<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
-------------------------------
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended: December 31, 1997 Commission file number: 019020
OPTIMA PETROLEUM CORPORATION
(Exact name of registrant as specified in its charter)
CANADA 98-0115468
(State of Incorporation) (I.R.S. Employee identification No.)
#600, 595 HOWE STREET, VANCOUVER, BRITISH COLUMBIA V6C 2T5
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (604) 684-6886
Securities registered pursuant to Section 12(b) of the Act:
(Title of Each Class) (Name of Each Exchange on which Registered)
COMMON STOCK, NO PAR VALUE NASDAQ (NMS) STOCK MARKET
TORONTO STOCK EXCHANGE
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes x No .
--------- ---------
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definite proxy or information
statements incorporated by reference in Part III of this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates
of the Registrant, based upon the closing price of the Common Stock on March 17
, 1998 as reported on NASDAQ National Market System was approximately
U.S.$8,409,524 Shares of Common Stock held by each senior officer and director
and by each person who owns 5% or more of outstanding Common Stock have been
excluded in that such person may be deemed to be affiliated. This determination
of affiliate status is not necessarily a conclusive determination for other
purposes.
As at March 17 , 1998, Registrant had outstanding 11,002,346 shares of Common
Stock.
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<PAGE> 2
OPTIMA PETROLEUM CORPORATION
INDEX TO FORM 10-K
PART I
ITEM 1. BUSINESS.............................................................3
ITEM 2. PROPERTIES..........................................................12
ITEM 3. LEGAL PROCEEDINGS...................................................13
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS....................................................13
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS.....................................13
ITEM 6. SELECTED FINANCIAL DATA.............................................15
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS..........................................................16
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.........................21
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE................................................21
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
OF THE REGISTRANT...................................................21
ITEM 11. EXECUTIVE COMPENSATION..............................................24
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT...............................................25
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS......................27
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
AND REPORTS ON FORM 8-K.............................................27
ITEM 15. SIGNATURES..........................................................29
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<PAGE> 3
PART I
ITEM 1. BUSINESS
GENERAL
Optima Petroleum Corporation (hereinafter referred to as "Optima" or
the "Company"), along with its wholly owned United States subsidiary, Optima
Energy (U.S.) Corporation, ("Optima US"), is engaged in the business of oil and
gas exploration and development in Canada and the United States.
The Company was incorporated under the name "Lathwell Resources Ltd.",
by registration of Articles and Memorandum pursuant to the laws of the province
of British Columbia on April 11, 1983. On February 5, 1988, consolidating its
share capital on a 1 for 5 basis, the Company changed its name to "Optima Energy
Corporation". On July 9, 1992, the Company changed its name to "Optima Petroleum
Corporation" concurrently with a 1 for 2.5 consolidation of its share capital.
It was continued under the Canada Business Corporation Act ("CBCA") on May 23,
1995.
Effective December 1, 1992, the Company acquired through Optima US,
from a director of the Company, a 100 percent interest in the common shares of
Arenosa Resource Corporation ("Arenosa"), a company engaged in oil and gas
exploration and production. Arenosa was acquired at fair value as determined by
a December 1, 1992 reserve evaluation prepared by independent engineers and was
approved by the shareholders. Arenosa was subsequently amalgamated into Optima
US.
On September 8, 1995 the Company acquired 100% of the shares of Roxbury
Capital Corp. pursuant to a plan of arrangement under the CBCA. The purchase of
Roxbury Capital Corp. was accounted for as an acquisition at a consideration of
$6,186,272 in exchange for 1,374,727 common shares ($4.50 per share).
Optima participates primarily as a working interest holder, in numerous
oil and gas prospects which are operated either by itself or by third parties.
By funding its proportionate share of drilling costs of a successfully completed
well, Optima earns an interest in the well and in the related acreage, based on
the terms of the applicable participation agreement.
The Company's oil and gas interests as at December 31, 1997 are
described under Item 2 on page(s) 12-13. Canadian property interests are held by
the Company and U.S. property interest by Optima U.S. Unless otherwise indicated
all acquisitions or dispositions referred to in this section and elsewhere in
this document have been negotiated on an arm's length basis.
The Company's financial statements are stated in Canadian dollars
(CDN$) and are prepared in accordance with Canadian generally accepted
accounting principals ("GAAP"); reconciliations to U.S. GAAP are contained in
footnotes to the financial statements. The value of the U.S. Dollar in relation
to the Canadian Dollar was $1.00 U.S. equal to $1.4165 CDN as at March 17,
1998.
BUSINESS STRATEGY
During fiscal 1997, the Company closed the sale of a substantial
portion of its Canadian petroleum and natural gas interests for cash proceeds of
$16,750,000 which was utilized to eliminate bank debt and focus solely on U.S.
exploration.
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<PAGE> 4
EXPLORATION STRATEGY
The Company's exploration strategy is based on the identification and
development of exploratory prospects to achieve reserve growth and to establish
long term increased cash flow. Prospect selection criteria require that each
prospect has the minimum potential for the discovery of 5,000,000 barrels of oil
or 50 billion cubic feet of natural gas to the 100% working interest. The
Company looks to acquire a significant ownership interest of between 25% and
50%.
Prospects are identified and developed in conjunction with industry
partners. The primary area of focus is the onshore Gulf Coast of Louisiana, USA.
The Company believes that substantial oil and natural gas reserves can be
established through the utilization of 3-D seismic and CAEX technology with
specific applications in the Gulf Coast of Louisiana. The application of the
sophisticated tools by experienced industry specialists can identify prospects
with multiple productive zones, maximize the probability of success and mitigate
the risk of dry holes.
The Company's philosophy is to participate in the generation of the
exploration prospects with its industry partners. The actual operation of the
drilling and development programs in respect of the Gulf Coast is vested with
local partners. The Company operates its major Canadian properties.
OIL AND NATURAL GAS RESERVES
Substantially all of the Company's oil and natural gas reserves are
located in the state of Louisiana, USA. The Meridian Resources Joint Venture was
evaluated by Ryder Scott Company whereas the remaining U.S. properties were
evaluated by Laroche Petroleum Consultants Ltd. Both independent evaluations
("Evaluation Reports") were effective December 31, 1997. Commencing in 1995, the
Company retained Ryder Scott Company to evaluate the TMR Joint Venture and had
retained the Scotia Group, Inc. to evaluate solely the Elm Grove property. AMH
Group Ltd. in 1995 and 1996 provided independent reserve appraisals for the
Canadian properties. The crude oil and natural gas reserve estimates on which
these evaluations are based were determined in accordance with generally
accepted evaluation practices.
The following table summarizes the Company's reserves. ALL EVALUATIONS
OF FUTURE NET PRODUCTION REVENUE SET FORTH IN THE TABLES ARE STATED PRIOR TO
PROVISIONS FOR INCOME TAXES AND INDIRECT COSTS. IT SHOULD NOT BE ASSUMED THAT
THE DISCOUNTED FUTURE NET REVENUES SHOWN BELOW ARE REPRESENTATIVE OF THE FAIR
MARKET VALUE OF OPTIMA'S RESERVES. Other assumptions and qualifications relating
to costs, prices for future production and other matters are included in the
Evaluation Reports Table No. 1 sets forth estimates of the Company's proved
developed and undeveloped oil/gas reserves as of December 31, 1997. The
Company's estimated total proved developed and undeveloped reserves of oil and
natural gas as of December 31, 1997, 1996 and 1995 based upon the Evaluation
Reports were as follows:
RESERVE QUANTITY INFORMATION
WORKING INTEREST SHARE
YEAR ENDED DECEMBER 31
<TABLE>
<CAPTION>
TOTAL UNITED STATES CANADA
------------------------ ------------------------- -------------------------
GAS LIQUIDS GAS LIQUIDS GAS LIQUIDS
MMCF MBBLS MMCF MBBLS MMCF MBBLS
------ ------- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Proved
Reserves
1997 3,288 876 3,288 876 - -
1996 20,397 1,450 5,143 1,139 15,254 311
1995 32,954 748 11,328 331 21,626 417
</TABLE>
In addition to the discussion below reference is made to the
Consolidated Financial Statements and the Supplemental Oil and Gas Information
(unaudited) included elsewhere within. Such discussion also contains information
with respect to the Company's reserves at December 31, 1997, 1996 and 1995.
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<PAGE> 5
For the fiscal years ended December 31, 1997, 1996 and 1995 the Company had the
following working interest production:
PRODUCTION
WORKING INTEREST SHARE
YEAR ENDED DECEMBER 31
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Oil Wells (bbls)
Canada -- 29,939 13,880
USA 141,210 123,760 57,242
Gas Wells (mcf)
Canada -- 1,608,454 763,999
USA 1,003,147 1,700,984 1,600,490
</TABLE>
The following table sets forth the net proved reserves of the Company
as at December 31, 1997, 1996 and 1995 and the discounted cash flow value
thereof. The reserve information was derived from the evaluation reports
provided by the Company's petroleum engineers:
FUTURE CASH FLOWS
UNESCALATED PRICES AND COSTS, CANADIAN DOLLARS,
WORKING INTEREST SHARES AS AT DECEMBER 31
($000)
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Future net cash flow before taxes $17,961 $63,086 $50,801
Future net cash flow discounted at 10% before taxes 12,541 43,015 29,473
Future net cash flow discounted at 10% after taxes (1) 12,541 41,536 29,473
</TABLE>
Note: (1) Estimated income taxes have been reduced to give effect to tax
benefits related to the use of the Company's available net operating
loss carry forwards.
In general, estimates of economically recoverable oil and natural gas
reserves and of the future net revenues therefrom are based upon a number of
variable factors and assumptions, such as historical production from the subject
properties, the assumed effects of regulation by governmental agencies and
assumptions concerning future oil and natural gas prices and future operating
costs, all of which may vary considerably from actual results. All such
estimates are to some degree, speculative, and classifications of such reserves
are only attempts to define the degree of speculation involved. For these
reasons, estimates of the economically recoverable oil and natural gas reserves
attributed to any particular group of properties, classifications of such
reserves based on risk of recovery and estimates of the future net revenues
expected therefrom, prepared by different engineers or by the same engineers at
different times, may vary substantially. Therefore, the actual production,
revenues, royalties, severance and excise taxes, development and operating
expenditures with respect to the Company's reserves will likely vary from such
estimates, and such variances could be material.
In accordance with applicable requirements of the Securities and
Exchange Commission, the estimated discounted future net revenues from estimated
proved reserves are based on prices and costs as of the date of the estimate
unless such prices or costs are contractually determined at such date. Actual
future prices and costs may be materially higher or lower. Actual future net
revenues also will be affected by factors such as actual production, supply and
demand for oil and natural gas, curtailments or increases in consumption by
natural gas purchasers, changes in governmental regulations or taxation and the
impact of inflation on costs.
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<PAGE> 6
OIL AND NATURAL GAS DRILLING ACTIVITIES
The following table sets forth the gross and net numbers of productive,
or dry exploratory and development wells that the Company drilled in each of
1997, 1996 and 1995.
<TABLE>
<CAPTION>
GROSS NET
-------------------------------------- ---------------------------------------
PRODUCTIVE DRY TOTAL PRODUCTIVE DRY TOTAL
---------- --- ----- ---------- --- -----
<S> <C> <C> <C> <C> <C> <C>
CANADA
Exploratory Wells
1997 (1) n/a n/a n/a n/a n/a n/a
1996 - 1 1 - .25 .25
1995 4 - 4 1.95 - 1.95
Development Wells
1997 (1) n/a n/a n/a n/a n/a n/a
1996 1 - 1 .15 - .15
1995 1 - 1 .33 - .33
USA
Exploratory Wells
1997 4 2 6 .72 0.33 1.05
1996 5 5 10 .60 1.03 1.63
1995 1 4 5 .19 .33 .52
Development Wells
1997 2 - 2 .33 - .33
1996 1 - 1 .08 - .08
1995 1 - 1 .04 - .04
TOTAL
Exploratory Wells
1997 4 2 6 .72 .33 1.05
1996 5 6 11 .60 1.28 1.88
1995 5 4 9 2.14 .33 2.00
Development Wells
1997 2 - 2 .33 - .33
1996 2 - 2 .23 - .23
1995 2 - 2 .37 - .37
</TABLE>
(1) Sold Canadian operations effective January 1, 1997
PRODUCTION
The following table summarizes the net volumes of oil, liquids and
natural gas produced and sold, before royalty, as well as the average price
received in respect to such sales. This table segments production between Canada
and USA and represents all properties in which the Company holds interests:
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<PAGE> 7
<TABLE>
<CAPTION>
NATURAL GAS (CDN$)
- ----------------------------------------------------------------------------------------------------------------
CANADA USA TOTAL
--------------------------------- --------------------------------- ----------------
Net Production Average Sales Net Production Average Sales Company
(mcf) (price/mcf) (mcf) (price/mcf) Production (mcf)
-------------- ------------- -------------- ------------- ----------------
<S> <C> <C> <C> <C> <C>
1997 - n/a 1,003,147 $3.72 1,003,147
1996 1,608,454 $1.38 1,700,984 $3.58 3,309,438
1995 763,999 $1.59 1,600,491 $2.39 2,364,489
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
OIL AND LIQUIDS (CDN$)
- ----------------------------------------------------------------------------------------------------------------
CANADA USA TOTAL
--------------------------------- --------------------------------- ----------------
Net Production Average Sales Net Production Average Sales Company
(bbl) (price/bbl) (bbl) (price/bbl) Production (bbl)
-------------- ------------- -------------- ------------- ----------------
<S> <C> <C> <C> <C> <C>
1997 - n/a 141,210 $27.75 141,210
1996 29,939 $28.52 123,760 $29.86 153,699
1995 13,880 $22.82 57,243 $24.50 71,122
</TABLE>
The following table summarizes the average production costs per unit of
production, with natural gas converted to its energy equivalent at a ratio of
six thousand cubic feet of natural gas to one barrel of oil:
<TABLE>
<CAPTION>
CANADA USA
------ -----
<S> <C> <C>
1997 n/a $3.29
1996 $2.51 $2.22
1995 $3.49 $1.34
</TABLE>
ACREAGE
The following table sets forth the development and undeveloped oil and
natural gas acreage in which the Company held an interest as of December 31,
1997. Undeveloped acreage is considered to be those lease acres on which wells
have not been drilled or completed to a point that would permit the production
of commercial quantities of oil and natural gas, regardless of whether or not
such acreage contains proved reserves.
<TABLE>
<CAPTION>
DEVELOPED UNDEVELOPED
------------------- -------------------------
GROSS NET GROSS NET
----- --- ----------- -----
<S> <C> <C> <C> <C>
Louisiana 5,929 829 (1) 52,592 7,292
New Mexico - - 2,664 661
----- --- ------ -----
Total 5,929 829 55,256 7,953
===== === ====== =====
</TABLE>
(1) includes 18,742 gross acres held under option
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<PAGE> 8
TITLE TO PROPERTIES
As is customary in the oil and natural gas industry, the Company makes
only a cursory review of title to undeveloped petroleum and natural gas leases
at the time they are acquired by the Company. However, before drilling
commences, the Company causes a thorough title search to be conducted, and any
material defects in title are remedied prior to the time actual drilling of a
well on the lease begins. To the extent title opinions or other investigations
reflect title defects, the Company, rather than the seller or lessor of the
undeveloped property, is typically obligated to cure any such title defects at
its expense. If the Company were unable to remedy or cure any title defect of a
nature such that it would not be prudent to commence drilling operations on the
property, the Company could suffer a loss of its entire investment in drilling
operations on the property. The Company believes that it has good title to its
oil and natural gas properties, some of which are subject to immaterial
encumbrances, easements and restrictions.
The oil and natural gas properties owned by the Company are also
typically subject to royalty and other similar non-cost bearing interests
customary in the industry, including the overriding royalty and participation
rights granted with the Company's acquisition of prospects and to the Company's
key employees and outside geologists. The Company does not believe that any of
these encumbrances or burdens will materially affect the Company's ownership or
use of its properties.
In respect of its Canadian operations, the majority of its leases are
in respect of petroleum and natural gas rights which are owned by the provincial
government, referred to as Crown leases and drilling licenses, specifically the
Government of Alberta. Accordingly, title opinions are normally not acquired in
Canada in respect of mineral title prior to drilling a well on Crown leases
granted by the Government of Alberta.
MARKETING OF PRODUCTION
The Company's production is marketed to third parties in conjunction
with industry partners. Typically oil is sold at the wellhead at field posted
prices and natural gas is sold under contract at a negotiated price based upon
factors normally considered in the industry, such as price regulations,
distances from the well to the pipeline, well pressure, estimated reserves,
quality of natural gas and prevailing supply / demand conditions.
MARKET CONDITIONS
Production sold during 1997 was derived solely from oil and gas
prospects in Louisiana, USA in which the Company holds interests ranging from 4
to 35 percent. The operators of these projects are responsible for the marketing
and distribution of the natural gas and oil. Natural gas and oil is sold on a
contractual basis in the spot market whereas buyers are subject to change
periodically. Approximately 99 percent of revenue during fiscal 1997 was derived
from petroleum and natural gas sales, net of royalties and production taxes.
The Company's revenue, profitability and future rate of growth are
substantially dependent upon prevailing prices for natural gas, and to a lesser
extent, oil. Oil and natural gas prices have been extremely volatile in recent
years and affected by many factors outside the control of the Company. The
monthly average Gulf Coast spot price for natural gas at Henry Hub for 1997 has
ranged between U.S.$2.85 per mcf and U.S.$4.49 per mcf.
Because the majority of the Company's production and targeted prospects
are natural gas, the Company is affected more by changes in natural gas prices
than crude oil prices. However, the Company's recent discoveries in Louisiana
produce more revenues from oil production than from natural gas. Accordingly,
any substantial or extended decline in the price of oil and natural gas could
have a material adverse effect on the Company's financial condition and results
of operations, including reduced cash flow and borrowing capacity. In addition,
sales of oil and natural gas have historically been seasonal in nature, which
may lead to substantial differences in cash flow at various times throughout the
year. The marketability of the Company's production depends in part upon the
availability, proximity and capacity of natural gas gathering systems, pipelines
and processing facilities. Federal and state regulation of oil and natural gas
adversely affect the Company's ability to produce and market its oil and natural
gas. If market factors were to change dramatically, the financial impact on the
Company could be substantial. The availability of markets and the volatility of
product prices are beyond control of the Company and thus represent significant
risks.
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<PAGE> 9
COMPETITION
The Company operates a growing business in a competitive market. There
are a number of risks inherent to the Company's business. There is competition
from other oil and gas exploration and development companies with operations
similar to those of the Company. Nevertheless, the market for the Company's
existing and / or possible future production of petroleum and natural gas tends
to be commodity oriented, rather than company oriented. Accordingly, the Company
expects to compete by keeping its production costs low through judicious
selection of which property to develop, the practice of joint venturing its
interests, and keeping overhead charges under control.
INDUSTRY RISKS
The business of exploration for and production of oil and gas involves
a substantial risk of investment loss. Drilling oil and gas wells involves the
risk that the wells will be unproductive or that, although productive, the wells
do not produce oil or gas in economic quantities. Other hazards, such as unusual
or unexpected geological formations, pressures, fires, blowouts, loss of
circulation of drilling fluids or other conditions may substantially delay or
prevent completion of any well. Adverse weather conditions can also hinder
drilling operations. A productive well may become uneconomic if water or other
deleterious substances are encountered, which impair or prevent the production
of oil or gas from the well. In addition, production from any well may be
unmarketable if it is impregnated with water or other deleterious substances.
The marketability of crude oil and natural gas is affected by numerous factors
beyond the control of the Company. These factors include market fluctuations,
the world price of crude oil, the proximity and capacity of crude oil and
natural gas pipelines and processing equipment and government regulations,
including regulations relating to prices, taxes, royalties, land tenures,
allowable production, the import and export of crude oil and natural gas and
environmental protection. The effect of these factors cannot be predicted.
As with any oil or gas property, there can be no assurance that oil or
gas will continue to be produced from the Company's properties. Although the
operators of the Company's properties maintain insurance in amounts customary in
the industry for liability and property damage on behalf of the working interest
participants, the Company may suffer losses from uninsurable hazards or from
hazards which the Company may choose not to insure against because of high
premium costs or other reasons.
REGULATIONS
In the United States, natural gas and oil production operations are
subject to various types of regulation by state and federal agencies.
Legislation affecting the natural gas and oil industry is under constant review
for amendment or expansion. Also, numerous departments and agencies, both
federal and state, are authorized by statute to issue rules and regulations
binding on the natural gas and oil industry and its individual members, some of
which carry substantial penalties for failure to comply.
Sale of natural gas in the United States is subject to regulation of
production, transportation and pricing by governmental regulatory agencies.
Generally, the regulatory agency in the state where a producing natural gas well
is located supervises production activities and, in addition, the transportation
of natural gas sold interstate. Prior to January, 1993, certain natural gas was
subject to regulation by the Federal Energy Regulatory Commission ("FERC") under
the Natural Gas Policy Act ("NGPA"). The NGPA prescribed maximum lawful prices
for natural gas sales effective December 1, 1978. Effective January 1, 1993,
natural gas prices were completely deregulated; consequently sales of Optima's
natural gas after that date may be made at market prices.
Although the transportation and sale of gas in interstate commerce
remains heavily regulated, the FERC has recently sought to promote greater
competition in natural gas markets by encouraging open access transportation by
interstate pipelines, with the goal of expanding opportunities for producers to
contract directly with local distribution companies and end-users.
Sales in the Unites States of crude oil, condensate and gas liquids are
not regulated and are made at market prices. States in which Optima U.S.
conducts business regulate the production and sale of natural gas and oil,
including requirements for obtaining drilling permits, the method of developing
new fields, the spacing and operations of wells and the prevention of waste of
natural gas and resources. In addition, most states regulate the rate of
production and may establish maximum daily production allowable for wells on a
market demand of conservation basis.
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<PAGE> 10
To the best of it's knowledge, the Company believes that the operators
of drilling programs in which the Company is a joint venture partner, have
complied with all regulations in their respective locations involving
non-Canadian projects.
ENVIRONMENTAL
The oil and gas industry is subject to environmental regulation
pursuant to various federal, state and local laws in the U.S. These laws
regulate storage and transportation of liquid hydrocarbons, use of facilities
for treating, processing, recovering or otherwise handling hydrocarbons and
wastes therefrom and abandonment and reclamation of well and facility sites. A
breach of these laws may result in the imposition of fines and penalties.
The Company must rely on its third party operators to conduct
operations on these properties in accordance with applicable environmental and
conservation laws. The Company believes that it is currently in substantial
compliance with U.S. environmental laws and regulations. The Company has
experienced no material financial effects to date from compliance with Canadian
and U.S. environmental laws or regulations. The Company does not currently plan
any material capital expenditures for Canadian or U.S. environmental control
efforts.
The Company does not act as operator in the U.S. in respect of any of
the properties in which it holds interest nor does it intend to do so in the
future. On January 9, 1995, the Environmental Protection Agency ("EPA") issued
regulations prohibiting the discharge of produced water and produced sand
derived from oil and gas operations in certain coastal areas (primarily state
waters) of Louisiana and Texas, effective February 8, 1995. In connection with
these new regulations, however, the EPA also issued an administrative order
requiring affected permittees who must meet the no discharge requirement for
produced water to do so by January 1, 1997, unless an earlier compliance date is
required by Louisiana or Texas. The incremental cost to implement any required
re-injection program is not significant.
The Comprehensive Environmental Response, Compensation and Liability
Act ("CERCLA"), also known as the "Superfund" law, imposes liability, without
regard to fault or the legality of the original conduct, on certain classes of
persons that are considered responsible for the release of a "hazardous
substance" into the environment. These persons include the owner or operator of
the disposal site or sites where the release occurred and companies that
disposed or arranged for the disposal of hazardous substances found at the site.
Persons who are or were responsible for releases of hazardous substances under
CERCLA may be subject to joint and several liabilities for the costs of cleaning
up the hazardous substances that have been released into the environment. The
Company has not received any notification that it may be potentially responsible
for cleanup costs under CERCLA.
Stricter standards in environmental legislation may be imposed on the
oil and gas industry in the future. For instance, certain oil and gas
exploration and production wastes are currently excluded from regulations as
"hazardous waste" under the federal Resource Conservation and Recovery Act
("RCRA"). From time to time, legislation has been proposed in Congress that
would reclassify those exploration and production wastes as RCRA "hazardous
wastes" and make the reclassified wastes subject to more stringent handling,
disposal and clean-up requirements. If such legislation were to be enacted, it
could increase the operating costs of the Company as well as the oil and gas
industry in general. Furthermore, although petroleum, including crude oil and
natural gas, is exempt from CERCLA, future amendments to CERCLA may remove this
exemption. State initiatives to further regulate the disposal of oil and natural
gas waste are under consideration in certain states, and these various
initiatives could have a similar impact on the Company.
GEOGRAPHIC SEGMENTS AND FOREIGN SALES
The Company reported net revenue from operations for the fiscal year
ended December 31, 1997 of CDN $5,068,219. The net revenue is calculated as
gross sales of $7,649,415 less royalties and production taxes of $2,501,196
interest and other income for the 1997 fiscal year was CDN $250,966 bringing the
total revenue for the 1997 fiscal year to $5,319,135.
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<PAGE> 11
The following table sets forth results of operations for producing
activities by geographic location, as of the fiscal year ended December 31,
1997.
FINANCIAL INFORMATION RELATING TO FOREIGN AND DOMESTIC OPERATIONS
AND EXPORT SALES
(CDN$)
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Petroleum and natural gas sales, net of royalties and
petroleum taxes:
Canada $ -- $ 2,620,886 $ 1,311,115
USA 5,068,219 7,354,719 3,566,184
Operating Profit or (loss):
Canada 484,513 110,215 159,598
USA (3,730,223) 2,554,535 584,424
Petroleum and natural gas interests, net of accumulated
depletion and depreciation:
Canada 1,211,921 16,848,304 16,553,994
USA 16,484,047 17,916,046 16,945,686
</TABLE>
EMPLOYEES AND INDEPENDENT CONSULTANTS
As at December 31, 1997, the Company directly employed no part-time or
full-time individuals. However, nine individuals devote either all or a
significant portion of their time to the affairs of the Company, through
management agreements.
Said agreements consist of those which provide for the services of the
Company chairman; president and chief executive officer; secretary and chief
financial officer; financial controller; production engineer; one individual who
provides corporate communications; one individual who provides accounting
services; and two individuals who provide clerical services.
