
Each of the above nominees was elected to his present term of office by a
vote of shareholders of the Corporation at a meeting, the notice of which was
accompanied by a management information circular.
APPOINTMENT OF AUDITORS
Unless otherwise directed, it is the intention of the persons named in the
enclosed Form of Proxy to vote the proxies in favour of a resolution to appoint
the firm of KPMG LLP, Chartered Accountants, Calgary, Alberta, to serve as
auditors of the Corporation until the next annual general meeting of
shareholders and to authorize the directors to fix their remuneration as such.
AMENDMENT TO INCENTIVE STOCK OPTION PLAN
At the annual and special meeting of shareholders held May 7, 1998, a
resolution was passed to amend the Corporation's Incentive Stock Option Plan, as
amended (the "Stock Option Plan") to allow an increase in the maximum number of
Common Shares reserved for issuance thereunder to 12,500,000 Common Shares
effective March 18, 1998. On February 18, 1999 the Board of Directors approved a
resolution to amend the Stock Option Plan to increase the number of Common
Shares reserved for issuance thereunder to 15,000,000 Common Shares effective
March 17, 1999. The Board of Directors approved this increase to allow the
Corporation to maintain its current policy for awarding options, see "STATEMENT
OF EXECUTIVE COMPENSATION -- Stock Options". If the amendment to the Stock
Option Plan is approved, effective March 17, 1999 the additional number of
Common Shares available for future grants of stock options will be 3,295,830
Common Shares and the maximum number of Common Shares issuable under the Stock
Option Plan will be 15,000,000 Common Shares, or 2.15% and 9.79%, respectively,
of the issued and outstanding Common Shares.
K-5
<PAGE> 217
Since March 18, 1998, the effective date of the previous amendment to the
Stock Option Plan, the following activity in the Stock Option Plan has taken
place:
<TABLE>
<CAPTION>
STOCK OPTIONS FUTURE STOCK MAXIMUM COMMON
OUTSTANDING OPTIONS GRANTABLE SHARES ISSUABLE
------------- ----------------- ---------------
<S> <C> <C> <C>
Balance March 18, 1998....................... 8,733,160 3,766,840 12,500,000
Stock Options granted........................ 3,327,900 (3,327,900)
Stock Options exercised...................... (795,830) (795,830)
Stock Options cancelled...................... (359,100) 359,100
---------- ---------- ----------
10,906,130 798,040 11,704,170
Proposed increase............................ 3,295,830 3,295,830
---------- ---------- ----------
Balance March 17, 1999....................... 10,906,130 4,093,870 15,000,000
========== ========== ==========
Percent of Common Shares outstanding March
17, 1999................................... 7.12% 2.67% 9.79%
</TABLE>
Details of the policies of the Board of Directors with respect to the
granting of stock options, the restrictions on the number of shares issuable
under the Corporation's share compensation arrangements and the terms of stock
options granted under the Stock Option Plan may be found under the headings
"STATEMENT OF EXECUTIVE COMPENSATION -- Stock Options" and "REPORT ON EXECUTIVE
COMPENSATION -- Stock Options". No financial assistance is provided to optionees
to exercise stock options granted under the Stock Option Plan. Generally, stock
options have formed an integral part of Poco's compensation policies and
management believes the ability to continue to grant stock options is very
important to allow the Corporation to hire and retain a strong staff.
Pursuant to the regulations of The Toronto Stock Exchange and the Montreal
Exchange, the foregoing amendment to the Stock Option Plan must be approved by
the shareholders. At the Meeting, the following ordinary resolution to approve
the amendment of the Stock Option Plan will be presented:
BE IT RESOLVED, as an ordinary resolution of the shareholders of Poco
Petroleums Ltd. (the "Corporation"), that an amendment to the Incentive
Stock Option Plan of the Corporation, as amended, to allow an increase in
the maximum number of Common Shares which are reserved for issuance
thereunder by 3,295,830 Common Shares be and same is hereby approved and
authorized.
The foregoing resolution must be approved by a simple majority of votes
cast by shareholders who vote in person or by proxy at the Meeting in respect of
this resolution.
AMENDMENT TO EMPLOYEE STOCK PURCHASE SAVINGS PLAN
At the annual and special meeting of shareholder held May 2, 1996, a
resolution was passed to amend Poco's Employee Stock Purchase Savings Plan, as
amended, ("Savings Plan") to allow an increase in the maximum number of Common
Shares reserved for issuance thereunder to 347,736 Common Shares effective March
13, 1996. On February 18, 1999 the Board of Directors approved a resolution to
amend the Savings Plan to increase the number of Common Shares reserved for
issuance thereunder to 300,000 Common Shares effective March 17, 1999. The Board
of Directors approved this increase to allow the Corporation to continue to
issue shares from Treasury for the purposes of the Savings Plan. If the
amendment to the Savings Plan is approved, effective March 17, 1999 the
additional number of Common Shares reserved for issuance under the Savings Plan
will be 206,820 Common Shares and the maximum number of Common Shares issuable
under the Savings Plan will be 300,000 Common Shares, or 0.135% and 0.196%,
respectively, of the issued and outstanding Common Shares.
Since March 13, 1996, the effective date of the previous amendment to the
Savings Plan, an aggregate of 254,556 Common Shares have been issued under the
Savings Plan.
Details of the terms of the Savings Plan may be found under the heading
"STATEMENT OF EXECUTIVE COMPENSATION -- Savings Plan".
K-6
<PAGE> 218
Pursuant to the regulations of The Toronto Stock Exchange and the Montreal
Exchange, the foregoing amendment to the Savings Plan must be approved by the
shareholders. At the Meeting, the following ordinary resolution to approve the
amendment of the Savings Plan will be presented:
BE IT RESOLVED, as an ordinary resolution of the shareholders of Poco
Petroleums Ltd. (the "Corporation"), that an amendment to the Employee
Stock Purchase Savings Plan of the Corporation, as amended, to allow an
increase in the maximum number of Common Shares which are reserved for
issuance thereunder by 206,820 Common Shares be and the same is hereby
approved and authorized.
The foregoing resolution must be approved by a simple majority of votes
cast by shareholders who vote in person or by proxy at the Meeting in respect of
this resolution.
OTHER MATTERS
Management knows of no amendment, variation or other matters to come before
the Meeting other than the matters referred to in the Notice of Meeting.
However, if any other matters properly come before the Meeting, the accompanying
proxies will be voted on such matters in accordance with the best judgement of
the person or persons voting the proxies.
STATEMENT OF EXECUTIVE COMPENSATION
The table below sets forth the compensation of the chief executive officer
and the next four most highly compensated executive officers of the Corporation,
determined on the basis of total salary and bonus during the financial year
ended December 31, 1998, (collectively, the "Named Executive Officers") for the
1996, 1997 and 1998 financial years of the Corporation.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
ANNUAL COMPENSATION -------------------------------
-------------------------------------------- COMMON SHARES
OTHER ANNUAL UNDER OPTION ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(1) GRANTED COMPENSATION(2)
- --------------------------- ---- -------- -------- --------------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
CRAIG W. STEWART................ 1998 $425,000 $300,000 165,000 $43,916
President and Chief 1997 $374,992 $225,000 87,000 $33,749
Executive Officer 1996 $304,992 $125,000 87,000 $27,449
JOHN W. FERGUSON................ 1998 $214,000 $180,000 65,000 $22,113
Vice President and Chief 1997 $200,000 $130,000 50,000 $18,000
Financial Officer 1996 $162,000 $ 60,000 50,000 $14,580
ROBERT M. WEISS................. 1998 $214,000 $125,000 50,000 $22,113
Vice President Marketing 1997 $200,000 $125,000 50,000 $18,000
1996 $162,000 $ 70,000 50,000 $14,580
JAMES T. MCCOY.................. 1998 $214,000 $100,000 50,000 $22,113
Vice President Exploration 1997 $200,000 $105,000 50,000 $18,000
and Land 1996 $167,004 $ 70,000 50,000 $15,030
BRIAN T. MORELAND............... 1998 $200,000 $100,000 50,000 $20,667
Vice President Engineering 1997 $175,000 $100,000 60,000 $15,750
1996 $122,393 $ 45,000 138,000 $11,016
</TABLE>
- ---------------
NOTES:
(1) The aggregate amount of all other annual compensation as defined by
applicable securities regulations was not greater than the lesser of
$50,000 and 10 percent of the aggregate annual salary and bonus of each of
the named officers for each financial year.
(2) Represents contributions made by the Corporation to the Savings Plan and
the Pension Plan.
K-7
<PAGE> 219
STOCK OPTIONS
All stock options held by executive officers, directors and employees have
been granted pursuant to the Stock Option Plan. Under the Stock Option Plan,
full-time employees of Poco and directors of the Corporation, as selected by the
directors, can be granted non-transferable options to purchase Common Shares.
The option price and the number of Common Shares under option for each employee
or director is determined by the directors. The Stock Option Plan provides that
options be granted at a price not less than the closing price of the Common
Shares on The Toronto Stock Exchange on the last trading day prior to the date
of grant. No stock option can have a term exceeding six years. The time when
options may be exercised is determined by the directors. Currently outstanding
options granted to employees and directors provide that no more than 20% of an
option may be exercised in each 12 month period following each anniversary of
the date of grant, subject to cumulation if not exercised in any year. The
option price must be paid in full at the time of exercise of an option and prior
to the issue of the shares.
All options become immediately exercisable for a period following the sale
of all or substantially all of the assets of the Corporation, the date of a bona
fide offer being made to acquire, or any other acquisition by any person of,
more than 30% of all outstanding Common Shares or any reorganization,
amalgamation, merger or consolidation of the Corporation into another
corporation such that the Corporation will not survive as an independent
publicly owned corporation and which transaction requires by law the approval of
the shareholders of the Corporation. Options may be exercised by the holder
during the holder's term of employment with Poco and for a period of time
following the termination of employment or in the event of death and certain
other circumstances. The terms of Poco's share compensation arrangements
(presently the Stock Option Plan and the Savings Plan) provide that at no time
shall there be rights outstanding thereunder for persons to acquire more than
10% of the issued and outstanding Common Shares of the Corporation, nor shall
any one individual be entitled thereunder to acquire more than 5% of the issued
and outstanding Common Shares of the Corporation at any one time.
The following table sets forth the aggregate number of options granted, the
percentage of total options granted to employees, the exercise price of options
granted, the market value of securities underlying the options on the date of
grant and the expiration date of the options granted to the Named Executive
Officers during the most recently completed financial year.
OPTION GRANTS DURING THE MOST RECENTLY COMPLETED FINANCIAL YEAR
<TABLE>
<CAPTION>
% OF
TOTAL OPTIONS MARKET VALUE
GRANTED TO OF COMMON SHARES
SECURITIES EMPLOYEES IN EXERCISE PRICE UNDERLYING OPTIONS
UNDER OPTION FINANCIAL PER ON DATE OF GRANT
NAME GRANTED(1) YEAR COMMON SHARE PER COMMON SHARE EXPIRATION DATE
- ---- ------------ ------------- -------------- ------------------ -----------------
<S> <C> <C> <C> <C> <C>
Craig W. Stewart........... 165,000 5.1% $12.30 $12.30 December 10, 2004
John W. Ferguson........... 65,000 2.0% $12.30 $12.30 December 10, 2004
Robert M. Weiss............ 50,000 1.5% $12.30 $12.30 December 10, 2004
James T. McCoy............. 50,000 1.5% $12.30 $12.30 December 10, 2004
Brian T. Moreland.......... 50,000 1.5% $12.30 $12.30 December 10, 2004
</TABLE>
- ---------------
NOTE:
(1) The material terms of each option granted are set forth in the text above.
K-8
<PAGE> 220
The following table sets forth the aggregate number of options exercised
during the most recently completed financial year, the value realized upon
exercise of the options, the number of unexercised options held at year end and
the year end value of the unexercised options, for the Named Executive Officers.
AGGREGATED OPTION EXERCISES DURING THE MOST RECENTLY COMPLETED
FINANCIAL YEAR AND FINANCIAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-MONEY OPTIONS
SECURITIES OPTIONS AT YEAR-END AT YEAR-END(2)
ACQUIRED ON AGGREGATE --------------------------- ---------------------------
NAME EXERCISE VALUE REALIZED(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ----------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Craig W. Stewart........ 96,000 $763,225 308,400 372,600 $993,120 $520,005
John W. Ferguson........ 75,400 $522,310 105,200 185,400 $266,610 $286,610
Robert M. Weiss......... 43,000 $285,500 68,600 170,400 $205,720 $279,110
James T. McCoy.......... 93,600 $614,670 110,800 170,400 $319,220 $279,110
Brian T. Moreland....... 22,000 $160,245 74,400 195,200 $144,250 $291,550
</TABLE>
- ---------------
NOTES:
(1) Aggregate value realized is calculated based upon the difference between
the exercise price of the options and the market value of the Common Shares
underlying the options on the date of exercise.
(2) Value is calculated based upon the difference between the exercise price of
the options and the closing price per Common Share on The Toronto Stock
Exchange on December 31, 1998 of $12.80.
SAVINGS PLAN
The Savings Plan has been established for all employees of the Corporation.
Prior to May 1, 1998 under the Savings Plan, employees could contribute up to 6%
of their base salary on a monthly basis and the Corporation would contribute up
to 150% of the amount contributed by the employee, dependent upon the investment
choices made by the employee. In conjunction with the introduction of a defined
contribution pension plan effective May 1, 1998, the Savings Plan was revised
taking into account the benefits and obligations arising under the new pension
plan. Under the revised Savings Plan, employees may contribute up to 5% of their
base salary on a monthly basis, which amount, together with contributions of the
Corporation, may be invested at the option of the employee in a variety of
investment vehicles, including Common Shares. The Corporation contributes an
amount equal to the amount contributed by the employee. The contributions by the
Corporation are in the form of Common Shares and vest immediately to the
employee. Common Shares required for the purposes of the Savings Plan may either
be issued from Treasury or purchased on the open market. The number of Common
Shares issuable under the Savings Plan is limited in certain circumstances, see
the discussion under the heading "STATEMENT OF EXECUTIVE COMPENSATION -- Stock
Options".
PENSION PLANS
Effective May 1, 1998, the Corporation introduced a defined contribution
pension plan for all employees ("Pension Plan"). Under the Pension Plan, the
Corporation contributes an amount equal to 6%, and each employee contributes an
amount equal to 2%, of an employee's base salary to the employee's account.
Contributions in excess of the maximum contribution for defined contribution
pension plans permitted under the Income Tax Act (Canada) are deposited to the
account of the employee in the Savings Plan. Contributions to the Pension Plan
may be invested at the option of the employee in a variety of investment
vehicles. Participation in the Pension Plan is mandatory for all employees.
During 1998 the Corporation established a Retirement Compensation
Arrangement ("RCA") with each of the Named Executive Officers and four other
executives of the Corporation. Each RCA is a non-contributory defined benefit
plan which provides for a payment of two per cent of Final Average Earnings
("FAE") multiplied by the number of years of service with the Corporation,
including service prior to implementation of the RCA. Prior service with the
Corporation will be credited over a period of time following establishment of
the RCA.
K-9
<PAGE> 221
The table below sets forth the estimated annual pension payable under an
RCA based on credited years of service.
PENSION PLAN TABLE
<TABLE>
<CAPTION>
REMUNERATION YEARS OF SERVICE
- ------------ ----------------------------------------------------
15 20 25 30 35
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
$125,000 $ 37,500 $ 50,000 $ 62,500 $ 75,000 $ 87,500
$150,000 $ 45,000 $ 60,000 $ 75,000 $ 90,000 $105,000
$175,000 $ 52,500 $ 70,000 $ 87,500 $105,000 $122,500
$200,000 $ 60,000 $ 80,000 $100,000 $120,000 $140,000
$225,000 $ 67,500 $ 90,000 $112,500 $135,000 $157,500
$250,000 $ 75,000 $100,000 $125,000 $150,000 $175,000
$300,000 $ 90,000 $120,000 $150,000 $180,000 $210,000
$400,000 $120,000 $160,000 $200,000 $240,000 $280,000
$500,000 $150,000 $200,000 $250,000 $300,000 $350,000
$600,000 $180,000 $240,000 $300,000 $360,000 $420,000
</TABLE>
- ---------------
NOTES:
(1) FAE is defined in a RCA to be the annualized average of the highest 36
consecutive months of base salary, excluding bonuses, taxable benefits and
severance paid by the Corporation.
(2) Years of service credited for each of the Named Executive Officers as at
December 31, 1998, are as follows: Craig W. Stewart -- 5; John W. Ferguson
-- 3; Robert M. Weiss -- 3.5; James T. McCoy -- 3; and Brian T. Moreland --
2 .
(3) Payments under an RCA will be made monthly for a period of 16 years
following termination of service upon or after the age of 60 and will be
payable to the surviving spouse in the event of the death of the executive.
The benefits listed above shall be offset by the annual amount of any
benefit to which an executive is entitled under the Pension Plan or any
other retirement income plan or policy of the Corporation, but are not
subject to any offsets such as Canada Pension Plan or Old Age Security.
TERMINATION OF EMPLOYMENT OR CHANGE OF CONTROL AGREEMENTS
Poco has entered into agreements with the Named Executive Officers and four
other executives of the Corporation which provide for a payment to each of these
individuals in the event their employment with the Corporation is terminated at
any time without cause or if within three months after a change in control of
Poco the officer terminates his employment with Poco. For the purposes of the
agreements a change of control of Poco is defined to mean any sale of all or
substantially all of Poco's assets, the acquisition of 30% or more of the voting
shares of Poco, the election at a meeting of shareholders of a majority of
directors who were not included in the slate for election by Poco, the
completion of any transaction or the first of any series of transactions which
would have the same or similar effect as any of the foregoing events, or any
determination by the directors of Poco that there has been a change in control.
