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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) December 23, 1996
PetroCorp Incorporated
(Exact name of registrant as specified in its charter)
Texas 0-22650 76-0380430
(State or other jurisdiction of (Commission File Number) (IRS Employer
incorporation or organization) Identification No.)
16800 Greenspoint Park Drive
Suite 300, North Atrium
Houston, Texas 77060-2391
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (713) 875-2500
Not applicable
(Former name or former address, if changed since last report)
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
PetroCorp Incorporated (the "Company") has announced the acquisition of
Millarville Oil & Gas, Ltd., a privately-held Alberta corporation that owns and
operates oil and gas properties in the province of Alberta, Canada. The
transaction was completed on December 23, 1996 and a press release containing
further details was issued on January 7, 1997 and is attached to this filing as
an exhibit.
Of the $11.7 million ($U.S.) cash acquisition price, approximately $8.0
million ($U.S.) was funded from the working capital of the Company, and a
Canadian subsidiary of the Company borrowed approximately $3.7 million ($US)
under a long-term borrowing arrangement with Royal Bank of Canada.
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ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(A) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED.
The financial statements are not included in this initial report. Such
statements will be filed by amendment not later than 60 days after the date that
this initial report must be filed.
(B) PRO FORMA FINANCIAL INFORMATION.
The pro forma financial information is not included in this initial report.
Such information will be filed by amendment not later than 60 days after the
date that this initial report must be filed.
(C) EXHIBITS.
Exhibit No. Exhibits
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2 Share Purchase Agreement dated December 13, 1996 between 702056
Alberta Ltd. and Shareholders of Millarville Oil & Gas Ltd.
99 Press release dated January 7, 1997.
SIGNATURES
Pursuant to the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned hereunto duly
authorized.
Date: January 7, 1997 PETROCORP INCORPORATED
(Registrant)
/s/ CRAIG K. TOWNSEND
-------------------------------
(Signature)
Craig K. Townsend
Vice President-Finance, Secretary
and Treasurer
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EXHIBIT INDEX
Exhibit No. Exhibits
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2 Share Purchase Agreement dated December 13, 1996 between 702056
Alberta Ltd. and Shareholders of Millarville Oil & Gas Ltd.
99 Press release dated January 7, 1997.
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EXHIBIT 2
SHARE PURCHASE AGREEMENT
BETWEEN:
702056 ALBERTA LTD.
- AND -
SHAREHOLDERS OF MILLARVILLE OIL & GAS LTD.
DATED THE 13TH DAY OF DECEMBER, 1996
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SHARE PURCHASE AGREEMENT made the 13th day of December, 1996.
BETWEEN:
702056 ALBERTA LTD., a body corporate having offices in the City of
Calgary, in the Province of Alberta (hereinafter referred to as the "Purchaser")
OF THE FIRST PART
AND
EACH OF THE PARTIES LISTED IN SCHEDULE "A" HERETO, (hereinafter
individually referred to as "Vendor" and collectively referred to as the
"Vendors")
OF THE SECOND PART
WHEREAS the Vendors are the beneficial owners of the Securities;
AND WHEREAS the Vendors have agreed to sell, and the Purchaser has agreed
to buy, the Securities upon the terms and conditions set forth herein;
NOW THEREFORE in consideration of the covenants and agreements herein and
other good and valuable consideration (the receipt and sufficiency of which is
hereby acknowledged), the parties hereto covenant and agree as follows:
ARTICLE 1
INTERPRETATION
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1.1 DEFINITIONS
In this Agreement, unless the context otherwise requires:
a. "AGREED UPON STANDARD" shall have the meaning ascribed thereto in Section
11.1;
b. "AGREEMENT" means this agreement, including the recitals and all Schedules
to this agreement, as amended or supplemented from time to time, and
"hereby", "hereof", "herein", "hereunder", "herewith", "hereto" and similar
terms refer to this Agreement and not to any particular provision of this
Agreement;
c. "ASSET ROLL DOWN" means the purchase, effective January 1, 1996, by the
Subsidiary of certain oil and gas assets from the Corporation in exchange
for the issuance of shares by the Subsidiary pursuant to an Agreement of
Purchase and Sale dated October 31, 1996 between the Corporation and the
Subsidiary;
d. "ASSETS" means the Petroleum and Natural Gas Rights, the Tangibles and the
Miscellaneous Interests;
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e. "BUSINESS DAY" means a day, other than a Saturday, Sunday or statutory
holiday, when banks are generally open for the transaction of banking
business in the City of Calgary, Alberta;
f. "CLEANUP COST" shall have the meaning ascribed thereto in Section 11.2;
g. "CLOSING" means the closing of the transactions contemplated herein;
h. "CLOSING DATE" means December 19, 1996 or such other date as may be agreed
upon by the parties hereto;
i. "CLOSING TIME" means 10:00 a.m. (Calgary time), or such other time as may be