Refer to Item 10. Directors and Executive Officers of the Registrant,
Item 11. Executive Compensation, and Item 13. Certain Relationships and Related
Transactions for additional disclosure.
As of December 31, 1997, Optima US directly or indirectly employed no
full or part-time individuals. Management is administered by the same
individuals who manage the affairs of the Company.
ITEM 2. PROPERTIES
DESCRIPTION
The Company's corporate finance office is located in leased office
space at #600 - 595 Howe Street, Vancouver, British Columbia, Canada, V6C 2T5.
The registered office of the Company is Suite 2170, Bow Valley Square Four, 250
- - 6th Avenue, S.W., Calgary, Alberta, T2P 3R7. Properties in which the Company
holds interests are located in the states of Louisiana and New Mexico, in the
USA.
No material weather or environmental problems are anticipated. Oil and
gas exploration, development and exploitation should not be inconsistent with
the various areas' current mining, recreational and residential uses, which are
minimal. Normal practices to reduce noise, changes to air quality and water
quality are expected to be sufficient. The project operators have obtained all
necessary permits for exploration work performed to date in each of their
respective locations, and anticipate no material problems obtaining the
necessary permits to proceed with development.
The following discussion outlines the acquisition, the location, and
summary of operations, for each of the properties in which the Company holds
interests.
-11-
<PAGE> 12
ALBERTA PROPERTIES
On May 30, 1997, the Company closed the sale of a substantial
portion of its Canadian petroleum and natural gas interests for cash proceeds of
$16,750,000. The sole remaining Canadian asset is a shut-in well located at
Wildhay 05-10-58-23 W5M. This well is the subject of litigation between Optima
and the drilling contractor. Optima's legal counsel has submitted a certificate
of readiness to the Court of Queen's Bench, Judicial District of Calgary. It is
anticipated that the trial will be scheduled for either the fourth quarter of
1998 or the first quarter of 1999.
LOUISIANA PROPERTIES
TURTLE BAYOU / KENT BAYOU PROSPECT
As at December 31, 1997 there were 2 producing wells and another 4
wells being recompleted in new producing horizons. Gross daily field production
for the month of February, 1998 average 3,440 MCF of natural gas and 124 barrels
of condensate per day. The Company's working interest varies between 13.475% and
24.25% with a weighted average of barrels on proven reserves of 13.9%.
A 3-D regional seismic survey is currently being shot which
incorporates the Turtle Bayou field. The operator, American Explorer, Inc. has
negotiated access to the data set which should be available later in 1998. Any
further exploration will be contingent on the interpretation of this data set
identifying new deep drilling targets.
VALENTINE
The Company owns a 35% working interest in 24 wells at an average 82.5%
net revenue interest. Currently four wells are on production at an average daily
rate of 698 MCF of natural gas and 149 barrels of oil. In mid 1997 an agreement
was entered into with a major oil and gas company who has agreed to expend
approximately US $ 10.0 million to earn a 50% interest in the Valentine field.
The funds are being expended on the permitting, shooting and processing of a 3-D
seismic survey to evaluate the deeper horizons. The gross acreage position at
Valentine as at December 31, 1997 was 29,317 gross acres including 18,742 gross
acres held under option.
TMR JOINT VENTURE
Pursuant to the master participation agreement with Meridian Resources
Corporation ("TMR") dated October 1, 1993, the Company has evaluated ten
prospect areas of which five have been drilled, four rejected pursuant to the
geological and geophysical review, and one prospect at Stella is to be drilled
during 1998. Seven features have been evaluated by drilling resulting in five
gas wells, four oil wells and five dry holes. Optima US holds between 4% and 8%
working interests in the wells operated by TMR pursuant to the joint venture.
OTHER PROPERTIES
Optima US acquired a 25% working interest in the Chrysler prospect in
Lea County, New Mexico. The target is the Devonian formation and is supported by
interpreted 3-D seismic. The first well, Savage #34-1 was spudded in December,
1996, drilled to 13,000 feet and abandoned on February 17, 1997. A second well
is scheduled to be drilled in 1998. During 1996 two more wells were drilled to
the Smackover "C" sands at East Haynesville. Both wells the Garrett #1 and
Delaney #1 are producing in the Smackover "C". Further development will occur in
this field once the Commissioner of Conservation, State of Louisiana assigns 320
acre production units in both the Smackover Lime and "C" formations. A hearing
is schedule in mid-April, 1998. The Company holds a 28% working interest at East
Haynesville.
ITEM 3. LEGAL PROCEEDINGS
There are no legal proceedings to which the Company or its subsidiary
is a party or by which any of its property is subject, other than ordinary and
routine litigation to the business of producing and exploring for oil and
natural gas.
-12-
<PAGE> 13
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Annual Meeting of Shareholders of the Company held on May 29,
1997, the Company's shareholders ratified the appointment of KPMG as the
Company's independent auditors for 1997. The number of shares voted for and
withheld with respect to the election of the directors and the number of shares
voted for and against and the abstention for the ratification of the appointment
of the Company's auditors were as follows:
<TABLE>
<CAPTION>
NOMINEE FOR WITHHOLD / AGAINST ABSTAIN
- ------- --------- ------------------ -------
<S> <C> <C> <C>
Robert L. Hodgkinson 7,127,717 11,371 93,450
William C. Leuschner 7,117,703 21,385 93,450
Ronald P. Bourgeois 7,108,339 30,749 93,450
Emile D. Stehelin 6,925,326 213,762 93,450
Martin G. Abbott 6,925,324 215,714 93,450
Appointment of Auditors 7,220,810 11,728 N/A
</TABLE>
Additionally, the following proposals were approved at the Company's annual
meeting:
<TABLE>
<CAPTION>
NOMINEE AFFIRMATIVE VOTES WITHHOLD / AGAINST ABSTAIN
- ------- ----------------- ------------------ -------
<S> <C> <C> <C>
Approval of an 6,933,825 298,713 N/A
amendment to the
Articles of Incorporation
the permitting directors to
appoint additional
directors.
</TABLE>
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
PRICE RANGE OF COMMON STOCK AND EQUITY
The Registrant's Common Shares and Warrants trade on the Toronto Stock
Exchange in Ontario, Canada under the symbol "OPP" and "OPPwt" respectively. The
Registrant's common shares trade on the NASDAQ in Washington, D.C., U.S.A. under
the symbol "OPPCF".
The following table lists trading volume and high and low trading
prices for the last fiscal quarters. The current market price as of March 17 ,
1998 was Cdn.$1.40 on the Toronto Stock Exchange, U.S.$1.16 on NASDAQ.
-13-
<PAGE> 14
STOCK TRADING DATA
COMMON SHARES (OPP)
<TABLE>
<CAPTION>
NASDAQ TORONTO STOCK EXCHANGE
---------------------------------- ----------------------------------
Period Ending Volume High Low Volume High Low
(U.S.$) (U.S.$) (Cdn.$) (Cdn.$) (Cdn.$)
- ------------- --------- ------- ------- --------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
1997
4th Quarter 3,501,452 $2.31 $1.50 1,278,905 $3.85 $1.50
3rd Quarter 2,252,291 $2.13 $1.38 465,172 $3.25 $2.00
2nd Quarter 1,713,721 $2.56 $2.00 488,271 $3.50 $2.75
1st Quarter 1,826,990 $3.06 $2.13 427,752 $4.10 $2.95
- -----------------------------------------------------------------------------------------------
1996
4th Quarter 2,282,517 $3.13 $2.31 591,581 $4.50 $3.30
3rd Quarter 2,000,092 $3.37 $2.96 350,498 $5.10 $3.80
2nd Quarter 2,217,462 $3.63 $2.63 777,051 $4.90 $3.60
1st Quarter 1,679,407 $3.13 $2.50 344,848 $4.25 $3.50
- -----------------------------------------------------------------------------------------------
1995
4th Quarter 2,112,338 $3.25 $2.13 286,456 $4.20 $3.40
3rd Quarter 2,047,898 $3.25 $2.00 427,692 $4.35 $2.90
2nd Quarter 945,104 $3.63 $2.25 98,763 $4.75 $3.25
1st Quarter 1,057,423 $4.00 $2.13 261,102 $5.25 $2.95
- -----------------------------------------------------------------------------------------------
1994
4th Quarter 2,316,857 $4.75 $3.38 802,150 $6.38 $4.80
3rd Quarter 1,444,251 $5.50 $3.88 251,291 $7.50 $5.50
2nd Quarter 2,322,254 $5.00 $3.00 636,031 $6.88 $4.25
1st Quarter 2,534,871 $5.25 $3.50 540,257 $7.00 $4.75
</TABLE>
As at March 17 , 1998 the Company has 918 shareholders of record.
The Company has not paid cash dividends on the Common Shares and does
not intend to pay cash dividends on the Common Shares in the foreseeable future.
The Company currently intends to retain its cash for the continued development
of its business including exploratory and developmental drilling activities.
Holders of common stock are entitled to one vote for each share held of
record on all matters to be acted upon by the shareholders. Holders of common
stock are entitled to receive such dividends as may be declared from time to
time by the Board of Directors, in its discretion, out of funds legally
available therefore.
Upon liquidation, dissolution or winding up of the Registrant, holders
of common stock are entitled to receive pro rata the assets of the Registrant,
if any, remaining after payments of all debts and liabilities. No shares have
been issued subject to call or assessment. There are no preemptive or conversion
rights and no provisions for redemption or purchase for cancellation, surrender
or sinking or purchase funds.
Provisions as to the modification, amendment or variation of such
shareholder rights or provisions are contained in the Canada Business Corporate
Act ("CBCA"). Under the CBCA, the Articles of Incorporation documents otherwise
provide, that any action to be taken by a resolution of the members may be taken
by an ordinary resolution by a vote of a majority or more of the shares
represented at the shareholder's meeting.
-14-
<PAGE> 15
The Registrant is a publicly-owned corporation, the shares of which are
owned by Canadian residents, U.S. residents and residents of other countries.
The Registrant is not owned or controlled directly or indirectly by another
corporation or foreign government.
ITEM 6. SELECTED FINANCIAL DATA
All financial data should be read in conjunction with the Consolidated
Financial Statements of Optima and related notes thereto included elsewhere in
this report.
The value of the U.S. Dollar in relation to the Canadian Dollar was CDN
$1.4165 as at March 17, 1998. The following table sets forth a history of the
exchange rates for the U.S./Canadian Dollar during the past five fiscal years:
<TABLE>
<CAPTION>
CANADIAN DOLLAR / U.S. DOLLAR
- --------------------------------------------------------------------------------
YEAR AVERAGE HIGH LOW CLOSE
---- ------- ----- ----- -----
<S> <C> <C> <C> <C>
1997 $1.43 $1.44 $1.41 $1.44
1996 $1.36 $1.39 $1.33 $1.37
1995 $1.37 $1.38 $1.35 $1.36
1994 $1.37 $1.41 $1.31 $1.40
1993 $1.28 $1.30 $1.28 $1.29
</TABLE>
The Company's financial statements are stated in Canadian Dollars
(Cdn$) and are prepared in accordance with Canadian Generally Accepted
Accounting Principles ("Canadian GAAP"); reconciliations to United States
Generally Accepted Accounting Principles ("U.S. GAAP") are contained in note 11
to the consolidated financial statements.
The following table presents selected financial information:
SELECTED FINANCIAL DATA
CANADIAN GAAP
(CDN$ IN 000)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED DECEMBER 31
-----------------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Revenue before royalties
and taxes $ 7,649 $ 12,863 $ 6,762 $ 4,152 $ 3,984
Revenue after royalties and
production taxes 5,068 9,976 4,903 3,126 2,594
Net income (loss) (4,835) 229 (1,155) (4,305) (261)
Earnings (loss) per share (0.43) 0.02 (0.13) (0.56) (0.05)
Working capital * 7,857 1,289 747 17 2,833
Resource properties 17,696 33,764 33,500 22,260 16,780
Total assets 28,143 41,215 39,178 24,794 21,171
Long-term debt 143 6,120 7,390 1,849 1,349
Shareholders equity 25,738 31,472 28,478 20,838 19,167
</TABLE>
* Total Current Assets less Total Current Liabilities.
-15-
<PAGE> 16
SELECTED FINANCIAL DATA
U.S. GAAP
(CDN$ IN 000)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED DECEMBER 31
-----------------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Revenue before royalty and
taxes $ 7,649 $ 12,863 $ 6,762 $ 4,152 $ 3,984
Revenue after royalty and
production taxes 4,835 9,976 4,903 3,126 2,594
Net income (loss) (4,035) 229 (1,955) (4,305) (201)
Earnings (loss) per share (0.36) 0.02 (0.22) (0.56) (0.03)
Working capital* 7,857 1,289 747 17 2,833
Resource properties 17,696 33,964 32,700 22,260 16,780
Total assets 28,143 40,415 38,378 24,794 21,171
Long-term debt 143 6,120 7,390 1,849 1,349
Shareholders equity 25,738 30,672 27,678 20,838 19,167
</TABLE>
* Total Current Assets less Total Current Liabilities.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
1997
1997 PERCENTAGE
WORKING INTEREST YEAR ENDED DECEMBER 31, INCREASE INCREASE
CDN$ 1997 1996 1995 (DECREASE) (DECREASE)
----------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Volume:
Natural Gas (mcf) 1,003,147 3,309,438 2,364,489 (2,306,291) (70%)
Oil (bbl) 141,210 153,699 71,122 (12,489) (8%)
Average Price Per Unit:
Natural Gas (/mcf) $ 3.72 $ 2.51 $ 2.13 $ 1.21 48%
Oil (/bbl) $ 27.75 $ 29.60 $ 24.17 $ (1.85) (6%)
Gross Revenues:
Natural Gas $ 3,731,246 $ 8,313,466 $ 5,043,221 $(4,582,220) (55%)
Oil 3,918,169 4,549,235 1,719,186 (631,066) (14%)
----------- ----------- ----------- -----------
Total Revenue $ 7,649,415 $12,862,701 $ 6,762,407 $(5,213,286)
=========== =========== =========== ===========
</TABLE>
-16-
<PAGE> 17
RESULTS OF OPERATIONS
TWELVE MONTHS ENDED DECEMBER 31, 1997 TO TWELVE MONTHS ENDED DECEMBER 31, 1996
The Company reported a loss for the year of $4,835,220 being $0.43 per
share as compared to earnings of $228,573 in 1996 or $0.02 per share. The
decline of $5,063,793 is due to a combination of production volume declines, a
$2,520,000 ceiling test writedown of U.S. resources properties and a $1,023,998
provision for revenue dispute. The 70% reduction in natural gas volume from
3,309,000 mcf in 1996 to 1,003,147 mcf is primarily due to the sale of Canadian
petroleum and natural gas assets effective January 1, 1997. Canadian operations
represented between 55% to 60% total entity production over the previous 12 to
18 months. Although oil production was also impacted by the Canadian asset sale,
new production at Back Ridge, Louisiana resulted in only an 8% decline in oil
production volume. Oil prices decline slightly by 6% whereas natural gas prices
were 48% higher than 1996.
Earnings before interest, depletion, depreciation, amortization and
income taxes ("EBITDA") decreased to $2,358,229 or $0.21 per share as compared
to $6,662,544 in 1996 or $0.61 per share. The weighted average number of shares
used in the calculation of earnings for the year and for EBITDA was 11,159,633
shares whereas the 1996 calculations are based on 10,945,927 shares. The number
of issued and outstanding shares was 11,318,894 as at January 1, 1997 but due to
a share repurchase program was reduced to 11,002,346 shares at December 31,
1997.
OPERATING EXPENSE
Oil and natural gas operating expenses decreased from $1,649,650 in
1996 to $1,018,211 in 1997. On a boe basis, operating expenses increased to
$3.29 as compared to $2.34 in 1996. The increase is due to workovers at
Valentine and declining gas productivity at Lake Boeuf.
INTEREST AND OTHER INCOME
Interest revenue of $250,916 in 1997 as compared to $26,095 a year
earlier reflects the significant improvement in the Company's cash position
resulting from the sale of Canadian assets.
INTEREST EXPENSE
Proceeds from the sale of Canadian assets were utilized to pay off the
Canadian bank loan. Additionally the Company reduced its U.S. bank loan to U.S.
$100,000. As a result the interest and bank charges fell to $188,468 in 1997 as
compared to $685,942 a year earlier.
DEPLETION, DEPRECIATION AND AMORTIZATION
Depletion and depreciation decreased to $4,269,785 in 1997 from
$5,661,205 in 1996 or 25%. On a boe basis in 1997, the expense was $13.62 per
boe versus $8.03 per boe in 1996 (this comparison is based on an energy
equivalent of 6 mcf per boe). The calculation of depletion and depreciation is
based on the Evaluation Reports as at December 31, 1997 prepared by the
independent engineering consultants. These reports assume unescalated pricing
and do not recognize the results of subsequent drilling and completion activity
between December 31, 1997 and the filing date of this Annual Report.
The amortization expense of $68,494 did not change from 1996 as
deferred charges are being amortized over 60 months.
GENERAL AND ADMINISTRATIVE EXPENSE
General and administrative expense of $1,691,779 in 1997 is an increase
of $28,368 over 1996, a change of 2%. On a boe basis, general and
administrative expenses were $5.40 per boe up 129% from $2.36 per boe in 1996.
INVESTMENT CARRYING VALUE
Pursuant to both Canadian and United States full cost method of
accounting the Company is required to meet certain ceiling tests in respect of
the carrying value of petroleum and natural gas interests on the balance sheet
as at December 31, 1997. A ceiling test writedown of $2,520,000 of petroleum and
natural gas interest was reflected in the Consolidated Statements of Operation
and Deficit.
-17-
<PAGE> 18
BALANCE SHEET
The Company's total assets as at December 31, 1997 were $28,143,343 as
compared to $41,214,668 a year earlier. The decline of 32% over the past year is
due to the combination of the sale of Canadian assets and paydown of Canadian
and U.S. bank loans.
Petroleum and natural gas interests were reduced to $17,695,968 (being
$34,691,297 less $16,995,329) from $34,764,350 a year earlier. Canadian
petroleum and natural gas interests are $1,211,921 as at December 31, 1997 as
compared to $16,848,304 last year whereas U.S. petroleum and natural gas
interests declined by $1,431,999 from $17,916,046 as at December 31, 1996 to
$16,484,047 at the end of the current year.
In respect of liabilities and shareholders' equity, long term debt
declined to $143,050 from $6,119,670 being 98%. Shareholders' equity at December
31, 1997 decreased to $25,738,200 from $31,472,428 at the end of 1996. The
decline of $5,734,226 being 18% is a result of the net loss of $4,835,220 along
with the repurchase of common shares.
TWELVE MONTHS ENDED DECEMBER 31, 1996 TO TWELVE MONTHS ENDED DECEMBER 31, 1995
The Company realized earnings for the year of $228,573 being $0.02 per
share as compared to a loss in 1995 of $1,155,062 or $0.13 per share. This
improvement of $1,384,235 is a result of increased oil and gas production and
improved commodity prices. Gross natural gas volumes increased 40% from
2,364,489 MCF to 3,309,438 MCF. The increase in oil production was 116% from
71,122 barrels to 153,699 barrels. Combined with strong oil prices, this
improvement resulted in gross oil revenue increasing by 165% from $1,719,186 in
1995 to $4,549,235 in 1996. The combined oil and gas revenue for 1996 was
$12,862,701 as compared to $6,762,407 in 1995.
Earnings before interest, depletion, depreciation, amortization and
income taxes ("EBITDA) increased to $6,662,544 or $0.61 per share as compared to
$2,481,057 in 1995 or $0.27 per share. The weighted average number of shares
used in the calculation of earnings for the year and for EBITDA was 10,945,927
shares whereas the 1995 calculations are based on 9,031,583 shares. The primary
reason for this difference is the 1,374,227 shares from the Roxbury plan of
arrangement which were issued in September, 1995 and shares issued from treasury
in 1996.
OPERATING EXPENSE
Oil and natural gas operating expenses increased from $926,159 in 1995
to $1,649,650 in 1996. On a boe basis, operating expenses fell to $2.34 in 1996
from $3.03 in 1995 an improvement of 23%. Canadian operating costs fell from
$3.49 per boe in 1995 to $2.51 in 1996. Although operating expenses in the U.S.
varied slightly, $2.22 per boe in 1996 versus $2.34 per boe in 1995, the 110%
increase in Canadian gas production accounts for the differential.
INTEREST AND OTHER INCOME
Interest revenue of $26,095 in 1996 did not vary significantly from
$25,784 a year earlier. Short term Canadian interest rate averaged between 3%
and 4.5% over the year.
INTEREST EXPENSE
Interest expense and bank charges were $685,942 in 1996, as compared to
$461,531 in 1995. The primary reason for this increase was that the combined
bank loan and debenture principal balance for 1996 averaged $7.5 million
Canadian, whereas in 1995 the average principal balance was below $5.0 million.
DEPLETION, DEPRECIATION AND AMORTIZATION
Depletion and depreciation increased to $5,661,205 in 1996 from
$3,207,118 in 1995, an increase of 77 % on a boe basis in 1996 expense was $8.03
per boe versus $6.84 in 1995 (this comparison is based on an energy equivalent
of 6 mcf per boe). The calculation of depletion and depreciation is based on the
Evaluation Reports as at December 31, 1996, prepared by the independent
engineering consultants. These reports assume unescalated pricing and do not
recognize the results of subsequent drilling and completion between December 31,
1996 and the filing date of this Annual Report.
The amortization expense of $68,494 is derived from the costs of the
1995 Roxbury plan of arrangement in 1996. These deferred charges are being
amortized on a straight line basis over 60 months from the date of acquisition.
-18-
<PAGE> 19
GENERAL AND ADMINISTRATIVE EXPENSE
General and administrative expense of $1,663,411 in 1996 is an increase
of $193,328 over 1995, a change of 13%. On a boe basis, general and
administrative expenses were $2.36 down 25% from $3.16 per boe in 1995.
INVESTMENT CARRYING VALUE
Pursuant to both Canadian and United States full cost method of
accounting the Company is required to meet certain ceiling tests in respect of
the carrying value of petroleum and natural gas interests on the balance as at
December 31, 1996. The Company met these ceiling tests, and accordingly, no
write-down of petroleum and natural gas interests was required.
BALANCE SHEET
The Company's total assets as at December 31, 1996 were $41,214,688 as
compared to $39,178,076 a year earlier. This increase of 5% over the past year
is due primarily to an improvement in working interest capital of $541,651.
Whereas the increase in petroleum and natural gas interests to
$34,764,350 (being $50,376,801 of capital costs less $15,612,451 in accumulated
depreciation, depletion and write-offs) was only $1,264,670, a reduction in the
level of year end activity reduced the advances to operators by $881,352. The
note receivable at year end of $497,692 is in respect of the sale at Elm Grove
which closed in 1996.
In respect of liabilities and shareholders' equity, long term debt
(including current portion) declined slightly to $6,850,017 from $7,390,400 a
year earlier. This change is a combination of higher bank debt and the
redemption of $829,000 of convertible debentures. Shareholders' equity at
December 31, 1996 increased to $31,472,428 from $28,477,535. This change is a
combination of $228,573 in income for the year end and the net issuance of
759,452 common shares for $2,766,320.
TWELVE MONTHS ENDED DECEMBER 31, 1995 TO DECEMBER 31, 1994
The Company realized a substantial increase in production as compared
to 1994 which contributed to the increase in gross revenue and earnings before
interest, depletion, depreciation and taxes. Gross natural gas volumes increased
80% from 1,311,852 mcf to 2,364,489 mcf whereas oil production almost doubled to
71,122 barrels from 36,337. Based on a barrel of oil equivalent basis ("boe") of
10 to 1 (1 barrel equals 10 mcf) which in our opinion reflects the comparative
financial value of oil and gas, production increased from 167,455 boe in 1994 to
307,571 in 1995, an increase of 82%. Gross revenue increased by 63% from
$4,137,141 in 1994 to $6,762,407 in 1995. Whereas 75% of the Company's
production is in the form of natural gas, the 17% decline in the average gas
price resulted in the rate of increase in revenue to lag behind in the increase
in production.
Earnings before interest, depletion, depreciation and taxes in 1995
increased to $2,481,057 from $1,358,079 in 1994, an increase of 83%. Loss per
share in 1995 fell to $0.13 per share being $1,155,062 from $0.56 in 1994, an
improvement of 77%. The weighted average number of shares used in the
calculation was 9,031,583 shares in 1995 as compared to 7,625,417 shares in 1994
and reflects the issuance of 1,374,727 shares from the Roxbury plan of
arrangement.
OPERATING EXPENSES
Oil and natural gas operating expenses increased to $926,159 in 1995
from $615,477 in 1994. On a boe basis operating expense fell by 14% to $3.03 per
boe in 1995 from $3.68 per boe in 1994. This improvement results from the
benefit of economics of scale at Wildhay River and Lake Boeuf, where the Company
is realizing higher production levels.
INTEREST AND OTHER INCOME
Interest revenue fell from $45,628 in 1994 to $25,784 reflecting lower
short-term interest rates in Canada and a lower average cash balance throughout
1995. Other income of $47,748 is a result of the conversion of debentures
received on the sale of marginal properties to SLN Ventures Corporation.
INTEREST EXPENSE
Interest expense and bank charges increased to $461,351 in 1995 from
$126,399 in 1994 as a direct result of an increase of $5,561,400 in bank debt.
-19-
<PAGE> 20
DEPLETION, DEPRECIATION AND AMORTIZATION
Depletion and depreciation increased substantially from $1,719,897 in
1994 to $3,207,118 in 1995, an increase of 86%. On a boe basis, the 1995 expense
was $6.84 per boe versus $6.74 in 1994 (this comparison is based on 6 mcf equal
to 1 barrel which is the energy equivalent). The calculation of depreciation and
depletion is based on the Evaluation Reports as at December 31, 1995 which
assumes unescalated commodity pricing and does not recognize the results of
subsequent drilling and completion between December 31, 1995 and the filing date
of this Annual Report.
The amortization expense of $22,587 is derived from the costs of the
plan of arrangement with Roxbury Capital Corporation. These deferred charges are
being amortized on a straight line basis over 60 months from the date of
acquisition.
GENERAL AND ADMINISTRATIVE EXPENSE
General and administrative expense of $1,470,083 in 1995 is an increase
of $362,736 over 1994, a change of 33%. The increase is due to a combination of
consultants expense and office rent absorbed in a plan of arrangement with
Roxbury as well as on an increase in the level of remuneration. General and
administrative expenses were $3.16 per boe in 1995 as compared to $4.34 per boe
in 1994.