In any of these events, the payment to the officer will be equal to two times
the aggregate of the annual base salary then payable to the officer, the largest
amount of bonus paid to the officer in either of the two years preceding such
termination, the maximum annual contributions of the Corporation to the Savings
Plan and the Pension Plan then payable to the account of the officer and any car
allowance then payable to the officer. The agreements also provide for the
maintenance of Poco's benefit plans for a period of two years following
termination, or payment in lieu thereof, and for the payment of the reasonable
expense of out placement services, relocation expenses and financial advisory
services for the officer following termination. The agreements also provide that
upon termination of employment all unexercised and unvested stock options then
held by the officer shall forthwith vest and become exercisable for a period of
45 days following termination, subject to any regulatory approvals required.
K-10
<PAGE> 222
COMPENSATION OF DIRECTORS
For the financial year ended December 31, 1998, each of the directors of
the Corporation, other than Mr. Stewart who is also an officer and employee of
the Corporation, was paid an annual retainer of $15,000 plus $1,000 per meeting
attended. In addition to the foregoing fees, the Chairman of the Board of
Directors received an annual retainer in 1998 of $60,000. The Chairman of each
of the Audit Committee, Management Resources Committee and Committee on Director
Affairs receive an additional annual retainer of $1,000. In addition, directors
are reimbursed for their traveling expenses.
Each of the directors has previously been granted options pursuant to the
Stock Option Plan, for details of the Stock Option Plan see "STATEMENT OF
EXECUTIVE COMPENSATION -- Stock Options". During the financial year ended
December 31, 1998 Mr. L.F. Dunkley was granted an option to acquire 50,000
Common Shares at an exercise price of $16.25 per share and an option to acquire
10,000 Common Shares at an exercise price of $12.30 per share was granted to
each of the directors of the Corporation other than Mr. Stewart (the exercise
price in each case being equal to the market value of the common shares
underlying such option on the date of grant).
OTHER ARRANGEMENTS
The Corporation has entered into an agreement with Mr. E.A. Galvin, a
director of the Corporation, to retain him to provide advisory and consulting
services to the Corporation. The agreement provides for a monthly retainer of
$6,000 to be paid to Mr. Galvin for his services plus reimbursement of his
reasonable expenses incurred while working on behalf of the Corporation. Under
the agreement, the Corporation has also agreed to make available to Mr. Galvin
an automobile, parking, office space and secretarial and other support staff as
may be required. During the year ended December 31, 1998, the Corporation paid
an aggregate of $99,124.80 for fees and expenses pursuant to this agreement. The
consulting agreement may be terminated at any time upon 24 months notice and is
not contingent upon Mr. Galvin continuing as a director of the Corporation.
Directors' and officers' insurance has been obtained for the directors and
officers of the Corporation and its subsidiaries with a policy limit of
$20,000,000 in aggregate per policy year. Under this insurance coverage, the
Corporation would be reimbursed for indemnity payments made on behalf of its
directors and officers subject to a deductible of $100,000 per occurrence.
Individual directors and officers would also be reimbursed for losses arising
during the performance of their duties for which they are not indemnified by the
Corporation. The total premium paid by the Corporation for directors' and
officers' liability insurance during the year ended December 31, 1998 was
$60,000.
COMPOSITION OF THE COMPENSATION COMMITTEE
The four directors who are the members of the Management Resources
Committee (the "Committee"), which performs the function of a compensation
committee, are Mr. D.D. Barkwell (Chairman), Mr. W.E. Bradford, Mr. L.F. Dunkley
and Mr. F.K.R. Gillespie. The Committee was established in 1985 and the majority
of the members of the Committee have always been directors who were not
concurrently employees of the Corporation. Mr. Barkwell, a member and Chairman
of the Committee, was President and Chief Executive Officer of the Corporation
from May, 1988 until February, 1992 and Mr. Dunkley, a member of the Committee,
was an officer of the Corporation in various capacities from March, 1983 until
November, 1989.
REPORT ON EXECUTIVE COMPENSATION
The Committee meets periodically to consider the Corporation's employee
compensation arrangements generally and to consider specific compensation
arrangements in particular, including the salaries, benefits, grants of stock
options and the establishment of bonus targets and allocation of bonuses for
executive officers, in each case taking into account information supplied by
management and obtained by the Committee independently. Based upon its
considerations the Committee makes recommendations for action to all of the
directors. In all cases the directors have acted upon Committee recommendations
without modification in any material way. The following report is submitted by
the undersigned directors in their capacity as the Committee.
K-11
<PAGE> 223
The Corporation's executive officer compensation program, which is
generally the same as the compensation program for all employees, has three
major components: salary and benefits, Common Share options and cash bonuses.
The goal of the program is to provide a competitive base compensation package
and to provide a strong and direct link between corporate performance and
compensation by placing emphasis on variable compensation in order to attract,
retain and motivate highly qualified personnel. A significant objective of the
program has been to closely align employee interests with those of the
shareholders of Poco. This relationship between compensation and shareholder
value has been strengthened by focusing on variable compensation in the form of
cash bonuses and options. As a result, a portion of the overall compensation of
all employees, and in particular a substantial portion of the compensation of
the executive officers, is at risk and dependent upon increases in the stock
price and individual and corporate performance.
BASE SALARIES AND BENEFITS
In determining the salary component of the compensation package for
executive officers, including the chief executive officer, the Corporation
reviews confidential competitive data prepared by third party consultants in
order to compare its compensation arrangements with the oil and gas industry
generally and with a peer group of Canadian oil and gas exploration and
production companies whose gross revenues, total assets, free cash flow
generated from operations, capital expenditures, number of wells operated and
number of employees are similar to those of the Corporation. For 1998, this peer
group consisted of ten companies. The make-up of the group of peer companies is
reviewed annually and adjustments made as deemed appropriate. Executive
officers, including the chief executive officer, are currently paid salaries at
approximately the median level of executives within the peer group of companies.
The benefit plans provided by the Corporation in the form of group life, health,
dental and medical reimbursement do not discriminate in scope, terms or
operation in favour of executive officers of the Corporation and are available
generally to all permanent employees. Additional long-term disability insurance
coverage has been obtained by the Corporation for the chief executive officer
and each of the eight vice presidents of the Corporation, as the maximum payable
under the group long-term disability coverage in place for all employees does
not provide sufficient coverage for these individuals taking into account their
levels of compensation.
STOCK OPTIONS
In order to create a significant relationship between corporate performance
and executive compensation, Common Share options have been granted to executive
officers and other employees. Additional options were granted in 1998 to certain
employees and to the executive officers in order to maintain the levels of
options exercisable over the long term and also in some instances to recognize
additional responsibilities and promotions. Generally, the number of additional
options granted each year to executive officers, including the chief executive
officer, other than any amount granted to recognize additional responsibilities
and promotions, is approximately 20% of a base level number of options
established for each individual.
BONUS
Poco's bonus policy provides an incentive for employees to perform at
levels that consistently meet or exceed job requirements as evidenced by
performance appraisals. All employees of the Corporation are eligible for
payment of a bonus. The allocation of bonuses to the Named Executive Officers
and other employees are made by taking into account individual and department
performance as determined in the Corporation's performance review process. In
1998, the bonus program of the Corporation was revised as it was felt the prior
bonus pool calculation formula was too rigid and did not adequately consider the
dynamics of the Corporation or the industry. The revised bonus program
establishes a target scale for bonuses by position in the company. The target
range on the scale for the President and Chief Executive Officer is 45% of base
salary and for the other Named Executive Officers is 35% of base salary. The
awarding of bonuses at, below or above the established scale ranges is dependent
upon individual performance and how well, in the determination of the Board of
Directors, the Corporation has done in creating value for its shareholders
considering the following factors: (1) cash flow per share; (2) earnings per
share; (3) corporate debt levels relative to cash flow and equity; (4) stock
price performance; and (5) the performance of the Corporation relative to
industry. The targets established
K-12
<PAGE> 224
through the annual budget process of the Corporation provide the standards by
which the measures of performance are judged.
Report Presented by the Management Resources Committee:
D.D. Barkwell (Chairman) W.E. Bradford L.F. Dunkley F.K.R. Gillespie
PERFORMANCE GRAPH
The following graph illustrates the Corporation's five year cumulative
total shareholder return, assuming reinvestment of dividends, for a $100
investment in the Corporation's Common Shares compared to the return on the TSE
300 Total Return Index ("TSE 300 TRI") and the TSE Oil & Gas Total Return Index
("TSE O&G TRI"), assuming reinvestment of dividends where applicable.
FIVE-YEAR CUMULATIVE TOTAL RETURN ON $100 INVESTMENT
ASSUMING DIVIDENDS ARE REINVESTED
(DECEMBER 31, 1993 -- DECEMBER 31, 1998)
[LINEAR GRAPH PLOTTED FROM FIGURES IN TABLE BELOW]
1993 1994 1995 1996 1997 1998
------- ------ ------- ------- ------- -------
POCO $100.00 $84.51 $115.49 $147.61 $143.66 $144.23
TSE 300 TRI $100.00 $99.37 $114.11 $146.45 $168.39 $165.72
TSE O&G TRI $100.00 $92.83 $109.04 $150.27 $155.64 $109.19
STATEMENT OF CORPORATE GOVERNANCE PRACTICES
In 1995 the TSE introduced a new listing requirement regarding disclosure
of the corporate governance practices of companies listed on the TSE. The
following disclosure is being provided in accordance with this listing
requirement and with reference to the guidelines contained in the final report
of The Toronto Stock Exchange Committee on Corporate Governance in Canada dated
December, 1994 (the "TSE Report").
In December, 1994 the Board of Directors of Poco (the "Board") adopted
"Guidelines on Corporate Governance" ("Poco Guidelines") in order to formally
codify the guidelines by which the Board governs the business of Poco and which
address the guidelines contained in the TSE Report. The Poco Guidelines are
generally in compliance with the guidelines set forth in the TSE Report, however
any areas where Poco is not in
K-13
<PAGE> 225
compliance with the TSE Report are noted in the discussion below. The numbers of
the following paragraphs correspond to the guidelines set forth in the TSE
Report.
1. The Poco Guidelines state the Board is responsible for the
supervision of the management of Poco's business. The Board recognizes
that while Poco's management is responsible for the day-to-day conduct
of the business, the Board has five specific responsibilities which are
fundamental, being: adoption of a corporation strategy; appointing,
developing and monitoring senior management; communication with
shareholders, other stakeholders and the public generally; internal
controls and management information systems; and safeguarding
shareholders' interests.
2. The Poco Guidelines provide that the Board should be comprised of a
majority of individuals who qualify as unrelated directors.
3. To determine whether a director is unrelated, the Poco Guidelines
adopt the test established in the TSE Report that a director will
generally be considered unrelated so long as the individual has no
current relationship with the Corporation other than as a director and
the director is free from any interest and any business or other
relationship which could, or could reasonably be perceived to,
materially interfere with the director's ability to act with a view to
the best interests of the Corporation. Of the ten present directors,
only Mr. C.W. Stewart, who is President and Chief Executive Officer of
Poco, and Mr. E.A. Galvin, who is a consultant to Poco, see
"COMPENSATION OF DIRECTORS -- Other Arrangements", are not unrelated
directors.
4. The Committee on Director Affairs reviews and recommends to the Board
for approval all matters generally related to the size and composition
of the Board and recruitment of new directors, the assessment of the
performance of directors on an annual basis, membership on committees of
the Board, candidates for Chairman of the Board and compensation of
directors. Presently, the members of this Committee are Messrs.
Bradford, Galvin and Gillespie (Chairman).
5. The Board has not implemented a formal process to be carried out by
the Committee on Director Affairs for assessing the effectiveness of the
Board as a whole, the committees of the Board and the contributions of
individual directors.
6. The Board has not established a formal orientation and education
program for new members of the Board.
7. The Poco Guidelines provide that the size of the Board should not be
fixed but that a membership of eight to twelve directors appears to be
appropriate, with membership towards the lower end of the range being
preferred.
8. The Board regularly reviews the adequacy and form of the compensation
of the directors to ensure the compensation realistically reflects the
responsibilities and risks involved in being an effective director and
that the compensation allows Poco to attract qualified candidates as
directors. This involves the review of publicly available data as well
as independent surveys of director compensation of other companies and
the review of director and officer insurance coverage.
9. The Poco Guidelines provide for the establishment of three standing
committees of the Board: the Audit Committee; the Management Resources
Committee; and the Committee on Director Affairs. The Committee on
Director Affairs and the Management Resources Committee are each to be
generally comprised of outside (non-management) directors with the
majority to be directors unrelated to Poco. The Audit Committee is to be
comprised solely of directors who are both outside and unrelated
directors. A specific mandate has been established for each Committee.
The mandate of the Committee on Director Affairs is set out in paragraph
4 above, the mandate of the Management Resources Committee is described
in paragraph 10 below and the mandate of the Audit Committee is
presented in paragraph 14 below.
10. The mandate of the Management Resources Committee can be generally
described as to review and recommend to the Board for approval the
development and administration by management of the overall compensation
philosophy and strategies of Poco and, in particular, the specific
compensation
K-14
<PAGE> 226
arrangements of the chief executive officer and other senior officers.
The Management Resources Committee is responsible also for the review
and the recommendation to the Board for approval of the objectives of
Poco's chief executive officer and the assessment of the performance of
the chief executive officer against such objectives. As currently
established, the members of the Management Resources Committee are
Messrs. Barkwell (Chairman), Bradford, Dunkley and Gillespie.
11. The Board believes that it is, as a whole, responsible for developing
Poco's approach to corporate governance issues and for this response to
the TSE Report.
12. The Board has not developed position descriptions for the members of
the Board, however objectives have been established for the President
and Chief Executive Officer by the Board. Specific limitations on
management's responsibilities have been established which mandate prior
consultation with and/or the approval of the Board for particular
transactions based upon the transaction value to Poco. In addition, a
risk management policy has been established which places specific
controls on management in the area of commodity price, foreign exchange
and interest rate risk management transactions.
13. The Poco Guidelines provide that as a general practice, the Chairman
of the Board should be an unrelated, outside director. Presently, Mr.
J.R. Yarnell, an outside and unrelated director, serves as Chairman of
the Board. The Poco Guidelines encourage interaction between management
of Poco and the Board. When necessary or desirable, the Board meets
independently of management.
14. The mandate of the Audit Committee provides that it is to review and
recommend to the Board for approval the annual financial statements, the
report of the auditors on the annual financial statements, the
appointment of or any change in auditors, the design and implementation
of an effective system of internal control, major accounting policies
and the development of code of conduct and conflict of interest
policies. In addition, the Audit Committee reviews the unaudited interim
financial statements prior to their distribution to shareholders.
Messrs. Fleming (Chairman), Swift, Woods and Yarnell are the present
members of the Audit Committee.
15. The Committee on Director Affairs considers any requests by
individual directors for the engagement of outside advisors in
appropriate circumstances.
INTEREST OF INSIDERS IN MATERIAL TRANSACTIONS
There was no material interest, direct or indirect, of any insider of the
Corporation, any nominee for director of the Corporation, or any associate or
affiliate thereof since the commencement of the Corporation's last financial
year in any transaction or in any proposed transaction which has materially
affected or would materially affect the Corporation.
AVAILABILITY OF DOCUMENTS
The Corporation will provide any person or company, upon written request to
the Vice President, General Counsel & Secretary of the Corporation at 3700, 250
- - 6th Avenue, S.W., Calgary, Alberta, T2P 3H7, a copy of:
(a) its latest annual information form, together with one copy of any
document, or the pertinent pages of any document, incorporated therein
by reference, filed with the Alberta Securities Commission under the
Prompt Offering Qualification System;
(b) its comparative financial statements filed pursuant to the Securities
Act (Alberta) for the year ending December 31, 1998, together with the
report of its auditor thereon, and one copy of any interim financial
statements of the Corporation subsequent to the financial statements for
the year ending December 31, 1998; and
(c) this Information Circular -- Proxy Statement.
K-15
<PAGE> 227
The foregoing contains no untrue statement of a material fact and does not
omit to state a material fact that is required to be stated or that is necessary
to make a statement not misleading in the light of the circumstances in which it
was made.
<TABLE>
<S> <C>
CRAIG W. STEWART JOHN W. FERGUSON
President and Chief Executive Officer Vice President and Chief Financial Officer
</TABLE>
Dated: March 17, 1999
K-16
<PAGE> 228
POCO PETROLEUMS LTD.
POCO'S ANNUAL INFORMATION FORM
DATED APRIL 21, 1999
K-17
<PAGE> 229
DEFINITIONS
The following are definitions of certain abbreviations used in this Annual
Information Form:
"ACT" means the Government of the Province of Alberta Business Corporations Act,
S.A. 1981, c. B-15, as amended, together with all regulations promulgated
pursuant thereto.
"BBL" or "BARREL" means 34.972 Imperial gallons or 42 U.S. gallons.
"BPD" means barrels per day.
"BCF" means one billion cubic feet.
"CANRISE" means Canrise Resources Ltd.
"GARDINER" means Gardiner Oil and Gas Limited.
"GROSS WELLS" means the total number of wells in which the Company has a working
interest.
"GROSS RESERVES" means Poco's lessor royalty, overriding royalty, and working
interest share of reserves from the properties, before deduction of any
Crown, freehold, and overriding royalties payable to others.
"GROSS ACRES" means the total number of acres in which the Company holds a
working interest or the right to earn a working interest.
"LIQUIDS" means crude oil and natural gas liquids.
"LT" means one long ton.
"MBBLS" means one thousand barrels.
"MCF " means one thousand cubic feet.