agreed upon by the parties hereto, on the Closing Date;
j. "COMMON SHARES" means common shares of the Corporation, as a class, as
constituted on the date hereof;
k. "CORPORATION" means Millarville Oil & Gas Ltd., a body corporate
incorporated under the laws of the province of Alberta;
l. "DISPUTE NOTICE" shall have the meaning ascribed thereto in either Section
2.5 or Section 11.2 or Section 12.1;
m. "EFFECTIVE DATE" means September 30, 1996;
n. "ENCUMBRANCE" includes, without limitation, any mortgage, pledge,
assignment, charge, lien, security interest, claim, trust, royalty, carried,
working, participation, net profits interest or other third party interest
and any agreement, option, right or privilege (whether by law, contract or
otherwise) capable of becoming any of the foregoing;
o. "ENVIRONMENT" means the components of the earth and includes:
i. air, land and water;
ii. all layers of the atmosphere;
iii. all organic and inorganic matter and living organisms; and
iv. the interacting natural systems that include components referred to in
subparagraphs (i) and (ii) above;
p. "ENVIRONMENTAL CONSULTANT" means an independent environmental consultant
selected by Purchaser and consented to by the Principal Shareholders, or
their representative, acting reasonably;
q. "ENVIRONMENTAL DAMAGE" means any loss, injury, damage or other event of any
kind whatsoever, and howsoever or whenever occurring, to the Environment
(including but not limited to any loss or damage to real or personal
property) in respect of which any liability
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or obligation might accrue to, any predecessor to the Corporation, or the
Subsidiary, or Purchaser or any successor to Purchaser, to incur any
remediation, reclamation, clean-up or other expenses or to compensate any
person, whether by reason of any equitable, common law, statutory or civil
liability or obligation, or remedy available, applicable by reason of the
ownership of the Assets or responsibility for any operations conducted on or
in respect thereof at any time in the past, present or future, and whether
or not resulting from negligence, nuisance or otherwise, which loss, injury
or damages shall include but not be limited to all damages, awards, expenses
and costs (including legal costs on a solicitor and his own client basis)
incurred in any way relating to such matters and which loss, injury or
damages shall exclude what would be remediation, reclamation or clean-up
expenses for the Assets, if the Assets had reached the end of their useful
life at the Closing Time;
r. "FACILITIES" means all of the facilities used or useful in the production,
processing, transmission or treatment of Petroleum Substances, including,
without limitation, pipelines, flow lines, gathering systems, batteries,
compressors and plants;
s. "FINANCIAL STATEMENTS" means the audited consolidated financial statements
of the Corporation for the 12 months ended December 31, 1995 and the
unaudited consolidated financial statements of the Corporation (which
statements were internally prepared) for the 9 month period ended September
30, 1996, which financial statements are attached hereto as Schedule "C";
t. "GOVERNMENTAL AUTHORITY" includes any federal, provincial, municipal or
other political subdivision government, department, commission, board,
bureau, agency or instrumentality, domestic or foreign;
u. "IDENTIFIED ASSETS" shall have the meaning ascribed thereto in Section 11.1;
v. "LANDS" means the lands set forth and described in Schedule "B" and includes
the Petroleum Substances within, upon or under such lands, together with the
right to explore for and recover same insofar as such are granted by Leases
to such lands;
w. "LEASES" means collectively the leases, reservations, permits, licenses or
other documents of title by virtue of which the holder thereof is entitled
to drill for, win, take, own or remove the Petroleum Substances underlying
all or any part of the Lands including, without limitation, the leases set
forth and described in Schedule "B";
x. "MISCELLANEOUS INTERESTS" means the interest of the Corporation and the
Subsidiary in and to all property, assets and rights, other than Petroleum
and Natural Gas Rights and Tangibles, pertaining to the Petroleum and
Natural Gas Rights, the Lands, the Leases or the Tangibles and to which the
Corporation or the Subsidiary is entitled at the Effective Date including,
but not in limitation of the generality of the foregoing, the entire
interest of the Corporation and the Subsidiary in:
i. all contracts, agreements, documents, production sales contracts,
books and records and all seismic, geological, geophysical, production
and engineering information and reports relating to the Petroleum and
Natural Gas Rights, the Lands or any lands with which the Lands have
been pooled or unitized, or the Tangibles and any and all rights in
relation thereto;
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ii. all subsisting rights to enter upon, use and occupy the surface of any
of the Lands or any lands with which the same have been pooled or
unitized;
iii. any right, estate or interest in or to any asset which relates to but
does not comprise part of the Petroleum and Natural Gas Rights or the
Tangibles;
iv. all wells for the purpose of production of Petroleum Substances, the