INVESTMENT CARRYING VALUE ADJUSTMENT
There was no write down of Petroleum and natural gas interests in 1995
as compared to $4,000,000 in 1994. The Company met the ceiling tests under
Canadian generally accepted accounting principles. Under the United States full
cost method of accounting for petroleum and natural gas interests, the Company
using oil and gas prices at the balance sheet date, would have been required to
write down its Canadian petroleum and natural gas interests by approximately
$800,000.
BALANCE SHEET
Total assets as at December 31, 1995 were $39,178,076 as compared to
$24,794,082 a year earlier. The major source of the change is in petroleum and
natural gas interest of $33,499,680 (being $43,597,549 in capital costs less
$10,097,869 in accumulated depreciation, depletion and write-offs) which
increased $11,240,175 in 1995.
During 1995 the Company participated in the drilling of 11 gross wells
(2.84 net wells). Additionally, the increase in petroleum and natural gas
interests reflects the acquisition of Roxbury and additional interests in Turtle
Bayou, Louisiana.
In respect of the liabilities and shareholders' equity, long term debt
increased from $1,849,000 as at December 31, 1994 to $7,390,400 as at December
31, 1995. Shareholders' equity as at December 31, 1995 increased to $28,477,535
from $20,837,561. The major change is due to the issuance of 2,137,340 shares
for $8,795,036 in cash and assets combined with the loss for the year of
$1,155,062.
LIQUIDITY AND CAPITAL RESOURCES
TWELVE MONTHS ENDED DECEMBER 31, 1997 TO TWELVE MONTHS ENDED DECEMBER 31, 1996.
Working capital as at December 31, 1997 was $7,856,820 as compared to
$1,288,511 a year earlier. Cash and cash equivalents increased to $5,660,354 at
year end from $2,055,062 at December 31, 1996. In addition, a further $703,996
of cash was held in trust to fund future abandonment and site restoration work
in the Valentine field. An additional $715,250 of cash in trust in respect of a
pending joint venture was release to the Company in early 1998 when a due
diligence review resulted in cessation of negotiations.
The increase in working capital of $6,568,309 over the fiscal year is
primarily due to the sale of the Canadian operations. Cash flow from operations
was $2,528,992 in 1997 as compared to $5,958,272 in 1996, a decline of
$3,429,280 . After utilizing $1,807,809 of cash flow to reduce accounts payable,
and a further $440,586 consumed in the sale of the Canadian petroleum and
natural interests, the Company had $577,024 to finance its capital expenditures.
A year earlier discretionary cash flow was $5,348,360, which represents a
reduction of $4,771,336.
Net receipts from investing activities for 1997 were $9,508,049 as
compared to cash requirements of $6,045,068 in 1996. Proceeds from the sale of
petroleum and natural interests, was $16,750,000 in 1997 as compared to
$1,176,849 a year earlier.
-20-
<PAGE> 21
In respect of financial activities, the Company redeemed common shares
in the amount of $899,006 and reduced its bank debt by $6,707,567.
The Company as of the date of this annual report is not in a position
to forecast 1998 capital requirements. The pending merger with American
Explorer, Inc. (Refer to note 15 in the attached financial statements in respect
of subsequent events) if consummated will allow for a more precise determination
of capital requirements.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's financial statements are stated in Canadian Dollars
(CDN$) and are prepared in accordance with Canadian GAAP; reconciliations to
U.S. GAAP are contained in note 12 to the financial statements. The value of the
U.S. Dollar in relation to the Canadian Dollar was U.S. $0.7060 as at March 17,
1998.
INDEX TO FINANCIAL STATEMENTS
Report of Independent Auditor.
Consolidated Balance Sheets as at December 31, 1997 and 1996.
Consolidated Statements of Operations and Deficit for the Years Ended December
31, 1997, 1996 and 1995.
Consolidated Statements of Change in Financial Position for the Years Ended
December 31, 1997, 1996 and 1995.
Schedules of Consolidated General and Administrative Expense.
Notes to Consolidated Financial Statements for the Years Ended December 31,
1997, 1996 and 1995.
Consolidated Supplemental Oil and Gas Information.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table lists as of December 31, 1997, the names of all the
Directors of the Registrant, their municipalities of residence, their current
positions with the Company and their principal occupations during the past five
years. Each Director will serve until the next annual general meeting or until
his successor is duly elected, unless his office is vacated in accordance with
the Articles of the Registrant. On February 28, 1998 the Company filed a Form
8-K announcing a merger agreement between American Explorer, LLC and the
Company. Whereas the agreement is subject to a number of conditions which must
be met to give effect to merger, the agreement provides for the nomination for
election to the Board of Directors of Robert L. Hodgkinson, William C.
Leuschner, both of whom currently serve as Directors; as well as Charles T.
Goodson, Alfred J. Thomas II, Ralph J. Daigle, Robert R. Brooksher and Daniel G.
Fournerat all of whom are residents of Lafayette, Louisiana.
-21-
<PAGE> 22
DIRECTORS
<TABLE>
<CAPTION>
NAME, AGE AND MUNICIPALITY POSITION WITH PRINCIPAL OCCUPATION FOR
OF RESIDENCE THE COMPANY PREVIOUS FIVE YEARS
- ----------------------------- ----------------------------------- ------------------------
<S> <C> <C>
WILLIAM C. LEUSCHNER, (69)** Chairman of the Board See below
Calgary, Alberta Director
ROBERT L. HODGKINSON, (48)** President, Chief Executive Officer, See below
Vancouver, British Columbia Director
RONALD P. BOURGEOIS, (46)* Chief Financial Officer, Secretary, See below
Vancouver, British Columbia Director
EMILE D. STEHELIN, (54)**/* Director See below
Whitehorse, Yukon Territories
MARTIN G. ABBOTT, (45)* Director See below
Calgary, Alberta
</TABLE>
* Member of the Company's Audit Committee.
** Member of the Company's Executive Committee
WILLIAM C. LEUSCHNER: Director and Chairman of the Company since 1989.
Mr. Leuschner is a professional geologist with a Bachelor of Geology from Texas
A&M in 1950. In 1982, he founded Leuschner International Resources Ltd., a
private hydrocarbon consulting and independent oil and gas producing firm, of
which he is President. From 1982 to 1992, he was president of Arenosa Resource
Corporation, a private oil and gas company, subsequently sold to the Company.
Between 1984 and 1995, he was a Director of Skyline Natural Resources, a
publicly-traded company on the Alberta Stock Exchange.
ROBERT L. HODGKINSON: Director, President and Chief Executive Officer
of the Company since 1989. From 1982 to November 1990, he was Vice President
with L.O.M. Western Securities Ltd., a securities firm in Vancouver, British
Columbia. From April 1993, to September 1995, Mr. Hodgkinson was a director of
Roxbury Capital Corp.
RONALD P. BOURGEOIS: Director and Chief Financial Officer since June
1993 and Secretary since August, 1993. Mr. Bourgeois is a chartered accountant
with a Bachelor of Commerce (Hons) from the University of Manitoba in 1973 and
achieved his chartered accountant designation in 1976 after articling with
Coopers & Lybrand. Prior to his employment with the Company, Mr. Bourgeois
served as the President of the General Partner of each limited partnership
managed by Lakewood Capital Group Inc. from June, 1989 to June, 1993. He was
also President of Q-Vest Petroleum Management Inc. a predecessor of Lakewood
from February, 1987 to June, 1989. Both Lakewood Capital Group Inc. and Q-Vest
Petroleum Management Inc. are oil and gas investment management companies. From
September 1994 to September 1995, Mr. Bourgeois was a director and officer of
Roxbury Capital Corp.
EMILE STEHELIN: Director of the Company since 1989. Since 1972 he has
been President and Director of E.V.E.M. Limited, a private holding company with
interests in real estate, property management, construction and mining.
MARTIN ABBOTT: Director of the Company since December 1994. Mr. Abbott
is a lawyer with a Bachelor of Arts from the University of Alberta in 1973 and
Bachelor of Law (LLB) from the same university in 1981. Mr. Abbott then articled
with the law firm of Fenerty, Robertson, Fraser & Hatch and later became a
partner with that firm, practising oil and gas business law, before joining the
Calgary office of Blake, Cassels & Graydon in 1991. Mr. Abbott retired from the
partnership of Blake, Cassels & Graydon to form TOM Capital Associates, Inc., a
merchant banking firm, in 1995, where he is Managing Director. Mr. Abbott is a
founder and director of Real Resources Inc., an Alberta Stock Exchange listed
company.
-22-
<PAGE> 23
The directors of the Company are elected by the shareholders at each annual
general meeting and typically hold office until the next annual general meeting
at which time they may be re-elected or replaced. Casual vacancies on the board
are filled by the remaining directors and the persons filling those vacancies
hold office until the next annual general meeting at which time they may be
re-elected or replaced. The senior officers are appointed by the board and hold
office indefinitely at the pleasure of the board.
COMMITTEES OF THE BOARD: Whereas the Company has no Compensation Committee
to make recommendations as to the salary, bonuses and other compensation to be
paid to the officers. The Executive Committee exercises all of the powers of the
Board of Directors whenever the Board is not in session, subject to any
restrictions, regulations, limitations or directions which may from time to time
be imposed by the Board and save and except such acts as must by law be
performed by the directors themselves. The Executive Committee held three
meetings in 1997 and is composed of William C. Leuschner, Robert L. Hodgkinson
and Emile D. Stehelin.
The AUDIT COMMITTEE recommends to the Board of Directors the selection of
independent auditors: reviews with the auditors the scope of the audit: reviews
with the auditors and management of the Company the accounting principles,
policies and practices; reviews the audited consolidated financial statements of
the Company with the auditors prior to submission thereof to the Board of
Directors for approval; and undertakes other duties that may be delegated to it.
The Committee held one meeting in 1997 and is composed of Ronald P. Bourgeois,
Emile D. Stehelin and Martin G. Abbott.
-23-
<PAGE> 24
ITEM 11. EXECUTIVE COMPENSATION
EXECUTIVE COMPENSATION
An "executive officer" is defined to mean the Chairman and any
Vice-Chairman of the Board of Directors of the Company, when that person
performs the functions of such office on a full-time basis, the President, any
Vice President in charge of a principal business unit such as sales, finance or
production, any officer of the Company or a subsidiary of the Company, or any
person who performs a policy-making function in respect of the Company, whether
or not such officer is also a director of the Company or of a subsidiary. The
following is a discussion of the compensation being paid to the Company's
executive officers.
SUMMARY OF COMPENSATION
The following table is a summary of compensation paid to the named
executive officers and directors as a group for the three most recently
completed financial years. Specific aspects of this compensation are dealt with
in further detail in the following tables.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM COMPENSATION
------------------------------------- ---------------------------------------
AWARDS PAYOUTS
---------------------------------------
SECURITIES RESTRICTED
FISCAL UNDER SHARES OR ALL OTHER
NAME AND POSITION YEAR OTHER ANNUAL OPTIONS RESTRICTED LTIP COMPEN-
OF PRINCIPAL ENDED SALARY BONUS COMPENSATIONS(1) GRANTED(2) SHARE UNITS PAY-OUTS(3) SATION(3)
- ----------------- ------ ------ ----- ---------------- ---------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Robert L. 1997 Nil N/A 150,000 Nil Nil Nil Nil
Hodgkinson 1996 Nil N/A 150,000 200,000 Nil Nil Nil
CEO, President 1995 Nil N/A 166,500 150,000 Nil Nil Nil
& Director
1997 Nil N/A 150,000 Nil Nil Nil Nil
William C. 1996 Nil N/A 150,000 125,000 Nil Nil Nil
Leuschner 1995 Nil N/A 149,000 150,000 Nil Nil Nil
Chairman, Director
Ronald P. Bourgeois 1997 Nil N/A 118,000 Nil Nil Nil Nil
CFO, Secretary 1996 Nil N/A 118,000 75,000 Nil Nil Nil
& Director 1995 Nil N/A 96,000 125,000 Nil Nil Nil
Emile D. Stehelin
Director 1997 Nil N/A 0 25,000 Nil Nil Nil
1996 Nil N/A 0 50,000 Nil Nil Nil
1995 Nil N/A 0 50,000 Nil Nil Nil
Martin G. Abbott
Director 1997 Nil N/A 0 25,000 Nil Nil Nil
1996 Nil N/A 0 Nil Nil Nil Nil
1995 Nil N/A 0 50,000 Nil Nil Nil
</TABLE>
(1) Directors fees are paid only to non-executive directors at the rate of
$500 per meeting and are paid in the form of common shares of the
Company.
(2) All securities under options granted prior to the grant of April 3,
1995 were cancelled pursuant to the terms and conditions of the current
stock option plan.
(3) The Company does not have a long term incentive plan nor a pension
plan.
-24-
<PAGE> 25
OPTIONS GRANTED DURING THE MOST RECENTLY COMPLETED FISCAL YEAR
During the Company's most recently completed fiscal year, there were no
stock options granted to the Named Executive Officers.
AGGREGATED OPTION EXERCISES DURING THE MOST RECENTLY COMPLETED FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
No incentive stock options were exercised by the Named Executive Officers,
during a the fiscal year-end.
All of the executive officers of the Company are entitled to reimbursement
of all reasonable business expenses and to receive incentive stock options as
they are granted from time to time by the Company. Reference should be made to
"Stock Options" for particulars of stock options granted to Executive Officers.
CDN$150,000 (which excluded reimbursement of expenses, office costs and GST
tax) was paid during fiscal 1997 to Leuschner International Resources Ltd.
(Leuschner), a consulting and independent oil and gas producing firm controlled
by William C. Leuschner, Chairman and Director of the Company. A February 1,
1995 Agreement between the Company and Leuschner, provides for William C.
Leuschner's services as Chairman (and one individual who provides clerical
services). The renewable contract calls for consideration of CDN$150,000 per
year, a monthly payment of $12,500, to the consulting firm.
CDN $150,000 (which excluded reimbursement of expenses, office costs and
GST tax) was paid during fiscal 1997 to Hodgkinson Equities Corporation, a
private consulting firm in which Robert L. Hodgkinson, President/CEO and a
Director of the Company, holds a 100 percent interest. The renewable contract
calls for monthly payments of CDN$12,500 to Hodgkinson Equities Corporation.
CDN$118,000 (which excluded reimbursement of expenses, office costs and GST
tax) was paid during fiscal 1997 to Ronald Bourgeois. Effective January 1, 1998
Mr. Bourgeois' contract was renewed at CDN $120,000 per annum, at a monthly
payment of CDN $10,000.
STOCK OPTIONS
Robert Hodgkinson, Emile Stehelin, William Leuschner, Ronald Bourgeois and
Martin Abbott have been granted director incentive stock options in accordance
with the policy of the Toronto Stock Exchange. These options are priced based on
the average closing price of the Company's shares for the ten trading days
immediately prior to the grant of option.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The authorized capital of the Registrant consists of 100,000,000 shares of
common stock without par value of which 11,002,346 are outstanding as of
December 31, 1997. All of the authorized shares of the Registrant are of the
same class and, once issued, rank equally as to dividends, voting powers, and
participation in assets.
Holders of common stock are entitled to one vote for each share held of
record on all matters to be acted upon by the shareholders. Holders of common
stock are entitled to receive such dividends as may be declared from time to
time by the Board of Directors, in its discretion, out of funds legally
available therefore.
Upon liquidation, dissolution or winding up of the Registrant, holders of
common stock are entitled to receive pro rata the assets of the Registrant, if
any, remaining after payments of all debts and liabilities. No shares have been
issued subject to call or assessment. There are no preemptive or conversion
rights and no provisions for redemption or purchase for cancellation, surrender,
or sinking or purchase funds.
Provisions as to the modification, amendment or variation of such
shareholder rights or provisions are contained in the CBCA. Under the CBCA, the
Company's Articles of Incorporation otherwise provide, any action to be taken by
a resolution of the members may be taken by an ordinary resolution by a vote of
a majority or more of the shares represented at the shareholders' meeting.
-25-
<PAGE> 26
Debt Securities to be Registered. Not applicable.
American Depository Receipts. Not applicable.
Other Securities to be Registered. Not applicable.
The Registrant is a publicly-owned corporation, the shares of which are owned by
Canadian residents, U.S. residents, and residents of other countries. The
Registrant is not owned or controlled directly or indirectly by another
corporation or any foreign government.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth the beneficial ownership of the Company as
at December 31, 1997 to the extent that each beneficial owner owns more than
five percent of the common shares of the Company:
<TABLE>
<CAPTION>
Per
Number of Shares Cent
Name and Address of Beneficially of
Title of Class Beneficial Owner Owned Class
- -------------- ------------------- ---------------- -----
<S> <C> <C> <C>
Common Shares E. D. Stehelin, Whitehorse, Yukon, Canada 1,326,942 12.1
Common Shares Wellington Management, Boston, MA, USA 1,079,000 9.9
Common Shares State Street Research & Management, Boston, MA, USA 572,300 5.2
--------- ----
Total 2,996,442 27.2
========= ====
</TABLE>
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth the beneficial ownership as at December 31,
1997 of the Company's common shares by each of the Company's directors, certain
of its executive officers and by all of its directors and executive officers as
a group:
<TABLE>
<CAPTION>
Name and Address of Amount and Nature of Per Cent
Beneficial Owner Beneficial Ownership of Class
- ------------------- -------------------- --------
<S> <C> <C>
R.L. Hodgkinson, Vancouver, B.C., Canada 118,000 (1) 1.1
W.C. Leuschner, Calgary, Alberta, Canada 560,225 (1) 5.1
R.P. Bourgeois, Vancouver, B.C., Canada 57,151 (2) 0.5
E.D. Stehelin, Whitehorse, Yukon, Canada 1,326,942 (3) 12.1
M.G. Abbott, Calgary, Alberta, Canada 15,626 (3) 0.1
--------- ----
All directors and executive
officers as a group (5 persons) 2,077,944 18.9
========= ====
</TABLE>
NOTES:
(1) Excludes 200,000 exercisable stock options;
(2) Excludes 153,000 exercisable stock options;
(3) Excludes 100,000 exercisable stock options.
-26-
<PAGE> 27
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company has entered into the following material transactions with
directors, senior officers or principal holders of its securities:
(a) 7804 Yukon Inc. is a private company owned indirectly as to 47.619048%
by Robert L. Hodgkinson, president of the Company and 52.380952% by
Emile D. Stehelin, Director of the Company. 7804 Yukon Inc. has
acquired interests in the following prospects in which the Company has
participated or is participating: Valentine and Vermilion, Louisiana.
Each of these transactions were on terms as favourable as the Company
obtained from unaffiliated parties.
(b) Colima Oil Company, a company wholly owned by William C. Leuschner,
Chairman and director of the Company, has acquired interests in the
following prospects in which the Company has participated or is
participating; Valentine and East Haynesville, Louisiana. Each of
these transactions were on terms as favourable as the Company obtained
from unaffiliated parties.
(c) During October, 1995, Robert L. Hodgkinson acquired 115,000 shares of
the Company at $3.35 per share pursuant to a private placement. This
transaction was approved by the Toronto Stock Exchange.
(d) During October, 1995, William C. Leuschner through Colima Oil Company
acquired 34,500 shares of the Company at $3.35 per share pursuant to a
private placement. This transaction was approved by the Toronto Stock
Exchange.
(e) Various loans to Optima were made in 1995 by companies controlled by
Robert L. Hodgkinson, Emile D. Stehelin and William C. Leuschner. In
May, 1995, Messieurs Hodgkinson, Leuschner and Stehelin advanced to
the Company $116,500 each for a total of $349,500. These loans were
unsecured and non-interest bearing. Mr. Hodgkinson was repaid in July,
1995 and Messieurs Leuschner and Stehelin were repaid the 19th of
October, 1995. There are no loans outstanding as at December 31, 1997.
The Company pursuant to the nature of the business from time to time is
offered the opportunity to participate in oil and gas prospects. Directors,
senior officers and their associates and affiliates are allowed to participate
in these prospects only if it is determined by the Board of Directors that their
interests are over and above the level of participation that is prudent for the
Company in respects of its financial resources. Additionally, the terms of the
transactions must be similar to the terms of the participation by the Company.
Other than the above referenced situations, no Directors or Executive Officers
and no associate or affiliate of the foregoing persons has or had any material
interest, direct or indirect, in any transaction, or in any proposed
transaction, which in either such case has materially affected or will
materially affect the Company.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
AND REPORTS ON FORM 8-K
(A) INDEX TO FINANCIAL STATEMENTS:
ANNUAL FINANCIAL STATEMENTS INCLUDED IN ITEM 8.
(i) Independent Auditor's Report.
(ii) Consolidated Balance Sheets as at December 31, 1997 and 1996.
(iii) Consolidated Statements of Operations and Deficit for the Years Ended
December 31, 1997, 1996 and 1995.
(iv) Consolidated Statement of Change in Financial Position for the Years
Ended December 31, 1997, 1996 and 1995.
(v) Schedules of Consolidated General and Administrative Expense.
(vi) Notes to Consolidated Financial Statements for the Years Ended
December 31, 1997, 1996, and 1995.
(vii) Consolidated Supplemental Oil and Gas Information.
-27-
<PAGE> 28
SCHEDULES TO CONSOLIDATED FINANCIAL STATEMENTS:
No financial statement schedules have been presented as they are not
applicable, not required or the required information is included in the
Consolidated Financial Statements or Notes thereto.
(B) REPORTS ON FORM 8-K.
A Form 8-K was filed on May 30, 1997 with the Securities and Exchange
Commission. The Company reported the closing of the sale of a substantial
position of its Canadian oil and gas assets for $16.8 million. This Form 8-K was
attached to the Form 10-Q filed for the quarterly period ended June 30, 1997.
(C) INDEX TO EXHIBITS
Exhibit No. Description of Exhibits
- ----------- -----------------------
3.1 Articles of Incorporation (contained in Exhibit 3.2)
3.2 Articles of Continuance CBCA
3.3 Approval and Special Committee Approval of Plan of Arrangement
between Optima Petroleum Corporation and Roxbury Capital
Corporation.
3.4 Subscription Agreements for Private Placements entered into during
1995
3.5 Approval of Payment in shares (contained in Exhibit 3.9 and 3.10)
3.6 Employment/Consulting Contracts for Officers and Directors
3.7 Registrant's April 3, 1995 Stock Option Plan, as amended at August
9, 1995
3.8 Registrant's April 10, 1996 Stock Option Plan
3.9 Approval of Share Compensation to Outside Directors (contained in
Exhibit 3.10)
3.10 Approval of Share Compensation to Chief Financial Officer
3.11 Consent of Ryder Scott Company Petroleum Engineers
3.12 Consent of Laroche Petroleum Consultants, Ltd.
-28-
<PAGE> 29
ITEM 15. SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
OPTIMA PETROLEUM CORPORATION
BY: /s/ Robert L. Hodgkinson
------------------------------------
ROBERT L. HODGKINSON
President
Chief Executive Officer and Director
Date: March 26, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Name Title Date
---- ----- ----
<S> <C> <C>
BY: /S/ Robert L. Hodgkinson President March 26, 1998
------------------------- Chief Executive Officer
Robert L. Hodgkinson Director
BY: /S/ William C. Leuschner Chairman of the Board March 26, 1998
------------------------- Director
William C. Leuschner
BY: /S/ Ronald P. Bourgeois Secretary March 26, 1998
------------------------- Chief Financial Officer
Ronald P. Bourgeois Director
</TABLE>
-29-
<PAGE> 30
OPTIMA PETROLEUM CORPORATION
Consolidated Financial Statements
Years ended December 31, 1997, 1996 and 1995
<PAGE> 31
AUDITORS' REPORT TO THE SHAREHOLDERS
We have audited the consolidated balance sheets of Optima Petroleum Corporation
as at December 31, 1997 and 1996 and the consolidated statements of operations
and deficit and changes in financial position for each of the years in the three
year period ended December 31, 1997. These consolidated 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, 1997
and 1996 and the results of its operations and the changes in its financial
position for each of the years in the three year period ended December 31, 1997
in accordance with generally accepted accounting principles in Canada.