"MMBTU" means one million British thermal units.
"MMCFD" means one million cubic feet per day.
"NET RESERVES" means the Company's lessor royalty, overriding royalty, and
working interest share of reserves from the properties, after deduction of
all crown, freehold, and overriding royalties payable to others.
"NET WELLS" means the gross wells multiplied by the percentage working interest
therein owned or to be owned by the Company.
"NET ACRES" means the gross acres multiplied by the percentage working interest
therein owned or to be owned by the Company.
"NGLS" means natural gas liquids.
"PAN EAST" means Pan East Petroleum Corp.
"POCO" or "THE COMPANY" means Poco Petroleums Ltd. and its subsidiaries.
"POCO INTERNAL ENGINEERING REPORT" means the report of Poco's internal reservoir
engineers evaluating Poco's reserves, as at December 31, 1998.
"PROBABLE RESERVES" means those reserves which analysis of drilling, geological,
geophysical and engineering data does not demonstrate to be proved under
current technology and existing economic conditions, but where such
analysis suggests the likelihood of their existence and future recovery.
Probable reserves to be obtained by the application of enhanced recovery
processes will be the increased recovery over and above that estimated in
the proved category which can be realistically estimated for the pool on
the basis of enhanced recovery processes which can be reasonably expected
to be instituted in the future.
"PROVED NON-PRODUCING RESERVES" means those proved reserves that are not
currently producing either due to lack of facilities and/or markets.
K-18
<PAGE> 230
"PROVED PRODUCING RESERVES" means those proved reserves that are actually on
production or, if not producing, that could be recovered from existing
wells or facilities and where the reasons for the current non-producing
status is the choice of the owner rather than the lack of markets or some
other reason. An illustration of such a situation is where a well or zone
is capable but is shut-in because its deliverability is not required to
meet contract commitments.
"PROVED RESERVES" means those reserves estimated as recoverable under current
technology and existing economic conditions, from that portion of a
reservoir which can be reasonably evaluated as economically productive on
the basis of analysis of drilling, geological, geophysical and engineering
data, including the reserves to be obtained by enhanced recovery processes
demonstrated to be economic and technically successful in the subject
reservoir.
"UNDEVELOPED ACREAGE" means lands on which there are no reserves assigned.
"WESTCOAST" means Westcoast Energy Inc.
"WORKING INTEREST" means the interest held by a company in an oil or natural gas
property, which interest normally bears its proportionate share of the
costs of exploration, development, and operation as well as any royalties
or other production burdens.
"W.T.I." means the near month New York Mercantile Exchange futures reference
price of West Texas Intermediate grade crude oil at Cushing, Oklahoma.
K-19
<PAGE> 231
CURRENCY
Unless otherwise indicated, all sums of money set out in this Annual
Information Form are expressed in Canadian dollars.
THE COMPANY
Poco was incorporated under the Companies Act (Alberta) on November 1,
1979, and was continued under the Act on July 4, 1985. The head, principal and
registered office of Poco is located in Calgary, Alberta, Canada at 3700, 250 -
6th Avenue SW, T2P 3H7.
The Articles of Amalgamation of the Company were amended in May, 1992, to
increase the maximum possible number of directors of the Company from 11 to 15
and in April, 1993, to increase the number of common shares the Company is
authorized to issue from 100,000,000 to an unlimited number of common shares.
Each of these amendments was approved by a special resolution of the common
shareholders.
BUSINESS AND PROPERTY
Poco's principal business is the acquisition of interests in petroleum and
natural gas rights and the exploration for, development of, production,
marketing and sale of petroleum and natural gas. The Company initiates, acts as
operator of and maintains a high working interest in a majority of the prospects
in which it participates. Poco had 397 employees at December 31, 1998.
A) DEVELOPMENT OF THE BUSINESS
On February 22, 1994, Poco completed the issuance of 10.0 million common
shares from treasury at a price of $10.30 per share. The net proceeds of $98.7
million were used to finance the Company's ongoing exploration and development
program, property acquisitions and to reduce long term debt.
Effective January 1, 1996, the Company entered into agreements to purchase,
through two separate transactions, interests in the Swan Hills and Harmattan
areas of Alberta for an aggregate cash purchase price exceeding $195.0 million
plus the renunciation of certain tax pools. To purchase the Swan Hills
properties, a subsidiary of the Company borrowed $184.9 million from the Swan
Hills vendor and issued $6.0 million of preferred shares to the vendor. The
funds in excess of the Swan Hills purchase price were then used to finance
exploration and development activities. The vendor also paid $2.2 million for
the right to purchase 2.0 million common shares of the Company for $19.3
million. This share purchase right was exercised during 1996.
On February 16, 1996, Poco completed the issuance of 16.0 million common
shares from treasury at a price of $10.75 per share. The net proceeds of $164.8
million were initially used to reduce the Company's long term debt and
ultimately used to finance the acquisition of the Swan Hills properties.
On March 25, 1996, the Company redeemed all of its outstanding 7.5 per cent
debentures at par for $59.9 million, plus accrued interest.
On October 9, 1996, Poco purchased all of the issued and outstanding shares
of Gardiner for $97.1 million cash and the issuance of 11.7 million common
shares. The purchase of Gardiner added over 240,000 net acres of undeveloped
land, natural gas production of 42 million cubic feet per day and 2,500 barrels
per day of liquids production. On January 1, 1997, Gardiner was amalgamated with
Poco.
During 1997 and early 1998, Poco increased its natural gas reserves with a
series of acquisitions in the Monkman Pass/Bullmoose region of northeast British
Columbia. During this period, Poco invested approximately $224.0 million in the
area, acquiring production of 100 million cubic feet per day of gas, 300 billion
cubic feet of reserves, seismic data and 300,000 acres of undeveloped land.
On July 17, 1998 Poco purchased all the issued and outstanding shares of
Canrise through the issuance of 7.1 million common shares and the assumption of
$38.7 million of debt. The purchase added 121,000 net acres
K-20
<PAGE> 232
of undeveloped land, natural gas production of 30 million cubic feet per day and
1,200 barrels per day of liquids production.
On November 27, 1998 Poco acquired all of the issued and outstanding common
shares of Pan East through the issuance of 1.6 million common shares, the
assumption of $23.0 million of long term debt and aggregate cash payments of
$137.5 million. This acquisition added significantly to Poco's deep natural gas
exploration base by providing 130,000 net acres of undeveloped land, an
extensive seismic database and production of 28 million cubic feet per day of
natural gas and 300 barrels per day of liquids.
On November 30, 1998 Poco completed the issuance of 12.0 million common
shares from treasury at a price of $14.25 per share. The net proceeds of $164.0
million were used to purchase Pan East and finance the Company's exploration and
development program.
On January 1, 1999 Canrise was amalgamated with Poco.
B) PRINCIPAL OIL AND GAS PROPERTIES
The following table summarizes reserves and undeveloped land for Poco's 10
most significant oil and gas properties, and all other properties as of December
31, 1998, based on the pre-tax present value at 15 per cent.
<TABLE>
<CAPTION>
BEFORE TAX
GROSS RESERVES
--------------------------------------------------------------
OIL AND NGLS (MBBLS) NATURAL GAS (BCF) PRESENT VALUE
------------------------------- ---------------------------- DISCOUNTED AT
PROPERTY NAME PROVINCE PROVED PROBABLE(1) TOTAL PROVED PROBABLE(1) TOTAL 15%(1)(2)
- ------------- -------- ------- ----------- ------- ------ ----------- ----- -------------
($ MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Alder..................... Alberta 2,695 514 3,209 72 17 89 113.5
Brazeau River............. Alberta 10,607 3,165 13,772 210 57 267 272.3
Brazion................... BC -- -- -- 117 9 126 85.2
Bullmoose................. BC -- -- -- 79 16 95 52.3
Firebird.................. Alberta 3,065 398 3,463 31 1 32 49.7
Harmattan................. Alberta 8,281 1,464 9,745 87 13 100 118.4
McLeod.................... Alberta 4,242 728 4,970 94 14 108 123.9
O'Chiese.................. Alberta 5,339 1,075 6,414 79 16 95 140.6
Swan Hills................ Alberta 37,013 5,944 42,957 19 -- 19 201.1
Wolf Creek................ Alberta 5,961 1,920 7,881 95 31 126 140.1
Others.................... AB;BC;SK 54,988 9,452 64,440 609 165 774 979.1
------- ------ ------- ----- --- ----- -------
Total..................... 132,191 24,660 156,851 1,492 339 1,831 2,276.2
======= ====== ======= ===== === ===== =======
<CAPTION>
TOTAL
UNDEVELOPED
ACREAGE
-------------
PROPERTY NAME GROSS NET
- ------------- ----- -----
(000'S ACRES)
<S> <C> <C>
Alder..................... 204 153
Brazeau River............. 485 372
Brazion................... 183 121
Bullmoose................. 337 184
Firebird.................. 17 12
Harmattan................. 181 114
McLeod.................... 46 29
O'Chiese.................. 282 193
Swan Hills................ 57 35
Wolf Creek................ 315 256
Others.................... 2,498 1,621
----- -----
Total..................... 4,605 3,090
===== =====
</TABLE>
- ---------------
NOTES:
(1) Probable reserves have been discounted by a factor of 50 per cent to
account for the risk associated with the probability of obtaining
production from such reserves.
(2) Before tax discounted present values include sulphur sales.
The following narrative describes Poco's 10 most significant oil and gas
properties as set forth in the previous table:
ALDER, ALBERTA
The Alder area is located approximately 65 miles southwest of Edmonton,
Alberta and is one of Poco's most aggressively developed areas. At year end
there were 47 wells (38 net) that had been assigned reserves. The Rock Creek is
the primary producing horizon in this area with production also coming from the
Ostracod, Mannville and Belly River formations. Poco's net production at the end
of 1998 was 42 million cubic feet per day of gas with 1,160 barrels per day of
associated liquids. Poco's net crude oil production at the end of 1998 was 250
barrels per day.
K-21
<PAGE> 233
BRAZEAU RIVER, ALBERTA
The Brazeau River area is located approximately 100 miles southwest of
Edmonton, Alberta. Poco owns interests in 109 gross (90 net) producing gas wells
and 33 gross (24 net) producing oil wells. Natural gas production is primarily
from the Elkton-Shunda formation. Poco was producing 55 million cubic feet per
day of natural gas and 2,700 barrels per day of liquids from the Brazeau River
area at the end of 1998.
BRAZION, BRITISH COLUMBIA
The Brazion area is located approximately 75 miles southwest of Fort St.
John, British Columbia. Poco has working interests ranging from 35 per cent to
100 per cent in 13 gas wells. Natural gas is produced from the Pardonet and
Baldonnel formations and is processed at the Westcoast Pine River gas plant.
Poco's production from the Brazion area at the end of 1998 was 58 million cubic
feet per day of natural gas from nine wholly owned producing wells.
BULLMOOSE, BRITISH COLUMBIA
The Bullmoose area is located approximately 60 miles southwest of Dawson
Creek, British Columbia. Poco owns an interest in 20 gross (eight net) gas
wells. Natural gas production from the Pardonet and Baldonnel formations is
processed at the Westcoast Pine River gas plant. Poco's net production from the
area at the end of 1998 was 30 million cubic feet per day of natural gas.
FIREBIRD, ALBERTA
The Firebird area is located in northwest Alberta in townships 97-98,
ranges 7-8 west of the sixth meridian. Poco has working interests ranging from
17 per cent to 100 per cent in six Slave Point A producing wells. Solution gas
is conserved and processed at Chevron's Chinchaga gas plant. At year end, Poco's
net production from the Firebird area was 780 barrels per day of crude oil.
HARMATTAN, ALBERTA
The Harmattan area is located approximately 40 miles northwest of Calgary,
Alberta. Poco owns an approximate 25 per cent interest in the Harmattan Elkton
Unit. The Company also owns 23 per cent of the gas cap and condensate, and 46
per cent of crude oil and solution gas in the Harmattan East Unit. Poco has an
interest in 21 gross (11 net) non-unit producing wells in this area. The
Company's net production from the area at the end of 1998 was 25 million cubic
feet per day of natural gas and 1,800 barrels per day of liquids. Production in
the area is from the Elkton formation.
MCLEOD, ALBERTA
Poco's interest in the McLeod area extends from townships 55-57 and ranges
10-16 west of the fifth meridian in west central Alberta. Poco has an average
working interest of 61 per cent in eight producing crude oil wells and 41 per
cent in 54 producing gas wells. These wells produce mainly from the Rock Creek
and Gething formations. Poco's net production from the McLeod area at the end of
1998 was 320 barrels per day of crude oil, 19 million cubic feet per day of
natural gas and 560 barrels per day of natural gas liquids.
O'CHIESE, ALBERTA
This area is located approximately 75 miles southwest of Edmonton, Alberta
and is one of Poco's more active drilling areas. At year end there were 60 gross
(43 net) producing wells. The Ostracod is the primary producing horizon in this
area with production also coming from the Mannville, Basal Quartz, and Rock
Creek formations. Poco's net production at the end of 1998 was 32 million cubic
feet per day of natural gas and 2,400 barrels per day of natural gas liquids.
K-22
<PAGE> 234
SWAN HILLS, ALBERTA
The Swan Hills area is located approximately 110 miles northwest of
Edmonton, Alberta. Poco owns a 15 per cent interest in Swan Hills Unit No. 1 and
a 46 per cent interest in the South Swan Hills Unit. Crude oil production is
from the Beaverhill Lake formation. Both units have active waterfloods and
hydrocarbon miscible floods. Poco's net crude oil production from the area at
the end of 1998 was 6,000 barrels per day.
WOLF CREEK, ALBERTA
The Wolf Creek area is located approximately 100 miles southwest of
Edmonton, Alberta. Poco owns interests in 65 gross (60 net) producing gas wells
and two wholly owned producing oil wells. Natural gas production is primarily
from the Ostracod and Rock Creek zones. Poco was producing 28 million cubic feet
per day of natural gas and 1,900 barrels per day of liquids from the Wolf Creek
area at the end of 1998.
C) GAS PROCESSING PLANTS, COMPRESSION FACILITIES AND GATHERING FACILITIES
The following table summarizes processing and compression facilities owned
or leased by Poco that have a design capacity equaling or exceeding 10 million
cubic feet per day of natural gas or 1,000 barrels per day of liquids:
<TABLE>
<CAPTION>
DESIGN CAPACITY
----------------------
POCO'S OPERATED OR NATURAL GAS LIQUIDS
FACILITY NAME TYPE OF FACILITY OWNERSHIP NON-OPERATED (MMCFD) (BPD)
- ------------- ---------------- --------- ------------ ----------- -------
<S> <C> <C> <C> <C> <C>
Alder.................................... gas plant 96% operated 45 1,300
Alder Flats.............................. gas plant 80% non-operated 13 400
Berland.................................. dehydration plant 85% operated 100 --
Brazeau.................................. gas plant 32% non-operated 220 11,900
Brazion.................................. dehydration plant 83% operated 40 --
Brazion.................................. compressor 100% operated 22 --
Bullmoose (West)......................... gas plant 100% operated 40 --
Burnt Brazion............................ dehydration plant 56% operated 200 --
Burnt Brazion............................ compressor 70% operated 30 --
Burnt Brazion............................ compressor 100% operated 100 --
Crystal.................................. gas plant 17% non-operated 12 --
Dimsdale................................. gas plant 65% operated 17 --
Edson.................................... gas plant 2% non-operated 375 6,200
Firebird................................. gas plant/oil battery 100% non-operated 8 4,000
Firebird................................. oil battery 8% operated -- 5,000
Gilby.................................... gas plant 100% operated 12 400
Hamburg.................................. gas plant 40% non-operated 29 2,000
Harmattan................................ gas plant 25% non-operated 340 35,200
Judy Creek............................... gas plant 14% non-operated 149 53,200
Kaybob................................... gas plant 1% non-operated 204 4,900
Kaybob A................................. gas plant 1% non-operated 397 9,200
Kaybob III............................... gas plant 3% non-operated 674 36,200
Lapp..................................... compressor station 100% operated 50 --
Mahaska.................................. gas plant 65% operated 18 310
McLeod Hattonford........................ gas plant 38% non-operated 22 1,000
McLeod River............................. gas plant 44% operated 16 800
McLeod Valley............................ gas plant 46% operated 22 700
Niton.................................... oil battery 100% operated -- 2,000
O'Chiese................................. gas plant 71% operated 60 3,600
Ojay..................................... gas plant 100% operated 13 --
Snipe.................................... oil battery 94% operated 4 3,000
South Swan Hills Unit.................... oil battery 46% non-operated -- 20,000
Sturgeon................................. gas plant/oil battery 36% operated 23 20,000
Swan Hills Unit No.1..................... oil battery 15% non-operated -- 30,000
Wauchope................................. oil battery 74% operated -- 3,000
West Sukunka............................. gas plant 45% non-operated 270 --
Wolf Creek............................... gas plant 100% operated 42 3,000
</TABLE>
K-23
<PAGE> 235
D) PETROLEUM AND NATURAL GAS RESERVES
The following table summarizes, as at December 31, 1998, the reserve
evaluations contained in the Poco Internal Engineering Report.
Petroleum and natural gas reserves are evaluated by Poco's internal
reservoir engineers. Poco's policy is to have at least 25 per cent of total
reserve volumes reviewed by independent external engineers annually. During
1998, the reserves assigned to the Swan Hills property and those associated with
the Canrise and Pan East acquisitions were reviewed by independent external
engineers. During 1997 the Brazeau River property was reviewed by independent
external engineers.