injection of water or otherwise, situate on the Lands or on lands with
which the Lands have been pooled or unitized and all casing in such
wells; and
v. all Petroleum Substances in the course of production from the Lands or
lands with which the Lands have been pooled or unitized but not at the
Effective Date beyond the wellhead;
y. "NON-VOTING SHARES" means non-voting shares of the Corporation, as a class,
as constituted on the date hereof;
z. "OPTION BUYOUT" means the cancellation of options to purchase 14,859 Common
Shares granted by the Corporation to Peter Colnett in exchange for payment
by the Corporation to Peter Colnett as set forth in an agreement dated
October 30, 1996 between the Corporation and Peter Colnett;
aa. "PERMITTED ENCUMBRANCES" means:
i. the terms and conditions of title documents, including, without
limitation, the requirement to pay any rentals or royalties (except
rentals or royalties which have not been paid when due) to the grantor
of leases for Petroleum Substances to maintain such leases in good
standing;
ii. the right reserved to or vested in any grantor, government or other
public authority by the term of any lease for petroleum substances or
by any statute, law, rule, order or regulation to terminate any such
lease;
iii. easements, rights of way, servitudes or other similar rights in land,
including without limitation, rights of way and servitudes for
highways, railways, sewers, drains, gas and oil pipelines, gas and
water mains, electric light, power, telephone or cable television
conduits, poles, wires or cables;
iv. the right to levy taxes on Petroleum Substances or the income or
revenue therefrom and government requirements pertaining to production
rates from wells on the Lands or operations being conducted on the
Lands or otherwise affecting the value of any of the Assets;
v. agreements for the sale of Petroleum Substances;
vi. statutes, laws, rules, orders and regulations and any rights vested to
or vested in any municipality or governmental, statutory or public
authority to control or regulate any of them in any manner;
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vii. undetermined or inchoate liens incurred or created as security in
favour of any person with respect to the development or operation of
any of the Assets, as regards the Corporation's or the Subsidiary's
share of the costs and expenses thereof;
viii. the reservations, limitations, provisos and conditions in any grants
or transfers from the Crown of any of the subject lands or interests
therein and statutory acceptance as to title;
ix. agreements and plans relating to pooling or unitization;
x. agreements respecting the processing, treating or transmission of
petroleum substances or the operating of wells by contract field
operators;
xi. provisions for penalties and forfeitures under agreements as a
consequence of non-participation in operations; and
xii. liens granted in the ordinary course of business to a public utility,
municipality or governmental authority with respect to operations
pertaining to any of the Assets;
bb. "PERMITTED TRANSACTIONS" means the Option Buyout, the Working Capital
Distribution and the Asset Roll Down;
cc. "PERSON" includes an individual, partnership, firm, trust, body corporate,
Governmental Authority, unincorporated body of persons or association;
dd. "PETROLEUM AND NATURAL GAS RIGHTS" mean the interests of the Corporation and
the Subsidiary set forth in Schedule "B" in and to the Leases and the Lands;
ee. "PETROLEUM SUBSTANCES" means petroleum, natural gas and related hydrocarbons
and all substances associated therewith (including, without limitation,
sulphur) or any of them insofar as the same are granted by the Leases;
ff. "PREPAID GAS OBLIGATIONS" means obligations, if any, in the nature of take
or pay obligations which the Corporation or the Subsidiary has under or in
respect of any production sales contracts which have arisen by reason of
payments to or to the account or benefit of the Corporation or the
Subsidiary or other persons as agent on their behalf, which now or at any
time in the future require or may require the Corporation or the Subsidiary
to deliver Petroleum Substances to those purchasers under such production
sales contracts without being entitled to payment in full therefor or, in
some circumstances, to repay all or any portion of such payments;
gg. "PRINCIPAL SHAREHOLDERS" means, collectively, HOOPP Resources Inc., The
Prudential Insurance Company of America, Queen-Yonge Investments Limited,
Peters & Co. Limited and Peters Advisory Ltd.;
hh. "PURCHASE PRICE" shall have the meaning ascribed thereto in Article 2;
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ii. "PURCHASE PRICE HOLDBACK" shall have the meaning ascribed thereto in
subsection 2.2(a)(i);
jj. "PURCHASER'S COUNSEL" means Hoar, Lee & Boers or such other legal counsel as
may be designated by the Purchaser and satisfactory to the Vendors acting
reasonably;
kk. "REGULATIONS" means all laws, statutes, regulations, ordinances, orders
(including court orders), directives, or other such instruments issued by
any governmental department, agency or authority, having jurisdiction, in
effect as at the Closing Time, applicable to, the Assets or any of them, or
the operations conducted or to be conducted on or in respect thereof, or
other matters relating to any of the Assets, or operations conducted or to