/s/ KPMG
Chartered Accountants
Vancouver, Canada
March 13, 1998
<PAGE> 32
OPTIMA PETROLEUM CORPORATION
Consolidated Balance Sheets
December 31, 1997 and 1996
<TABLE>
<CAPTION>
==================================================================================================================
1997 1996
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT
Cash and cash equivalents $ 5,660,354 $ 2,055,062
Cash in trust 715,250 -
Accounts receivable (Note 14(b)) 2,220,151 2,516,578
Note receivable - current portion (Note 4) 129,861 124,423
- ------------------------------------------------------------------------------------------------------------------
8,725,616 4,696,063
OTHER
Cash held in trust (Note 5) 703,996 638,142
Advances to operators (Note 6) 547,200 468,864
Note receivable - long term portion (Note 4) 265,077 373,269
Petroleum and natural gas interests, full cost method (Note 7) 17,695,968 34,764,350
Deferred charges 205,486 273,980
- ------------------------------------------------------------------------------------------------------------------
$28,143,343 $41,214,668
==================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT
Accounts payable and accrued liabilities $ 868,796 $ 2,676,605
Current portion of long-term debt (Note 8) - 730,947
- ------------------------------------------------------------------------------------------------------------------
868,796 3,407,552
REVENUE IN DISPUTE (Note 14(a)) 1,023,998 -
LONG-TERM DEBT (Note 8) 143,050 6,119,670
SITE RESTORATION AND ABANDONMENT 369,297 215,018
SHAREHOLDERS' EQUITY
Share capital (Note 9)
Authorized 100,000,000 common shares
Issued 11,002,346 (1996 - 11,318,894) common shares 30,891,689 31,790,695
Contributed surplus 608,222 608,222
Deficit (Note 9 (f)) (5,761,709) (926,489)
- ------------------------------------------------------------------------------------------------------------------
25,738,202 31,472,428
- ------------------------------------------------------------------------------------------------------------------
$28,143,343 $41,214,668
==================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
ON BEHALF OF THE BOARD
/s/ R.L. Hodgkinson, Director /s/ R.P. Bourgeois, Director
<PAGE> 33
OPTIMA PETROLEUM CORPORATION
Consolidated Statements of Operations and Deficit
Years ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
==================================================================================================================
1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING INCOME
Petroleum and natural gas sales $ 7,649,415 $12,862,701 $ 6,762,407
Royalties and production taxes 2,581,196 2,887,096 1,885,108
Operating costs 1,018,211 1,649,650 926,159
- ------------------------------------------------------------------------------------------------------------------
4,050,008 8,325,955 3,951,140
EXPENSES
General and administrative (Schedule) 1,691,779 1,663,411 1,470,083
- ------------------------------------------------------------------------------------------------------------------
EARNINGS BEFORE INTEREST,
DEPLETION, DEPRECIATION,
AMORTIZATION AND INCOME TAXES 2,358,229 6,662,544 2,481,057
Depletion and depreciation 4,269,745 5,661,205 3,207,118
Provision for revenue dispute (Note 14) 1,023,998 -- --
Gain on sale of Canadian petroleum
and natural gas interests (518,025) -- --
Interest and other revenue (250,916) (26,095) (73,532)
Foreign exchange gain (259,315) (3,789) (7,437)
Interest and bank charges 188,468 685,942 461,531
Amortization of deferred financing costs 68,494 68,494 22,587
Write-down of petroleum and natural gas interests 2,520,000 -- --
- ------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) BEFORE INCOME TAXES (4,684,220) 276,787 (1,129,210)
Income taxes (Note 11) 151,000 48,214 25,852
- ------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) FOR THE YEAR (4,835,220) 228,573 (1,155,062)
DEFICIT, beginning of year (926,489) (1,155,062) (10,602,526)
Reduction of common share stated capital (Note 9(f)) -- -- 10,602,526
- ------------------------------------------------------------------------------------------------------------------
DEFICIT, end of year $(5,761,709) $ (926,489) $ (1,155,062)
==================================================================================================================
NET INCOME (LOSS) PER SHARE $ (0.43) $ 0.02 $ (0.13)
==================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 34
OPTIMA PETROLEUM CORPORATION
Consolidated Statements of Changes In Financial Position
Years ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
=======================================================================================================================
1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------
CASH PROVIDED BY (USED IN)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss) for the year $(4,835,220) $ 228,573 $ (1,155,062)
Items not involving cash
Gain on sale of Canadian petroleum
and natural gas interests (518,025) -- --
Depletion, depreciation and amortization 4,338,239 5,729,699 3,229,705
Provision for revenue dispute 1,023,998 -- --
Write-down of petroleum and natural gas interests 2,520,000 -- --
- -----------------------------------------------------------------------------------------------------------------------
2,528,992 5,958,272 2,074,643
Changes in non-cash working capital:
Accounts receivable 296,427 (44,195) (606,674)
Accounts payable and accrued liabilities (1,807,809) (565,717) 362,006
Net working capital adjustments on sale
of Canadian petroleum and natural gas interests (440,586) -- --
- -----------------------------------------------------------------------------------------------------------------------
577,024 5,348,360 1,829,975
- -----------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Issue (repurchase) of
common shares (net of issue expenses) (899,006) 2,766,320 2,608,764
Increase in (repayment of) bank debt (6,707,567) 289,217 5,561,400
Note receivable 102,754 (497,692) --
Repayment of convertible debentures -- (829,000) --
Issue of securities on purchase of subsidiary -- -- 6,186,272
Conversion of convertible debentures -- -- (20,000)
Site restoration and abandonment -- -- 36,574
- -----------------------------------------------------------------------------------------------------------------------
(7,503,819) 1,728,845 14,373,010
- -----------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Proceeds on sale of petroleum and natural gas interests 16,750,000 1,176,849 925,863
Petroleum and natural gas interests (5,358,473) (7,955,920) (8,558,633)
Advances to operators (78,336) 881,352 (903,652)
Cash held in trust (781,104) (638,142) --
Debentures receivable -- 493,874 (493,874)
Deferred charges -- (3,081) (278,783)
Purchase of subsidiary (Note 3) -- -- (6,186,272)
- -----------------------------------------------------------------------------------------------------------------------
10,532,087 (6,045,068) (15,495,351)
- -----------------------------------------------------------------------------------------------------------------------
INCREASE IN CASH 3,605,292 1,032,137 707,634
CASH AND CASH EQUIVALENTS, beginning of year 2,055,062 1,022,925 315,291
- -----------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, end of year $ 5,660,354 $ 2,055,062 $ 1,022,925
=======================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 35
OPTIMA PETROLEUM CORPORATION
Schedules of Consolidated General and Administrative Expense Years ended
December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
==================================================================================================================
1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Consultants $ 712,014 $ 681,248 $ 652,259
Office expense 368,348 232,418 248,918
Legal, audit and tax 207,786 207,237 173,193
Investor communication 157,667 247,666 146,800
Office rent 112,776 80,685 31,879
Travel 86,843 166,708 163,181
Public listing 33,970 39,942 50,503
Directors' fees 12,375 7,507 3,350
- ------------------------------------------------------------------------------------------------------------------
$1,691,779 $1,663,411 $1,470,083
==================================================================================================================
</TABLE>
- --------------------------------------------------------------------------------
<PAGE> 36
OPTIMA PETROLEUM CORPORATION
Notes to Consolidated Financial Statements
Years ended December 31, 1997, 1996 and 1995 Page 1
- -------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
(a) Basis of presentation
The consolidated financial statements are presented in accordance with
generally accepted accounting principles applicable in Canada and
expressed in Canadian dollars. Except as disclosed in Note 12, these
financial statements conform, in all material respects, with generally
accepted accounting principles in the United States.
(b) Basis of consolidation
The consolidated financial statements include the accounts of the
Company and its wholly owned subsidiary, Optima Energy (U.S.)
Corporation. All intercompany transactions and balances have been
eliminated.
(c) Cash and cash equivalents
Cash and cash equivalents include short-term investments with a
maturity of ninety days or less at the time of issue.
(d) Petroleum and natural gas interests
The Company follows the full cost method of accounting for petroleum
and natural gas interests whereby all costs of exploring and developing
petroleum and natural gas reserves, net of government grants, are
capitalized by individual country cost centre. Such costs include land
acquisition costs, geological and geophysical expenses, costs of
drilling both productive and non-productive wells and overhead charges
directly related to acquisition, exploration and development
activities.
The total carrying value of the Company's petroleum and natural gas
interests, less accumulated depletion, is limited to the estimated
future net revenue from production of proved reserves, based on
unescalated prices and costs plus the lower of cost and net realizable
value of unproved properties, less estimated future development costs,
general and administrative expenses, financing costs and income taxes.
The carrying value of unproved properties is reviewed periodically to
ascertain whether impairment has occurred. Where impairment has
occurred, the costs have been written down to their net realizable
value.
For each cost centre, the costs associated with proved reserves are
depleted on the unit-of-production method based on an independent
engineering estimate of proved reserves, after royalties, with natural
gas converted to its energy equivalent at a ratio of six thousand cubic
feet of natural gas to one barrel of oil.
Site restoration and abandonment costs, net of expected recoveries for
production equipment and facilities, at the end of their useful life,
are provided for on a unit-of-production basis.
The resource expenditure deductions for income tax purposes related to
exploration and development activities funded by flow-through share
arrangements are renounced to investors in accordance with income tax
legislation. Petroleum and natural gas interests are reduced by the
estimated renounced income tax benefits when the expenditures are
incurred.
Equipment is depreciated on a straight-line basis over five years.
- -------------------------------------------------------------------------------
<PAGE> 37
OPTIMA PETROLEUM CORPORATION
Notes to Consolidated Financial Statements
Years ended December 31, 1997, 1996 and 1995 Page 2
- -------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(e) Deferred charges
Debt financing costs are amortized on a straight line basis over the
terms of the related loans.
(f) Foreign currency translation
The operations of the Company's U.S. subsidiary are considered
integrated with the operations of the Company, and thus, are translated
under the temporal method. Under this method, transactions of the
Company and its subsidiaries that are denominated in foreign currencies
are recorded in Canadian dollars at exchange rates in effect at the
related transaction dates. Monetary assets and liabilities denominated
in foreign currencies are adjusted to reflect exchange rates at the
balance sheet date. Exchange gains and losses arising on the
translation of monetary assets and liabilities, except as they relate
to long-term debt, are included in the determination of income for the
year. Unrealized foreign exchange gains and losses related to long-term
debt are deferred and amortized over the remaining term of the related
debt.
(g) Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Significant areas requiring
the use of management estimates relate to the determination of rates
for depreciation, depletion and amortization and the impairment of
petroleum and natural gas interests. Actual results could differ from
these estimates.
(h) Fair value of financial instruments
Financial instruments include cash and cash equivalents, cash in trust,
accounts receivable, note receivable, accounts payable and accrued
liabilities and the current and long term portions of long term debt.
Fair values approximate carrying values for these financial instruments
since they are short term in nature, receivable or payable on demand,
or bear interest at floating rates.
2. SALE OF CANADIAN PETROLEUM AND NATURAL GAS INTERESTS
On May 30, 1997 the Company closed the sale of a substantial portion of its
Canadian petroleum and natural gas interests for cash proceeds of
$16,750,000.
- -------------------------------------------------------------------------------
<PAGE> 38
OPTIMA PETROLEUM CORPORATION
Notes to Consolidated Financial Statements
Years ended December 31, 1997, 1996 and 1995 Page 3
- -------------------------------------------------------------------------------
2. SALE OF CANADIAN PETROLEUM AND NATURAL GAS INTERESTS (CONTINUED)
The following pro-forma summary presents comparative consolidated results
of operations as if the disposition had occurred at the beginning of 1995:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------
1997 1996 1995
----------------------------------------------------------------------------------
<S> <C> <C> <C>
Petroleum and natural gas sales $ 7,649,415 $ 9,786,259 $ 5,233,031
Net income (loss) for the period (5,319,733) (212,883) (981,643)
Income (loss) per share (0.47) (0.02) (0.11)
----------------------------------------------------------------------------------
</TABLE>
These unaudited pro-forma results have been prepared for comparative
purposes only and do not purport to be indicative of what would have
occurred had the disposition been made as of these dates or of results
which may occur in the future
3. PURCHASE OF ROXBURY CAPITAL CORP.
On September 8, 1995 the Company acquired Roxbury Capital Corp. ("Roxbury")
under a plan of arrangement whereby Roxbury shareholders exchanged all of
the issued and outstanding common shares of Roxbury for newly issued common
shares of the Company, at a ratio of seven Roxbury shares to one Company
share.
Net assets acquired, using the purchase method of accounting:
<TABLE>
<S> <C>
Petroleum and natural gas properties $ 6,775,104
Working capital (48,585)
Due to the Company (631,586)
Advances to operators 5,692
Furniture and fixtures 2,845
Deferred charges 82,802
---------------------------------------------------------------------------------
$ 6,186,272
---------------------------------------------------------------------------------
Consideration given, based on an independent business valuation:
1,374,727 common shares of the Company $ 6,186,272
---------------------------------------------------------------------------------
</TABLE>
In addition, Roxbury shareholders received a warrant for every seven
Roxbury shares exchanged, exercisable until February 28, 1997, for a
Company common share at a price of $5.10 per share. The warrants were not
exercised and expired on February 28, 1997.
The purchase price of the Company's interest exceeded the net book value of
the assets acquired by $1,389,355 and this amount has been allocated to the
Company's depletable petroleum and natural gas interests.
- --------------------------------------------------------------------------------
<PAGE> 39
OPTIMA PETROLEUM CORPORATION
Notes to Consolidated Financial Statements
Years ended December 31, 1997, 1996 and 1995 Page 4
- -------------------------------------------------------------------------------
3. PURCHASE OF ROXBURY CAPITAL CORP. (CONTINUED)
The operating results of Roxbury are included in the Company's consolidated
results of operations from the date of acquisition. The following unaudited
proforma summary presents the consolidated results of operations as if the
acquisition had occurred at the beginning of 1994:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------
1995 1994
--------------------------------------------------------------------------
<S> <C> <C>
Petroleum and natural gas sales,
net of royalties and production taxes $ 5,240,994 $ 3,290,811
Loss (2,239,737) (5,658,586)
Loss per share (0.22) (0.54)
--------------------------------------------------------------------------
</TABLE>
These unaudited pro-forma results have been prepared for comparative
purposes only and do not purport to be indicative of what would have
occurred had the acquisition been made as of these dates or of results
which may occur in the future.
4. NOTE RECEIVABLE
The note is due on June 18, 2000, bears no interest, is repayable in four
equal installments of $90,780 U.S. which commenced June 18, 1997 and is
secured by a mortgage on certain U.S. oil and gas properties.
5. CASH HELD IN TRUST
As a condition of a U.S. oil and gas property acquisition, the Company is
obliged to keep cash on deposit to fund future abandonment costs.
6. ADVANCES TO OPERATORS
The Company maintains joint accounts with operators engaged by the Company
to perform exploration and development work on its petroleum and natural
gas interests.
7. PETROLEUM AND NATURAL GAS INTERESTS
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------
United
Canada States Total
----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1997
Petroleum and natural gas interests $ 1,171,301 $ 33,306,560 $ 34,477,861
Other equipment 183,426 30,010 213,436
----------------------------------------------------------------------------------------------------------------
1,354,727 33,336,570 34,691,297
Accumulated depreciation, depletion and write-offs (142,806) (16,852,523) (16,995,329)
----------------------------------------------------------------------------------------------------------------
$ 1,211,921 $ 16,484,047 $ 17,695,968
----------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
<PAGE> 40
OPTIMA PETROLEUM CORPORATION
Notes to Consolidated Financial Statements
Years ended December 31, 1997, 1996 and 1995 Page 5
- -------------------------------------------------------------------------------
7. PETROLEUM AND NATURAL GAS INTERESTS (CONTINUED)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------
United
Canada States Total
----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1996
Petroleum and natural gas interests $19,523,978 $ 30,676,552 $ 50,200,530
Other equipment 151,695 24,576 176,271
----------------------------------------------------------------------------------------------------------------
19,675,673 30,701,128 50,376,801
Accumulated depreciation, depletion and write-offs (2,827,369) (12,785,082) (15,612,451)
----------------------------------------------------------------------------------------------------------------
$16,848,304 $ 17,916,046 $ 34,764,350
----------------------------------------------------------------------------------------------------------------
</TABLE>
As at December 31, 1997, unproved properties with capitalized costs of
$2,911,126 (1996 - $4,441,055) were not subject to depletion. It is
expected that these properties will be evaluated over the next one to three
years.
In calculating estimated future net revenue at December 31, 1995, the
Company used forward sale gas prices received in February 1996. Had the
Company used actual gas prices received at December 31, 1995, a write-down
of $3,400,000 would have been required in the Company's petroleum and
natural gas interests.
8. LONG TERM DEBT
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------
1997 1996
------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Revolving $10,000,000 bank credit line, with a borrowing base of $3,969,000,
bearing interest monthly at Canadian Prime Rate plus 1% for Canadian dollar
drawdowns and U.S. Base Rate plus 0.5% for United States dollar drawdowns,
secured by a fixed and floating charge debenture and a general assignment of
book debts and Canadian oil and gas properties
The sale of the Canadian producing properties on May 30, 1997 terminated $ -- $3,447,000
the credit line
Revolving $5,000,000 (U.S.) bank credit line, with a borrowing base of
$3,250,000 (U.S.), drawn to $100,000 (U.S.) bearing interest monthly at
U.S. Base Rate plus 1.5%, secured by a revolving note due May 15, 1999
and U.S. oil and gas properties 143,050 3,403,617
------------------------------------------------------------------------------------------------------------------
143,050 6,850,617
Less current portion of $5,000,000(U.S.) bank credit line ($533,304 U.S.) -- (730,947)
------------------------------------------------------------------------------------------------------------------
$143,050 $6,119,670
------------------------------------------------------------------------------------------------------------------
</TABLE>
- -------------------------------------------------------------------------------
<PAGE> 41
OPTIMA PETROLEUM CORPORATION
Notes to Consolidated Financial Statements
Years ended December 31, 1997, 1996 and 1995 Page 6
- -------------------------------------------------------------------------------
9. SHARE CAPITAL
(a) Authorized
The authorized share capital consists of 100,000,000 common shares
without par value.
(b) Issued
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------
Number of Share
Shares Capital
--------------------------------------------------------------------------------------------------------
<S> <C> <C>
Balance at December 31, 1994 8,422,102 $ 30,831,865
Issued for cash
Private placements 400,000 1,340,000
Exercise of options 272,500 961,250
Purchase of subsidiary 1,374,727 6,186,272
In lieu of consulting fees 85,912 324,117
Conversion of debentures 4,201 20,000
Reduction of common share stated capital -- (10,602,526)
Common share issue expenses -- (36,603)
--------------------------------------------------------------------------------------------------------
Balance at December 31, 1995 10,559,442 29,024,375
Issued for cash
Exercise of options 514,500 1,825,250
Private placements 260,000 1,001,000
Exercise of warrants 714 3,641
In lieu of consulting fees 9,070 32,525
In lieu of directors fees 2,068 7,507
Shares repurchased and cancelled under Normal Course Issuer Bid (26,900) (99,530)
Common share issue expenses -- (4,073)
--------------------------------------------------------------------------------------------------------
Balance at December 31, 1996 11,318,894 31,790,695
In lieu of consulting fees 6,000 21,780
In lieu of directors fees 552 2,004
Shares repurchased and cancelled under Normal Course Issuer Bid (323,100) (922,790)
--------------------------------------------------------------------------------------------------------
Balance at December 31, 1997 11,002,346 $ 30,891,689
--------------------------------------------------------------------------------------------------------
</TABLE>
- -------------------------------------------------------------------------------
<PAGE> 42
OPTIMA PETROLEUM CORPORATION
Notes to Consolidated Financial Statements
Years ended December 31, 1997, 1996 and 1995 Page 7
- -------------------------------------------------------------------------------
9. SHARE CAPITAL (CONTINUED)
(c) Reserved in respect of options
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------
Exercise Exercisable
Holder Number Price On or Before
---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Options
Company directors and employees 193,000 $3.50 April 3, 1998
50,000 $3.55 April 3, 1998
100,000 $4.05 July 25, 1998
525,000 $4.15 June 12, 1999
50,000 $3.50 June 2, 1999
Non-related persons 120,000 $3.50 April 3, 1998
125,000 $3.50 June 2, 1999
---------------------------------------------------------------------------------------------
1,163,000
---------------------------------------------------------------------------------------------
</TABLE>
(d) Net income (loss) per share
Net income (loss) per share has been calculated based on the following
weighted average numbers of shares outstanding:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------
1997 1996 1995
---------------------------------------------------------------------------------
<S> <C> <C> <C>
Weighted average number of shares 11,159,663 10,945,927 9,031,583
---------------------------------------------------------------------------------
</TABLE>
(e) Cash flow per share
Cash flow per share has been calculated, based on the weighted average
number of shares outstanding, as follows:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------
1997 1996 1995
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flow from operations before working capital changes per share $0.25 $0.54 $0.23
Cash flow from operations after working capital changes per share $0.05 $0.49 $0.20
-------------------------------------------------------------------------------------------------------
</TABLE>
(f) Reduction of share capital
On June 22, 1995, the shareholders of the Company passed a special
resolution to reduce the stated capital of the Company's common shares
by $10,602,526 which represents the Company's deficit at
December 31, 1994.
- -------------------------------------------------------------------------------
<PAGE> 43
OPTIMA PETROLEUM CORPORATION
Notes to Consolidated Financial Statements
Years ended December 31, 1997, 1996 and 1995 Page 8
- -------------------------------------------------------------------------------
10. RELATED PARTY TRANSACTIONS
During 1996, the Company was charged consulting expenses of $417,780 (1996
- $395,463, 1995 - 404,017) by companies related by virtue of common
directors. Office expense includes $117,600 (1996 - $115,962, 1995 -
$115,416 ) paid to a related company.
11. INCOME TAXES
The benefit of the Company's losses for United States income tax purposes
has not been recognized in the accounts. The amount of these losses and
their expiry dates are as follows:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------
United States
-----------------------------------------------------------------------
<S> <C>
2006 US$1,331,731
2007 2,299,528
2008 489,925
2009 1,211,359
2010 2,440,048
2011 845,280
2012 360,000
-----------------------------------------------------------------------
US$8,979,871
-----------------------------------------------------------------------
</TABLE>
The Company's effective tax rate differs from the expected statutory rate
either because losses have not been tax effected or because previously
unrecognized tax losses have been applied.
12. RECONCILIATION BETWEEN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN CANADA
AND THE UNITED STATES
(a) Accounting for income taxes
Under the asset and liability method of Statement of Financial
Accounting Standards No. 109 ("SFAS 109"), deferred income tax assets
and liabilities, reduced by a valuation allowance to an amount more
likely than not to be recovered, are measured using enacted tax rates
for the future income tax consequences attributable to differences
between the financial statement carrying amount of existing assets and
liabilities and their respective tax bases. The approximate effect of
each component of deferred income tax assets and liabilities at
December 31, 1997 is as follows:
<TABLE>
<S> <C>
Net operating losses deferred tax assets $ 5,137,000
Petroleum and natural gas interests deferred tax liabilities (44,000)
-------------------------------------------------------------------------------
Net deferred tax assets 5,093,000
Less valuation allowance (5,093,000)
-------------------------------------------------------------------------------
Deferred tax assets, net of valuation allowance $ --
-------------------------------------------------------------------------------
</TABLE>
The valuation allowance equals the entire amount of the net deferred
tax assets as the recognition criteria for deferred tax assets has not
been met. Therefore, there is no effect of applying the provisions of
SFAS 109 on the Company's financial statements.
- --------------------------------------------------------------------------------
<PAGE> 44
OPTIMA PETROLEUM CORPORATION
Notes to Consolidated Financial Statements
Years ended December 31, 1997, 1996 and 1995 Page 9
- -------------------------------------------------------------------------------
12. RECONCILIATION BETWEEN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN CANADA
AND THE UNITED STATES (CONTINUED)
(b) Consolidated statements of changes in financial position
Under United States accounting principles, the following items are not
considered to be cash items and would not appear in the consolidated
statements of changes in financial position:
(i) the conversion of debentures
(ii) the acquisition of subsidiary in exchange for the issuance of
shares; and
(iii) the issuance of shares on settlement of consulting fees and
directors fees payable.
As a result, cash flows from operating, financing and investing
activities would be presented as follows under United States accounting
principles:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------
1997 1996 1995
------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from:
Operating activities $ 600,808 $ 5,388,392 $ 2,154,092
Financing activities (7,527,603) 1,688,813 7,862,621
Investing activities 10,532,087 (6,045,068) (9,309,079)
------------------------------------------------------------------------------------
Increase in cash $ 3,605,292 $ 1,032,137 $ 707,634
------------------------------------------------------------------------------------
</TABLE>
Under United States accounting principles, the following supplementary
cash flow information would be disclosed:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------
1997 1996 1995
---------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest paid $188,468 $685,942 $461,531
---------------------------------------------------------------------------------
Income taxes paid $151,000 $48,214 $25,852
---------------------------------------------------------------------------------
</TABLE>
(c) Cash flow per share
Disclosure of cash flow per share information is prohibited under
United States generally accepted accounting principles.
(d) Full cost method of accounting
Under the United States full cost method of accounting for petroleum
and natural gas interests, the Company, using sales prices at the
balance sheet date, would have been required to write-down the Canadian
petroleum and natural gas interests by approximately $800,000 in 1995.
Accordingly, loss and loss per share for the year ended December 31,
1995 under United States accounting principles would be $1,955,062 and
$0.22, respectively. The sale of the Canadian petroleum and natural gas
interests in 1997 causes this $800,000 difference to reverse.
Accordingly, loss and loss per share for the year ended December 31,
1997 under United States accounting principles would be $4,035,220 and
$0.36, respectively.
- -------------------------------------------------------------------------------
<PAGE> 45
OPTIMA PETROLEUM CORPORATION
Notes to Consolidated Financial Statements
Years ended December 31, 1997, 1996 and 1995 Page 10
- -------------------------------------------------------------------------------
13. SEGMENTED INFORMATION
All of the Company's activities are in one business segment, petroleum and
natural gas exploration, development and production.
Note 6 discloses the Company's petroleum and natural gas interests by
geographic segment, and these interests comprise the majority of
identifiable assets as at December 31, 1997 and 1996. The Company's
operations by geographic segment for the years ended December 31, 1997,
1996 and 1995 were as follows:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------
Canada United States Total
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1997
Petroleum and natural gas sales -- $ 7,649,415 $ 7,649,415
Royalties and production taxes -- 2,581,196 2,581,196
Operating costs -- 1,018,211 1,018,211
-----------------------------------------------------------------------------------------------------------------------
Operating Income -- 4,050,008 4,050,008
Depreciation and depletion 33,512 4,236,233 4,269,745
Gain on sale of Canadian petroleum and natural gas interests (518,025) -- (518,025)
Provision for revenue dispute -- 1,023,998 1,023,998
Write-down of petroleum and natural gas interests -- 2,520,000 2,520,000
-----------------------------------------------------------------------------------------------------------------------
484,513 (3,730,223) (3,245,710)
Unallocated costs:
General and administrative 1,691,779
Interest and bank charges 188,468
Interest revenue (250,916)
Foreign exchange (259,315)
Amortization of deferred financing costs 68,494
Income taxes 151,000
-----------------------------------------------------------------------------------------------------------------------
Loss $(4,835,220)
-----------------------------------------------------------------------------------------------------------------------
</TABLE>
- -------------------------------------------------------------------------------
<PAGE> 46
OPTIMA PETROLEUM CORPORATION
Notes to Consolidated Financial Statements
Years ended December 31, 1997, 1996 and 1995 Page 11
- -------------------------------------------------------------------------------
13. SEGMENTED INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
Canada United States Total
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1996
Petroleum and natural gas sales $3,076,442 $9,786,259 $ 12,862,701
Royalties and production taxes 455,556 2,431,540 2,887,096
Operating costs 746,835 902,815 1,649,650
--------------------------------------------------------------------------------------------------------------
Operating income 1,874,051 6,451,904 8,325,955
Depreciation and depletion 1,763,836 3,897,369 5,661,205
--------------------------------------------------------------------------------------------------------------
110,215 2,554,535 2,664,750
Unallocated costs:
General and administrative 1,663,411
Interest and bank charges 685,942
Interest and other revenue (26,095)
Foreign exchange (3,789)
Amortization of deferred financing costs 68,494
Income taxes 48,214
--------------------------------------------------------------------------------------------------------------
Net Income $ 228,573
==============================================================================================================
1995
Petroleum and natural gas sales $1,529,376 $5,233,031 $ 6,762,407
Royalties and production taxes 218,262 1,666,846 1,885,108
Operating costs 491,795 434,364 926,159
--------------------------------------------------------------------------------------------------------------
Operating income 819,319 3,131,821 3,951,140
Depreciation and depletion 659,722 2,547,396 3,207,118
--------------------------------------------------------------------------------------------------------------
159,597 584,425 744,022
Unallocated costs:
General and administrative 1,470,083
Interest and bank charges 461,531
Interest and other revenue (73,532)
Foreign exchange (7,437)
Amortization of deferred financing costs 22,587
Income taxes 25,852
--------------------------------------------------------------------------------------------------------------
Loss $ (1,155,062)
--------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
<PAGE> 47
\OPTIMA PETROLEUM CORPORATION
Notes to Consolidated Financial Statements
Years ended December 31, 1997, 1996 and 1995 Page 12
- -------------------------------------------------------------------------------
14. LITIGATION
(a) S.W. HOLMWOOD
The Company is a party to litigation in the United States District Court,
Western District of Louisiana (Amoco Production Company vs. Texas Meridian
Resource Exploration, Inc.) by virtue of its master participation agreement
with Meridian Resource Corporation (formally known as Texas Meridian
Resource Corporation).