THE ESTIMATED FUTURE NET PRODUCTION REVENUE FIGURES CONTAINED IN THE
FOLLOWING TABLES WERE PREPARED PRIOR TO CONSIDERATION OF INCOME TAXES AND
INDIRECT COSTS, SUCH AS OVERHEAD, INTEREST AND ADMINISTRATIVE EXPENSES, AND ARE
NOT TO BE CONSTRUED AS A REPRESENTATION OF THE FAIR MARKET VALUE OF THE
PROPERTIES TO WHICH THEY RELATE.
PROBABLE RESERVES AND THE ASSOCIATED ESTIMATED FUTURE NET PRODUCTION
REVENUES HAVE BEEN DISCOUNTED BY A FACTOR OF 50 PER CENT TO ACCOUNT FOR THE RISK
ASSOCIATED WITH THE PROBABILITY OF OBTAINING PRODUCTION FROM SUCH RESERVES.
PETROLEUM AND NATURAL GAS RESERVES
ESCALATED PRICES AND COSTS
AS AT DECEMBER 31, 1998
<TABLE>
<CAPTION>
ESTIMATED FUTURE NET
GROSS RESERVES NET RESERVES PRODUCTION REVENUES
----------------- ----------------- DISCOUNTED AT
OIL & NATURAL OIL & NATURAL -----------------------------
NGLS GAS NGLS GAS 0% 10% 15% 20%
------- ------- ------- ------- ----- ----- ----- -----
(MBBLS) (BCF) (MBBLS) (BCF) ($ MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Proved producing...................................... 106,558 936 87,002 781 3,062 1,816 1,541 1,349
Proved non-producing.................................. 25,633 556 19,441 452 1,085 580 457 371
------- ----- ------- ----- ----- ----- ----- -----
Total proved.......................................... 132,191 1,492 106,443 1,233 4,147 2,396 1,998 1,720
Probable.............................................. 24,660 339 18,931 277 894 372 278 219
------- ----- ------- ----- ----- ----- ----- -----
Total................................................. 156,851 1,831 125,374 1,510 5,041 2,768 2,276 1,939
======= ===== ======= ===== ===== ===== ===== =====
</TABLE>
Significant assumptions used to calculate estimated future net production
revenues are as follows:
<TABLE>
<S> <C>
Capital costs for 1999................................... $47.1 million
Capital costs for 2000................................... $28.1 million
Capital costs after 2000................................. $95.2 million
Escalation of production expenses........................ 2 per cent/year
U.S./Canadian exchange rate.............................. $0.72
</TABLE>
K-24
<PAGE> 236
PETROLEUM AND NATURAL GAS RESERVES
UNESCALATED PRICES AND COSTS
AS AT DECEMBER 31, 1998
<TABLE>
<CAPTION>
ESTIMATED FUTURE NET
GROSS RESERVES NET RESERVES PRODUCTION REVENUES(1)
----------------- ----------------- DISCOUNTED AT
OIL & NATURAL OIL & NATURAL ------------------------------
NGLS GAS NGLS GAS 0% 10% 15% 20%
------- ------- ------- ------- ----- ----- ----- -----
(MBBLS) (BCF) (MBBLS) (BCF) ($ MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Proved producing.................................... 104,782 939 87,627 800 2,504 1,633 1,415 1,257
Proved non-producing................................ 24,586 559 19,406 465 984 549 438 360
------- ----- ------- ----- ----- ----- ----- -----
Total proved........................................ 129,368 1,498 107,033 1,265 3,488 2,182 1,853 1,617
Probable............................................ 24,316 341 19,315 286 687 316 242 192
------- ----- ------- ----- ----- ----- ----- -----
Total............................................... 153,684 1,839 126,348 1,551 4,175 2,498 2,095 1,809
======= ===== ======= ===== ===== ===== ===== =====
</TABLE>
- ---------------
NOTES:
(1) The unescalated prices and costs case reflects a sales price of $16.00 per
barrel for crude oil, $6.96 per barrel for propane, $8.71 per barrel for
butane, $14.75 per barrel for pentanes plus, $5.82 per barrel for ethane
and $2.69 per mcf for natural gas.
Significant assumptions used to calculate estimated future net production
revenues are as follows:
<TABLE>
<S> <C>
Capital costs for 1999.................................... $46.3 million
Capital costs for 2000.................................... $27.1 million
Capital costs after 2000.................................. $85.7 million
U.S./Canadian exchange rate............................... $0.72
</TABLE>
The following table outlines the price forecast used in the escalated price
Poco Internal Engineering Report.
SUMMARY OF PRICE FORECASTS
EFFECTIVE DECEMBER 31, 1998
<TABLE>
<CAPTION>
CRUDE OIL ALBERTA
------------------------------- AVERAGE
EDMONTON HARDISTY NATURAL GAS EDMONTON EDMONTON EDMONTON
YEAR WTI LIGHT MEDIUM FIELD PRICE CONDENSATE PROPANE BUTANE SULPHUR
- ---- --------- -------- -------- ----------- ---------- -------- -------- -------
U.S.$/BBL $/BBL $/BBL $/MMBTU $/BBL $/BBL $/BBL $/LT
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1999......................... 14.50 20.60 16.60 2.30 20.20 13.40 12.80 10.00
2000......................... 16.50 22.90 18.90 2.40 22.40 14.60 14.30 15.00
2001......................... 18.50 25.00 21.00 2.45 24.50 15.50 15.60 20.00
2002......................... 20.00 26.70 22.70 2.50 26.20 16.30 16.60 25.00
2003......................... 21.00 28.10 24.10 2.55 27.50 17.00 17.50 30.00
2004......................... 21.40 28.60 24.60 2.60 28.00 17.30 17.80 31.80
2005......................... 21.80 29.20 25.20 2.65 28.60 17.60 18.20 33.70
2006......................... 22.20 29.70 25.70 2.70 29.10 18.00 18.50 35.70
2007......................... 22.60 30.20 26.20 2.75 29.60 18.30 18.80 37.80
2008......................... 23.10 30.90 26.90 2.80 30.30 18.70 19.20 40.10
2009......................... 23.60 31.60 27.60 2.85 31.00 19.10 19.70 42.50
2010+ Escalate at two per cent per annum
</TABLE>
K-25
<PAGE> 237
E) RECONCILIATION OF CHANGES IN RESERVES
The following table summarizes the changes in Poco's proven and probable
reserves before royalties for the year ended December 31, 1998:
<TABLE>
<CAPTION>
CRUDE OIL AND NGLS (MBBLS) NATURAL GAS (BCF)
------------------------------- ----------------------------
PROVEN PROBABLE(1) TOTAL PROVEN PROBABLE(1) TOTAL
------- ----------- ------- ------ ----------- -----
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1997............... 122,452 21,831 144,283 1,200 251 1,451
Revision of prior estimates.............. (32) 2,221 2,189 (61) (13) (74)
Discoveries and extensions............... 18,503 (620) 17,883 249 28 277
Net acquisition of reserves.............. 5,872 1,228 7,100 283 73 356
Production............................... (14,604) -- (14,604) (179) -- (179)
------- ------ ------- ----- --- -----
Balance, December 31, 1998............... 132,191 24,660 156,851 1,492 339 1,831
======= ====== ======= ===== === =====
</TABLE>
- ---------------
NOTE:
(1) Probable reserves have been discounted by a factor of 50 per cent to
account for the risk associated with the probability of obtaining
production from such reserves.
F) OIL AND GAS PRODUCTION
Poco's working interest share of production is summarized in the following
table for the periods indicated:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------
1994 1995 1996 1997 1998
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
TOTAL PERIOD PRODUCTION
Natural gas (bcf)............................. 70 78 104 158 179
Crude oil (mbbls)............................. 5,246 5,296 7,406 7,831 7,300
NGLs (mbbls).................................. 2,151 2,489 5,109 6,210 7,304
Liquids (mbbls)............................... 7,397 7,785 12,515 14,041 14,604
AVERAGE DAILY PRODUCTION
Natural gas (mmcf)............................ 192 214 284 433 490
Crude oil (bbl)............................... 14,372 14,509 20,236 21,454 20,003
NGLs (bbl).................................... 5,893 6,819 13,958 17,014 20,012
Liquids (bbl)................................. 20,265 21,328 34,194 38,468 40,015
</TABLE>
G) DRILLING ACTIVITY
The following table sets forth the gross and net wells in which Poco has
participated for the years indicated:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
1997 1998
-------------- --------------
GROSS NET GROSS NET
----- ----- ----- -----
<S> <C> <C> <C> <C>
Exploration
Crude oil................................................. 5 3.7 13 9.8
Natural gas............................................... 70 61.0 71 61.4
--- ----- --- -----
75 64.7 84 71.2
--- ----- --- -----
Development
Crude oil................................................. 106 84.1 21 8.6
Natural Gas............................................... 82 66.0 72 63.6
--- ----- --- -----
188 150.1 93 72.2
--- ----- --- -----
Dry and abandoned........................................... 28 20.4 18 15.7
--- ----- --- -----
Total....................................................... 291 235.2 195 159.1
=== ===== === =====
Poco operated............................................... 235 221.2 165 152.3
Partner operated............................................ 56 14.0 30 7.3
</TABLE>
K-26
<PAGE> 238
H) CAPITAL EXPENDITURES
Costs incurred by Poco for the periods indicated in respect of leasehold
acquisitions and exploration and development are summarized in the following
table:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
--------------
1997 1998
----- -----
($ MILLIONS)
<S> <C> <C>
Exploration and development................................. 259.8 249.0
Land and geophysical........................................ 78.8 45.3
Facilities.................................................. 107.4 121.3
Other corporate............................................. 6.6 5.7
----- -----
Total capital expenditures.................................. 452.6 421.3
===== =====
</TABLE>
I) UNDEVELOPED ACREAGE
The following table summarizes Poco's interests in undeveloped acreage:
<TABLE>
<CAPTION>
DECEMBER 31, 1997 DECEMBER 31, 1998
------------------------ ------------------------
GROSS ACRES NET ACRES GROSS ACRES NET ACRES
----------- --------- ----------- ---------
(THOUSANDS) (THOUSANDS)
<S> <C> <C> <C> <C>
Alberta........................................ 1,969 1,412 3,437 2,323
British Columbia............................... 371 224 818 499
Saskatchewan................................... 205 190 350 268
----- ----- ----- -----
Total.......................................... 2,545 1,826 4,605 3,090
===== ===== ===== =====
</TABLE>
J) OIL AND GAS WELLS
The following table sets forth the non-unitized producing wells and wells
which Poco believes are capable of producing in which Poco owned a working
interest as at December 31, 1998:
<TABLE>
<CAPTION>
SUSPENDED OR
OIL WELLS GAS WELLS SHUT-IN WELLS(1)
------------ -------------- -----------------
GROSS NET GROSS NET GROSS NET
----- --- ----- ----- ------- -----
<S> <C> <C> <C> <C> <C> <C>
Alberta...................................... 1,235 422 1,433 854 673 335
Saskatchewan................................. 624 106 747 630 54 22
British Columbia............................. 15 7 92 12 103 34
----- --- ----- ----- --- ---
Total........................................ 1,874 535 2,272 1,496 830 391
===== === ===== ===== === ===
</TABLE>
- ---------------
NOTE:
(1) Suspended or shut-in wells are generally within 15 kilometers of pipeline
facilities.
As at December 31, 1998, Poco had interests in 4,146 producing wells. Poco
operates approximately 84 per cent of producing oil wells and 94 per cent of
producing gas wells.
K-27
<PAGE> 239
SUMMARY OF FINANCIAL INFORMATION
A) SUMMARY OF CONSOLIDATED FINANCIAL INFORMATION
The following table has been derived from the consolidated financial
statements of Poco:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------------------
1994 1995 1996 1997(1) 1998
------- --------- --------- --------- ---------
($ THOUSANDS, EXCEPT PER SHARE INFORMATION)
<S> <C> <C> <C> <C> <C>
Revenue, net of royalties.......... 227,042 234,332 378,107 518,726 551,896
Funds from operations.............. 145,188 135,271 231,424 336,688 333,280
Net earnings....................... 13,471 4,298 34,356 72,874 50,245
Per common share
Basic funds from operations...... 1.58 1.43 2.02 2.63 2.46
Fully diluted funds from
operations.................... 1.50 1.36 1.93 2.53 2.37
Basic earnings................... 0.15 0.05 0.30 0.57 0.37
Fully diluted earnings........... 0.15 0.05 0.30 0.56 0.36
Total assets....................... 876,952 1,023,696 1,616,260 2,085,042 2,760,635
Long term debt..................... 208,645 360,280 506,377 812,896 1,064,309
</TABLE>
- ---------------
NOTE:
(1) Restated, see note eight to the December 31, 1998 Audited Consolidated
Financial Statements of the Company.
B) SUMMARY OF QUARTERLY CONSOLIDATED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
1997(1) 1998
----------------------------- -----------------------------
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
----- ----- ----- ----- ----- ----- ----- -----
($ MILLIONS, EXCEPT PER SHARE INFORMATION)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue, net of royalties........... 137.6 106.3 123.1 151.8 153.7 118.6 145.4 146.6
Net earnings........................ 28.9 5.2 8.9 23.9 25.7 5.1 8.9 10.5
Per common share
Basic funds from operations....... 0.76 0.48 0.60 0.79 0.78 0.50 0.56 0.62
Fully diluted funds from
operations..................... 0.72 0.46 0.58 0.77 0.74 0.49 0.55 0.59
Basic earnings.................... 0.23 0.04 0.11 0.19 0.20 0.04 0.06 0.07
Fully diluted earnings............ 0.22 0.04 0.11 0.19 0.19 0.04 0.06 0.07
</TABLE>
- ---------------
NOTE:
(1) Restated, see note eight to the December 31, 1998 Audited Consolidated
Financial Statements of the Company.
K-28
<PAGE> 240
MARKET FOR POCO SECURITIES
Poco's common shares are listed and posted for trading under the symbol POC
on The Toronto Stock Exchange ("TSE") and the Montreal Exchange ("ME"). Poco is
included in the S&P/TSE 60 Index, the TSE 100 Composite Index and the TSE 300
Composite Index.
The following table sets forth the market price ranges and the aggregate
volume of trading of the common shares of the Company on the TSE and the ME for
the periods indicated:
<TABLE>
<CAPTION>
PERIOD HIGH ($) LOW ($) VOLUME
- ------ -------- ------- ----------
<S> <C> <C> <C>
1998
January..................................................... 13.15 10.00 11,036,750
February.................................................... 15.25 12.10 13,108,922
March....................................................... 16.25 13.50 16,261,578
April....................................................... 16.75 15.20 10,084,153
May......................................................... 17.25 14.55 6,758,801
June........................................................ 15.75 13.10 8,919,254
July........................................................ 16.33 13.25 7,053,779
August...................................................... 13.90 11.55 6,258,005
September................................................... 15.45 11.00 10,317,243
October..................................................... 16.00 14.00 8,937,765
November.................................................... 15.00 12.10 12,528,928
December.................................................... 13.00 11.80 6,905,633
1999
January..................................................... 14.00 10.50 10,030,962
February.................................................... 11.40 8.75 7,093,389
March....................................................... 11.60 8.60 9,418,221
</TABLE>
DIVIDEND HISTORY
The Company has not paid cash dividends during the five year period ending
December 31, 1998.
The payment of dividends is restricted to a maximum aggregate amount of
$239.3 million at December 31, 1998, due to the consolidated net earnings
available for restricted payments covenant in the Company's long term debt
facilities.
K-29
<PAGE> 241
DIRECTORS AND OFFICERS
The names and municipal addresses of the Directors and Officers of Poco,
the offices held by them in Poco and their principal occupations held for the
last five years are set forth in the following table. Directors are elected
annually to hold office until the next Annual General Meeting or until their
successors are elected or appointed.
<TABLE>
<CAPTION>
AFFILIATED WITH
NAME AND MUNICIPALITY OF RESIDENCE OFFICE AND PRINCIPAL OCCUPATION POCO SINCE DIRECTOR SINCE
- ---------------------------------- ------------------------------- --------------- --------------
<S> <C> <C> <C>
DONALD D. BARKWELL(1)................ Director; President of Barkwell 1988 May, 1988
Calgary, Alberta Investments Ltd.
WILLIAM E. BRADFORD(1)(2)............ Director, Executive Businessman since 1993 April, 1993
Toronto, Ontario October, 1995; prior thereto Deputy
Chairman of North American Life
Assurance Company from December, 1994
to October, 1995; prior thereto Deputy
Chairman and Chief Executive Officer of
North American Life Assurance Company
LYLE F. DUNKLEY(1)................... Director; Executive Businessman since 1998 May, 1998
Tisdale, Saskatchewan October, 1997; prior thereto Senior Oil
& Gas Analyst at Deutsche Morgan
Grenfell from March, 1995 to September,
1997; prior thereto Senior Oil & Gas
Analyst at Nesbitt Burns until January,
1995
JOHN J. FLEMING(3)................... Director; Director & Vice Chairman of 1979 November, 1979
Calgary, Alberta TransAtlantic Petroleum Corp. since
December, 1998; prior thereto Chairman
of the Board, President & Chief
Executive Officer of Profco Resources
Ltd. from August, 1995 to November,
1998; prior thereto Chairman and Chief
Executive Officer of Excel Energy Inc.
EDWARD A. GALVIN(2).................. Director; President of Medpath Oil & 1979 November, 1979
Calgary, Alberta Gas Ltd.
F.K.R. (ROY) GILLESPIE(1)(2)......... Director; President and Chief Executive 1991 June, 1991
Calgary, Alberta Officer of Trans-Empire Fuel Ltd.