be conducted on or in respect of the Assets;
ll. "SECURITIES" means 366,294 Common Shares and 129,013 Non-Voting Shares;
mm. "SUBSIDIARY" means Millarville Oil & Gas (1991) Ltd., a body corporate
incorporated under the laws of the Province of Alberta, a subsidiary of the
Corporation;
nn. "SUBSIDIARY" means, with respect to a specified body corporate, any body
corporate of which more than 50% of the outstanding shares ordinarily
entitled to elect a majority of the board of directors thereof (whether or
not shares of any other class or classes shall or might be entitled to vote
upon the happening of any event or contingency) are at the time owned
directly or indirectly by such specified body corporate and shall include
any body corporate in like relation to a subsidiary or to a combination of
more than one of the specified body corporate and other bodies corporate
each of which is a subsidiary;
oo. "TANGIBLES" means the interests of the Corporation and the Subsidiary in and
to all tangible depreciable property, assets and Facilities situate in, on
or about the Lands, appurtenant thereto or used in connection therewith or
with production, processing, transmission or treatment of Petroleum
Substances or operations thereon or relative thereto or appurtenant to or
used in connection with all producing or shut-in wells located in the Lands
or lands with which the Lands have been pooled or unitized;
pp. "TAX POOLS" means undepreciated capital cost of any particular class of
depreciable property, earned depletion base, cumulative Canadian exploration
expenses, cumulative Canadian development expenses, cumulative Canadian oil
and gas property expenses, foreign exploration and development expenses,
capital losses, non-capital losses, cumulative eligible capital, attributed
Canadian royalty income and investment tax credits all as defined in the
Income Tax Act or the Alberta Corporate Tax Act (Alberta);
qq. "VENDORS' COUNSEL" means Burnet, Duckworth & Palmer or such other legal
counsel as may be designated by the Vendors and satisfactory to the
Purchaser acting reasonably;
rr. "WORKING CAPITAL" means the difference between the Corporation's current
assets less the Corporation's current liabilities and where positive shall
be a working capital surplus and where negative shall be a working capital
deficiency; and
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ss. "WORKING CAPITAL DISTRIBUTION" means the distribution to shareholders of the
Corporation by way of a reduction of stated capital of an aggregate amount
of $5,048,545.77 in Working Capital.
1.2 SCHEDULES
The following Schedules form part of this Agreement:
Schedule A List of Vendors and Securities held by Vendors
Schedule B Land Schedule
Schedule C Financial Statements
Schedule D Other Assets
Schedule E List of Active Flare Pits, Inactive Flare Stack and Abandoned
or Abandoned Wells
Schedule F Restricted Property
Schedule G Authorizations for Expenditures and Other Financial Commitments
Schedule H List of Penalty Positions
1.3 HEADINGS
The division of this Agreement into articles, sections and paragraphs and
the insertion of headings are for convenience of reference only and shall not
affect in any way the meaning or interpretation of this Agreement.
1.4 SECTION REFERENCES
Unless the context otherwise requires, references in this Agreement to an
article, section, paragraph, clause, subclause or schedule by number, letter or
otherwise refer to the article, section, subsection, paragraph, clause,
subclause or schedule, respectively, bearing that designation in this Agreement.
1.5 GENDER, PLURAL
In this Agreement, unless the contrary intention appears, words importing
the singular include the plural and vice versa; words importing gender shall
include all genders.
1.6 DATE FOR ACTIONS
In the event that the date on which any action is required to be taken
hereunder by any of the parties is not a business day in the place where the
action is required to be taken, such action shall be required to be taken on the
next succeeding day which is a business day in such place.
1.7 STATUTES
References in this Agreement to any statute or sections thereof shall
include such statute as amended or substituted and any regulations promulgated
thereunder from time to time in effect.
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1.8 CURRENCY
Unless otherwise stated, all references in this Agreement to sums of money
are expressed in lawful money of Canada.
1.9 ENFORCEABILITY
All representations, warranties, covenants and opinions in or contemplated
by this Agreement as to the enforceability of any covenant, agreement or
document are subject to enforceability being limited by applicable bankruptcy,
insolvency, reorganization and other laws affecting creditors' rights generally
and the discretionary nature of certain remedies (including specific performance
and injunctive relief).
ARTICLE 2
PURCHASE AND SALE
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2.1 AGREEMENT TO PURCHASE AND SELL
At the Closing Time, the Vendors agree to sell to the Purchaser and the
Purchaser agrees to purchase from the Vendors, the Securities for an aggregate
purchase price of $16,700,000 (the "Purchase Price") being approximately
$33.7165 per Common Share and $33.7165 per Non-Voting Share, payable in
accordance with Section 2.2.