The litigation enures from a joint exploration agreement between the
plaintiff and defendant whereby adjoining petroleum and natural gas leases
were pooled on a 50% / 50% joint ownership basis. Two producing oil wells
have been drilled and placed on production. The plaintiff is claiming a
breach of trust and demands surrender of 100% of the wells ownership on a
retroactive basis and has received a favorable summary judgement. The
operator pending the court's granting of damages intends to appeal the
judgement.
The Company holds a beneficial 4% working interest. Since the outcome of
this litigation is not determinable, the Company has recorded 100% of the
cumulative net operating income to date aggregating to $1,023,000 as
Revenue in Dispute.
(b) WILDHAY
The Company is party to a statement of claim and counterclaim with a
drilling contractor in the Judicial District of Calgary, Court of Queen's
Bench, Alberta. The nature of this litigation is based on a contract
wherein the drilling contractor drilled a well on behalf of the Company and
a joint venture partner. The working interest participants are demanding
$2,738,568 in throw away costs and expenses plus $1,001,755 for loss of the
original well as well as $5,932,000 of reservoir damage from the drilling
contractor. The well in question is reflected in property and equipment at
$1.1 million and an additional $1.2 million is included as a receivable
from the Company's joint venture partner.
15. SUBSEQUENT EVENT
On February 11, 1998, the Company entered into a Plan and Agreement of
Merger ("Agreement") whereby the Company's wholly owned U.S. subsidiary
Optima Energy (U.S.) Corporation would merge with American Explorer,
L.L.C., ("American") a Louisiana limited liability company, Goodson
Exploration Company ("Goodson"), a Louisiana corporation, NAB Financial,
L.L.C. ("NAB"), a Louisiana limited liability company, and Dexco Energy,
Inc. ("Dexco"), a Louisiana corporation (American, Goodson, NAB and Dexco
collectively, referred to as the acquired companies). Goodson, NAB and
Dexco are holding companies which own all the outstanding common shares of
American. American is engaged in the acquisition of and exploration for oil
and natural gas.
Under the terms of the Agreement, the acquired companies would be merged
with the Company's U.S. subsidiary in exchange for 7,335,001 common shares
of the Company to be issued to the former shareholders of the acquired
companies, which will represent approximately 40% of the post acquisition
outstanding common shares of the Company. In addition, the Company will
issue 1,667,001 in contingent stock issue rights which will be exchangeable
for common shares of the Company if the Company's share price exceeds U.S.
$5 per share for 20 consecutive trading days. The contingent stock issue
rights will terminate on the third anniversary after issuance if the
condition stated above is not met within the three year time limit. In
addition, the Company is required to provide American with a loan agreement
of U.S. $2.5 million prior to March 1, 1998, with an initial draw of U.S.
$500,000 available at that date and further draws based on the consummation
of this Agreement.
- -------------------------------------------------------------------------------
<PAGE> 48
OPTIMA PETROLEUM CORPORATION
Notes to Consolidated Financial Statements
Years ended December 31, 1997, 1996 and 1995 Page 13
- -------------------------------------------------------------------------------
15. SUBSEQUENT EVENT (CONTINUED)
The Agreement is subject to a number of conditions which must be met to
give effect to the merger including but not limited to the following:
- the receipt of various regulatory approvals;
- the approval of the Agreement by the shareholders of the Company and
the shareholders of the acquired companies; and
- due diligence by both the Company and the acquired companies.
If the agreement is consummated, the Company will account for the
acquisition using the purchase method.
The estimated purchase price based on the recent trading history of the
Company's common shares is approximately $14 million.
- -------------------------------------------------------------------------------
<PAGE> 49
OPTIMA PETROLEUM CORPORATION
Notes to Consolidated Financial Statements
Years ended December 31, 1997, 1996 and 1995 Page 14
- -------------------------------------------------------------------------------
SUPPLEMENTAL INFORMATION
CHANGES IN THE STANDARDIZED MEASURE OF DISCOUNTED FUTURE CASH FLOWS
AS AT DECEMBER 31, 1997, 1996 AND 1995 (UNAUDITED)
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
(000's)
-------
<S> <C> <C> <C>
PROVED
Beginning of year 41,536 29,473 24,236
Petroleum and natural gas sales, net of
royalties, production taxes and operating income (4,050) (8,326) (3,951)
Unearned petroleum and natural gas sales, net of
royalties, production taxes and operating expenses (1,024) -- --
Net changes in prices (6,992) 22,017 (3,572)
Revisions of quantity estimates (6,093) (22,936) (3,332)
Purchase of reserves in place -- 3,199 7,503
Discoveries 665 18,277 1,389
Sale of reserves in place (13,856) (1,634) (1,160)
Changes in estimated future development costs (5,083) (9,468) (5,463)
Development costs incurred 5,358 6,978 8,559
Net change in estimated future taxes 1,479 (1,479) --
Accretion of discount 2,916 2,947 2,424
Changes in production rates (timing) (2,315) 2,488 2,840
------- ------- -------
End of year 12,541 41,536 29,473
======= ======= =======
</TABLE>
- -------------------------------------------------------------------------------
<PAGE> 1
EXHIBIT 3.2
[LOGO] Industry Canada Industrie Canada
CERTIFICATE
OF CONTINUANCE
CANADA BUSINESS
CORPORATIONS ACT
OPTIMA PETROLEUM CORPORATION
______________________________________________
Name of corporation-Denomination de la societe
I hereby certify that the above-named corporation was continued under section
187 of the Canada Business Corporations Act, as set out in the attached articles
of continuance.
/s/
Director - Directeur
CERTIFICAT
DE PROROGATION
LOI REGISSANT LES SOCIETES
PAR ACTIONS DE REGIME FEDERAL
304257-0
_______________________________________
Corporation number-Numero de la societe
Je certifie que la societe susmentionnee a ete prorogee en vertu de l'article
187 de la Loi regissant les societes par actions de regime federal, tel qu'il
est indique dans les clauses de prorogation ci-jointes.
JUNE 14, 1994/LE 14 JUIN 1994
Date of Continuance - Date de la prorogation
Canada
<PAGE> 1
EXHIBIT 3.3
OPTIMA PETROLEUM CORPORATION
The following resolutions were passed by the SPECIAL COMMITTEE of
OPTIMA PETROLEUM CORPORATION (the "Company") having been consented
to in writing by all the members of the Special Committee as of
the 30th day of June, 1995.
SPECIAL COMMITTEE APPROVAL OF PLAN OF ARRANGEMENT
WHEREAS the Company's Board of Directors appointed the Special Committee to
consider the proposed arrangement ("Arrangement") between the Company and
Roxbury Capital Corp. ("Roxbury") whereby the Company will acquire all of the
issued and outstanding common shares of Roxbury in exchange for common shares
and warrants of the Company on the basis of seven common shares and seven share
purchase warrants of the Company for every one Roxbury common share, each share
purchase warrant entitling the holder to acquire an additional common share of
the Company prior to February 28, 1997 at a price of $5.10 per share;
AND WHEREAS in considering the appropriateness of the proposed Arrangement, the
Special Committee reviewed and considered, among other things:
(a) information provided by management of the Company and Roxbury with
respect to the business and operations of the Company and Roxbury
on both a historical and prospective basis;
(b) representations provided by management of the Company that the
Arrangement will, in addition to streamlining management and
operations of the Company and Roxbury, enhance the Company's
property holdings by the consolidating the Company's and Roxbury's
interests in the Company's principle producing properties;
(c) information provided by the Company's financial advisors and legal
counsel;
(d) a valuation and fairness opinion prepared by BDO Valuation Inc. at
the request of the boards of the Company and of Roxbury, which
stated its opinion that the Arrangement is fair, from a financial
point of view, to the Company's shareholders and Roxbury
shareholders generally.
<PAGE> 2
AND WHEREAS the Special Committee has concluded that the proposed Arrangement is
fair and reasonable to, and in the best interests of, the Company and the
Company's shareholders for the following principal reasons:
(a) efficiencies from a management and operations perspective could be
realized from the merger of Roxbury and the Company;
(b) the availability of a larger asset base and market capitalization
to fund ongoing exploration and development programs; and
(c) the availability of Roxbury's tax pools in the U.S. to offset
taxable cash flow from the Turtle Bayou Prospect in Louisiana.
IT IS HEREBY RESOLVED THAT:
1. the Company proceed with the proposed arrangement on the basis set forth
in the Arrangement Agreement and attached Plan of Arrangement dated June
30, 1995 (the "Arrangement Agreement");
2. any one member of the Special Committee be and he is hereby authorized
and directed to perform all such acts, deeds and things and execute all
such documents and other writings as may be required to give effect to
the true intent of this resolution.
These resolutions may be signed by the members of the Special Committee in as
many counterparts as may be deemed necessary, each of which so signed shall be
deemed to be an original, and such counterparts together shall constitute one
and the same instrument notwithstanding the date of execution and shall be
deemed to bear the date set forth above.
/s/ William Leuschner
- ---------------------
William Leuschner
/s/ Emile Stehelin
- ---------------------
Emile Stehelin
/s/ Martin G. Abbott
- ---------------------
Martin G. Abbott
- 2 -
<PAGE> 3
OPTIMA PETROLEUM CORPORATION
The following resolutions were passed by the Directors of OPTIMA
PETROLEUM CORPORATION (the "Company") having been consented to in
writing by all the Directors of the Company as of the 30th day of June,
1995
APPROVAL OF PLAN OF ARRANGEMENT
WHEREAS the Company's Board of Directors appointed the Special Committee to
consider the proposed arrangement ("Arrangement") between the Company and
Roxbury Capital Corp. ("Roxbury") whereby the Company will acquire all of the
issued and outstanding common shares of Roxbury in exchange for common shares
and warrants of the Company on the basis of seven common shares and seven share
purchase warrants of the Company for every one Roxbury common share, each share
purchase warrant entitling the holder to acquire an additional common share of
the Company prior to February 28, 1997 at a price of $5.10 per share;
AND WHEREAS the Special Committee has concluded that the proposed Arrangement is
fair and reasonable to, and in the best interests of, the Company and the
Company's shareholders and has recommended to the Board that the Company proceed
with the Arrangement;
IT IS HEREBY RESOLVED THAT:
1. the Company proceed with the proposed arrangement on the basis set forth
in the Arrangement Agreement and attached Plan of Arrangement dated June
30, 1995 (the "Arrangement Agreement");
2. the President and Chief Financial Officer of the Company be and they are
hereby authorized to execute under seal of the Company the Arrangement
Agreement;
3. subject to the receipt of all required shareholder, regulatory and court
approvals to the Arrangement, the following share issuances be and are
hereby approved:
(a) the issuance of up to 1,374,727 shares (the Shares") issued at
a deemed price of $4.50 per Share and up to 1,374,727 warrants
("Warrants") to the registered shareholders of Roxbury;
(b) the issuance of up to 1,374,727 shares upon exercise of the
Warrants;
(c) the issuance of up to 15,000 shares upon exercise of stock
options to the following directors of Roxbury as per paragraph
3.2(b) of the Plan of Arrangement:
<TABLE>
<CAPTION>
Name of Director Number of shares Exercise Price Expiry Date
under option
---------------------------------------------------------------------------
<S> <C> <C> <C>
John McCleery 4,300 $5.25 March 8/96
---------------------------------------------------------------------------
Ted Kozub 7,100 $5.25 March 8/96
---------------------------------------------------------------------------
David Block 3,600 $5.25 March 8/96
</TABLE>
<PAGE> 4
(d) the issuance of up to 122,300 shares upon exercise of
outstanding Roxbury warrants to the following warrant holders:
<TABLE>
<CAPTION>
Name of Warrant Holder Number of shares Exercise Expiry Date
under warrant Price
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------
Emile Stehelin RRSP 7,300 $ 6.65 September 15, 1995
- ----------------------------------------------------------------------------------------
Eva Stehelin 17,900 $ 6.65 September 15, 1995
- ----------------------------------------------------------------------------------------
John McCleery RRSP 22,200 $ 6.65 September 15, 1995
- ----------------------------------------------------------------------------------------
Thornbury Estates 3,000 $ 6.65 September 15, 1995
- ----------------------------------------------------------------------------------------
Laurie Leuschner 10,700 $ 6.65 September 15, 1995
- ----------------------------------------------------------------------------------------
Geoffrey Kane 4,300 $ 6.65 September 15, 1995
- ----------------------------------------------------------------------------------------
Knapton Investments 2,900 $ 6.65 September 15, 1995
========================================================================================
Robert L. Hodgkinson 10,700 $ 10.50 November 15, 1995
- ----------------------------------------------------------------------------------------
William C. Leuschner 10,700 $ 10.50 November 15, 1995
- ----------------------------------------------------------------------------------------
Emile Stehelin 10,700 $ 10.50 November 15, 1995
- ----------------------------------------------------------------------------------------
Ronald P. Bourgeois 3,900 $ 10.50 November 15, 1995
- ----------------------------------------------------------------------------------------
Harold Gershuny 5,000 $ 10.50 November 15, 1995
========================================================================================
Sinclair Capital Corp. 13,000 $ 9.10 August 25, 1996
- ----------------------------------------------------------------------------------------
</TABLE>
4. the Company make application to The Toronto Stock Exchange to list the
2,886,754 common shares to be issued and reserved for issuance pursuant
to the foregoing share issuances;
5. any one director or officer of the Company be and he is hereby
authorized and directed to perform all such acts, deeds and things and
execute, under the seal of the Company or otherwise, all such documents
and other writings as may be required to give effect to the true intent
of this resolution including, without limitation, all treasury orders
and the Warrant Indenture with Montreal Trust Company.
These resolutions may be signed by the Directors in as many counterparts as may
be deemed necessary, each of which so signed shall be deemed to be an original,
and such counterparts together shall constitute
- 2 -
<PAGE> 5
one and the same instrument notwithstanding the date of execution and shall be
deemed to bear the date as set forth above.
/s/ William Leuschner /s/ Robert L. Hodgkinson
- ----------------------------------- -----------------------------------
William Leuschner Robert L. Hodgkinson
/s/ Emile Stehelin /s/ Ronald P. Bourgeois
- ----------------------------------- -----------------------------------
Emile Stehelin Ronald P. Bourgeois
/s/ Martin G. Abbott
- -----------------------------------
Martin G. Abbott
- 3 -
<PAGE> 1
EXHIBIT 3.4
SUBSCRIPTION AGREEMENT - SS. 55(2)(4)
THIS AGREEMENT MADE EFFECTIVE AS OF THE 10th DAY OF OCTOBER, 1996 (the
"Effective Date").
BETWEEN:
OPTIMA PETROLEUM CORPORATION
Suite 600 - 595 Howe Street
Vancouver, British Columbia,
Canada, V6C 2T5;
(the "Company")
AND:
QUEENSCLIFF MANAGEMENT LTD.
Suite 500 - 221 West Esplanade
North Vancouver, British Columbia
V7M 3J3
(the "Purchaser")
WHEREAS:
A. The Purchaser wishes to subscribe for common shares, of the Company (the
"Securities");
B. It is the intention of the parties to this Agreement that this subscription
will be made pursuant to appropriate exemptions (the "Exemptions") from the
registration and prospectus or equivalent requirements of all rules, policies,
notices, orders and legislation of any kind whatsoever (collectively the
"Securities Rules") of all jurisdictions applicable to this subscription;
NOW THEREFORE THIS AGREEMENT WITNESSES that in consideration of the mutual
covenants and agreements herein contained, the receipt of which is hereby
acknowledged, the parties covenant and agree with each other (the "Agreement")
as follows:
1. Representations and Warranties of the Purchaser
1.1 The Purchaser represents and warrants to the Company, and acknowledges that
the Company is relying on these representations and warranties to, among other
things, ensure that it is complying with all of the applicable Securities Rules,
that:
<PAGE> 2
(a) in the case of the purchase by the Purchaser of the Securities as
principal, the Purchaser is purchasing such Securities as principal
for its own account, and not for the benefit of any other person,
and is purchasing a sufficient number of Securities such that the
aggregate acquisition cost to the Purchaser of such Securities is
not less than $97,000, if the Purchaser is a resident of British
Columbia, Alberta, Manitoba, New Brunswick, Prince Edward Island,
Newfoundland or an International Jurisdiction, or $150,000 if the
Purchaser is a resident of Saskatchewan, Ontario, Quebec or Nova
Scotia;
(b) in the case of the purchase of Securities by the Purchaser as agent
for a disclosed principal, each beneficial purchaser of such
Securities for whom the Purchaser is acting is purchasing as
principal for its own account, and not for the benefit of any other
person, and is purchasing a sufficient number of Securities so that
such beneficial purchaser has an aggregate acquisition cost for such
Securities of not less than $97,000, if the beneficial purchaser is
a resident of British Columbia, Alberta, Manitoba, New Brunswick,
Prince Edward Island, Newfoundland or an International Jurisdiction,
or $150,000 if the beneficial purchaser is a resident of
Saskatchewan, Ontario, Quebec or Nova Scotia, and the Purchaser is
an agent with due and proper authority to execute this Agreement and
all documentation in connection with the purchase on behalf of each
beneficial purchaser;
(c) in the case of the purchase of Securities by the Purchaser as a
trustee or as agent for a principal which is undisclosed or
identified by account number only, each beneficial purchaser of the
Securities for whom the Purchaser is acting is purchasing as
principal for its own account, and not for the benefit of any other
person, and is purchasing a sufficient number of Securities so that
such beneficial purchaser has an aggregate acquisition cost for such
Securities of not less than $97,000, if the beneficial purchaser is
a resident of British Columbia, Alberta, Manitoba, New Brunswick,
Prince Edward Island, Newfoundland or an International Jurisdiction,
or $150,000 if the beneficial purchaser is a resident of
Saskatchewan, Ontario, Quebec or Nova Scotia, and the Purchaser is a
trustee or agent with due and proper authority to execute this
Agreement and all documentation in connection with the purchase on
behalf of each beneficial purchaser;
(d) neither the Purchaser nor any beneficial purchaser on whose behalf
the Purchaser is acting has been formed, created, established or
incorporated for the purpose of permitting the purchase of the
Securities without a prospectus by groups of individuals whose
individual share of the aggregate acquisition cost for such
Securities is less than $97,000, if the beneficial purchaser is a
resident of British Columbia, Alberta, Manitoba, New Brunswick,
Prince Edward Island, Newfoundland or an International Jurisdiction,
or $150,000 if the beneficial purchaser is a resident of
Saskatchewan, Ontario, Quebec or Nova Scotia;
- 2 -
<PAGE> 3
(e) if the Purchaser and any beneficial purchaser for whom it is acting
is resident of an "International Jurisdiction" (which means a
country other than Canada or the United States) then:
(i) the Purchaser is knowledgeable of, or has been independently
advised as to, the applicable Securities Rules of the
International Jurisdiction which would apply to this
subscription, if there are any;
(ii) the Purchaser is purchasing the Securities pursuant to
Exemptions under the Securities Rules of that International
Jurisdiction or, if such is not applicable, the Purchaser is
permitted to purchase the Securities under the applicable
Securities Rules of the International Jurisdiction without the
need to rely on Exemptions; and
(iii) the applicable Securities Rules do not require the Company to
make any filings or seek any approvals of any kind whatsoever
from any regulatory authority of any kind whatsoever in the
International Jurisdiction; and
the Purchaser will, if requested by the Company, deliver to the
Company a certificate or opinion of local counsel from the
International Jurisdiction which will confirm the matters referred
to in subparagraphs (ii) and (iii) above to the satisfaction of the
Company, acting reasonably;
(f) the Purchaser and any beneficial purchaser for whom it is acting is
not a "U.S. Person" (as defined under Regulation S made under the
United States Securities Act of 1933, which definition includes an
individual resident in the United States and an estate or trust of
which any executor or administrator or trustee, respectively, is a
U. S. Person) and the Purchaser understands and acknowledges that
the Securities have not and will not be registered under the United
States Securities Act of 1933, and, subject to certain exceptions,
the Securities may not be offered or sold within the United States;
(g) the Purchaser acknowledges that the Company is relying on the
Exemptions in order to complete the trade and distribution of the
Securities and the Purchaser is aware of the criteria of the
Exemptions to be met by the Purchaser, including those referred to
in the Form 20A attached hereto and, if applicable, the Purchaser
meets those criteria;
(h) the Purchaser acknowledges that because this subscription is being
made pursuant to the Exemptions:
(i) the Purchaser is restricted from using certain of the civil
remedies available under the applicable Securities Rules;
- 3 -
<PAGE> 4
(ii) the Purchaser may not receive information that might otherwise
be required to be provided to the Purchaser under the
applicable Securities Rules if the Exemptions were not being
used; and
(iii) the Company is relieved from certain obligations that would
otherwise apply under the applicable Securities Rules if the
Exemptions were not being used;
(i) the Securities are not being subscribed for by the Purchaser as a
result of any material information about the Company's affairs that
has not been publicly disclosed;
(j) the offer and sale of these Securities was not accompanied by an
advertisement and the Purchaser was not induced to purchase these
Securities as a result of any advertisement made by the Company; and
(k) if the Purchaser is a corporation, the Purchaser is a valid and
subsisting corporation, has the necessary corporate capacity and
authority to execute and deliver this Agreement and to observe and
perform its covenants and obligations hereunder and has taken all
necessary corporate action in respect thereof, or, if the Purchaser
is a partnership, syndicate, trust or other form of unincorporated
organization, the Purchaser has the necessary legal capacity and
authority to execute and deliver this Agreement and to observe and
perform its covenants and obligations hereunder and has obtained all
necessary approvals in respect thereof, and, in either case, upon
the Company executing and delivering this Agreement, this Agreement
will constitute a legal, valid and binding contract of the Purchaser
enforceable against the Purchaser in accordance with its terms and
neither the agreement resulting from such acceptance nor the
completion of the transactions contemplated hereby conflicts with,
or will conflict with, or results, or will result, in a breach or
violation of any law applicable to the Purchaser, any constating
documents of the Purchaser or any agreement to which the Purchaser
is a party or by which the Purchaser is bound.
1.2 The Company represents and warrants to the Purchaser, and acknowledges that
the Purchaser is relying on these representations and warranties in entering
into this Agreement, that:
(a) the Company is a valid and subsisting corporation duly incorporated
and in good standing under the laws of the jurisdiction in which it
was incorporated, continued or amalgamated;
(b) the Company is a reporting issuer in British Columbia, and
Ontario and the Company is not, to the best of its knowledge, in
material default of any of the requirements of the applicable
Securities Rules of those jurisdictions;
- 4 -
<PAGE> 5
(c) the Company's subsidiaries (the "Subsidiaries"), if any, are valid
and subsisting corporations and in good standing under the laws of
the jurisdictions in which they were incorporated;
(d) the common shares of the Company are listed and posted for trading
on the VSE and TSE and, to the best of its knowledge, the Company is
not in material default of any of the listing requirements of the
VSE or TSE;
(e) upon their issuance, the Shares will be validly issued and
outstanding fully paid and non-assessable common shares of the
Company registered as directed by the Purchaser, free and clear of
all trade restrictions (except as may be imposed by operation of the
applicable Securities Rules) and, except as may be created by the
Purchaser, liens, charges or encumbrances of any kind whatsoever;
(f) upon their issuance, the Warrants will be validly created, issued
and outstanding, registered as directed by the Purchaser, and, upon
their issuance, the shares issued on the exercise of the Warrants
will be validly issued and outstanding fully paid and non-assessable
common shares of the Company registered as directed by the
Purchaser, and both will be free and clear of all trade restrictions
(except as may be imposed by operation of the applicable Securities
Rules) and, except as may be created by the Purchaser, liens,
charges or encumbrances of any kind whatsoever;
(g) the Company and its Subsidiaries, if any, hold all licences and
permits that are required for carrying on their business in the
manner in which such business has been carried on and the Company
and its Subsidiaries, if any, have the corporate power and capacity
to own the assets owned by them and to carry on the business carried
on by them and they are duly qualified to carry on business in all
jurisdictions in which they carry on business;
(h) to the best of its knowledge, there are no material actions, suits,
judgments, investigations or proceedings of any kind whatsoever
outstanding, pending or threatened against or affecting the Company
or its Subsidiaries, if any, at law or in equity or before or by any
Federal, Provincial, State, Municipal or other governmental
department, commission, board, bureau or agency of any kind
whatsoever and, to the best of the Company's knowledge, there is no
basis therefor;
(i) the Company has good and sufficient right and authority to enter
into this Agreement and complete its transactions contemplated under
this Agreement on the terms and conditions set forth herein; and
(j) to the best of its knowledge, the execution and delivery of this
Agreement, the performance of its obligations under this Agreement
and the completion of its transactions contemplated under this
Agreement will not conflict with, or result
- 5 -
<PAGE> 6
in the breach of or the acceleration of any indebtedness under, or
constitute default under, the constating documents of the Company or
any indenture, mortgage, agreement, lease, licence or other
instrument of any kind whatsoever to which the Company is a party or
by which it is bound, or any judgment or order of any kind
whatsoever of any Court or administrative body of any kind
whatsoever by which it is bound.
2. SUBSCRIPTION
2.1 The Purchaser hereby subscribes the subscription funds (the "Subscription
Funds") referred to below for and agrees to take up the common shares without
par value in the capital stock of the Company (a "Share" or the "Shares")
referred to below at a price of Cdn. $3.85 per Share.
2.2 On or before the 10th day of November, 1996, the Purchaser shall deliver to
the Company, the Subscription Funds for the Securities subscribed for in the
form of cash, solicitor's trust cheque, certified cheque, bank draft, money
order or wire transfer payable to the Company. The Company will be entitled to
use the Subscription Funds immediately upon the receipt thereof. Pending receipt
of Regulatory Approval, the Subscription Funds will be considered a loan from
the Purchaser to the Company which will be repaid in full on December 31, 1996
should Regulatory Approval not be obtained by the date specified in paragraph
4.1.