CRAIG W. STEWART(4).................. Director; President and Chief Executive 1979 November, 1992
Calgary, Alberta Officer of the Company
LLOYD C. SWIFT(3).................... Director; President of Square Butte 1996 May, 1996
Calgary, Alberta Resources Inc. since November, 1995;
prior thereto consultant for Nesbitt
Burns from January, 1995 to October,
1995; prior thereto Vice President and
Director of Nesbitt Burns
W. BRUCE WOODS(3).................... Director; President of St. James 1980 November, 1980
Calgary, Alberta Properties Ltd.; President and Chief
Executive Officer of Cascade Oil & Gas
Ltd. until January, 1996
JOHN R. YARNELL(3)................... Director and Chairman of the Board of 1993 March, 1993
Toronto, Ontario the Company since February, 1994;
President of Yarnell Companies Inc.
</TABLE>
K-30
<PAGE> 242
<TABLE>
<CAPTION>
AFFILIATED WITH
NAME AND MUNICIPALITY OF RESIDENCE OFFICE AND PRINCIPAL OCCUPATION POCO SINCE DIRECTOR SINCE
- ---------------------------------- ------------------------------- --------------- --------------
<S> <C> <C> <C>
JOHN W. FERGUSON(4).................. Vice President and Chief Financial 1986 N/A
Calgary, Alberta Officer of the Company
KEVIN M. HERTZ....................... Vice President Operations of the 1987 N/A
Calgary, Alberta Company since August, 1996; prior
thereto Manager of Operations and
Facilities of the Company
KEVAN S. KING(4)..................... Vice President, General Counsel and 1988 N/A
Calgary, Alberta Secretary of the Company since August,
1998; prior thereto General Counsel &
Secretary of the Company
J. TERRY MCCOY....................... Vice President Exploration and Land of 1989 N/A
Calgary, Alberta the Company
R. BRUCE MCFARLANE................... Vice President Business Development of 1987 N/A
Calgary, Alberta the Company since December, 1997; prior
thereto Manager of Asset
Rationalization of the Company
BRIAN T. MORELAND.................... Vice President Engineering of the 1989 N/A
Calgary, Alberta Company since August, 1996; prior
thereto Manager of Engineering of the
Company
DARRYL J. PROUDFOOT.................. Vice President and Treasurer of the 1993 N/A
Calgary, Alberta Company since August, 1998; prior
thereto Treasurer of the Company
ROBERT M. WEISS...................... Vice President Marketing of the Company 1985 N/A
Calgary, Alberta
MAX A.W. LOF......................... Assistant Treasurer of the Company 1998 N/A
Calgary, Alberta since June, 1998; prior thereto
Research Associate at Scotia Capital
Markets/Scotia McLeod Inc. from August,
1997 to June, 1998; prior thereto
Associate Analyst, Oil & Gas at
Levesque Beaubien Geoffrion from June,
1996 to August, 1997; prior thereto
Financial Planning Analyst at Amerada
Hess Canada Ltd.
</TABLE>
- ---------------
NOTES:
(1) Member of the Management Resources Committee
(2) Member of the Committee on Director Affairs
(3) Member of the Audit Committee
(4) Member of the Safety, Environmental and Occupational Health Committee
The Corporation does not have an Executive Committee.
As at December 31, 1998, the Directors and Officers of Poco, as a group,
owned beneficially, directly or indirectly, or exercised control or direction
over an aggregate of 1,211,971 common shares of Poco, which represented 0.8 per
cent of the issued and outstanding common shares at that time.
K-31
<PAGE> 243
ADDITIONAL INFORMATION
Additional information, including Directors' and Executive officers'
remuneration and indebtedness, principal holders of Poco's securities, options
to purchase Poco's securities, and interest of insiders in material transactions
is contained in Poco's Information Circular -- Proxy Statement dated March 17,
1999, in connection with the Annual and Special Meeting of shareholders of Poco
on May 6, 1999. Additional financial information and discussion of the affairs
of the Company is provided in the comparative Consolidated Financial Statements
on pages 31 to 44 and Management's Discussion and Analysis on pages 23 to 30 of
the 1998 Annual Report to the Shareholders of Poco for the fiscal year ended
December 31, 1998, being the most recently completed fiscal year of the Company,
which information is incorporated herein by reference.
The Company will provide to any person, upon request to the Vice President,
General Counsel and Secretary of Poco:
a) When the securities of the Company are in the course of a
distribution pursuant to a short form prospectus or a preliminary short
form prospectus has been filed in respect of a distribution of
securities of the Company:
i) one copy of the Annual Information Form of the Company, together
with one copy of any document, or the pertinent pages of any
document, incorporated by reference in the Annual Information Form;
ii) one copy of the comparative financial statements of the Company
for its most recently completed financial year together with the
accompanying report of the auditor and one copy of any interim
financial statements of the Company subsequent to the financial
statements for its most recently completed financial year;
iii) one copy of the information circular of the Company in respect of
its most recent annual meeting of shareholders that involved the
election of directors; and
iv) one copy of any other documents that are incorporated by reference
into the preliminary short form prospectus or the short form
prospectus and are not required to be provided under (i) to (iii)
above; or
b) at any other time, one copy of any other documents referred to in (a)
(i), (ii) and (iii) above.
K-32
<PAGE> 244
POCO PETROLEUMS LTD.
POCO SELECTED
HISTORICAL FINANCIAL DATA
UNDER CANADIAN AND U.S. GAAP
<PAGE> 245
SELECTED HISTORICAL FINANCIAL DATA OF POCO UNDER CANADIAN GAAP
The following table sets forth selected historical consolidated financial
data for Poco as of and for each of the five years in the period ended December
31, 1998 and as of and for the six months ended June 30, 1999 and 1998. The
selected consolidated financial statements have been presented under Canadian
GAAP in Canadian dollars.
The data set forth should be read in conjunction with the consolidated
financial statements and related notes included in Poco's Annual Report for the
year ended December 31, 1998 and Interim Report for the quarter ended June 30,
1999. The consolidated financial statements and related notes included in Poco's
Annual Report for the year ended December 31, 1998 and the Interim Report for
the quarter ended June 30, 1999 are both incorporated by reference and included
in this joint proxy statement.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30, FOR THE YEARS ENDED DECEMBER 31,
----------------- ---------------------------------------------
1999 1998 1998 1997 1996 1995 1994
------- ------- ------- ------- ------- ------- -----
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Revenues................... C$ 265 C$ 272 C$ 552 C$ 519 C$ 378 C$ 234 C$227
Net Earnings............... 4 31 50 73 34 4 14
Basic Net Earnings per
Common Share............ 0.03 0.24 0.37 0.57 0.30 0.05 0.15
Fully Diluted Net Earnings
per Common Share........ 0.03 0.23 0.36 0.56 0.30 0.05 0.15
BALANCE SHEET DATA
Total Assets............... 2,759 2,295 2,761 2,085 1,616 1,024 877
Long-term Debt............. 1,101 988 1,064 813 506 360 209
Stockholders' Equity....... 1,212 892 1,200 846 947 588 577
Cash Dividends Declared per
Common Share............ C$ -- C$ -- C$ -- C$ -- C$ -- C$ -- C$ --
Common Shares
Outstanding............. 153 131 153 129 127 95 94
</TABLE>
K-34
<PAGE> 246
SELECTED HISTORICAL FINANCIAL DATA OF POCO UNDER U.S. GAAP -- FULL COST METHOD
The following table sets forth selected historical consolidated income
statement data of Poco for each of the three years in the period ended December
31, 1998 and as of and for the six months ended June 30, 1999 and 1998 and
balance sheet data as at December 31, 1998 and 1997 and June 30, 1999. The
selected consolidated financial statements have been adjusted to U.S. GAAP under
the full cost method of accounting for oil and gas properties.
The data set forth should be read in conjunction with the consolidated
financial statements and related notes included in Poco's Annual Report for the
year ended December 31, 1998 and Poco's Interim Report for the quarter ended
June 30, 1999, both of which are incorporated by reference and included in this
joint proxy statement.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30, FOR THE YEARS ENDED DECEMBER 31,
------------------- ---------------------------------
1999 1998 1998 1997 1996
------ ------ ------- ------ ------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Revenues.................................... C$ 265 C$ 272 C$ 552 C$ 519 C$ 378
Net Earnings (Loss)......................... 27 23 (275) 64 43
Basic Net Earnings (Loss) per Common
Share.................................... .17 .18 (2.02) .50 .37
Diluted Net Earnings (Loss) per Common
Share.................................... C$ .17 C$ .18 C$(2.02) C$ .49 C$ .37
</TABLE>
<TABLE>
<CAPTION>
AS AT AS AT DECEMBER 31,
JUNE 30, ------------------
1999 1998 1997
-------- ------- -------
<S> <C> <C> <C>
BALANCE SHEET DATA
Total Assets.............................................. C$2,389 C$2,325 C$2,067
Long-term Debt............................................ 1,176 1,140 813
Stockholders' Equity...................................... 923 889 859
Cash Dividends Declared per Common Share.................. C$ -- C$ -- C$ --
Common Shares Outstanding................................. 153 153 129
</TABLE>
K-35
<PAGE> 247
POCO PETROLEUMS LTD.
POCO MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
K-36
<PAGE> 248
POCO MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
THE MANAGEMENT'S DISCUSSION AND ANALYSIS (MD&A) PROVIDES A COMPARATIVE
REVIEW OF POCO'S OPERATIONS AND FINANCIAL POSITION FOR THE SIX MONTHS ENDED JUNE
30, 1999 AND THE YEARS ENDED DECEMBER 31, 1998 AND 1997. THIS MD&A SHOULD BE
READ IN CONJUNCTION WITH THE FULL COST AUDITED CONSOLIDATED FINANCIAL STATEMENTS
PREPARED UNDER GENERALLY ACCEPTED CANADIAN ACCOUNTING PRINCIPLES.
RESULTS OF OPERATIONS
Overview
The following analysis is presented on a barrel of oil equivalent basis to
provide a meaningful basis of comparison to other companies in the oil and gas
industry and to results of the preceding year. It is also a measure management
uses to ensure Poco is operating efficiently. A ratio of 10,000 cubic feet to
one barrel has been used to convert natural gas volumes into one barrel of oil
equivalent (boe).
The following table summarizes Poco's consolidated statements of earnings
on a dollar and barrel of oil equivalent basis.
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED JUNE 30, FOR THE YEARS ENDED DECEMBER 31,
----------------------------------------------- -----------------------------------------------
1999 1998 1998 1997 (RESTATED)
---------------------- ---------------------- ---------------------- ----------------------
(MILLIONS) (PER BOE) (MILLIONS) (PER BOE) (MILLIONS) (PER BOE) (MILLIONS) (PER BOE)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Oil and gas revenue........... C$313.1 C$19.43 C$318.4 C$20.03 C$627.8 C$19.32 C$637.6 C$21.37
Royalty expense............... 48.4 3.00 46.1 2.90 75.9 2.34 118.8 3.98
------- ------- ------- ------- ------- ------- ------- -------
264.7 16.43 272.3 17.13 551.9 16.98 518.8 17.39
Depletion and depreciation
expense..................... 132.8 8.24 114.3 7.19 243.9 7.50 213.4 7.15
Production expense............ 72.6 4.50 64.8 4.08 130.1 4.01 118.9 3.98
Financial charges............. 38.2 2.38 34.4 2.17 75.5 2.32 48.6 1.63
General and administrative
expense..................... 10.6 0.66 7.1 0.44 16.0 0.49 13.6 0.45
------- ------- ------- ------- ------- ------- ------- -------
254.2 15.78 220.6 13.88 465.5 14.32 394.5 13.21
------- ------- ------- ------- ------- ------- ------- -------
Earnings before income
taxes....................... 10.5 0.65 51.7 3.25 86.4 2.66 124.3 4.18
Income taxes.................. 6.1 0.38 20.9 1.31 36.2 1.11 51.4 1.72
------- ------- ------- ------- ------- ------- ------- -------
Net earnings.................. C$ 4.4 C$ 0.27 C$ 30.8 C$ 1.94 C$ 50.2 C$ 1.55 C$ 72.9 C$ 2.46
======= ======= ======= ======= ======= ======= ======= =======
Funds from operations......... C$142.9 C$ 8.87 C$166.0 C$10.44 C$333.3 C$10.26 C$336.7 C$11.28
======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
The company continues to focus on controlling production and general and
administrative expenses per barrel of oil equivalent in order to remain a low
cost producer.
Oil and gas revenue
June 30, 1999 vs. June 30, 1998 Oil and gas revenue for the six months
ended June 30, 1999 was C$313.1 million, a decrease of two per cent from 1998
levels. Higher revenues arising from increased natural gas and natural gas
liquids production volumes were offset by lower crude oil production volumes and
decreased liquids prices.
1998 vs. 1997 Oil and gas revenue for 1998 decreased two per cent to
C$627.8 million when compared to 1997. Higher revenues arising from natural gas
and natural gas liquids production volumes were offset by sharply lower crude
oil and natural gas liquids prices.
K-37
<PAGE> 249
Natural gas revenue
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEARS ENDED
JUNE 30, DECEMBER 31,
----------------- -----------------
1999 1998 1998 1997
------- ------- ------- -------
(PER MCF)
<S> <C> <C> <C> <C>
Revenue.............................................. C$ 2.26 C$ 2.26 C$ 2.20 C$ 2.00
Royalty expense...................................... (0.32) (0.30) (0.25) (0.34)
Production expense................................... (0.44) (0.33) (0.37) (0.31)
------- ------- ------- -------
Cash netback......................................... C$ 1.50 C$ 1.63 C$ 1.58 C$ 1.35
======= ======= ======= =======
Average daily sales (mmcf)........................... 502.2 475.2 490.1 432.9
======= ======= ======= =======
</TABLE>
June 30, 1999 vs. June 30, 1998 Poco's natural gas sales price for the
first six months of 1999 was equal to the price received for the same time
period in 1998, at C$2.26 per thousand cubic feet. Natural gas sales volumes
increased six per cent in 1999. Further production growth was hampered by annual
plant maintenance, unscheduled non-operated plant shutdowns, wet weather and
Nova pipeline shutdowns in central Alberta.
1998 vs. 1997 Higher natural gas prices in Alberta, and a C$0.08 per
thousand cubic feet gain from Poco's hedging program resulted in a 10 per cent
increase in the natural gas sales price for 1998 compared to 1997 levels. Poco's
natural gas sales volumes increased 13 per cent reflecting higher production in
the Monkman, Harmattan and O'Chiese areas.
Poco's marketing strategy for natural gas continues to provide Poco with a
premium natural gas price compared to industry averages. Poco markets its
natural gas directly into geographically diversified markets.
Crude oil revenue
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED FOR THE YEARS ENDED
JUNE 30, DECEMBER 31,
------------------------- -------------------
1999 1998 1998 1997
----------- ----------- -------- --------
(PER BARREL)
<S> <C> <C> <C> <C>
Revenue.......................................... C$ 20.78 C$ 17.87 C$ 17.79 C$ 25.38
Royalty expense.................................. (3.21) (3.33) (2.70) (5.31)
Production expense............................... (7.47) (7.50) (6.55) (6.50)
-------- -------- -------- --------
Cash netback..................................... C$ 10.10 C$ 7.04 C$ 8.54 C$ 13.57
======== ======== ======== ========
Average daily sales (bbls)....................... 16,352 21,064 20,003 21,454
======== ======== ======== ========
</TABLE>
June 30, 1999 vs. June 30, 1998 For the first six months of 1999 crude oil
sales prices increased 16 per cent compared to 1998. Crude oil production
volumes declined 22 per cent due to reduced oil-related drilling and the sale of
crude oil producing properties in 1998.
1998 vs. 1997 The 1998 crude oil sales price declined 30 per cent and
production volumes declined seven per cent from 1997 levels. Consequently,
revenue from crude oil sales decreased to C$129.9 million from C$198.7 million
in 1997. Poco's continued natural gas focus for exploration and development
spending and natural declines in deliverability resulted in lower crude oil
production.
K-38
<PAGE> 250
Natural gas liquids revenue
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED FOR THE YEARS ENDED
JUNE 30, DECEMBER 31,
------------------------- -------------------
1999 1998 1998 1997
----------- ----------- -------- --------
(PER BARREL)
<S> <C> <C> <C> <C>
Revenue.......................................... C$ 12.54 C$ 14.64 C$ 13.50 C$ 19.31
Royalty expense.................................. (2.66) (2.46) (1.70) (4.03)
Production expense............................... (2.50) (2.18) (2.26) (3.01)
-------- -------- -------- --------
Cash netback..................................... C$ 7.38 C$ 10.00 C$ 9.54 C$ 12.27
======== ======== ======== ========
Average daily sales (bbls)....................... 22,457 19,260 20,012 17,014
======== ======== ======== ========
</TABLE>
June 30, 1999 vs. June 30, 1998 Natural gas liquids production rose 17 per
cent from the six months in 1998, while natural gas liquids sales prices
declined 14 per cent from the same period in 1998.
1998 vs. 1997 Higher natural gas liquids production in the O'Chiese area
contributed to an 18 per cent rise in sales volumes for 1998. Reduced demand
from the petrochemical industry combined with lower industrial heating demand
pushed propane and butane prices lower. Reduced demand for condensate used as a
diluent in shipping heavy oil resulted in a significant decrease in condensate
prices. Sales revenue for natural gas liquids declined by 18 per cent to C$98.6
million for 1998 compared to C$119.9 million for 1997.
Royalty expense
June 30, 1999 vs. June 30, 1998 For the six months of 1999 royalty expense
on a barrel of oil equivalent basis increased by three per cent versus the first
six months of 1998, due to lower production from royalty holiday wells.