2.2 EXECUTION OF PURCHASE AND SALE
a. At the Closing Time, the Purchase Price shall be paid by the Purchaser to
the Vendors as follows:
i. $3,340,000 (the "Purchase Price Holdback") shall be paid by Purchaser
to Vendors' Counsel by certified cheque or bank draft at the Place of
Closing at the Closing Time and placed by Vendors' Counsel in an
interest bearing trust account on the following trust conditions:
A. if at any time prior to the date which is one hundred twenty
(120) days following Closing Vendors' Counsel receives from
Purchaser pursuant to either Section 2.5 or Section 12.1 a notice
executed by each of Purchaser and the Principal Shareholders
directing Vendors' Counsel to release funds from the Purchase
Price Holdback, Vendors' Counsel shall pay to Purchaser out of
the Purchase Price Holdback and interest thereon, if any, to the
extent funds remain available at the applicable time, the amount
equal to the amount set forth in such notice;
B. on the date which is one hundred twenty (120) days following
Closing the amount, if any, by which $1,670,000 exceeds the
aggregate of releases by Vendors' Counsel pursuant to (A) above
and amounts which are the subject of a Dispute Notice shall be
released to Vendors;
C. any portion of the Purchase Price Holdback and interest thereon,
if any, which is the subject of a Dispute Notice referred to in
Section 2.5 or
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Section 12.1, shall only be released in accordance with the
outcome of the arbitration procedure referred to in Section 2.5
or Section 12.2, as applicable, or as may otherwise be agreed to
by Purchaser and the Principal Shareholders, and once such
arbitration has been completed, or if the Purchaser and the
Principal Shareholders otherwise agree prior to the completion of
such arbitration, Purchaser and the Principal Shareholders, shall
provide written notice to Vendors' Counsel advising of the manner
in which the subject monies are to be released and such monies
shall be released to Purchaser and Vendors as directed in such
notice;
D. if at any time prior to the date which is one hundred eighty
(180) days following Closing, Vendors' Counsel receives from
Purchaser pursuant to Section 11.2 a notice executed by each of
Purchaser and the Principal Shareholders, directing Vendors'
Counsel to release funds from the Purchase Price Holdback
Vendors' Counsel shall pay to Purchaser out of the Purchase Price
Holdback and interest thereon, if any, to the extent funds remain
available at the applicable time, the amount equal to the amount
set forth in such notice;
E. any portion of the Purchase Price Holdback and interest thereon,
if any, which is the subject of a Dispute Notice referred to in
Section 11.2, shall only be released in accordance with the
outcome of the arbitration procedure referred to in Section 11.2
or as may otherwise be agreed to by Purchaser and the Principal
Shareholders and once such arbitration has been completed, or if
the Purchaser and the Principal Shareholders otherwise agree
prior to the completion of such arbitration, Purchaser and the
Principal Shareholders, shall provide written notice to Vendors'
Counsel advising of the manner in which the subject monies are to
be released and such monies shall be released to Purchaser as
directed in such notice;
F. on the date which is one hundred eighty (180) days following
Closing, any portion of the Purchase Price Holdback which is not
the subject of an arbitration procedure referred to in Section
2.5, Section 11.2 or Section 12.2 and interest thereon, if any,
remaining after the payments contemplated in (A) through (E)
above shall be released to Vendors;
ii. the balance of the Purchase Price shall be paid by Purchaser to
Vendors' Counsel on behalf of the Vendors by certified cheque or bank
draft;
b. at the Closing Time, the Vendors shall deliver to the Purchaser certificates
representing the Securities duly endorsed in blank for transfer, or accompanied
by duly executed powers of attorney for transfer in blank.
2.3 WORKING CAPITAL ADJUSTMENT
The Purchase Price was determined based on the assumption that the Working
Capital of the Corporation as at the Effective Date is nil. If the Working
Capital of the Corporation at the Effective Date as set forth in the Financial
Statements is a surplus or deficiency, then the
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amount of the Working Capital surplus shall be added to the Purchase Price and
the amount of any Working Capital deficiency shall be deducted from the
Purchase Price.
2.4 ADDITIONAL PURCHASE PRICE ADJUSTMENTS
In addition to the adjustments to the Purchase Price set forth in Section
2.3 the Purchase Price shall be adjusted as follows:
a. the Purchase Price shall be reduced by payments made by the Corporation
or the Subsidiary pursuant to the Option Buyout;
b. the Purchase Price shall be reduced by payments made by the Corporation
or the Subsidiary pursuant to the Working Capital Distribution;
c. the Purchase Price shall be reduced by severance payments made by the
Corporation or the Subsidiary to their officers or employees in
connection with the transactions contemplated by this Agreement;
d. the Purchase Price shall be reduced by payments made by the Corporation
or the Subsidiary to their financial advisors, Peters & Co. Limited, in
connection with the transactions contemplated by this Agreement;
e. the Purchase Price shall be reduced by payments made by the Corporation
or the Subsidiary to their legal advisors, Burnet, Duckworth & Palmer,
in connection with the transactions contemplated by this Agreement;
f. the Purchase Price shall be reduced by expenses of the Corporation or
the Subsidiary other than operating expenses, repairs or development
costs in respect of the Assets for the period commencing on the
Effective Date and ending on the Closing Date but only to the extent
that such expenses exceed $45,000 per month or, for a period of less
than a month, a proportionate amount of $45,000; and
g. the Purchase Price shall be reduced by the cost to the Corporation of
terminating its obligations under the Corporation's lease for its
office premises but only to the extent that such expenses exceed
$7,500.