3. COVENANTS, AGREEMENTS AND ACKNOWLEDGMENTS
3.1 The Purchaser covenants and agrees with the Company to:
(a) concurrent with the execution of this Agreement, fully complete and
execute the TSE questionnaire and, if the Purchaser is an individual
(which means a natural person, but does not include a partnership,
unincorporated association, unincorporated syndicate, unincorporated
organization or trust, or a natural person in his capacity as a
trustee, executor, administrator or personal or other legal
representative), the Form 20A scheduled to this Agreement; and
(b) hold and not sell, transfer or in any manner dispose of the Shares
prior to midnight on the first anniversary of the Effective Date
unless the Purchaser has obtained the prior written consent of the
TSE to the sale, transfer or disposition, and the sale, transfer or
disposition is made in accordance with all applicable Securities
Rules.
3.2 The Purchaser acknowledges and agrees that the Shares will be subject to
such trade restrictions as may be imposed by operation of the applicable
Securities Rules, and the share certificate or certificates representing the
Shares will bear such legends as may be required by the applicable Securities
Rules and by the rules and policies of the TSE.
- 6 -
<PAGE> 7
3.3 The Company covenants and agrees with the Purchaser to:
(a) file the documents necessary to be filed under the applicable
Securities Rules, including Forms 20 (or the forms equivalent
thereto), within the required time; and
(b) use its best efforts to obtain Regulatory Approval prior to the
deadline referred to herein.
4. REGULATORY APPROVAL
4.1 Notwithstanding any other term of this Agreement, this Agreement and the
subscription provided for hereunder are subject to the Company obtaining the
approval of the TSE ("Regulatory Approval") by the 22nd day of November, 1996.
In the event that Regulatory Approval is not obtained by this date, this
Agreement will terminate and be of no further force and effect and the
Subscription Funds will be returned to the Purchaser without interest or
deduction.
5. CLOSING
5.1 The completion of the subscription contemplated under this Agreement shall
occur on or before the tenth business day (the "Closing Date") following the
date Regulatory Approval is given. The Company shall deliver to the Purchaser,
no later than the Closing Date, a share certificate or certificates representing
the Shares to the Purchaser as provided for below by the Purchaser.
6. GENERAL
6.1 For the purposes of this Agreement, time is of the essence.
6.2 The parties hereto shall execute and deliver all such further documents and
instruments and do all such acts and things as may, either before or after the
execution of this Agreement, be reasonably required to carry out the full intent
and meaning of this Agreement.
6.3 This Agreement shall be subject to, governed by and construed in accordance
with the laws of British Columbia.
6.4 This Agreement may not be assigned by either party hereto.
6.5 This Agreement may be signed by the parties in as many counterparts as may
be deemed necessary, each of which so signed shall be deemed to be an original,
and all such counterparts together shall constitute one and the same instrument.
- 7 -
<PAGE> 8
IN WITNESS WHEREOF the parties have executed this written Agreement effective as
of the Effective Date.
The CORPORATE SEAL of )
OPTIMA PETROLEUM CORPORATION was )
hereunto affixed in the presence of: )
) c/s
)
____________________________________ )
TO BE COMPLETED BY THE PURCHASER:
A. NAME AND ADDRESS (NOTE: CANNOT BE A U.S. ADDRESS) The name and address (to
establish the Purchaser's jurisdiction of residence for the purpose of
determining the applicable Securities Rules) of the purchaser (the "Purchaser")
is as follows:
Queenscliff Management Ltd.
Suite 500 - 221 West Esplanade
North Vancouver, B.C. V7M 3J3
B. REGISTRATION INSTRUCTIONS (NOTE: CANNOT BE A U.S. ADDRESS) The name and
address of the person in whose name the Purchaser's Securities are to be
registered is as follows (if the name and address is the same as was inserted in
paragraph A above, then insert "N/A"):
N /A
_________________________________
Name
_________________________________
Street Address
_________________________________
_________________________________
City and Province
_________________________________
Country
_____________
Postal Code
C. DELIVERY INSTRUCTIONS (NOTE: CANNOT BE A U.S. ADDRESS) The name and address
of the person to whom the certificates representing the Purchaser's Securities
referred to in paragraph A above are to be delivered is as follows (if the name
and address is the same as was inserted in paragraph A above, then insert
"N/A"):
N /A
_________________________________
Name
_________________________________
Street Address
- 8 -
<PAGE> 9
_________________________________
_________________________________
City and Province
_________________________________
Country
_____________
Postal Code
D. SUBSCRIPTION AMOUNT The minimum is Cdn. $97,000 if the Purchaser is a
resident (as per the address inserted in paragraph A above) of British Columbia.
Alberta, Manitoba. New Brunswick, Prince Edward Island, Newfoundland or an
International Jurisdiction, or Cdn. $150,000 if the Purchaser is a resident of
Saskatchewan, Ontario, Quebec or Nova Scotia.:
Subscription Funds: Cdn. $1,001,000.
Number of Securities: 260,000 Shares
Note: The number of Securities must equal the Subscription Funds divided
by price of Cdn. $3.85 per Security.
TO BE COMPLETED AND SIGNED BY THE PURCHASER:
Queenscliff Management Ltd.
Name of the "Purchaser" - use the name
inserted in paragraph A above.
Per: /s/ David N. Matheson
__________________________________
Signature of Purchaser
President
__________________________________
Title (if applicable)
- 9 -
<PAGE> 1
EXHIBIT 3.6
CONSULTING AGREEMENT
THIS AGREEMENT dated for reference the 1st day of February, 1996 (the "Effective
Date").
BETWEEN:
OPTIMA PETROLEUM CORPORATION,
Suite 600 - 595 Howe Street,
Vancouver, British Columbia,
V6C 2T5;
(the "Company")
AND: HODGKINSON EQUITIES CORPORATION,
Suite 600 - 595 Howe Street,
Vancouver, British Columbia,
V6C 2T5;
(the "Consultant")
WHEREAS the Company has agreed to hire the Consultant and the Consultant has
agreed to provide his services to the Company on the terms and conditions
hereinafter set forth.
NOW THEREFORE THIS AGREEMENT WITNESSES that in consideration of the mutual
covenants and agreements herein contained, the parties hereto agree (the
"Agreement") as follows:
1. RETAINER
1.1 The Company hereby retains the services of the Consultant, and in
particular its principal shareholder, Robert L. Hodgkinson ("RLH") to provide to
the Company, the services normally expected of a president and chief executive
officer (the "services"), and the Consultant hereby agrees to provide such
services to the Company upon the terms and conditions contained in this
Agreement.
2. DURATION OF SERVICE
2.1 Subject to termination as provided for in section 7, this Agreement shall
be for an initial term of 23 months commencing on the Effective Date. Provided
that this Agreement has not been terminated by either party pursuant to section
7, the Company may renew this Agreement for further one year terms by providing
to the Consultant written notice of same at least 30 days prior to the
expiration of the current term or the renewal term, as the case may be.
<PAGE> 2
3. REMUNERATION
3.1 The Consultant shall be paid a fee of $12,500 per month payable for each
calendar month on the last business day of such month.
3.2 Subject to all necessary regulatory approvals, the Consultant shall be
entitled to:
(a) the grant of 200,000 stock options pursuant the Company's stock
option plan, such stock options to have the following terms:
(i) they will be non-transferable and have a term of three years
commencing from the date regulatory approval is obtained;
(ii) they will be exercisable at the lowest price permitted by the
applicable regulatory authorities;
(iii) they will otherwise be subject to the terms and conditions
normally required by the applicable regulatory authorities in
order to secure regulatory approval.
3.3 The Consultant shall be reimbursed for all reasonable travelling and
other out-of-pocket expenses actually and properly incurred by him in connection
with his duties hereunder provided that the Consultant first furnishes
statements and vouchers for all such expenses to the Company. Individual expense
items in excess of $12,500 must be preapproved by the Company.
4. DUTIES OF CONSULTANT
4.1 The Consultant shall have, subject always to the general or specific
instructions and directions of the board of directors of the Company (the
"Board"), full power and authority to manage the business and affairs of the
Company that would normally be managed by a senior officer having the title and
capacity of RLH, except in respect of such matters and duties as by law must be
transacted or performed by the Board.
4.2 The Consultant shall:
(a) conform to all lawful instructions and directions from time to time
given to him by the Board;
(b) devote sufficient time and attention to the business and affairs of
the Company, as would typically be expected of a president and chief
executive officer;
- 2 -
<PAGE> 3
(c) well and faithfully serve the Company and use his best efforts to
promote the interests of the Company;
(d) provide to the Company those services normally expected of a
president and chief executive officer; and
(e) consent to serve as a director of the Company and, if requested, of
any of the Company's affiliates or subsidiaries.
4.3 Subject to the provisions of the Canada Business Corporations Act, the
bylaws of the Company and provided that RLH acted honestly and in good faith
with a view to the best interests of the Company, or, in the case of a criminal
or administrative action or proceeding that is enforced by a monetary penalty,
he had reasonable grounds for believing that his conduct was lawful, and the
directors of the Company shall cause the Company to indemnify the Consultant and
RLH and his heirs and personal representatives against all costs, damages,
charges and expenses, including an amount paid to settle an action or satisfy a
judgment, reasonably incurred by him or them and resulting from RLH acting as a
director and officer of the Company in his normal course of duties. In addition,
should the directors cause the Company to purchase and maintain insurance for
the benefit of any person who is or was serving as a director of the Company
then the directors shall also cause the Company to purchase and maintain
insurance for the benefit of the Consultant against any and all liability
incurred by him as a director and officer of the Company.
5. CONFIDENTIALITY
5.1 Unless permitted by resolution of the Directors of the Company (excluding
RLH if he is a Director), the Consultant shall not, during the term of this
Agreement or at any time thereafter, use for his own purposes or for any
purposes other than those of the Company any intellectual property or knowledge
or confidential information of any kind whatsoever he may acquire in relation to
the Company's business or the business of its subsidiaries, and such shall be
and remain the property of the Company.
6. NON-COMPETITION
6.1 Subject to paragraph 7.2, the Consultant shall not, without the prior
written consent of the Company, which consent (given by a Director other than
the Consultant), will not be unreasonably withheld, during the term of this
Agreement and during the six month period immediately following the termination
of this Agreement, within the area in which the Company operated at the time of
termination (the "Prohibited Area"):
(a) directly or knowingly indirectly engage in or become financially
interested in (otherwise then through an investment in a publicly
traded or private entity in
- 3 -
<PAGE> 4
which the Consultant has no other interest or control), either
individually or as a partner, shareholder, agent, manager, owner,
advisor or financial backer of any person, persons, firm,
association, venture, entity or corporation of any kind whatsoever
that carries on the business of oil and gas exploration, development
or production (collectively the "Prohibited Businesses"); or
(b) divert or attempt to divert any business of the Company or of any of
its subsidiaries, to any other competitive establishment, by direct
or indirect inducement or otherwise.
6.2 The Company acknowledges and consents to the ongoing participation of the
Consultant and RLH in Australian Oilfields Pty Ltd. as a consultant, director,
officer and shareholder.
7. TERMINATION
7.1 Either of the parties hereto may, subject to paragraph 7.2 hereof, give
to the other three months notice in writing of its intention to terminate this
Agreement and on the expiration of such period this Agreement shall be wholly
terminated. Such three months notice may expire on any day of the month and any
remuneration payable hereunder shall be proportioned to the date of such
termination.
7.2 In the event of a merger, takeover or amalgamation or change of control
of the Company which results in a termination of the Consultant's services at
any time prior to December 31, 1997, the provisions of paragraph 6.1 will not
apply to such a termination and the Company will pay to the Consultant an amount
equal to 24 months of fees under this Agreement. The Consultant agrees to accept
the termination payment in full satisfaction of any claim it may have against
the Company whether under the terms of this Agreement or otherwise.
7.3 Notwithstanding anything else contained herein, the Company may at any
time terminate the Consultant's services for cause or if the Consultant fails to
perform or comply with any material term or condition of this Agreement. In the
event the Consultant's services are terminated under the provisions of this
paragraph 7.4, or in the event the Consultant gives the Company notice of
termination, no compensation whatever shall be payable to the Consultant after
such termination.
8. REGULATORY APPROVAL
8.1 This Agreement is subject to all necessary regulatory approvals. If such
approvals are not obtained, this Agreement shall terminate and be of no further
force and effect.
- 4 -
<PAGE> 5
8.2 The Company agrees to use its reasonable best efforts as to implement the
terms of this Agreement including, but not limited to, obtaining all approvals
from the Company's shareholders to the allocation of stock options to the
Officer as provided for in paragraph 3.2 hereof.
9. General
9.1 The headings and section references in this Agreement are for convenience of
reference only and do not form a part of this Agreement and are not intended to
interpret, define or limit the scope, extent or intent of this Agreement or any
provision thereof.
9.2 Time is hereby expressly made of the essence of this Agreement with respect
to the performance by the parties of their respective obligations under this
Agreement.
9.3 This Agreement shall enure to the benefit of and be binding upon the
parties hereto and their respective heirs, executors, administrators, personal
representatives, successors and permitted assigns. This Agreement may not be
assigned by either party hereto without the prior express written consent of the
other party.
9.4 This Agreement supersedes all prior agreements entered into between the
parties and constitutes the entire agreement between the parties hereto relating
to the subject matter hereof and may not be amended, waived or discharged except
by an instrument in writing executed by the party against whom enforcement of
such amendment, waiver or discharge is sought and this Agreement supersedes all
prior agreements between the parties.
9.5 Each of the parties hereto hereby covenants and agrees to execute such
further and other documents and instruments and do such further acts and other
things as may be necessary to implement and carry out the intent of this
Agreement.
9.6 All notices, requests, demands and other communications hereunder shall be
in writing and shall be deemed to have been duly given if delivered by hand or
mailed by postage prepaid double registered mail addressed as follows:
To the Company:
OPTIMA PETROLEUM CORPORATION,
Suite 600 - 595 Howe Street,
Vancouver, British Columbia,
V6C 2T5;
Attention: The President
- 5 -
<PAGE> 6
To the Consultant:
HODGKINSON EQUITIES CORPORATION,
Suite 600 - 595 Howe Street,
Vancouver, British Columbia,
V6C 2T5;
Attention: The President
or to such other address as may be given in writing by the Company or the
Consultant and shall be deemed to have been received, if delivered, on the date
of delivery and if mailed as aforesaid at Vancouver, British Columbia then on
the third business day following the posting thereof.
IN WITNESS WHEREOF the parties have executed this Agreement as of the day and
year first above written.
OPTIMA PETROLEUM CORPORATION
Per: /s/ Ronald P. Bourgeois
-----------------------
Authorized Signatory
HODGKINSON EQUITIES CORPORATION
Per: /s/ Robert L Hodgkinson
_______________________
Authorized Signatory
- 6 -
<PAGE> 7
CONSULTING AGREEMENT
MEMORANDUM OF AGREEMENT made as of the 1st day of February, 1995.
BETWEEN:
LEUSCHNER INTERNATIONAL RESOURCES LTD.
1200 Bow Valley Square One
202 - 6th Avenue S.W.
Calgary, A.B.
T2P 2R9
William C. Leuschner, President
(hereinafter called the "Consultant")
OF THE FIRST PART
AND:
OPTIMA PETROLEUM CORPORATION, a company incorporated under the laws
of the Province of British Columbia and Alberta having its office at
#600 - 595 Howe Street, Vancouver, British Columbia, V6C 2T5.
(hereinafter called the "Company")
OF THE SECOND PART
THIS AGREEMENT WITNESSETH that in consideration of the mutual
covenants and agreements herein contained and for other good and valuable
consideration it is hereby agreed as follows:
1. The Consultant shall serve the Company in such capacity or capacities as may
from time to time be determined by the management of the Company.
2. The contract of the Consultant hereunder shall commence on February 1, 1995
and continue until terminated as hereinafter provided.
3. The contract of the Consultant hereunder may be terminated in the following
manner in the following circumstances:
(a) at any time by notice in writing from the Company to the Consultant
for cause;
(b) by not less than 30 days notice in writing given by either party to
the other, which notice in writing may be given at any time;
(c) contract subject to review at twelve month intervals.
<PAGE> 8
4. Upon any notice being given pursuant to subparagraph 3(a) herein or upon the
expiration of the said period of 30 days referred to in subparagraph 3(b) and
subparagraph 3(c) herein, as the case may be, this Agreement and the contract of
the Consultant hereunder shall be wholly terminated and determined, except
paragraphs 8, 9 and 10 herein, which shall continue in full force and effect.
Upon any such termination, the Consultant shall have no claim against the
Company for damages or otherwise except in respect of payment of remuneration as
provided for in paragraph 6 to the effective date of termination.
5 (a) The Consultant shall devote said time to the Company as required in
order to carry out the duties determined in accordance with
paragraph I herein;
(b) During the continuance of his contract hereunder, the Consultant
shall well and faithfully serve the Company including, without
limiting the generality of the foregoing, the submission to the
Company of all reports and other communications whenever the same
may be required by the Company, and shall use, at all times, his
best efforts to;
6 (a) The remuneration of the Consultant for his services hereunder shall
be at a rate of $150,000 per annum, payable $8,000.00 on a monthly
basis in arrears, plus 1,285 common shares of Optima Petroleum
Corporation on a monthly basis in arrears, or such other
remuneration as may from time to time be mutually agreed upon in
writing between the Company and the Consultant;
(b) Where stock options comprise a part of the remuneration, such
options should be for a three year term, exercisable at the rate of
one third per year unless otherwise approved by the option
committee.
(c) The Consultant shall be reimbursed for travelling and other
out-of-pocket expenses actually and properly incurred by his in
connection with his duties only with prior approval from the Company
and upon furnishment of statements and vouchers as and when required
by it.
7. The Consultant shall not (either during the continuance of his contract by
the Company or at any time thereafter) disclose the private affairs of the
Company or any secrets of the Company to any person other than to the directors
of the Company or those persons who the Company shall, in writing, approve of
and shall not (either during the continuance of his contract by the Company or
at any time thereafter) use for his own purposes or for any purpose of other
than those of the Company any such information he may acquire in relation to the
Company's business.
<PAGE> 9
8. The Consultant agrees that all trade secrets and secret information
(including trade secrets and secret information discovered or developed by the
Consultant or discovered or developed by others and used by or disclosed to the
Consultant) which he may acquire respecting any matters relating to oil and gas
exploration on the Company's properties, during his term of contract hereunder
shall at all times (both during the continuance of his contract by the Company
an at all times thereafter) and for all purposes be held by the Consultant in a
fiduciary capacity and solely for the benefit of the Company and the Consultant
agrees that he will not (either during the continuance of his contract by the
Company or any time thereafter) use for his own purpose any trade secret or
secret information aforesaid or disclose, divulge or communicate orally, in
writing or otherwise to any person or persons any trade secret or secret
information aforesaid, except such information which, by any applicable
securities laws, is required to be publicly disclosed.
9. Any notice in writing required or permitted to be given to the Company or the
Consultant hereunder shall be properly given if delivered to the Consultant
personally or mailed by registered mail, postage prepaid, addressed to the
Consultant at the address set out above. Any such notice mailed as aforesaid
shall be deemed to have been received by and given to the Consultant on the day
following the date of mailing. Either party may at any time give notice in
writing to the other of any change of address of the party giving such notice
and from and after the giving of such notice, the address therein specified
shall be deemed to be the address of such party for the giving of notices
hereunder.
10. Any and all previous agreements, written or oral, between the parties hereto
or on their behalf relating to the contract of the Consultant by the Company are
hereby terminated and cancelled and each of the parties hereto hereby releases
and forever discharges the other party hereto of and from all manner of actions,
causes of action, claims and demands whatsoever under or in respect of any such
agreement.
11. This Agreement shall be deemed to have been made in and shall be construed
in accordance with the laws of the Province of British Columbia and for the
purposes of all legal proceedings, this Agreement shall be deemed to have been
performed in such Province and the courts of such Province shall have
jurisdiction to entertain any action arising under this Agreement; provided
always that nothing herein contained shall prevent the Company from proceeding
at its election against the Consultant in the courts of any other province or
country in which the Consultant resides.
12. It is agreed by and between the parties hereto that this Agreement is
subject to being accepted for filing by the respective regulatory bodies.
<PAGE> 10
13. The provisions hereof, where the context permits, shall enure to the benefit
of and be binding upon the heirs, executors, administrators and legal personal
representatives of the Consultant and the successors and assigns of the Company
respectively. When the context so requires or permits, the masculine gender
should be read as if the feminine were expressed.
IN WITNESS WHEREOF, this Agreement has been duly executed by the
parties hereto as of the day and year first above written.
THE CORPORATE SEAL of
LEUSCHNER INTERNATIONAL RESOURCES LTD.
/s/ William C. Leuschner
- ---------------------------------------
William C. Leuschner, President
- ---------------------------------------
THE CORPORATE SEAL of
OPTIMA PETROLEUM CORPORATION was hereunto affixed in the presence of:
/s/ Robert L. Hodgkinson
- ---------------------------------------
Robert L. Hodgkinson, President
<PAGE> 11
CONSULTING AGREEMENT
THIS AGREEMENT dated for reference the 1st day of January, 1996 (the "Effective
Date").
BETWEEN:
OPTIMA PETROLEUM CORPORATION,
Suite 600 - 595 Howe Street,
Vancouver, British Columbia,
V6C 2T5;
(the "Company")
AND:
RONALD P. BOURGEOIS,
Suite 600 - 595 Howe Street,
Vancouver, British Columbia,
V6C 2T5;
(the "Consultant")
WHEREAS the Company has agreed to hire the Consultant and the Consultant has
agreed to provide his services to the Company on the terms and conditions
hereinafter set forth.
NOW THEREFORE THIS AGREEMENT WITNESSES that in consideration of the mutual
covenants and agreements herein contained, the parties hereto agree (the
"Agreement") as follows:
1. RETAINER
1.1 The Company hereby retains the services of the Consultant to provide to the
Company, the services normally expected of a secretary and chief financial
officer (the "services"), and the Consultant hereby agrees to provide such
services to the Company upon the terms and conditions contained in this
Agreement.
2. DURATION OF SERVICE
2.1 Subject to termination as provided for in section 7, this Agreement shall be
for an initial term of 24 months commencing on the Effective Date. Provided that
this Agreement has not been terminated by either party pursuant to section 7,
the Company may renew this Agreement for further one year terms by providing to
the Consultant written notice of same at least 30 days prior to the expiration
of the current term or the renewal term, as the case may be.
<PAGE> 12
3. REMUNERATION
3.1 The Consultant shall be paid a monthly fee per month payable for each
calendar month on the last business day of such month consisting of:
(a) $8,000; and
(b) subject to all necessary regulatory approvals, 500 shares of the
Company issued at a deemed price of $3.63 per share.
3.2 The Company will pay the monthly fee for maintaining a disability insurance
policy for the Consultant which provides coverage for the Consultant of $6,000
per month pursuant to the terms of policy.
3.3 Subject to all necessary regulatory approvals, the Consultant shall be
entitled to:
(a) the grant of 150,000 stock options pursuant the Company's stock
option plan, such stock options to have the following terms:
(i) they will be non-transferable and have a term of three years
commencing from the date regulatory approval is obtained;
(ii) they will be exercisable at the lowest price permitted by the
applicable regulatory authorities;
(iii) they will otherwise be subject to the terms and conditions
normally required by the applicable regulatory authorities in
order to secure regulatory approval.
3.4 The Consultant shall be reimbursed for all reasonable travelling and other
out-of-pocket expenses actually and properly incurred by him in connection with
his duties hereunder provided that the Consultant first furnishes statements and
vouchers for all such expenses to the Company. Individual expense items in
excess of $12,500 must be pre-approved by the Company.
3.5 At the request of the Board, the Consultant shall devote a specified portion
of his time to an affiliated company of the Company, in which case the
remuneration payable pursuant to this section 3 will be apportioned between and
be payable by the Company and the affiliated company.
- 2 -
<PAGE> 13
3.6 The Consultant shall be eligible for a bonus of $5,000, payable in cash or
an equivalent paid holiday as agreed to by the Company and the Consultant, upon
the successful completion of the sale of the Company's Elm Grove assets.
4. DUTIES OF CONSULTANT
4.1 The Consultant shall have, subject always to the general or specific
instructions and directions of the board of directors of the Company (the
"Board"), full power and authority to manage the business and affairs of the
Company that would normally be managed by a senior officer having the title and
capacity of the Consultant, except in respect of such matters and duties as by
law must be transacted or performed by the Board.
4.2 The Consultant shall:
(a) conform to all lawful instructions and directions from time to time
given to him by the Board;
(b) devote sufficient time and attention to the business and affairs of
the Company, as would typically be expected of a secretary and chief
financial officer;
(c) well and faithfully serve the Company and use his best efforts to
promote the interests of the Company;
(d) provide to the Company those services normally expected of a
secretary and chief financial officer; and
(e) consent to serve as a director of the Company and, if requested, of
any of the Company's affiliates or subsidiaries.
4.3 Subject to the provisions of the Canada Business Corporations Act, the
bylaws of the Company and provided that the Consultant acted honestly and in
good faith with a view to the best interests of the Company, or, in the case of
a criminal or administrative action or proceeding that is enforced by a monetary
penalty, he had reasonable grounds for believing that his conduct was lawful,
and the directors of the Company shall cause the Company to indemnify the
Consultant and his heirs and personal representatives against all costs,
damages, charges and expenses, including an amount paid to settle an action or
satisfy a judgment, reasonably incurred by him or them and resulting from his
acting as a director and officer of the Company in his normal course of duties.
In addition, should the directors cause the Company to purchase and maintain
insurance for the benefit of any person who is or was serving as a director of
the Company then the directors shall also cause the Company to purchase and
maintain insurance for the benefit of the Consultant against any and all
liability incurred by him as a director and officer of the Company.
- 3 -
<PAGE> 14
5. CONFIDENTIALITY
5.1 Unless permitted by resolution of the Directors of the Company (excluding
the Consultant if he is a Director), the Consultant shall not, during the term
of this Agreement or at any time thereafter, use for his own purposes or for any
purposes other than those of the Company any intellectual property or knowledge
or confidential information of any kind whatsoever he may acquire in relation to
the Company's business or the business of its subsidiaries, and such shall be
and remain the property of the Company.