1998 vs. 1997 Royalty expense per barrel of oil equivalent declined 41 per
cent from 1997 levels. Lower commodity prices and production from royalty
holiday wells contributed to a lower royalty expense per barrel of oil
equivalent. In addition, 16 per cent of the value of 1998 natural gas sales was
at prices exceeding the reference price used in the calculation of Crown
royalties. These revenues do not attract Crown royalties and therefore result in
reduced royalty expense and a lower royalty expense per barrel of oil
equivalent.
Depletion and depreciation expense
June 30, 1999 vs. June 30, 1998 Increasing finding and development costs
during the first half of 1999 resulted in depletion and depreciation expense
increasing 15 per cent to C$8.24 per barrel of oil equivalent versus C$7.19 in
1998.
Included in depletion and depreciation for the first six months of 1999
were future site restoration costs of C$0.17 (1998 -- C$0.20) per barrel of oil
equivalent. Total estimated future site restoration costs to be expensed over
the life of the remaining reserves were C$56.8 million at June 30, 1999. Poco
spent C$0.5 million (1999 -- C$0.4 million) for the restoration of well sites
and certain facilities.
1998 vs. 1997 Higher depletion and depreciation expense during 1998
resulted from higher production volumes and an increased depletion rate. During
1998, the industry continued to see high prices for land and drilling services
for most of the year. These pressures contributed to higher costs and resulted
in an increased depletion rate for 1998. On a barrel of oil equivalent basis,
depletion and depreciation for 1998 of C$7.50 was up five per cent from C$7.15
in the previous year.
Included in depletion and depreciation expense for 1998 were future site
restoration costs of C$0.20 (1997 -- C$0.20) per barrel of oil equivalent. Total
estimated future site restoration costs to be expensed over the life of the
remaining reserves were C$57.2 million at December 1998. Poco spent C$2.5
million in 1998 (1997 -- C$3.0 million) for the restoration of well sites and
certain facilities. Poco abandoned 18 wells in 1998, compared to 51 wells in
1997.
K-39
<PAGE> 251
Production expense
June 30, 1999 vs. June 30, 1998 Production expense for the first six months
of 1999 increased ten per cent from 1998 on a barrel of oil equivalent basis.
Included in the production expense of C$4.50 was C$0.18 (1998 - C$0.25) per
barrel of oil equivalent for municipal property taxes. Production expenses in
1999 increased due to the sale of facilities in eastern Alberta to midstream
processors, resulting in higher production expense.
1998 vs. 1997 Production expense per barrel of oil equivalent for 1998
increased one per cent from 1997 levels. Included in the production expense of
C$4.01 was C$0.21 (1997 -- C$0.22) per barrel of oil equivalent for municipal
property taxes. Production expenses are expected to increase moderately in 1999
due to the sale of facilities in eastern Alberta to midstream processors.
Financial charges
June 30, 1999 vs. June 30, 1998 In the first half of 1999 financial charges
rose 10 per cent to C$2.38 per barrel of oil equivalent (1998 - C$2.17) due to
higher debt levels. Approximately 57 per cent of Poco's debt was at fixed rates.
1998 vs. 1997 Financial charges per barrel of oil equivalent rose to C$2.32
(1997 -- C$1.63) due to higher debt levels. Approximately 59 per cent of Poco's
debt was at fixed rates which reduced exposure to interest rate fluctuations in
the medium term.
General and administrative expense
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED JUNE 30, FOR THE YEARS ENDED DECEMBER 31,
----------------------------------------------- -----------------------------------------------
1999 1998 1998 1997
---------------------- ---------------------- ---------------------- ----------------------
(MILLIONS) (PER BOE) (MILLIONS) (PER BOE) (MILLIONS) (PER BOE) (MILLIONS) (PER BOE)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Expenses before
recoveries............. C$15.5 C$ 0.96 C$15.4 C$ 0.97 C$ 31.4 C$ 0.97 C$ 25.4 C$ 0.85
Operator recoveries...... (4.9) (0.30) (8.3) (0.53) (15.4) (0.48) (11.8) (0.40)
------ ------- ------ ------- ------- ------- ------- -------
Net expenses............. C$10.6 C$ 0.66 C$ 7.1 C$ 0.44 C$ 16.0 C$ 0.49 C$ 13.6 C$ 0.45
====== ======= ====== ======= ======= ======= ======= =======
</TABLE>
June 30, 1999 vs. June 30, 1998 For the six months ended June 30, 1999
general and administrative expenses per barrel of oil equivalent increased 50
per cent from the 1998 levels. Lower capital expenditures resulted in lower
operator recoveries, increasing the net expenses reported.
1998 vs. 1997 General and administrative expenses were C$0.49 per barrel of
oil equivalent, an increase of nine per cent from C$0.45 in 1997. The operator
recoveries represent funds that Poco recovers as fees for managing capital
projects and operating wells.
Income taxes
June 30, 1999 vs. June 30, 1998 During the first half of 1999 cash taxes
paid by Poco were comprised of the Large Corporations Tax and provincial capital
taxes which equated to C$0.23 per barrel of oil equivalent versus C$0.21 in
1998. Total payments to governments for capital taxes and property taxes were
C$0.41 per barrel of oil equivalent compared to C$0.46 in 1998.
Future income tax expense was C$0.14 per barrel of oil equivalent compared
to C$1.10 in 1998. This lower tax expense reflected the decrease in earnings
before taxes per barrel of oil equivalent to C$0.65 from C$3.25 in 1998.
1998 vs. 1997 Cash taxes paid by Poco were comprised of the Large
Corporations Tax and provincial capital taxes which equated to C$0.23 per barrel
of oil equivalent. These taxes are levied on Poco's capital base and, as such,
do not vary directly with the profitability of Poco. Total payments to
governments for capital taxes and property taxes were C$0.44 per barrel of oil
equivalent.
K-40
<PAGE> 252
Future income tax expense was C$0.88 per barrel of oil equivalent in 1998
compared to C$1.54 in 1997. This lower tax expense reflected the decrease in
earnings before taxes per barrel of oil equivalent to C$2.66 from C$4.18 in
1997.
RISK MANAGEMENT
Under Poco's risk management policy, Poco monitors and, when appropriate,
reduces its exposure to fluctuations in commodity prices, foreign exchange rates
and interest rates. The Board of Directors of Poco has established limits on the
term and amounts of hedging that management may undertake.
COMMODITY PRICES
The hedging of commodity price risk is limited in order to retain exposure
to commodity price fluctuations for the company's shareholders. The Board of
Directors of Poco has approved a base level for hedging transactions of C$25.0
million, with approval required for each additional C$25.0 million entered into
for each of natural gas and liquids. The term of each transaction cannot exceed
18 months.
During 1998, Poco entered into a combination of financial hedging contracts
and fixed price physical delivery contracts for approximately 300 million cubic
feet per day of natural gas at a wellhead price of C$3.00 per thousand cubic
feet for the period November 1, 1998 to March 31, 1999. Poco also hedged
approximately 80 million cubic feet of natural gas per day at C$2.30 per
thousand cubic feet for the second and third quarters of 1999. Other hedging
contracts were assumed during 1998 as part of Poco's acquisitions.
FOREIGN EXCHANGE
Poco does not typically hedge foreign exchange risk, except through the
issuance of U.S. dollar denominated debt. The Board of Directors of Poco has
approved a base level for foreign exchange hedging transactions of C$50.0
million at a maximum term of 18 months. Approval from the Board of Directors of
Poco is required for each additional C$50.0 million of transactions. These hedge
limits are in addition to U.S. dollar denominated debt. This U.S. dollar
denominated debt provides a natural hedge as interest and principal payments are
paid in U.S. dollars received from the sale of production.
LIQUIDITY AND CAPITAL RESOURCES
June 30, 1999 Poco's capital expenditures to June 30, 1999 of C$180.2
million exceeded funds from operations by C$37.3 million. The excess spending
was funded through the issuance of common shares and through drawing on bank
loans. Poco had unused borrowing facilities at June 30, 1999 of over C$250
million.
Capital expenditures
Poco's capital program is detailed in the following table:
<TABLE>
<CAPTION>
FOR THE SIX MONTHS FOR THE YEARS ENDED
ENDED JUNE 30, DECEMBER 31,
------------------ --------------------
1999 1998 1998 1997
------- ------- -------- --------
(MILLIONS)
<S> <C> <C> <C> <C>
Exploration and development....................... C$ 80.1 C$152.7 C$249.0 C$259.8
Land and geophysical.............................. 27.5 29.4 45.3 78.8
Facilities........................................ 58.5 83.8 121.3 107.4
Other corporate................................... 3.0 1.8 5.7 6.6
------- ------- ------- -------
169.1 267.7 421.3 452.6
Net property acquisitions......................... 11.1 15.4 109.6 154.6
Corporate acquisitions............................ -- -- 314.6 --
------- ------- ------- -------
Capital expenditures.............................. C$180.2 C$283.1 C$845.5 C$607.2
======= ======= ======= =======
</TABLE>
K-41
<PAGE> 253
When measuring 1998 capital expenditures against reserve additions, both
before dispositions, Poco's reserve replacement cost equated to C$9.42 per
barrel of oil equivalent. This compares favorably to the C$12.48 operating
netback realized from the sale of one barrel of oil equivalent of production.
The operating netback is the dollar value received after accounting for
royalties, production and general and administrative expenses. The ratio of
operating netback to the reserve replacement cost, or recycle ratio, was 1.3:1.
This ratio was lower than 1997 due to the purchase of assets which will
accelerate Poco's deep gas exploration program in future years. Poco paid a
premium for these natural gas assets reflecting the company's long term view of
the natural gas business. This ratio is an important measure of how effectively
Poco deploys capital relative to the cash flow generated from producing one
barrel of oil equivalent. Poco's six-year average is 1.8:1.
Dividend Policies. Poco has not made any dividend payments on its capital
stock in the past five years and has no present plans to pay dividends. In
addition, the payment of dividends on Poco common shares is restricted to a
maximum aggregate amount of C$242.6 million at June 30, 1999, by restrictive
covenants relating to Poco's senior notes.
YEAR 2000
Information technology is integral to many aspects of Poco's business. The
year 2000 problem arises due to the representation of the year as a two digit
field in many computer systems. Some systems are unable to correctly interpret
dates past December 31, 1999 and may malfunction after that date. Internal
systems that could be affected by the year 2000 problem include accounting,
production, reporting, and land systems.
Poco relies on computer technology to operate its plants and processing
facilities, gathering systems and pipelines. Testing and conversion of these
systems will be substantially complete by the end of 1999. Costs to upgrade
these systems are expected to be approximately C$0.4 million of which C$0.3
million has been incurred through June 30, 1999. Should the upgrades to the
computer systems not operate as expected Poco plans to shut-in the affected
facilities subsequent to January 1, 2000 until the computer systems are fixed.
Poco is exposed to the risk that an industry partner who operates facilities and
wells on Poco's behalf will not succeed in properly upgrading their computer
systems. All operators of significant properties and facilities have been
contacted by Poco in order to determine their state of readiness. Poco is in the
process of reviewing responses from the operators of significant facilities and
will follow up deficient responses.
Pipelines which Poco uses to ship production to market pose a significant
risk to the company. The failure of a pipeline would result in the loss of a
substantial portion of Poco's revenue during the period that the pipeline was
not operating. Poco does not have a contingency plan for the failure of a
pipeline due to the lack of alternative pipelines.
Continued operation of Poco's facilities is dependent on a continued supply
of electrical power. Failure of the electrical grid would result in the shut
down of Poco's facilities until power was restored. Due to the nature of
electrical supplies, Poco does not have any contingency plans for the failure of
the electrical grid.
During the second quarter of 1999 Poco successfully implemented year 2000
compliant versions of its financial, land and production accounting systems. The
reserves system will be upgraded prior to the end of 1999, completing the
upgrade of critical systems. Certain non-critical computer programs and systems
will be converted to year 2000 compliant versions during the third and fourth
quarters of 1999.
K-42
<PAGE> 254
POCO PETROLEUMS LTD.
POCO AUDITED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998,
1997 AND 1996 AND UNAUDITED FINANCIAL STATEMENTS
FOR THE PERIODS ENDED JUNE 30, 1999
AND JUNE 30, 1998
K-43
<PAGE> 255
POCO PETROLEUMS LTD.
AUDITORS' REPORT
TO THE DIRECTORS OF POCO PETROLEUMS LTD.
We have audited the consolidated balance sheets of Poco Petroleums Ltd. as
at December 31, 1998 and 1997 and the consolidated statements of earnings,
deficit and cash flows for each of the years in the three year period ended
December 31, 1998. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
In our opinion, these consolidated financial statements present fairly, in
all material respects, the financial position of the Company as at December 31,
1998 and 1997 and the results of its operations and cash flows for each of the
years in three year period ended December 31, 1998 in accordance with generally
accepted accounting principles in Canada.
--
Chartered Accountants
Calgary, Alberta
February 18, 1999
(except Note 10 which is as of August 16, 1999)
K-44
<PAGE> 256
POCO PETROLEUMS LTD.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
AS AT DECEMBER 31,
AS AT JUNE 30, -----------------------------------
1999 1998 1997
-------------- ----------- --------------------
(thousands) (UNAUDITED) (RESTATED -- NOTE 8)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Accounts receivable............................ C$ 119,536 C$ 118,804 C$ 86,407
Inventory...................................... 28,023 34,112 22,844
----------- ----------- -----------
147,559 152,916 109,251
PROPERTY, PLANT AND EQUIPMENT (note 3)......... 2,584,307 2,561,639 1,943,921
OTHER ASSETS................................... 27,061 46,080 31,870
----------- ----------- -----------
C$2,758,927 C$2,760,635 C$2,085,042
=========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES....... C$ 81,217 C$ 112,683 C$ 73,923
----------- ----------- -----------
LONG TERM DEBT (note 4)........................ 1,100,612 1,064,309 812,896
----------- ----------- -----------
FUTURE SITE RESTORATION (note 3)............... 18,471 16,302 12,417
----------- ----------- -----------
FUTURE INCOME TAXES (note 7)................... 346,417 367,609 340,268
----------- ----------- -----------
SHAREHOLDERS' EQUITY
Common shares (note 6)......................... 1,218,422 1,210,326 906,377
Deficit........................................ (6,212) (10,594) (60,839)
----------- ----------- -----------
1,212,210 1,199,732 845,538
----------- ----------- -----------
C$2,758,927 C$2,760,635 C$2,085,042
=========== =========== ===========
</TABLE>
On behalf of the Board of Directors:
<TABLE>
<S> <C>
(Signed) -- (Signed) --
Director Director
</TABLE>
See accompanying Notes to the Consolidated Financial Statements
K-45
<PAGE> 257
POCO PETROLEUMS LTD.
CONSOLIDATED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
JUNE 30, FOR THE YEARS ENDED DECEMBER 31,
-------------------------- -------------------------------------------------
(thousands, except per share 1999 1998 1998 1997 1996
amounts) ----------- ----------- ----------- ------------------- -----------
(UNAUDITED) (UNAUDITED) (RESTATED -- NOTE
8)
<S> <C> <C> <C> <C> <C>
REVENUE
Oil and gas revenue....... C$313,111 C$318,399 C$627,820 C$637,552 C$471,580
Royalty expense........... 48,414 46,122 75,924 118,826 93,473
--------- --------- --------- --------- ---------
264,697 272,277 551,896 518,726 378,107
--------- --------- --------- --------- ---------
EXPENSES
Depletion and
depreciation............ 132,801 114,344 243,849 213,387 152,712
Production................ 72,585 64,805 130,147 118,882 96,805
Financial charges
(note 4)................ 38,275 34,434 75,466 48,629 33,533
General and
administrative.......... 10,584 7,067 15,991 13,551 14,696
--------- --------- --------- --------- ---------
254,245 220,650 465,453 394,449 297,746
--------- --------- --------- --------- ---------
EARNINGS BEFORE INCOME
TAXES................... 10,452 51,627 86,443 124,277 80,361
Income taxes (note 7)..... 6,070 20,861 36,198 51,403 46,005
--------- --------- --------- --------- ---------
NET EARNINGS.............. C$ 4,382 C$ 30,766 C$ 50,245 C$ 72,874 C$ 34,356
========= ========= ========= ========= =========
NET EARNINGS PER COMMON
SHARE
Basic..................... C$ 0.03 C$ 0.24 C$ 0.37 C$ 0.57 C$ 0.30
Fully diluted............. C$ 0.03 C$ 0.23 C$ 0.36 C$ 0.56 C$ 0.30
</TABLE>
CONSOLIDATED STATEMENTS OF DEFICIT
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED FOR THE YEARS ENDED DECEMBER 31,
JUNE 30, ----------------------------------
1999 1998 1997 1996
(thousands) ------------ --------- --------- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
Retained earnings (deficit),
beginning of period
As previously reported................... C$(10,594) C$(60,839) C$ 56,775 C$22,419
Adjustments relating to change in
income tax accounting policy
(note 8).............................. -- -- (190,488) --
--------- --------- --------- --------
As restated.............................. (10,594) (60,839) (133,713) 22,419
Net earnings............................. 4,382 50,245 72,874 34,356
--------- --------- --------- --------
Retained earnings (deficit), end of
period................................... C$ (6,212) C$(10,594) C$(60,839) C$56,775
========= ========= ========= ========
</TABLE>
See accompanying Notes to the Consolidated Financial Statements
K-46
<PAGE> 258
POCO PETROLEUMS LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
JUNE 30, FOR THE YEARS ENDED DECEMBER 31,
------------------------- -------------------------------------
1999 1998 1998 1997 1996
----------- ----------- ---------- ----------- ----------
(thousands, except per share amounts) (UNAUDITED) (UNAUDITED) (RESTATED -- NOTE 8)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net earnings..................... C$ 4,382 C$ 30,766 C$ 50,245 C$ 72,874 C$ 34,356
Depletion, depreciation and
amortization................... 136,263 117,751 254,249 217,787 155,568
Future income tax
expense (note 7)............... 2,301 17,465 28,786 46,027 41,500
---------- ---------- ---------- ---------- ----------
Funds from operations............ 142,946 165,982 333,280 336,688 231,424
Change in non-cash
working capital................ 17,700 15,842 (12,771) 3,661 (9,933)
---------- ---------- ---------- ---------- ----------
Net cash provided by operating
activities..................... 160,646 181,824 320,509 340,349 221,491
---------- ---------- ---------- ---------- ----------
FINANCING ACTIVITIES
Increase in bank loans........... 36,855 171,789 65,474 157,336 23,994
Issue of medium term notes....... 27,728 -- 121,838 149,566 --
Issue of senior U.S. dollar notes... -- -- -- -- 170,857
Repayment of senior U.S. dollar
notes.......................... (14,730) (7,292) (22,665) (13,995) (6,809)
Redemption of 7 1/2% debentures... -- -- -- -- (59,970)
Issue of common shares (note 6)... 12,063 15,231 192,406 16,663 200,452
---------- ---------- ---------- ---------- ----------
Net cash provided by financing
activities..................... 61,916 179,728 357,053 309,570 328,524
---------- ---------- ---------- ---------- ----------
INVESTING ACTIVITIES
Additions to property, plant and
equipment...................... (169,082) (267,713) (421,362) (452,537) (268,909)
Net property acquisitions........ (11,117) (15,432) (109,539) (154,616) (212,372)
Corporate acquisitions (note 2)... -- -- (139,582) -- (99,941)
Site restoration costs incurred... (538) (393) (2,476) (2,956) (3,484)
Other............................ 1,983 (3,199) (5,125) (8,789) (3,772)
Change in non-cash
working capital................ (43,808) (74,815) 522 (31,021) 38,463
---------- ---------- ---------- ---------- ----------
Net cash used for
investing activities........... (222,562) (361,552) (677,562) (649,919) (550,015)
---------- ---------- ---------- ---------- ----------
Change in cash and cash
equivalents.................... -- -- -- -- --
Cash and cash equivalents
Beginning of period............ -- -- -- -- --
---------- ---------- ---------- ---------- ----------
End of period.................. C$ -- C$ -- C$ -- C$ -- C$ --
========== ========== ========== ========== ==========
FUNDS FROM OPERATIONS PER COMMON
SHARE
Basic............................ C$ 0.93 C$ 1.28 C$ 2.46 C$ 2.63 C$ 2.02
Fully diluted.................... C$ 0.89 C$ 1.23 C$ 2.37 C$ 2.53 C$ 1.93
</TABLE>
The Consolidated Statements of Cash Flows have been restated to conform to the
Cash Flow basis of presentation.