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2.5 STATEMENT OF ADJUSTMENTS
At Closing, the amount to be paid by Purchaser to Vendors for the
Securities pursuant to Section 2.1 shall be adjusted in accordance with an
interim accounting statement of adjustments prepared for Closing by the
Corporation, which statement shall be delivered to the Purchaser two days prior
to the Closing Date. If pursuant to such interim accounting statement of
adjustments there is an adjustment in favour of Vendors then the amount to be
paid by Purchaser to Vendors pursuant to Section 2.1 shall be increased by such
amount and if there is an adjustment in favour of Purchaser then the amount to
be paid by Purchaser to Vendors pursuant to Section 2.1 shall be reduced by such
amount. Within ninety (90) days of Closing or such other time as is agreed to
by Purchaser and Vendors, Purchaser shall prepare and submit a final accounting
statement of adjustments on the same basis as aforesaid and the Purchaser and
Principal Shareholders or their representative(s) shall meet in an attempt to
agree upon any further adjustments to be made and upon agreement the Purchaser
shall then forward to Vendors' Counsel a notice signed by each of the Purchaser
and the Principal Shareholders of the adjustments upon which the Purchaser and
the Vendors have agreed and directing Vendors' Counsel to release certain funds
from the Purchase Price Holdback to either Purchaser or Vendors.
During the one hundred twenty (120) day period following Closing, Purchaser
and Vendors shall have the right to audit the accountings and adjustments set
forth in Sections 2.3 and 2.4 above. In the event of a dispute regarding the
accounting and adjustments set forth in Sections 2.3 and 2.4, the unresolved
matters will be referred to arbitration in accordance with the Arbitration Act
(Alberta) or other similar legislation in force in the province of Alberta from
time to time and the Purchaser shall forward to Vendors' Counsel a notice (a
"Dispute Notice") setting forth details as to the disagreement and the amount
which is in dispute.
Notwithstanding the foregoing, no party shall be entitled to audit the
accountings and adjustments set forth in Sections 2.3 and 2.4 above after one
hundred twenty (120) days following the Closing Date nor shall any party be
entitled or obligated to make any adjustments after such one hundred twenty
(120) day period unless, within one hundred twenty (120) days, such adjustment
has been specifically requested, by notice in writing, and the adjustment has
either been agreed to as aforesaid or referred to arbitration as aforesaid.
2.6 AGREEMENT OF PARTIES
The parties confirm their agreement that the Purchase Price Holdback, to
the extent that funds have not been released to Vendors, represents the sole
recourse of the Purchaser against the Vendors in respect of Environmental
Damage, breaches of the representations and warranties of Vendors contained in
Article 3 and adjustments to the Purchase Price.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE VENDORS
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3.1 REPRESENTATIONS AND WARRANTIES OF THE VENDORS TO THE PURCHASER
Each of the Vendors represents and warrants to the Purchaser with respect
to itself only that:
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CORPORATE STANDING, POWER AND AUTHORIZATIONS
a. if it is a corporation, it is duly organized and validly existing under the
law of the jurisdiction of its incorporation;
b. it has all requisite power and authority to enter into this Agreement and
all documents to be delivered pursuant hereto and to perform its obligations
hereunder and thereunder;
c. the execution and delivery of this Agreement and all documents to be
delivered pursuant hereto, the performance by it of its obligations
hereunder and thereunder and the consummation of the transactions
contemplated herein and therein do not and will not:
i. if it is a corporation, result in the breach of or violate any term or
provision of the articles, by-laws or other governing documents of it;
or
ii. conflict with, result in a breach of, constitute a default under, or
accelerate or permit the acceleration of the performance required by,
any agreement, instrument, licence, permit or authority to which it is
a party or by which it is bound or give to any person any interest or
right, including any right of purchase, termination, cancellation or
acceleration under any such agreement, instrument, license, permit or
authority; or
iii. result in the creation of any Encumbrance upon the Securities held by
it; or
iv. violate any provision of law or administrative regulation or any
judicial or administrative order, award, judgment or decree applicable
to it, the Securities held by it or any of its property or assets;
d. this Agreement has been duly authorized, executed and delivered by it and
all documents to be delivered by it pursuant hereto will be duly executed
and delivered and this Agreement does and such documents will constitute
legal, valid and binding obligations of it enforceable in accordance with
their respective terms;
FINDER'S FEES
e. it has not incurred any obligation or liability, contingent or otherwise,