6. NON-COMPETITION
6.1 Subject to paragraph 7.2, the Consultant shall not, without the prior
written consent of the Company, which consent (given by a Director other than
the Consultant), will not be unreasonably withheld during the term of this
Agreement and during the six month period immediately following the termination
of this Agreement, within the area in which the Company operated at the time of
termination (the "Prohibited Area"):
(a) directly or knowingly indirectly engage in or become financially
interested in (otherwise then through an investment in a publicly
traded or private entity in which the Consultant has no other
interest or control), either individually or as a partner,
shareholder, agent, manager, owner, advisor or financial backer of
any person, persons, firm, association, venture, entity or
corporation of any kind whatsoever that carries on the business of
oil and gas exploration, development or production (collectively the
"Prohibited Businesses"); or
(b) divert or attempt to divert any business of the Company or of any of
its subsidiaries, to any other competitive establishment, by direct
or indirect inducement or otherwise.
7. TERMINATION
7.1 Either of the parties hereto may, notwithstanding anything else contained
herein, give to the other three months notice in writing of its intention to
terminate this Agreement and on the expiration of such period this Agreement
shall be wholly terminated. Such three months notice may expire on any day of
the month and any remuneration payable hereunder shall be proportioned to the
date of such termination.
7.2 In the event the Company terminates the Consultant's services pursuant to
paragraph 7.1 at any time prior to December 31, 1997, the provisions of
paragraph 6.1 will not apply to such a termination and the Company will pay to
the Consultant an amount equal to 24 months of fees under this Agreement.
- 4 -
<PAGE> 15
7.3 The Consultant agrees to accept the termination payment in full satisfaction
of any claim it may have against the Company whether under the terms of this
Agreement or otherwise.
7.4 Notwithstanding paragraph 7.1 hereof, the Company may at any time terminate
the Consultant's services for cause or if the Consultant fails to perform or
comply with any material term or condition of this Agreement. In the event the
Consultant's services are terminated under the provisions of this paragraph 7.4,
or in the event the Consultant gives the Company notice of termination, no
compensation whatever shall be payable to the Consultant after such termination.
8. REGULATORY APPROVAL
8.1 This Agreement is subject to all necessary regulatory approvals. If such
approvals are not obtained, this Agreement shall terminate and be of no further
force and effect.
8.2 The Company agrees to use its reasonable best efforts as to implement the
terms of this Agreement including, but not limited to, obtaining all approvals
from the Company's shareholders to the allocation of stock options to the
Officer as provided for in paragraph 3.2 hereof.
9. GENERAL
9.1 The headings and section references in this Agreement are for convenience of
reference only and do not form a part of this Agreement and are not intended to
interpret, define or limit the scope, extent or intent of this Agreement or any
provision thereof.
9.2 Time is hereby expressly made of the essence of this Agreement with respect
to the performance by the parties of their respective obligations under this
Agreement.
9.3 This Agreement shall enure to the benefit of and be binding upon the parties
hereto and their respective heirs, executors, administrators, personal
representatives, successors and permitted assigns. This Agreement may not be
assigned by either party hereto without the prior express written consent of the
other party.
9.4 This Agreement supersedes all prior agreements entered into between the
parties and constitutes the entire agreement between the parties hereto relating
to the subject
- 5 -
<PAGE> 16
matter hereof and may not be amended, waived or discharged except by an
instrument in writing executed by the party against whom enforcement of such
amendment, waiver or discharge is sought and this Agreement supersedes all prior
agreements between the parties.
9.5 Each of the parties hereto hereby covenants and agrees to execute such
further and other documents and instruments and do such further acts and other
things as may be necessary to implement and carry out the intent of this
Agreement.
9.6 All notices, requests, demands and other communications hereunder shall be
in writing and shall be deemed to have been duly given if delivered by hand or
mailed by postage prepaid double registered mail addressed as follows:
To the Company:
OPTIMA PETROLEUM CORPORATION,
Suite 600 - 595 Howe Street,
Vancouver, British Columbia,
V6C 2T5;
Attention: The President
To the Consultant:
RONALD P. BOURGEOIS,
Suite 600 - 595 Howe Street,
Vancouver, British Columbia,
V6C 2T5;
or to such other address as may be given in writing by the Company or the
Consultant and shall be deemed to have been received, if delivered, on the date
of delivery and if mailed as
- 6 -
<PAGE> 17
aforesaid at Vancouver, British Columbia then on the third business day
following the posting thereof.
IN WITNESS WHEREOF the parties have executed this Agreement as of the day and
year first above written.
OPTIMA PETROLEUM CORPORATION
Per:
/s/ Robert L. Hodgkinson
------------------------
Authorized Signatory
SIGNED, SEALED AND DELIVERED )
by RONALD P. BOURGEOIS )
in the presence of: )
)
/s/ Michael Wilhelm ) /s/ RONALD P. BOURGEOIS
- ----------------------------------- ) -------------------------
Signature of Witness ) RONALD P. BOURGEOIS
)
Name: Michael Wilhelm )
----------------------------- )
Address: 3329 W. 3rd Ave. )
-------------------------- )
Vancouver, B.C. )
- ----------------------------------- )
Occupation: Comptroller )
----------------------- )
- 7 -
<PAGE> 1
EXHIBIT 3.7
OPTIMA PETROLEUM CORPORATION
STOCK OPTION PLAN
DATED APRIL 3, 1995
Approved by the Board of
Directors as of April 3, 1995.
Approved by the
Shareholders on June 22, 1995.
<PAGE> 2
TABLE OF CONTENTS
ARTICLE I
DEFINITIONS AND INTERPRETATION
1.1 Definitions................................................... 1
1.2 Choice of Law................................................. 3
1.3 Headings...................................................... 3
ARTICLE II
PURPOSE AND PARTICIPATION
2.1 Purpose....................................................... 3
2.2 Participation................................................. 3
2.3 Notification of Award......................................... 4
2.4 Copy of Plan.................................................. 4
2.5 Limitation.................................................... 4
ARTICLE III
TERMS AND CONDITIONS OF OPTIONS
3.1 Board to Issue Shares......................................... 4
3.2 Number of Shares.............................................. 4
3.3 Term of Option................................................ 5
3.4 Termination of Option......................................... 5
3.5 Exercise Price................................................ 6
3.6 Additional Terms.............................................. 7
3.7 Assignment of Options......................................... 8
3.8 Adjustments................................................... 8
3.9 Approvals..................................................... 8
ARTICLE IV
EXERCISE OF OPTION
4.1 Exercise of Option............................................ 8
4.2 Issue of Share Certificates................................... 8
4.3 Condition of Issue............................................ 9
ARTICLE V
ADMINISTRATION
5.1 Administration................................................ 9
5.2 Interpretation................................................ 9
- i -
<PAGE> 3
ARTICLE VI
AMENDMENT AND TERMINATION
6.1 Prospective Amendment ........................................ 9
6.2 Retrospective Amendment ...................................... 10
6.3 Termination .................................................. 10
6.4 Agreement .................................................... 10
- ii -
<PAGE> 4
STOCK OPTION PLAN
ARTICLE I
DEFINITIONS AND INTERPRETATION
1.1 Definitions
As used herein, unless there is something in the subject matter or context
inconsistent therewith, the following terms shall have the meanings set forth
below:
(a) "Administrator" means, initially, the secretary of the Company and
thereafter shall mean such director or other senior officer or
employee of the Company as may be designated as Administrator by the
Board from time to time.
(b) "Award Date" means the date on which the board awards a particular
Option.
(c) "Board" means the board of directors of the Company.
(d) "Canada Business Corporations Act" means the Canada Business
Corporations Act, R.S.C. 1985, c.C-44 and any amendments thereto.
(e) "Company" means Optima Petroleum Corporation, including its
affiliates, as defined in the Canada Business Corporations Act.
(f) "Director" means any individual holding the office of director of
the Company.
(g) "Employee" means any individual regularly employed on a full-time
basis by the Company or any of its subsidiaries and such other
individuals as may, from time to time, be permitted by the rules and
policies of the applicable Regulatory Authorities to be granted
options as employees or as an equivalent thereto.
(h) "Exercise Notice" means the notice respecting the exercise of an
Option, in the form set out as Schedule "B" hereto, duly executed by
the Option Holder.
(i) "Exercise Period" means the period during which a particular Option
may be exercised and is the period from and including the Award Date
through to and including the Expiry Date.
(j) "Exercise Price" means the price at which an Option may be exercised
as determined in accordance with paragraph 3.5.
(k) "Expiry Date" means the date determined in accordance with paragraph
3.3 and after which a particular Option cannot be exercised.
<PAGE> 5
(l) "Market Value" means the market value of the Company's Shares as
determined in accordance with paragraph 3.5.
(m) "Option" means an option to acquire Shares, awarded to a Director or
Employee pursuant to the Plan.
(n) "Option Certificate" means the certificate, in the form set out as
Schedule "A" hereto, evidencing an Option.
(o) "Option Holder" means a Director, Employee or Other Person, or
former Director, Employee or Other Person, who holds directly or
indirectly through a wholly owned holding company or registered
retirement savings plan an unexercised and unexpired Option or,
where applicable, the Personal Representative of such person.
(p) "Other Persons" means other persons who provide services to the
Company and who are entitled to receive options therefor pursuant to
the rules of the Regulatory Authorities.
(q) "Plan" means this stock option plan.
(r) "Personal Representative" means:
(i) in the case of a deceased Option Holder, the executor or
administrator of the deceased duly appointed by a court or
public authority having jurisdiction to do so; and
(ii) in the case of an Option Holder who for any reason is unable
to manage his or her affairs, the person entitled by law to
act on behalf of such Option Holder.
(s) "Regulatory Authorities" means all stock exchanges and other
organized trading facilities on which the Company's Shares are
listed and all securities commissions or similar securities
regulatory bodies having jurisdiction over the Company.
(t) "Share" or "Shares" means, as the case may be, one or more common
shares without par value in the capital stock of the Company.
1.2 Choice of Law
The Plan is established under and the provisions of the Plan shall be subject to
and interpreted and construed in accordance with the laws of the Province of
British Columbia.
- 2 -
<PAGE> 6
1.3 Headings
The headings used herein are for convenience only and are not to affect the
interpretation of the Plan.
ARTICLE II
PURPOSE AND PARTICIPATION
2.1 Purpose
The purpose of the Plan is to provide the Company with a share-related mechanism
to attract, retain and motivate qualified Directors, Employees and Other
Persons, to reward such of those Directors, Employees and Other Persons as may
be awarded Options under the Plan by the Board from time to time for their
contributions toward the long term goals of the Company and to enable and
encourage such Directors, Employees and Other Persons to acquire Shares as long
term investments.
2.2 Participation
The Board shall, from time to time and in its sole discretion, determine those
Directors, Employees and Other Persons, if any, to whom Options are to be
awarded. The Board may, in its sole discretion, grant the majority of the
Options to insiders of the Company. However, in no case will the issuance of
Shares under the Plan and under any proposed or existing share compensation
arrangement result in:
(a) the number of Shares reserved for issuance pursuant to Options
granted:
(i) to insiders exceeding 10% of the Company's issued and
outstanding share capital; or
(ii) to any one person exceeding 5% of the Company's issued and
outstanding share capital;
(b) the number of Shares issued within a one year period:
(i) to insiders exceeding 10% of the Company's issued and
outstanding share capital; or
(ii) to any one insider and its associates exceeding 5% of the
Company's issued and outstanding share capital.
2.3 Notification of Award
- 3 -
<PAGE> 7
Following the approval by the Board of the awarding of an Option, the
Administrator shall notify the Option Holder in writing of the award and shall
enclose with such notice the Option Certificate representing the Option so
awarded.
2.4 Copy of Plan
Each Option Holder, concurrently with the notice of the award of the Option,
shall be provided with a copy of the Plan. A copy of any amendment to the Plan
shall be promptly provided by the Administrator to each Option Holder.
2.5 Limitation
The Plan does not give any Option Holder that is:
(a) a Director the right to serve or continue to serve as a Director of
the Company;
(b) an Employee the right to be or to continue to be employed by the
Company; or
(c) an Other Person the right to be or continue to be retained by the
Company to provide services to the Company.
ARTICLE III
TERMS AND CONDITIONS OF OPTIONS
3.1 Board to Issue Shares
The Shares to be issued to Option Holders upon the exercise of Options shall be
authorized and unissued Shares, the issuance of which shall have been authorized
by the Board.
3.2 Number of Shares
Subject to adjustment as provided for in paragraph 3.7 of this Plan, the
aggregate maximum number of Shares which will be available for purchase pursuant
to Options granted under this Plan will not exceed 1,200,000 Shares. If any
Option expires or otherwise terminates for any reason without having been
exercised in full, the number of Shares in respect of which the Option expired
or terminated shall again be available for the purposes of the Plan.
3.3 Term of Option
Subject to paragraph 3.4, the Expiry Date of an Option shall be the date so
fixed by the Board at the time the particular Option is awarded, provided that
such date shall be no later than the tenth anniversary of the Award Date of such
Option.
- 4 -
<PAGE> 8
3.4 Termination of Option
An Option Holder may exercise an Option in whole or in part at any time or from
time to time during the Exercise Period provided that, with respect to the
exercise of part of an Option, the Board may at any time and from time to time
fix a minimum number of Shares in respect of which an Option Holder may exercise
part of any Option held by such Option Holder. Any Option or part thereof not
exercised within the Exercise Period shall terminate and become null, void and
of no effect as of 5:00 p.m. local time in Vancouver, British Columbia on the
Expiry Date. The Expiry Date of an Option shall be the earlier of the date so
fixed by the Board at the time the Option is awarded and the date established,
if applicable, in sub-paragraphs (a) to (d) below:
(a) Death
If the Option Holder should die while he or she is still entitled to
exercise the Option, then the Expiry Date shall be the first
anniversary of the Option Holder's date of death; or
(b) Ceasing to hold Office
If the Option Holder holds his or her Option as Director of the
Company and then ceases to be a Director of the Company other than
by reason of death, the Expiry Date of the Option shall be the 30th
day following the date the Option Holder ceases to be a Director of
the Company unless the Option Holder ceases to be a Director of the
Company as a result of:
(i) ceasing to meet the qualifications set forth in section 105 of
the Canada Business Corporations Act;
(ii) an ordinary resolution having been passed by the shareholders
of the Company pursuant to section 109 of the Canada Business
Corporations Act; or
(iii) an order made by any Regulatory Authority having jurisdiction
to so order;
in which case the Expiry Date shall be the date the Option Holder
ceases to be a Director of the Company.
(c) Ceasing to be Employed
If the Option Holder holds his or her Option as an Employee of the
Company and then ceases to be an Employee of the Company other than
by reason of death, the Expiry Date of the Option shall be the 30th
day following the date the Option
- 5 -
<PAGE> 9
Holder ceases to be an Employee of the issuer unless the Option
Holder ceases to be an Employee of the Company as a result of:
(i) termination for cause; or
(ii) an order made by any Regulatory Authority having jurisdiction
to so order;
in which case the Expiry Date shall be the date the Option Holder
ceases to be an Employee of the Company.
(d) Ceasing to Provide Services
If the Option Holder holds his or her Option as an Other Person of
the Company and then ceases to provide services to the Company other
than by reason of death, the Expiry Date of the Option shall be the
30th day following the date the Option Holder ceases to provide
services to the Company as a result of
(i) termination for cause; or
(ii) an order made by any Regulatory Authority having jurisdiction
to so order;
in which case the Expiry Date shall be the date the Option Holder
ceases to provide services to the Company.
(e) Holding Company Ceasing to be Wholly-Owned
If the Option Holder holds his or her Option indirectly through a
wholly-owned holding company, the Expiry Date shall be the date the
Option Holder ceases to wholly-own such holding company.
3.5 Exercise Price
The price at which an Option Holder may purchase a Share upon the exercise of
an Option shall be as set forth in the Option Certificate issued in respect of
such Option and in any event shall not be less than the Market Value of the
Company's Shares as of the Award Date. The Market Value of the Company's Shares
for a particular Award Date shall be determined as follows:
(a) if the Company's Shares are listed on more than one organized
trading facility, then Market Value shall be the simple average of
the Market Values determined for each organized trading facility on
which those Shares are listed as determined for each organized
trading facility in accordance with subparagraphs (b) and (c) below;
- 6 -
<PAGE> 10
(b) for each organized trading facility on which the Shares are listed,
Market Value will be the weighted average trading price of the
Shares for those days that the Shares traded over the ten trading
day period immediately preceding the Award Date;
(c) if the Company's Shares trade on an organized trading facility
outside of Canada, then the Market Value determined for that
organized trading facility will be converted into Canadian dollars
at a conversion rate determined by the Administrator having regard
for the published conversion rates as of the Award Date;
(d) if the Company's Shares are listed on one or more organized trading
facilities but have not traded during the ten trading day period
immediately preceding the Award Date, then the Market Value will be,
subject to the necessary approvals of the applicable Regulatory
Authorities, that value as is determined by resolution of the Board;
and
(e) if the Company's Shares are not listed on an organized trading
facility, then the Market Value will be, subject to the necessary
approvals of the applicable Regulatory Authorities, that value as is
determined by resolution of the Board.
3.6 Additional Terms
Subject to all applicable securities laws and regulations and the rules and
policies of all applicable Regulatory Authorities, the Board may attach other
terms and conditions to the grant of a particular Option, such terms and
conditions to be referred to in a schedule attached to the Option Certificate.
These terms and conditions may include, but are not necessarily limited to, the
following:
(a) providing that an Option expires on the date the Option Holder
ceases to be a Director or Employee of the Company or, if an Other
Person, ceases to provide services to the Company;
(b) providing that a portion or portions of an Option vest after certain
periods of time or expire after certain periods of time; and
(c) providing that an Option be exercisable immediately, in full,
notwithstanding that it has vesting provisions, upon the occurrence
of certain events, such as a friendly or hostile takeover bid for
the Company.
- 7 -
<PAGE> 11
3.7 Assignment of Options
Options may not be assigned or transferred, provided that the Personal
Representative of an Option Holder may, to the extent permitted by paragraph
4.1, exercise the Option within the Exercise Period.
3.8 Adjustments
If, prior to the complete exercise of any Option, the Shares are consolidated,
subdivided, converted, exchanged or reclassified or in any way substituted for
(collectively the "Event"), an Option, to the extent that it has not been
exercised, shall be adjusted by the Board in accordance with such Event in the
manner the Board deems appropriate. No fractional shares shall be issued upon
the exercise of the Options and accordingly, if as a result of the Event, an
Option Holder would become entitled to a fractional share, such Option Holder
shall have the right to purchase only the next lowest whole number of shares and
no payment or other adjustment will be made with respect to the fractional
interest so disregarded.
3.9 Approvals
This Plan and any amendments hereto are subject to all necessary approvals of
the applicable Regulatory Authorities.
ARTICLE IV
EXERCISE OF OPTION
4.1 Exercise of Option
An Option may be exercised only by the Option Holder or the Personal
Representative of any Option Holder. An Option Holder or the Personal
Representative of any Option Holder may exercise an Option in whole or in part
at any time or from time to time during the Exercise Period up to 5:00 p.m.
local time in British Columbia on the Expiry Date by delivering to the
Administrator an Exercise Notice, the applicable Option Certificate and a
certified cheque or bank draft payable to "Optima Petroleum Corporation" in an
amount equal to the aggregate Exercise Price of the Shares to be purchased
pursuant to the exercise of the Option.
4.2 Issue of Share Certificates
As soon as practicable following the receipt of the Exercise Notice, the
Administrator shall cause to be delivered to the Option Holder a certificate for
the Shares so purchased and if the Option has not been completely exercised, the
Administrator shall concurrently forward a new Option Certificate to the Option
Holder for the balance of Shares available under the Option.
- 8 -
<PAGE> 12
4.3 Condition of Issue
The Options and the issue of Shares by the Company pursuant to the exercise of
Options are subject to the terms and conditions of this Plan and to compliance
with the applicable securities laws, regulations, rules and policies of the
Regulatory Authorities. The Option Holder agrees to comply with all such laws,
regulations, rules and policies and agrees to furnish to the Company any
information, report and/or undertakings required to comply with, and to fully
cooperate with the Company in complying with, such laws, regulations, rules and
policies.
ARTICLE V
ADMINISTRATION
5.1 Administration
The Plan shall be administered by the Administrator on the instructions of the
Board. The Board may make, amend and repeal at any time and from time to time
such regulations not inconsistent with the Plan as it may deem necessary or
advisable for the proper administration and operation of the Plan and such
regulations shall form part of the Plan. The Board may delegate to the
Administrator, to any Director, officer or employee of the Company or to a
committee consisting of such persons such administrative duties and powers as it
may see fit.
5.2 Interpretation
The interpretation by the Board of any of the provisions of the Plan and any
determination by it pursuant thereto shall be final and conclusive and shall not
be subject to any dispute by any Option Holder. No member of the Board or any
personal acting pursuant to authority delegated by it hereunder shall be liable
for any action or determination in connection with the Plan made or taken in
good faith and each member of the Board and each such person shall be entitled
to indemnification with respect to any such action or determination in the
manner provided for by the Company.
ARTICLE VI
AMENDMENT AND TERMINATION
6.1 Prospective Amendment
The Board may from time to time amend the Plan and the terms and conditions of
any Option to be granted and, without limitation, may make amendments for the
purpose of meeting any changes in any relevant law, rule or regulation
applicable to the Plan, any Option or the Shares, or for any other purpose which
may be permitted by all relevant laws, regulations, rules and policies provided
that any such amendment shall not alter the terms or conditions of any Option
- 9 -
<PAGE> 13
or impair any right of any Option Holder pursuant to any Option awarded prior to
such amendment.
6.2 Retrospective Amendment
The Board may from time to time, subject to any necessary approvals of the
Regulatory Authorities, retrospectively amend the Plan and, with the consent of
the affected Option Holders, retrospectively amend the terms and conditions of
any Options which have been previously granted.
6.3 Termination
The Board may terminate the Plan at any time provided that any Option awarded
prior to the date of such termination and the rights of the Option Holder of
such Option shall continue to be governed by the provisions of the Plan.
6.4 AGREEMENT
THE COMPANY AND EVERY OPTION AWARDED HEREUNDER SHALL BE BOUND BY AND SUBJECT TO
THE TERMS AND CONDITIONS OF THE PLAN. BY ACCEPTING AN OPTION GRANTED
HEREUNDER, THE OPTION HOLDER HAS EXPRESSLY AGREED WITH THE COMPANY TO BE BOUND
BY THE TERMS OF THE PLAN.
- 10 -
<PAGE> 14
SCHEDULE "A"
OPTIMA STOCK OPTION PLAN
OPTION CERTIFICATE
This Certificate is issued pursuant to the provisions of the Optima Petroleum
Corporation ("Optima") Stock Option Plan (the "Plan") and evidences that
___________________ is the holder (the "Option Holder") of an option (the
"Option") to purchase up to ________ common shares (the "Shares") in the capital
stock of Optima at a purchase price of $_________ per Share. Subject to the
provisions of the Plan:
(a) the Award Date of this Option is _____________, 19_; and
(b) the Expiry Date of this Option is ______________, 19__.
This Option may be exercised at any time and from time to time from and
including the Award Date through to and including up to 5:00 local time in
Vancouver, British Columbia on the Expiry Date by delivery to the Administrator
of the Plan an Exercise Notice, in the form provided in the Plan, together with
this Certificate and a certified cheque or bank draft payable to "Optima
Petroleum Corporation" in an amount equal to the aggregate of the Exercise Price
of the Shares in respect of which this Option is being exercised.
This Certificate and the Option evidenced hereby is not assignable, transferable
or negotiable and is subject to the detailed terms and conditions contained in
the Plan, the terms and conditions of which the Option Holder hereby expressly
agrees with Optima to be bound by. This Certificate is issued for convenience
only and in the case of any dispute with regard to any matter in respect hereof,
the provisions of the Plan and the records of Optima shall prevail.
This Option is also subject to the terms and conditions contained in the
schedules, if any, attached hereto.
The foregoing Option has been awarded this ________ day of _________ 19__.
OPTIMA PETROLEUM CORPORATION
Per:
___________________
- 11 -
<PAGE> 15
SCHEDULE "B"
OPTIMA STOCK OPTION PLAN
NOTICE OF EXERCISE OF OPTION
TO: The Administrator, Stock Option Plan
Optima Petroleum Corporation
Suite 600 - 595 Howe Street
Vancouver, B.C. V6C 2T5
The undersigned hereby irrevocably gives notice, pursuant to the Optima
Petroleum Corporation ("Optima") Stock Option Plan (the "Plan"), of the exercise
of the Option to acquire and hereby subscribes for (CROSS OUT INAPPLICABLE
ITEM):
(a) all of the Shares; or
(b) _________________ of the Shares;
which are the subject of the Option Certificate attached hereto.
The undersigned tenders herewith a certified cheque or bank draft (CIRCLE ONE)
payable to "Optima Petroleum Corporation" in an amount equal to the aggregate
Exercise Price of the aforesaid shares and directs Optima to issue the
certificate evidencing said shares in the name of the undersigned to be mailed
to the undersigned at the following address:
_________________________________
_________________________________
_________________________________
_________________________________
DATED the ________ day of __________________ 19__.
______________________________
SIGNATURE OF OPTION HOLDER
- 12 -
<PAGE> 1
EXHIBIT 3.8
OPTIMA PETROLEUM CORPORATION
STOCK OPTION PLAN
dated April 10, 1996
Approved by the Board of
Directors as of April 10, 1996,
Approved by the
Shareholders on May 24, 1996.
<PAGE> 2
TABLE OF CONTENTS
ARTICLE I
DEFINITIONS AND INTERPRETATION
1.1 Definitions................................................ 1
1.2 Choice of Law.............................................. 2
1.3 Headings................................................... 3
ARTICLE 11
PURPOSE AND PARTICIPATION
2.1 Purpose.................................................... 3
2.2 Participation.............................................. 3
2.3 Notification of Award...................................... 4
2.4 Copy of Plan............................................... 4
2.5 Limitation................................................. 4
ARTICLE III
TERMS AND CONDITIONS OF OPTIONS
3.1 Board to Issue Shares...................................... 4
3.2 Number of Shares........................................... 4
3.3 Term of Option............................................. 5
3.4 Termination of Option...................................... 5
3.5 Exercise Price............................................. 6
3.6 Additional Terms........................................... 7
3.7 Assignment of Options...................................... 8
3.8 Adjustments................................................ 8
3.9 Approvals.................................................. 8
ARTICLE IV
EXERCISE OF OPTION
4.1 Exercise of Option......................................... 8
4.2 Issue of Share Certificates................................ 8
4.3 Condition of Issue......................................... 9
ARTICLE V
ADMINISTRATION
5.1 Administration............................................. 9
5.2 Interpretation............................................. 9
5.3 Status of Option granted under Previous Plans.............. 9
- i -
<PAGE> 3
ARTICLE VI
AMENDMENT AND TERMINATION
6.1 Prospective Amendment...................................... 9
6.2 Retrospective Amendment.................................... 10
6.3 Termination................................................ 10
6.4 Agreement.................................................. 10
- ii -
<PAGE> 4
STOCK OPTION PLAN
ARTICLE I
DEFINITIONS AND INTERPRETATION
1.1 Definitions
As used herein, unless there is something in the subject matter or context
inconsistent therewith, the following terms shall have the meanings set forth
below:
(a) "Administrator" means, initially, the secretary of the Company and
thereafter shall mean such director or other senior officer or
employee of the Company as may be designated as Administrator by the
Board from time to time.