See accompanying Notes to the Consolidated Financial Statements
K-47
<PAGE> 259
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(tabular amounts in thousands)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The company's consolidated financial statements have been prepared in
accordance with generally accepted accounting principles in Canada. Information
as at and for the period ended June 30, 1999 and 1998 is unaudited.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the company
and all of its subsidiary companies. A significant portion of the exploration,
development and production activities are conducted jointly with others and,
accordingly, the accounts reflect only the company's proportionate interest in
such activities.
PROPERTY, PLANT AND EQUIPMENT
The company follows the full cost method of accounting under which all
costs associated with the exploration for and development of oil and gas
reserves are capitalized. Capitalized costs include lease acquisition costs, the
costs of geological and geophysical activities, the costs of drilling both
productive and non-productive wells, carrying charges of non-producing
properties and costs directly related to exploration and development activities.
Proceeds from the disposal of properties are applied as a reduction of the cost
of the remaining assets, except when such a disposal would alter the rate of
depletion and depreciation by more than 20 per cent, in which case a gain or
loss on disposal is recorded.
Depletion of oil and gas properties and depreciation of production
equipment are calculated using the unit of production method which is based upon
gross proven reserve volumes. Gas volumes are converted to equivalent oil
volumes based upon the relative energy content of six thousand cubic feet of gas
to one barrel of oil.
The costs of acquisition and evaluation of unproved properties are
initially excluded from the depletion calculation. These properties are assessed
to determine whether an impairment in value has occurred. When proven reserves
are assigned to the property or the property is considered to have an impairment
in value, the cost of the property or amount of the impairment in value is added
to the capitalized costs for the calculation of depletion.
The cost less accumulated depletion and depreciation, future income taxes
and the accumulated provision for future site restoration costs ("capitalized
cost") is limited to the sum of the following ("cost ceiling"):
(i) The estimated undiscounted future net revenue (based on prices and
costs at the balance sheet date) derived from proved reserves net of financing
costs, production related general and administrative costs, future site
restoration costs and income taxes; and
(ii) The lower of cost or fair market value of unproved properties.
Future net revenue is calculated using the current Income Tax and the
Alberta Royalty Tax Credit legislation throughout the life of the reserves.
The amounts recorded for depletion, depreciation and amortization of
property, plant and equipment and the provision for future site restoration
costs are based on estimates. The cost ceiling is based on such factors as
estimated proven reserves, production rates, oil and natural gas prices and
future costs. By their nature, these estimates are subject to measurement
uncertainty and may impact the financial statements of future periods.
Depreciation of other equipment is calculated on a 20 per cent declining
balance basis.
SITE RESTORATION
Future site restoration costs are expensed on a unit of production basis
over the life of the remaining reserves. These costs are based on year-end
engineering estimates of the anticipated costs of site restoration. Actual
expenditures incurred are applied against the future site restoration liability.
K-48
<PAGE> 260
FOREIGN CURRENCY TRANSLATION
Monetary items denominated in a foreign currency and having a fixed or
ascertainable life of more than one year are translated into Canadian dollars at
the rate of exchange in effect at the end of the period. The resulting
unrealized translation gains or losses are deferred and amortized on a straight
line basis over the remaining life of the long term monetary items. Transactions
denominated in a foreign currency are translated at the rate in effect at the
date of the transaction.
FINANCIAL INSTRUMENTS
As described in Management's Discussion and Analysis, the company uses
derivative financial instruments from time to time in order to manage its
exposure to interest rate, commodity price and foreign exchange rate
fluctuations. The carrying amounts of the contracts represent amounts receivable
or payable under the contracts. The net receipts or payments arising from the
derivative financial instruments are recognized in income during the same period
and financial statement category as the corresponding hedged positions.
EARNINGS AND FUNDS FROM OPERATIONS PER COMMON SHARE
Net earnings per common share are computed by dividing net earnings by the
weighted average number of common shares outstanding. Funds from operations per
common share are computed by dividing funds from operations by the weighted
average number of common shares outstanding. Fully diluted earnings per share
and funds from operations per common share are determined as if all potentially
dilutive securities had been converted or exercised at the later of the
beginning of the year or on the date of issue.
INCOME TAXES
Income taxes are calculated using the liability method of tax allocation
accounting. Temporary differences arising from the difference between the tax
basis of an asset or liability and its carrying amount on the balance sheet are
used to calculate future income tax liabilities or assets. Future income tax
liabilities or assets are calculated using tax rates anticipated to apply in the
periods that the temporary differences are expected to reverse. Temporary
differences arising on acquisitions result in future income tax liabilities or
assets.
For 1996 income taxes are calculated using the deferral method. Under this
method the tax effect of timing differences between taxable income and income
for accounting purposes is recorded as income tax expense.
K-49
<PAGE> 261
2. ACQUISITIONS
In 1998, the company purchased all of the issued and outstanding shares of
Canrise Resources Ltd. (Canrise) and Pan East Petroleum Corp. (Pan East). The
results of operations for Canrise and Pan East were consolidated effective July
1, 1998 and December 1, 1998 respectively. These acquisitions were both
accounted for using the purchase method.
<TABLE>
<CAPTION>
CANRISE PAN EAST TOTAL
--------- --------- ---------
<S> <C> <C> <C>
NET ASSETS ACQUIRED
Property, plant and equipment.......................... C$140,448 C$179,874 C$320,322
Other assets........................................... -- 1,650 1,650
Working capital deficit................................ (6,029) (1,314) (7,343)
Future income tax adjustment to property, plant and
equipment............................................ 22,604 13,183 35,787
Future income taxes.................................... (22,604) (13,183) (35,787)
--------- --------- ---------
C$134,419 C$180,210 C$314,629
========= ========= =========
COST OF ACQUISITION
Common shares issued................................... C$ 93,645 C$ 19,694 C$113,339
Long term debt assumed................................. 38,743 22,965 61,708
--------- --------- ---------
Total non-cash consideration........................... 132,388 42,659 175,047
Cash................................................... -- 135,518 135,518
Acquisition costs...................................... 2,031 2,033 4,064
--------- --------- ---------
C$134,419 C$180,210 C$314,629
========= ========= =========
</TABLE>
GARDINER ACQUISITION
During October 1996, the company purchased all of the issued and
outstanding shares of Gardiner Oil and Gas Limited. This acquisition was
accounted for using the purchase method and the results of operations were
consolidated effective October 1, 1996.
<TABLE>
<S> <C>
NET ASSETS ACQUIRED
Working capital deficit..................................... C$ (5,059)
Property, plant and equipment............................... 243,693
---------
C$238,634
=========
COST OF ACQUISITION
Common shares issued........................................ C$122,384
Long term debt assumed...................................... 16,309
---------
Total non-cash consideration................................ 138,693
Cash........................................................ 97,130
Acquisition costs........................................... 2,811
---------
C$238,634
=========
</TABLE>
PROPERTY ACQUISITIONS
The company purchased, through two separate transactions, interests in the
Swan Hills and Harmattan areas of Alberta for an aggregate cash purchase price
exceeding C$195.0 million plus the renunciation of certain tax pools. These
transactions were accounted for effective January 1, 1996. The vendor of the
Swan Hills properties paid C$2.2 million for the right to purchase 2.0 million
common shares of the company at a cost of C$19.3 million on or before June 30,
1996. This share purchase right was exercised by the vendor of the Swan Hills
properties during 1996.
K-50
<PAGE> 262
3. PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
JUNE 30, 1999 DECEMBER 31, 1998
----------------------------------------- -----------------------------------------
ACCUMULATED ACCUMULATED
DEPLETION AND DEPLETION AND
COST DEPRECIATION NET COST DEPRECIATION NET
----------- ------------- ----------- ----------- ------------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Oil and gas properties
and related equipment... C$4,078,138 C$1,507,820 C$2,570,318 C$3,928,479 C$1,379,425 C$2,549,054
Other.................... 37,347 23,358 13,989 34,266 21,681 12,585
----------- ----------- ----------- ----------- ----------- -----------
C$4,115,485 C$1,531,178 C$2,584,307 C$3,962,745 C$1,401,106 C$2,561,639
=========== =========== =========== =========== =========== ===========
<CAPTION>
DECEMBER 31, 1997
-----------------------------------------
ACCUMULATED
DEPLETION AND
COST DEPRECIATION NET
----------- ------------- -----------
(RESTATED -- NOTE 8)
<S> <C> <C> <C>
Oil and gas properties
and related equipment... C$3,078,983 C$1,145,243 C$1,933,740
Other.................... 28,589 18,408 10,181
----------- ----------- -----------
C$3,107,572 C$1,163,651 C$1,943,921
=========== =========== ===========
</TABLE>
Costs of C$416.5 million at June 30, 1999 (1998 -- C$419.5 million, 1997 --
C$285.8 million) for unproved properties were excluded from the calculation of
depletion expense. The average depletion rate per equivalent barrel of oil
production was C$5.88 for the period ended June 30, 1999 (1998 -- C$5.37, 1997
- --C$5.12, 1996 -- C$5.14).
The estimated future site restoration costs to be expensed over the life of
the remaining reserves were C$56.8 million at June 30, 1999 (1998 -- C$57.2
million, 1997 -- C$65.3 million). During the six months ended June 30, 1999,
C$2.7 million for site restoration was recorded as depletion and depreciation
expense. During 1998 C$6.4 million (1997 -- C$6.0 million) for site restoration
was recorded as additional depletion and depreciation expense. The site
restoration liability of C$18.5 million (1998 -- C$16.3 million, 1997 -- C$12.4
million) represents the cumulative site restoration costs which have been
charged to earnings, net of expenditures incurred at the balance sheet date.
4. LONG TERM DEBT
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31, DECEMBER 31,
MATURITY 1999 1998 1997
-------- ----------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Senior U.S. dollar notes
8.54% -- U.S. $50.0 (1998 -- U.S. $60.0, 1997
-- U.S. $75.0) million.................... 2001 C$ 73,600 C$ 91,830 C$107,183
7.12% -- U.S. $50.0 (1998 -- U.S. $50.0, 1997
-- U.S. $50.0) million.................... 2005 73,600 76,525 71,455
6.91% -- U.S. $50.0 (1998 -- U.S. $50.0, 1997
-- U.S. $50.0) million.................... 2008 73,600 76,525 71,455
7.00% -- U.S. $75.0 (1998 -- U.S. $75.0, 1997
-- U.S. $75.0) million.................... 2011 110,400 114,788 107,183
----------- ----------- ---------
331,200 359,668 357,276
----------- ----------- ---------
Medium term notes
Series A -- 6.60%............................ 2007 150,000 150,000 150,000
Series B -- 6.20%............................ 2001 50,000 50,000 --
Series C -- 6.40%............................ 2003 100,000 72,000 --
----------- ----------- ---------
300,000 272,000 150,000
----------- ----------- ---------
Bank loans..................................... 469,412 432,641 305,620
----------- ----------- ---------
C$1,100,612 C$1,064,309 C$812,896
=========== =========== =========
</TABLE>
K-51
<PAGE> 263
SENIOR U.S. DOLLAR NOTES
The senior U.S. dollar notes are unsecured and are subject to certain
financial covenants. These financial covenants include a maximum ratio of debt
net of working capital to pre-tax funds from operations of 3.0:1, and tangible
net worth must exceed a specified amount. The scheduled repayments are
considered to be non-current obligations as the company has unutilized credit
facilities available to refinance the obligations.
The senior U.S. dollar notes have aggregate repayments over the next five
years of: 1999 -- U.S. $23.5 million; 2000 -- U.S. $32.8 million; 2001 -- U.S.
$23.0 million; 2002 -- U.S. $8.0 million; 2003 -- U.S. $8.0 million. At June 30,
1999 the aggregate remaining principal repayments for 1999 were U.S. $13.5
million and there are principal repayments of U.S. $8.0 million which relate to
2004. The aggregate deferred foreign exchange loss arising upon translation of
the notes as at June 30, 1999 included in other assets was C$16.8 million (1998
- -- C$33.7 million, 1997 -- C$18.9 million) net of accumulated amortization.
MEDIUM TERM NOTES
The company has obtained regulatory approval for a total of C$300.0 million
of unsecured medium term notes to be issued prior to August 29, 1999. At June
30, 1999 C$300.0 million, (1998 -- C$272.0 million, 1997 -- C$150.0 million) of
notes had been issued. The notes are redeemable at the greater of par and the
price required to provide a yield to maturity equal to similar Government of
Canada bonds plus 0.15 per cent.
BANK LOANS
The bank loans are provided under a C$450.0 million unsecured convertible
credit facility, a C$140.0 million revolving credit facility and a C$75.0
million unsecured demand operating facility. The convertible credit facility
revolves until 1999, at which time the outstanding balance will convert into a
five-year term loan, unless the revolving period is extended by mutual agreement
of the company and lenders. These facilities bear interest at rates which are
set periodically at rates based on bankers acceptances. Up to C$200.0 million of
the convertible credit facility and the revolving credit facility can be used to
backstop outstanding short term promissory notes issued under the company's
commercial paper program. Financial covenants are the same as those described
for the senior U.S. dollar notes.
FINANCIAL CHARGES
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEARS ENDED DECEMBER 31,
------------------------- ------------------------------------------
1999 1998 1998 1997 1996
----------- ----------- ------------ ------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Interest on long term debt........... C$34,813 C$31,027 C$65,066 C$43,635 C$30,078
Amortization of deferred charges and
financing costs.................... 3,462 3,407 10,400 4,994 3,455
-------- -------- -------- -------- --------
C$38,275 C$34,434 C$75,466 C$48,629 C$33,533
======== ======== ======== ======== ========
</TABLE>
The company has payments over the next five years under operating leases
totaling C$5.6 million per annum which are recorded as production expenses.
K-52
<PAGE> 264
5. FINANCIAL INSTRUMENTS
NATURAL GAS PRICE MANAGEMENT
The company enters into price swap agreements which are settled based on
the differential between fixed prices and floating price indices for contracted
notional volumes. All of the outstanding price swaps at December 31, 1998
terminate in 1999. The fair values of the price swaps are estimated based on
market prices as at the balance sheet date and represent an estimate of the
amount that the company would receive or pay if these instruments were closed
out on this day. The notional volumes are used as the basis for calculating the
settlements under the swaps and do not represent physical volumes to be
exchanged. At June 30, 1999, C$(6.2) million (1998 -- C$7.1 million, 1997 --
C$10.9 million) of the fair value of C$(6.1) million (1998 -- C$7.5 million,
1997 -- C$13.9 million) relates to U.S. dollar based contracts.