for brokerage fees, finder's fees, agent's commission or other similar forms
of compensation with respect to the transactions contemplated herein for
which the Purchaser will be liable;
OWNERSHIP
f. all of the Securities listed opposite its name in Schedule "A" are owned by
it as the sole beneficial owner with good, valid and marketable title and
good, valid and marketable title to such securities will vest in the
Purchaser as a result of the consummation of the transactions contemplated
herein free and clear of any Encumbrances, voting trusts, unanimous or other
shareholder agreements, proxies and other interests, claims or demands of
every kind or nature whatsoever (other than such as may be created by the
Purchaser);
<PAGE>
13
g. except pursuant to this Agreement, no person has any agreement, option,
right or privilege (including, without limitation, whether by law,
preemptive right, contract or otherwise) to purchase, convert into, exchange
for or otherwise acquire, nor any agreement, option, right or privilege
capable of becoming any such agreement, option, right or privilege, any of
the Securities listed opposite its name in Schedule "A", or any interest
therein;
h. with the exception of The Prudential Insurance Company of America, it is not
a "non-resident" for the purposes of the Income Tax Act (Canada);
AUTHORIZED AND ISSUED CAPITAL
i. the authorized capital of the Corporation consists of an unlimited number of
Common Shares and an unlimited number of Non-Voting Shares of which 366,294
Common Shares and 129,013 Non-Voting Shares are validly issued, fully paid
and non-assessable;
j. subject to the filing of Articles of Amendment dated December 13, 1996, the
authorized capital of the Subsidiary consists of an unlimited number of
Common Shares, an unlimited number of Non-Voting Shares, an unlimited number
of First Preferred Shares of which 115 Common Shares, 10 Non-Voting Shares
and 10,101 First Preferred Shares are validly issued as fully paid and non-
assessable;
k. at Closing no person will have any agreement, option, right or privilege
(including, without limitation, whether by law, preemptive right, contract
or otherwise) to purchase, subscribe for, convert into, exchange for or
otherwise require the issuance of any of the unissued shares in the capital
of the Corporation or the Subsidiary;
Minute Book
l. the minute book of the Corporation contains a complete copy of the
Corporation's share register, constating documents and a record of all
resolutions of the shareholders and directors of the Corporation;
LEGAL MATTERS
m. there are no material actions, suits, investigations, proceedings or claims,
commenced or to the best of the knowledge, information and belief of the
Corporation or the Principal Shareholders, contemplated, at law or in equity
or before or by any court or other Governmental Authority and which involve
or affect the Corporation or the Subsidiary and there are no grounds upon
which any such action, suit, investigation, proceeding or claim may be
commenced with a reasonable likelihood of success;
COMPLIANCE WITH LAWS
n. to the best of the knowledge, information and belief of the Corporation, all
laws, regulations and orders of any Governmental Authority having
jurisdiction over property or assets of the Corporation or the Subsidiary
have been complied with in all respects material to the Corporation or the
Subsidiary, as the case may be;
<PAGE>
14
Commitments
o. neither the Corporation nor the Subsidiary is a party to, or is bound by,
any agreement of guarantee, indemnification, assumption or endorsement or
any other like commitment of the obligations, liabilities (contingent or
otherwise) or indebtedness of any person other than those entered into,
assumed or endorsed in the ordinary course of business;
Disclosure of Material Contracts
p. all materials contracts to which the Corporation or the Subsidiary are
parties or by which they are bound have been disclosed to the Purchaser and
copies thereof have been made available to the Purchaser or Purchaser's
Counsel;
FINANCIAL MATTERS
q. the Financial Statements have been prepared in accordance with Canadian
generally accepted accounting principles applicable in Canada applied on a
basis consistent with that of prior periods (except as stated therein) and
present fairly the financial position of the corporation to which they
relate as of the date provided therein and the results of operations and the
changes in financial position for the periods then ended;
r. there are no liabilities, whether contingent or otherwise, of the
Corporation or the Subsidiary of any kind whatsoever, whether or not
determined or determinable other than:
i. as set out in the Financial Statements;
ii. pursuant to the Option Buyout and the Working Capital Distribution;
iii. those payments referred to in Sections 2.4(c), (d), (e) and (f);
iv. usual operating expenses incurred in the normal course of operations;
and
v. liability for the abandonment of wells which are referred to in the
report of Paddock Linstrom & Associates Ltd. dated April 22, 1996,
evaluating, effective April 1, 1996, the oil and gas reserves of the
Corporation or which were referred to in technical materials made
available to the Purchaser in the data room maintained by Peters & Co.