(b) "Award Date" means the date on which the board awards a particular
Option.
(c) "Board" means the board of directors of the Company.
(d) "Canada Business Corporations Act" means the Canada Business
Corporations Act, R.S.C. 1985, c.C-44 and any amendments thereto.
(e) "Company" means Optima Petroleum Corporation, including its
affiliates, as defined in the Canada Business Corporations Act.
(f) "Director" means any individual holding the office of director of
the Company.
(g) "Employee" means any individual regularly employed on a full-time
basis by the Company or any of its subsidiaries and such other
individuals as may, from time to time, be permitted by the rules and
policies of the applicable Regulatory Authorities to be granted
options as employees or as an equivalent thereto.
(h) "Exercise Notice" means the notice respecting the exercise of an
Option, in the form set out as Schedule "B" hereto, duly executed by
the Option Holder.
(i) "Exercise Period" means the period during which a particular Option
may be exercised and is the period from and including the Award Date
through to and including the Expiry Date.
(j) "Exercise Price" means the price at which an Option may be exercised
as determined in accordance with paragraph 3.5.
(k) "Expiry Date" means the date determined in accordance with paragraph
3.3 and after which a particular Option cannot be exercised.
<PAGE> 5
(l) "Market Value" means the market value of the Company's Shares as
determined in accordance with paragraph 3.5.
(m) "Option" means an option to acquire Shares. awarded to a Director or
Employee pursuant to the Plan.
(n) "Option Certificate" means the certificate, in the form set out as
Schedule "A" hereto, evidencing an Option.
(o) "Option Holder" means a Director, Employee or Other Person, or
former Director, Employee or Other Person, who holds directly or
indirectly through a wholly owned holding company or registered
retirement savings plan an unexercised and unexpired Option or,
where applicable, the Personal Representative of such person.
(p) "Other Persons" means other persons who provide services to the
Company and who are entitled to receive options therefor pursuant to
the rules of the Regulatory Authorities.
(q) "Plan" means this stock option plan.
(r) "Personal Representative" means:
(i) in the case of a deceased Option Holder, the executor or
administrator of the deceased duly appointed by a court or
public authority having jurisdiction to do so; and
(ii) in the case of an Option Holder who for any reason is unable
to manage his or her affairs, the person entitled by law to
act on behalf of such Option Holder.
(s) "Regulatory Authorities" means all stock exchanges and other
organized trading facilities on which the Company's Shares are
listed and all securities commissions or similar securities
regulatory bodies having jurisdiction over the Company.
(t) "Share" or "Shares" means, as the case may be, one or more common
shares without par value in the capital stock of the Company.
1.2 Choice of Law
The Plan is established under and the provisions of the Plan shall be subject to
and interpreted and construed in accordance with the laws of the Province of
British Columbia.
- 2 -
<PAGE> 6
1.3 Headings
The headings used herein are for convenience only and are not to affect the
interpretation of the Plan.
ARTICLE 11
PURPOSE AND PARTICIPATION
2.1 Purpose
The purpose of the Plan is to provide the Company with a share-related mechanism
to attract, retain and motivate qualified Directors, Employees and Other
Persons, to reward such of those Directors, Employees and Other Persons as may
be awarded Options under the Plan by the Board from time to time for their
contributions toward the long term goals of the Company and to enable and
encourage such Directors, Employees and Other Persons to acquire Shares as long
term investments.
2.2 Participation
The Board shall, from time to time and in its sole discretion, determine those
Directors, Employees and Other Persons, if any, to whom Options are to be
awarded. The Board may, in its sole discretion, grant the majority of the
Options to insiders of the Company. However, in no case will the issuance of
Shares under the Plan and under any proposed or existing share compensation
arrangement result in:
(a) the number of Shares reserved for issuance pursuant to Options
granted:
(i) to insiders exceeding 10% of the Company's issued and
outstanding share capital; or
(ii) to any one person exceeding 5% of the Company's issued and
outstanding share capital;
(b) the number of Shares issued within a one year period:
(i) to insiders exceeding 10% of the Company's issued and
outstanding share capital; or
(ii) to any one insider and its associates exceeding 5% of the
Company's issued and outstanding share capital.
- 3 -
<PAGE> 7
2.3 Notification of Award
Following the approval by the Board of the awarding of an Option, the
Administrator shall notify the Option Holder in writing of the award and shall
enclose with such notice the Option Certificate representing the Option so
awarded.
2.4 Copy of Plan
Each Option Holder, concurrently with the notice of the award of the Option,
shall be provided with a copy of the Plan. A copy of any amendment to the Plan
shall be promptly provided by the Administrator to each Option Holder.
2.5 Limitation
The Plan does not give any Option Holder that is:
(a) a Director the right to serve or continue to serve as a Director of
the Company;
(b) an Employee the right to be or to continue to be employed by the
Company; or
(c) an Other Person the right to be or continue to be retained by the
Company to provide services to the Company.
ARTICLE III
TERMS AND CONDITIONS OF OPTIONS
3.1 Board to Issue Shares
The Shares to be issued to Option Holders upon the exercise of Options shall be
authorized and unissued Shares, the issuance of which shall have been authorized
by the Board.
3.2 Number of Shares
Subject to adjustment as provided for in paragraph 3.7 of this Plan, the
aggregate maximum number of Shares which will be available for purchase pursuant
to Options granted under this Plan will not exceed 750,000 Shares. If any Option
expires or otherwise terminates for any reason without having been exercised in
full, the number of Shares in respect of which the Option expired or terminated
shall again be available for the purposes of the Plan.
- 4 -
<PAGE> 8
3.3 Term of Option
Subject to paragraph 3.4, the Expiry Date of an Option shall be the date so
fixed by the Board at the time the particular Option is awarded, provided that
such date shall be no later than the tenth anniversary of the Award Date of such
Option.
3.4 Termination of Option
An Option Holder may exercise an Option in whole or in part at any time or from
time to time during the Exercise Period provided that, with respect to the
exercise of part of an Option, the Board may at any time and from time to time
fix a minimum number of Shares in respect of which an Option Holder may exercise
part of any Option held by such Option Holder. Any Option or part thereof not
exercised within the Exercise Period shall terminate and become null, void and
of no effect as of 5:00 p.m. local time in Vancouver, British Columbia on the
Expiry Date. The Expiry Date of an Option shall be the earlier of the date so
fixed by the Board at the time the Option is awarded and the date established,
if applicable, in sub-paragraphs (a) to (d) below:
(a) Death
If the Option Holder should die while he or she is still entitled to
exercise the Option, then the Expiry Date shall be the first
anniversary of the Option Holder's date of death; or
(b) Ceasing to hold Office
If the Option Holder holds his or her Option as Director of the
Company and then ceases to be a Director of the Company other than
by reason of death, the Expiry Date of the Option shall be the 30th
day following the date the Option Holder ceases to be a Director of
the Company unless the Option Holder ceases to be a Director of the
Company as a result of:
(i) ceasing to meet the qualifications set forth in section 105 of
the Canada Business Corporations Act;
(ii) an ordinary resolution having been passed by the shareholders
of the Company pursuant to section 109 of the Canada Business
Corporations Act; or
(iii) an order made by any Regulatory Authority having jurisdiction
to so order;
in which case the Expiry Date shall be the date the Option Holder
ceases to be a Director of the Company.
- 5 -
<PAGE> 9
(c) Ceasing to be Employed
If the Option Holder holds his or her Option as an Employee of the
Company and then ceases to be an Employee of the Company other than
by reason of death, the Expiry Date of the Option shall be the 30th
day following the date the Option Holder ceases to be an Employee of
the issuer unless the Option Holder ceases to be an Employee of the
Company as a result of:
(i) termination for cause; or
(ii) an order made by any Regulatory Authority having jurisdiction
to so order;
in which case the Expiry Date shall be the date the Option Holder
ceases to be an Employee of the Company.
(d) Ceasing to Provide Services
If the Option Holder holds his or her Option as an Other Person of
the Company and then ceases to provide services to the Company other
than by reason of death, the Expiry Date of the Option shall be the
30th day following the date the Option Holder ceases to provide
services to the Company as a result of:
(i) termination for cause; or
(ii) an order made by any Regulatory Authority having jurisdiction
to so order;
in which case the Expiry Date shall be the date the Option Holder
ceases to provide services to the Company.
(e) Holding Company Ceasing to be Wholly-Owned
If the Option Holder holds his or her Option indirectly through a
wholly-owned holding company, the Expiry Date shall be the date the
Option Holder ceases to wholly-own such holding company.
3.5 Exercise Price
The price at which an Option Holder may purchase a Share upon the exercise of an
Option shall be as set forth in the Option Certificate issued in respect of such
Option and in any event shall not be less than the Market Value of the Company's
Shares as of the Award Date. The Market Value of the Company's Shares for a
particular Award Date shall be determined as follows:
(a) if the Company's Shares are listed on more than one organized
trading facility, then Market Value shall be the simple average of
the Market Values determined
- 6 -
<PAGE> 10
for each organized trading facility on which those Shares are listed
as determined for each organized trading facility in accordance with
subparagraphs (b) and (c) below, but in any event not less than the
closing price of the Shares on the Toronto Stock Exchange on the
business day immediately prior to the Award Date;
(b) for each organized trading facility on which the Shares are listed,
Market Value will be the closing price of the Shares on the business
day immediately prior to the Award Date;
(c) if the Company's Shares trade on an organized trading facility
outside of Canada, then the Market Value determined for that
organized trading facility will be converted into Canadian dollars
at a conversion rate determined by the Administrator having regard
for the published conversion rates as of the Award Date;
(d) if the Company's Shares are listed on one or more organized trading
facilities but have not traded on the Award Date, then the Market
Value will be, subject to the necessary approvals of the applicable
Regulatory Authorities, that value as is determined by resolution of
the Board; and
(e) if the Company's Shares are not listed on an organized trading
facility, then the Market Value will be, subject to the necessary
approvals of the applicable Regulatory Authorities, that value as is
determined by resolution of the Board.
3.6 Additional Terms
Subject to all applicable securities laws and regulations and the rules and
policies of all applicable Regulatory Authorities, the Board may attach other
terms and conditions to the grant of a particular Option, such terms and
conditions to be referred to in a schedule attached to the Option Certificate.
These terms and conditions may include, but are not necessarily limited to, the
following:
(a) providing that an Option expires on the date the Option Holder
ceases to be a Director or Employee of the Company or, if an Other
Person, ceases to provide services to the Company;
(b) providing that a portion or portions of an Option vest after certain
periods of time or expire after certain periods of time; and
(c) providing that an Option be exercisable immediately, in full,
notwithstanding that it has vesting provisions, upon the occurrence
of certain events, such as a friendly or hostile takeover bid for
the Company.
- 7 -
<PAGE> 11
3.7 Assignment of Options
Options may not be assigned or transferred, provided that the Personal
Representative of an Option Holder may, to the extent permitted by paragraph
4.1, exercise the Option within the Exercise Period.
3.8 Adjustments
If, prior to the complete exercise of any Option, the Shares are consolidated,
subdivided, converted, exchanged or reclassified or in any way substituted for
(collectively the "Event"), an Option, to the extent that it has not been
exercised, shall be adjusted by the Board in accordance with such Event in the
manner the Board deems appropriate. No fractional shares shall be issued upon
the exercise of the Options and accordingly, if as a result of the Event, an
Option Holder would become entitled to a fractional share, such Option Holder
shall have the right to purchase only the next lowest whole number of shares and
no payment or other adjustment will be made with respect to the fractional
interest so disregarded.
3.9 Approvals
This Plan and any amendments hereto are subject to all necessary approvals of
the applicable Regulatory Authorities.
ARTICLE IV
EXERCISE OF OPTION
4.1 Exercise of Option
An Option may be exercised only by the Option Holder or the Personal
Representative of any Option Holder. An Option Holder or the Personal
Representative of any Option Holder may exercise an Option in whole or in part
at any time or from time to time during the Exercise Period up to 5:00 p.m.
local time in British Columbia on the Expiry Date by delivering to the
Administrator an Exercise Notice, the applicable Option Certificate and a
certified cheque, bank draft or cheque from a Toronto Stock Exchange member
broker firm payable to "Optima Petroleum Corporation" in an amount equal to the
aggregate Exercise Price of the Shares to be purchased pursuant to the exercise
of the Option. Alternately, the Option Holder may arrange for a Toronto Stock
Exchange member broker firm to deliver a cheque against delivery of the Shares
purchased.
4.2 Issue of Share Certificates
As soon as practicable following the receipt of the Exercise Notice, the
Administrator shall cause to be delivered to the Option Holder a certificate for
the Shares so purchased and if the Option
- 8 -
<PAGE> 12
has not been completely exercised, the Administrator shall concurrently forward
a new Option Certificate to the Option Holder for the balance of Shares
available under the Option.
4.3 Condition of Issue
The Options and the issue of Shares by the Company pursuant to the exercise of
Options are subject to the terms and conditions of this Plan and to compliance
with the applicable securities laws, regulations, rules and policies of the
Regulatory Authorities. The Option Holder agrees to comply with all such laws,
regulations, rules and policies and agrees to furnish to the Company any
information, report and/or undertakings required to comply with, and to fully
cooperate with the Company in complying with, such laws, regulations, rules and
policies.
ARTICLE V
ADMINISTRATION
5.1 Administration
The Plan shall be administered by the Administrator on the instructions of the
Board. The Board may make, amend and repeal at any time and from time to time
such regulations not inconsistent with the Plan as it may deem necessary or
advisable for the proper administration and operation of the Plan and such
regulations shall form part of the Plan. The Board may delegate to the
Administrator, to any Director, officer or employee of the Company or to a
committee consisting of such persons such administrative duties and powers as it
may see fit.
5.2 Interpretation
The interpretation by the Board of any of the provisions of the Plan and any
determination by it pursuant thereto shall be final and conclusive and shall not
be subject to any dispute by any Option Holder. No member of the Board or any
personal acting pursuant to authority delegated by it hereunder shall be liable
for any action or determination in connection with the Plan made or taken in
good faith and each member of the Board and each such person shall be entitled
to indemnification with respect to any such action or determination in the
manner provided for by the Company.
5.3 Status of Options granted under Previous Plans
Any existing options granted prior to the implementation of this Plan will
remain subject to the plan under which they were granted and such previous plans
will remain in effect with respect to such options so long as such options
remain outstanding.
- 9 -
<PAGE> 13
ARTICLE VI
AMENDMENT AND TERMINATION
6.1 Prospective Amendment
The Board may from time to time amend the Plan and the terms and conditions of
any Option to be granted and, without limitation, may make amendments for the
purpose of meeting any changes in any relevant law, rule or regulation
applicable to the Plan, any Option or the Shares, or for any other purpose which
may be permitted by all relevant laws, regulations, rules and policies provided
that any such amendment shall not alter the terms or conditions of any Option or
impair any right of any Option Holder pursuant to any Option awarded prior to
such amendment.
6.2 Retrospective Amendment
The Board may from time to time, subject to any necessary approvals of the
Regulatory Authorities, retrospectively amend the Plan and, with the consent of
the affected Option Holders, retrospectively amend the terms and conditions of
any Options which have been previously granted.
6.3 Termination
The Board may terminate the Plan at any time provided that any Option awarded
prior to the date of such termination and the rights of the Option Holder of
such Option shall continue to be governed by the provisions of the Plan.
6.4 Agreement
The Company and every Option awarded hereunder shall be bound by and subject to
the terms and conditions of the Plan. By accepting an Option granted hereunder,
the Option Holder has expressly agreed with the Company to be bound by the terms
of the Plan.
- 10 -
<PAGE> 14
SCHEDULE "A"
OPTIMA STOCK OPTION PLAN
OPTION CERTIFICATE
This Certificate is issued pursuant to the provisions of the Optima Petroleum
Corporation ("Optima") Stock Option Plan (the "Plan") and evidences that
_____________________ is the holder (the "Option Holder") of an option (the
"Option") to purchase up to ___________ common shares (the "Shares") in the
capital stock of Optima at a purchase price of $________________ per Share.
Subject to the provisions of the Plan:
(a) the Award Date of this Option is _______________ 19_; and
(b) the Expiry Date of this Option is ________________ 19__.
This Option may be exercised at any time and from time to time from and
including the Award Date through to and including up to 5:00 local time in
Vancouver, British Columbia on the Expiry Date by delivery to the Administrator
of the Plan an Exercise Notice, in the form provided in the Plan, together with
this Certificate and a certified cheque, bank draft or cheque from a Toronto
Stock Exchange member broker firm payable to "Optima Petroleum Corporation" in
an amount equal to the aggregate of the Exercise Price of the Shares in respect
of which this Option is being exercised. Alternately, the Option Holder may
arrange for a Toronto Stock Exchange member broker firm to deliver a cheque
against delivery of the Shares purchased.
This Certificate and the Option evidenced hereby is not assignable, transferable
or negotiable and is subject to the detailed terms and conditions contained in
the Plan, the terms and conditions of which the Option Holder hereby expressly
agrees with Optima to be bound by. This Certificate is issued for convenience
only and in the case of any dispute with regard to any matter in respect hereof,
the provisions of the Plan and the records of Optima shall prevail.
This Option is also subject to the terms and conditions contained in the
schedules, if any, attached hereto.
The foregoing Option has been awarded this ________ day of __________, 19__.
OPTIMA PETROLEUM CORPORATION
Per:
_____________________
- 11 -
<PAGE> 15
SCHEDULE"B"
OPTIMA STOCK OPTION PLAN
NOTICE OF EXERCISE OF OPTION
TO: The Administrator, Stock Option Plan
Optima Petroleum Corporation
Suite 600 - 595 Howe Street
Vancouver, B.C. V6C 2T5
The undersigned hereby irrevocably gives notice, pursuant to the Optima
Petroleum Corporation ("Optima") Stock Option Plan (the "Plan"), of the exercise
of the Option to acquire and hereby subscribes for (CROSS OUT INAPPLICABLE
ITEM):
(a) all of the Shares; or
(b) ___________________ of the Shares;
which are the subject of the Option Certificate attached hereto.
The undersigned tenders herewith a certified cheque, bank draft or cheque from a
Toronto Stock Exchange member broker firm, or has instructed a Toronto Stock
Exchange member broker firm to deliver against delivery of the aforementioned
shares a cheque (CIRCLE ONE), payable to "Optima Petroleum Corporation" in an
amount equal to the aggregate Exercise Price of the aforesaid shares and directs
Optima to issue the certificate evidencing said shares in the name of the
undersigned to be mailed to the undersigned, or delivered against payment to the
following member broker firm (CIRCLE ONE), at the following address:
__________________________
__________________________
__________________________
__________________________
DATED the ____ day of ________________ 19__.
________________________________
SIGNATURE OF OPTION HOLDER
- 12 -
<PAGE> 1
EXHIBIT 3.10
OPTIMA PETROLEUM CORPORATION
The following resolutions were passed by the Directors of OPTIMA
PETROLEUM CORPORATION (the "Company") having been consented to in
writing by all the Directors of the Company as of the 22nd day
of February 1996.
-----------------------------------------------------------------
APPROVAL OF SHARE COMPENSATION TO OUTSIDE DIRECTORS
- ---------------------------------------------------
WHEREAS:
(a) at a meeting of the directors held on September 13, 1994, the directors
passed a resolution approving the payment to each of the Company's outside
directors of $500 for each directors' meeting attended, effective as of the
next directors' meeting;
(b) directors' meetings were held on December 15, 1994, March 24, 1995, June
22, 1995, August 30, 1995 and December 14, 1995 but neither of the
Company's outside directors (Emile Stehelin, who attended all of the
meetings and Martin Abbott, who attended all but one of the meetings) has
received payment for their attendance at these meetings;
(c) Messrs. Stehelin and Abbott have agreed to accept 689 common shares and 551
common shares of the Company respectively in full payment of their
outstanding fees;
(d) in payment of the $500 fee per meeting, the Company wishes to issue 138
common shares per outside director per meeting attended for meetings during
the 1996 fiscal year, up to an aggregate of 2,500 common shares;
IT IS HEREBY RESOLVED THAT:
1. subject to the receipt of regulatory approval and shareholder approval, the
Company be and it is hereby authorized to issue 689 common shares of the
Company to Emile Stehelin and 551 common shares of the Company to Martin
Abbott in consideration of past directors' meeting attended, all at a
deemed price of $3.63 per share;
2. subject to the receipt of regulatory approval and shareholder approval, the
Company be and it is hereby authorized to issue up to an aggregate of 2,500
common shares of the Company to its outside directors at a rate of 138
common shares per outside director per meeting attended, at a deemed price
of $3.63 per share;
3. the Company make application to The Toronto Stock Exchange for approval of
the foregoing share issuances;
<PAGE> 2
4. the Company make application to The Toronto Stock Exchange to list 3,740
common shares to be issued and reserved for issuance pursuant to the
foregoing share compensation arrangements;
5. any one or more of the Directors and Senior Officers of the Company be
authorized and directed to perform all such acts, deeds and things and
execute, under the seal of the Company or otherwise, all such documents
and other writings, including treasury orders, as may be required to give
effect to the true intent of this resolution.
APPROVAL OF SHARE COMPENSATION TO CHIEF FINANCIAL OFFICER
WHEREAS the Company has entered into a management agreement, effective January
1, 1996 for a two year period expiring December 31, 1997, with Ronald P.
Bourgeois, the Company's Chief Financial Officer, providing for the payment of a
monthly fee of $8,000 as well as the monthly issuance of 500 shares at a deemed
issue price of $3.63 per share.
IT IS HEREBY RESOLVED THAT:
1. the management agreement (the "Management Agreement") between the Company
and Ronald P. Bourgeois be and it is hereby approved, ratified and
confirmed;
2. the execution of the Management Agreement by any one Director of the
Company, under the seal of the Company if applicable, is hereby approved,
ratified and confirmed;
3. subject to the receipt of regulatory approval and shareholder approval,
the Company be and it is hereby authorized to issue 500 common shares per
month up to an aggregate of 12,000 common shares of the Company to Ronald
P. Bourgeois, at a deemed price of $3.63 per share;
4. the Company make application to The Toronto Stock Exchange for approval of
the foregoing share issuances;
5. the Company make application to The Toronto Stock Exchange to list 12,000
common shares to be issued and reserved for issuance pursuant to the
foregoing share compensation arrangement;
6. any one or more of the Directors and Senior Officers of the Company be
authorized and directed to perform all such acts, deeds and things and
execute, under the seal of the Company or otherwise, all such documents
and other writings, including treasury orders, as may be required to give
effect to the true intent of this resolution.
These resolutions may be signed by the Directors in as many counterparts as may
be deemed necessary, each of which so signed shall be deemed to be an original,
and such counterparts
- 2 -
<PAGE> 3
together shall constitute one and the same instrument notwithstanding the date
of execution and shall be deemed to bear the date as set forth above.
/s/ William Leuschner /s/ Robert L. Hodgkinson
- ------------------------------- -----------------------------------
William Leuschner Robert L. Hodgkinson
/s/ Emile Stehelin /s/ Ronald P. Bourgeois
- ------------------------------- -----------------------------------
Emile Stehelin Ronald P. Bourgeois
/s/ Martin G. Abbott
- -------------------------------
Martin G. Abbott
- 3 -
<PAGE> 1
EXHIBIT 3.11
[RYDER SCOTT COMPANY PETROLEUM ENGINEERS LETTERHEAD]
CONSENT OF RYDER SCOTT COMPANY
PETROLEUM ENGINEERS
We hereby consent to the reference to our reviews dated March 6, 1998,
March 13, 1997, and March 6, 1996, which were used to prepare the Estimated
Future Reserves Attributable to Certain Leasehold Interests of Optima Petroleum
Corporation as of December 31, 1997, December 31, 1996, and December 31, 1995,
respectively, and to the reference to Ryder Scott Company Petroleum Engineers
as experts in the field of petroleum engineering.
/s/ Ryder Scott Company
----------------------------------
Petroleum Engineers
March 23, 1998
<PAGE> 1
EXHIBIT 3.12
[LAROCHE PETROLEUM CONSULTANTS, LTD. LETTERHEAD]
CONSENT OF LAROCHE
PETROLEUM CONSULTANTS, LTD.
We consent to incorporation by reference in the Registration Statement of
Optima Energy (U.S.) Corporation the reference to our appraisal report as of
December 31, 1997, which appears in the December 31, 1997 annual report on Form
10-K of Optima Energy (U.S.) Corporation.
LaRoche Petroleum Consultants, Ltd.
By: /s/ William M. Kazmann
-----------------------------------
William M. Kazmann, Partner
March 19, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THIRD
QUARTER 10Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL.
</LEGEND>
<CURRENCY> CANADIAN DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<EXCHANGE-RATE> 0.7210
<CASH> 6,946,802
<SECURITIES> 0
<RECEIVABLES> 2,168,145
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 9,489,491
<PP&E> 35,965,111
<DEPRECIATION> 15,305,588
<TOTAL-ASSETS> 31,898,334
<CURRENT-LIABILITIES> 916,255
<BONDS> 138,110
0
0
<COMMON> 30,886,244
<OTHER-SE> (242,780)
<TOTAL-LIABILITY-AND-EQUITY> 31,898,334
<SALES> 6,467,944
<TOTAL-REVENUES> 7,208,404
<CGS> 2,911,379
<TOTAL-COSTS> 6,619,458
<OTHER-EXPENSES> 252,268
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 144,782
<INCOME-PRETAX> 336,678
<INCOME-TAX> 261,191
<INCOME-CONTINUING> 75,487
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 75,487
<EPS-PRIMARY> 0.01
<EPS-DILUTED> 0.01
</TABLE>