<TABLE>
<CAPTION>
JUNE 30, 1999 DECEMBER 31, 1998
--------------------------------------- ----------------------------------
NOTIONAL NOTIONAL
CARRYING VOLUMES CARRYING VOLUMES
AMOUNT MMBTU FAIR VALUE AMOUNT MMBTU FAIR VALUE
----------- ----------- ----------- -------- ---------- ----------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Natural gas price swaps......... C$(381) 20,107,756 C$(6,128) C$818 20,736,199 C$7,521
<CAPTION>
DECEMBER 31, 1997
----------------------------------
NOTIONAL
CARRYING VOLUMES
AMOUNT MMBTU FAIR VALUE
-------- ---------- ----------
<S> <C> <C> <C>
Natural gas price swaps......... C$1,964 11,435,000 C$13,851
</TABLE>
Credit exposure associated with financial instruments arises from the
possibility that a counterparty to an instrument fails to meet its obligations
under the contract. At June 30, 1999, this credit exposure amounted to C$0.2
million (1998 -- C$7.5 million, 1997 -- C$13.9 million). The largest credit
exposure to a single counterparty at June 30, 1999 was C$0.1 million (1998 --
C$1.5 million, 1997 -- C$5.4 million).
In addition, the company has fixed price contracts for physical delivery of
29,957,403 million British thermal units outstanding at June 30, 1999 (1998 --
89,445,876 mmbtu, 1997 -- 26,975,000 mmbtu). All of the physical contracts
outstanding at December 31, 1998 and June 30, 1999 mature by 2007. The physical
delivery contracts have a fair value of approximately C$(4.4) million as at June
30, 1999 (1998 -- C$21.6 million, 1997 -- C$30.4 million) of which C$(3.3)
million relate to contracts maturing in 1999.
FAIR VALUES OF FINANCIAL INSTRUMENTS
The following table presents the carrying amounts and fair values of the
company's other financial instruments:
<TABLE>
<CAPTION>
JUNE 30, 1999 DECEMBER 31, 1998 DECEMBER 31, 1997
------------------------- ------------------------- ----------------------
CARRYING CARRYING CARRYING
AMOUNT FAIR VALUE AMOUNT FAIR VALUE AMOUNT FAIR VALUE
----------- ----------- ----------- ----------- --------- ----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Long term debt....... C$1,100,612 C$1,103,323 C$1,064,309 C$1,077,015 C$812,896 C$826,468
</TABLE>
For accounts receivable, accounts payable and accrued liabilities, the
carrying amounts approximate fair value due to the near term maturity of these
financial instruments. The fair value of long term debt is determined by quoted
market values where available or by discounting the future payments at discount
rates which represent borrowing rates available to the company for debt of
similar terms and maturity.
K-53
<PAGE> 265
6. SHARE CAPITAL
AUTHORIZED
Unlimited number of first preferred shares issuable in series
Unlimited number of second preferred shares issuable in series
Unlimited number of common shares with no par value
ISSUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES CONSIDERATION
--------- -------------
<S> <C> <C>
COMMON SHARES
Balance, December 31, 1996 -- restated (note 8)............. 126,835 C$ 891,841
Issued on exercise of stock options....................... 1,589 10,877
Other (net of future income taxes of C$2,127)............. 418 3,659
------- -----------
Balance, December 31, 1997.................................. 128,842 906,377
Issued for acquisitions (note 2).......................... 8,710 113,339
Issued on exercise of stock options....................... 2,074 16,093
Issued through public offering (net of future income taxes
of C$2,875)............................................ 12,000 166,914
Other (net of future income taxes of C$4,671)............. 886 7,603
------- -----------
Balance, December 31, 1998.................................. 152,512 1,210,326
Issued on exercise of stock options....................... 188 1,730
Other (net of future income taxes of C$3,928)............. 731 6,366
------- -----------
Balance, June 30, 1999 (unaudited).......................... 153,431 C$1,218,422
======= ===========
</TABLE>
During 1998, the company issued 12,000,000 common shares at C$14.25 per
share for cash proceeds, net of issue costs, of C$164.0 million. The company
issued 795,837 flow-through shares through private placements during 1998 for
cash proceeds of C$11.0 million.
During 1999, the company issued 666,667 flow-through shares through private
placements for cash proceeds of C$10.0 million.
STOCK OPTIONS
Stock options entitling the holder to purchase common shares of the company
have been granted to the directors, officers and certain employees of the
company. At December 31, 1998, options to purchase 11.0 million (1997 -- 10.2
million) common shares were outstanding, having an average exercise price of
C$11.44 (1997 -- C$10.20) per share. At June 30, 1999 options to purchase 10.2
million common shares were outstanding having an average exercise price of
C$11.08 per share.
<TABLE>
<CAPTION>
NUMBER OF OPTIONS OUTSTANDING
-------------------------------------------
JUNE 30, DECEMBER 31, DECEMBER 31,
YEAR OF EXPIRY 1999 1998 1997
- -------------- ----------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
1998................................................. -- -- 769
1999................................................. 34 60 240
2000................................................. 1,466 1,550 2,275
2001................................................. 1,151 1,203 1,640
2002................................................. 1,853 2,070 2,394
2003................................................. 3,188 2,700 2,863
2004................................................. 2,349 3,396 --
2005................................................. 196 -- --
------ ------ ------
10,237 10,979 10,181
====== ====== ======
</TABLE>
K-54
<PAGE> 266
RESERVED SHARES
Common shares were reserved for issue as follows:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31, DECEMBER 31,
1999 1998 1997
----------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
Exercise of stock options............................ 11,586 11,774 10,181
Employee stock savings plan.......................... 257 113 203
------ ------ ------
Total common shares reserved for future issuance..... 11,843 11,887 10,384
====== ====== ======
</TABLE>
The weighted average number of common shares for the year ended December
31, 1998, was 135.7 million (1997 -- 128.0 million). The fully diluted weighted
average number of common shares for the year ended December 31, 1998, was 144.0
million (1997 -- 136.0 million).
At June 30, 1999 the weighted average number of common shares was 153.3
million and the fully diluted weighted average number of common shares was 163.3
million.
7. INCOME TAXES
<TABLE>
<CAPTION>
1998 1997 1996
--------- ------------------- ---------
(RESTATED -- NOTE
8)
<S> <C> <C> <C>
Tax expense at 44.7 per cent of earnings before
income taxes..................................... C$ 38,640 C$ 55,552 C$ 35,921
Crown payments not deductible for tax purposes..... 28,911 39,862 31,483
Depletion not deductible for tax purposes.......... -- -- 11,045
Resource allowance................................. (38,784) (48,762) (36,949)
Other.............................................. 19 (625) --
--------- --------- ---------
Future income tax expense.......................... 28,786 46,027 41,500
Capital taxes...................................... 7,412 5,376 4,505
--------- --------- ---------
C$ 36,198 C$ 51,403 C$ 46,005
========= ========= =========
</TABLE>
The components of the net future income tax liability at December 31, 1998
and 1997 are as follows:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Future income tax assets
Unrealized foreign exchange............................... C$ 6,549 C$ 4,225
Future site restoration................................... 6,733 5,128
Share issue costs......................................... 5,293 2,096
Other..................................................... 2,705 --
--------- ---------
21,280 11,449
--------- ---------
Future income tax liabilities
Property, plant and equipment............................. 388,889 351,717
--------- ---------
Net future income tax liability............................. C$367,609 C$340,268
========= =========
</TABLE>
K-55
<PAGE> 267
8. CHANGE IN ACCOUNTING POLICY
During 1998 the company changed its method of accounting for income taxes
from the deferral method to the liability method described in note one. This
policy has been adopted retroactively resulting in the restatement of 1997
results. The impact of this restatement on the December 31, 1997 financial
statements is as follows:
<TABLE>
<CAPTION>
AS REPORTED ADJUSTMENT RESTATED
----------- ---------- -----------
<S> <C> <C> <C>
As at December 31, 1997
Property, plant and equipment....................... C$1,911,668 C$ 32,253 C$1,943,921
Future income taxes................................. 133,503 206,765 340,268
Common shares....................................... 904,982 1,395 906,377
Retained earnings (deficit)......................... 115,068 (175,907) (60,839)
For the year ended December 31, 1997
Depletion and depreciation.......................... 209,795 3,592 213,387
Income taxes........................................ 69,576 (18,173) 51,403
Net earnings........................................ 58,293 14,581 72,874
Net earnings per common share
Basic............................................. C$ 0.46 C$ 0.11 C$ 0.57
Fully diluted..................................... C$ 0.45 C$ 0.11 C$ 0.56
</TABLE>
9. UNCERTAINTY DUE TO THE YEAR 2000 ISSUE
The Year 2000 Issue arises because many computerized systems use two digits
rather than four to identify a year. Date-sensitive systems may recognize the
year 2000 as 1900 or some other date, resulting in errors when information using
year 2000 dates is processed. In addition, similar problems may arise in some
systems which use certain dates in 1999 to represent something other than a
date. The effects of the Year 2000 Issue may be experienced before, on, or after
January 1, 2000, and if not addressed, the impact on operations and financial
reporting may range from minor errors to significant systems failure which could
affect an entity's ability to conduct normal business operations. It is not
possible to be certain that all aspects of the Year 2000 Issue affecting the
entity, including those related to the efforts of customers, suppliers or other
third parties, will be fully resolved.
10. SUBSEQUENT EVENT
On August 16, 1999 Poco and Burlington Resources Inc. (Burlington) entered
into a combination agreement whereby each common share of Poco would ultimately
be exchanged for 0.25 of a common share of Burlington. The transaction is
subject to shareholder approval by Poco and Burlington shareholders and
regulatory approval.
11. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES' GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES
The company's consolidated financial statements have been prepared in
accordance with generally accepted accounting principles in Canada ("Canadian
GAAP"). These principles, as they pertain to the company's consolidated
financial statements, differ from United States' generally accepted accounting
principles ("U.S. GAAP") as follows:
(a) The Canadian GAAP ceiling test is comparable to the Securities and
Exchange Commission ("SEC") method using constant prices, costs and tax
legislation except that the SEC method requires the resulting amounts to be
discounted at 10 per cent. In addition, the SEC method does not require the
inclusion of any general and administrative or interest expense in the
calculation.
(b) In accordance with U.S. GAAP, the liability method of accounting for
income taxes is used instead of the deferral method. Under the liability method,
current and deferred income taxes are recognized, at currently enacted rates, to
reflect the expected future tax consequences arising from the difference between
transactions recorded in the financial statements and those in income tax
returns. In addition, purchase price adjustments
K-56
<PAGE> 268
arising from business combinations are grossed up for the related income tax
impact under U.S. GAAP. As disclosed in note eight, Poco followed the deferral
method of tax accounting during 1996.
(c) In accordance with Canadian GAAP foreign exchange gains and losses
relating to long term monetary liabilities are deferred and amortized over the
remaining term of the liability. In accordance with U.S. GAAP foreign exchange
gains and losses are recognized in earnings in the period in which the gains or
losses occur.
(d) In accordance with Canadian GAAP, income per share is calculated on a
"basic" and on a "fully diluted" basis. Fully diluted income per share
incorporates the potential dilutive effect of the stock options outstanding
under the stock option plan. In accordance with U.S. GAAP diluted earnings per
share is calculated using the treasury stock method.
(e) In 1993, C$92.0 million of the company's stated capital was reduced to
eliminate the accumulated deficit at December 31, 1992. This restatement is not
permitted under U.S. GAAP as the events that precipitated it did not constitute
a quasi-reorganization.
(f) In accordance with U.S. GAAP certain leases classified as operating
leases for Canadian GAAP are treated as capital leases under U.S. GAAP.
Adjustments to the Consolidated Statements of Earnings:
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
JUNE 30, FOR THE YEARS ENDED DECEMBER 31,
------------------------- ---------------------------------
1999 1998 1998 1997 1996
----------- ----------- ---------- --------- --------
(UNAUDITED) (UNAUDITED) (RESTATED -- NOTE 8)
<S> <C> <C> <C> <C> <C>
Net income as reported in accordance
with Canadian GAAP................... C$ 4,382 C$ 30,766 C$ 50,245 C$ 72,874 C$34,356
Increase (decrease) in earnings due to:
Depletion, depreciation and site
restoration (a), (b), (f)......... 20,757 (2,240) (4,480) 12 5,038
Ceiling test write-down (a).......... -- -- (526,944) -- --
Financial charges (c), (f)........... 15,156 (7,040) (15,418) (11,218) 1,520
Production expense (f)............... 2,791 -- 1,461 -- --
Provision for income taxes (b)....... (16,547) 1,797 220,517 2,122 1,841
--------- --------- ---------- --------- --------
Net income (loss) in accordance with
U.S. GAAP............................ C$ 26,539 C$ 23,283 C$(274,619) C$ 63,790 C$42,755
========= ========= ========== ========= ========
Net income (loss) per share in
accordance with U.S. GAAP (d)
Basic................................ C$ 0.17 C$ 0.18 C$ (2.02) C$ 0.50 C$ 0.37
Diluted.............................. C$ 0.17 C$ 0.18 C$ (2.02) C$ 0.49 C$ 0.37
</TABLE>
K-57
<PAGE> 269
The application of U.S. GAAP would have the following effects on the
balance sheets as reported:
<TABLE>
<CAPTION>
CANADIAN INCREASE U.S.
GAAP (DECREASE) GAAP
------------------- ---------- -----------
<S> <C> <C> <C>
June 30, 1999 (unaudited)
Property, plant and equipment (a), (b), (f)... C$2,584,307 C$(351,658) C$2,232,649
Other assets (c), (f)......................... 27,061 (18,240) 8,821
Current liabilities (f)....................... 81,217 6,424 87,641
Long term debt (f)............................ 1,100,612 74,970 1,175,582
Future income taxes (b)....................... 346,417 (162,410) 184,007
Common shares (e)............................. 1,218,422 92,016 1,310,438
Deficit (e)................................... (6,212) (380,900) (387,112)
December 31, 1998
Property, plant and equipment (a), (b), (f)... 2,561,639 (399,875) 2,161,764
Other assets (c), (f)......................... 46,080 (35,814) 10,266
Current liabilities (f)....................... 112,683 5,666 118,349
Long term debt (f)............................ 1,064,309 76,101 1,140,410
Future income taxes (b)....................... 367,609 (206,416) 161,193
Common shares (e)............................. 1,210,326 92,016 1,302,342
Deficit (e)................................... (10,594) (403,057) (413,651)
December 31, 1997 (RESTATED -- NOTE
8)
Property, plant and equipment (a), (b)........ 1,943,921 480 1,944,401
Other assets (c).............................. 31,870 (18,901) 12,969
Future income taxes (b)....................... 340,268 (32,244) 308,024
Common shares (e)............................. 906,377 92,016 998,393
Deficit (e)................................... (60,839) (78,193) (139,032)
</TABLE>
The application of U.S. GAAP would result in the following increase
(decrease) to the following items on the Consolidated Statements of Cash Flows:
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED FOR THE YEARS ENDED
JUNE 30, DECEMBER 31,
-------------------------- -------------------------
1999 1998 1998 1997 1996
----------- ----------- ------- ----- -----
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net cash provided by operating
activities............................... 1,856 -- 6,473 -- --
Net cash provided by financing
activities............................... (1,131) -- 76,101 -- --
Net cash used in investing activities...... (725) -- (82,574) -- --
</TABLE>
K-58
<PAGE> 270
PROXY SOLICITED BY THE BOARD OF DIRECTORS
BURLINGTON RESOURCES INC. SPECIAL MEETING OF STOCKHOLDERS
-- , 1999
The undersigned hereby appoints Bobby S. Shackouls and L. David Hanower,
and each or either of them, with power of substitution, proxies for the
undersigned and authorizes them to represent and vote, as designated, all of the
shares of stock of BR which the undersigned may be entitled to vote at the
Special Meeting of Stockholders to be held in the Ambassador Room, The Luxury
Collection Hotel, 1919 Briar Oaks Lane, Houston, Texas on -- , 1999
and at any adjournment or postponement of such meeting for the following purpose
and, with discretionary authority to vote on any other matters properly brought
before the meeting in accordance with and as described in the Notice of Special
Meeting of Stockholders and Proxy Statement. If no direction is given, this
proxy will be voted FOR proposal 1.
(IMPORTANT -- TO BE SIGNED AND DATED ON REVERSE SIDE) SEE REVERSE SIDE
The Board of Directors recommends a vote FOR proposal 1.
1. Issuance of up to -- shares of BR common stock, par value $.01 per
share in connection with the acquisition of Poco Petroleums Ltd.
<TABLE>
<S> <C> <C>
[ ] FOR [ ] AGAINST [ ] WITHHELD
Mark here for address change and note at left [ ]
Mark here for comments [ ]
Date
Please sign exactly as your name ---------------------------------- -------------------------------
appears. If acting as attorney, Signature
executor, trustee or in other
representative capacity, sign name and
title. Date
---------------------------------- -------------------------------
Signature
</TABLE>
VOTE BY TELEPHONE
It's fast, convenient, and immediate!
Call Toll-Free on a Touch-Tone Phone
1-877-PRX-VOTE or 1-877-779-8683 in the U.S.
1-201-536-8073 from outside the U.S.
Follow these four easy steps:
1. Read the accompanying Proxy Statement and Proxy Card.
2. Call the toll-free number -- 1-877-PRX-VOTE (1-877-779-8683) or
1-201-536-8073.
3. Enter your 14-digit Control Number located on your Proxy Card above
your name.
4. Follow the recorded instructions.
YOUR VOTE IS IMPORTANT! -- CALL 1-877-PRX-VOTE OR 1-201-536-8073 ANYTIME.
VOTE BY INTERNET
It's fast, convenient, and your vote is immediately confirmed and posted.
Follow these four easy steps:
1. Read the accompanying Proxy Statement and Proxy Card.
2. Go to the website -- http://www. -- .com/br
3. Enter your 14-digit Control Number located on your Proxy Card above
your name.
4. Follow the instructions provided.
YOUR VOTE IS IMPORTANT!
GO TO HTTP://WWW. -- .COM/BR ANYTIME.
DO NOT RETURN YOUR PROXY CARD IF YOU ARE VOTING
BY TELEPHONE OR INTERNET