Limited for review by potential purchasers of the Corporation and the
Subsidiary;
CHANGES IN AFFAIRS
s. since December 31, 1995, neither the Corporation nor the Subsidiary has:
i. sold, transferred or otherwise disposed of, or created, assumed or
permitted any Encumbrance on or in respect of, its property or assets
or any part thereof except pursuant to the Permitted Transactions;
ii. amended its articles, by-laws or other governing documents except
Articles of Amendment dated December 13, 1996;
<PAGE>
15
iii. not conducted its business in all material respects in the ordinary
course except pursuant to the Permitted Encumbrances;
iv. suffered any material adverse change, financial or otherwise, in
business, financial condition, assets, properties, liabilities or
operations of the Corporation or the Subsidiary or any occurrences or
circumstances which have resulted or might reasonably expected to
result in a material adverse change thereto; or
v. made any change in its accounting principles and practices as
theretofore applied including, without limitation, the basis upon
which its assets and liabilities are recorded on its books and its
earnings, profits and losses are ascertained;
t. since September 30, 1995, neither the Corporation nor the Subsidiary has
paid any dividends or made any other distribution to its shareholders except
pursuant to the Permitted Transactions;
TAX MATTERS
u. the Corporation and the Subsidiary have duly and timely filed, in proper
form, returns in respect of taxes under the Income Tax Act (Canada), the
Excise Tax Act (Canada), the Alberta Income Tax Act, the tax legislation of
any other province of Canada or any foreign country having jurisdiction over
affairs of the Corporation or a Subsidiary, for all prior periods in respect
of which such filings have heretofore been required, and all taxes shown
thereon and all taxes owing with respect to periods ending prior to and
including December 31, 1995, and all remittances of taxes collected on
behalf of any taxing authority owing with respect to periods ending prior to
and including December 31, 1995, have been paid or accrued on the books of
the Corporation and the Subsidiary; there are no outstanding agreements or
waivers extending the statutory period of limitations applicable to any
federal, provincial or other tax return for any period; all payments by the
Corporation or any Subsidiary to any non-resident of Canada have been made
in accordance with all applicable legislation in respect of withholding tax;
there are no assessments or reassessments respecting the Corporation or any
Subsidiary pursuant to which there are amounts owing or discussions in
respect thereof with any taxing authority and the Corporation and the
Subsidiary have withheld from each payment made to any of its officers,
directors, former directors and employees the amount of all taxes,
(including, without limitation, income tax) and other deductions required to
be withheld therefrom and has paid the same to the proper tax or other
authority. As of December 31, 1995, the Corporation and the Subsidiary had
combined Tax Pools including approximately $1,027,000 of cumulative Canadian
exploration expenses, approximately $1,635,000 in cumulative Canadian
development expenses, approximately $4,233,000 in cumulative Canadian oil
and gas property expenses, an aggregate undepreciated capital cost of assets
in all classes of approximately $1,827,000, approximately $1,179,000 of non-
capital losses and approximately $84,000 of investment tax credits and such
Tax Pools are not subject to reduction pursuant to assessment or
reassessment within the time required under any applicable tax legislation;
<PAGE>
16
OIL & GAS ASSETS
v. except for Permitted Encumbrances, the Assets are free and clear of all
Encumbrances and adverse claims whatsoever created by, through or under the
Corporation or the Subsidiary and it is not aware of any Encumbrance,
adverse claim or material title defect in respect of the Assets;
w. to the best of the Corporation's information, knowledge and belief, neither
the Corporation nor the Subsidiary has received any notice of default or
termination under any of the Leases or any notice alleging its default under
any agreement pertaining to any of the Assets, which default has not been
rectified as of the date of this Agreement, and the Corporation is not aware
of any material default under the Leases or any contracts to which it or the
Subsidiary is a party;
x. the Petroleum and Natural Gas Rights are not subject to any Prepaid Gas
Obligations or any gas balancing agreements;
y. to the best of the knowledge, information and belief of the Corporation
there are no production penalties applicable to the Petroleum and Natural
Gas Rights and the Petroleum and Natural Gas Rights have not been produced
in excess of their maximum allowable production as provided under the
Regulations or in excess of the maximum rate contemplated in any gas
purchase agreement applicable to the Assets;
z. to the best of the information, knowledge and belief of the Corporation,
each well located on the Lands, whether producing, shut-in, injection,
disposal or otherwise, has been drilled and, if completed, completed and
operated in accordance with good Canadian oil and gas field practices and
the material requirements of the Regulations;
aa. to the best of the information, knowledge and belief of the Corporation,
each well located on the Lands which has been plugged and abandoned, has
been plugged and abandoned and the wellsite therefor properly restored, in
accordance with good Canadian oil and gas field practices and the material
requirements of the Regulations;
bb. to the best of the information, knowledge and belief of the Corporation, the
Tangibles have been constructed, installed, maintained and operated in
accordance with generally accepted engineering practices, good Canadian oil
and gas field practices and the material requirements of the Regulations;
cc. neither the Corporation nor the Subsidiary is an "above-limit corporation",
a "restricted corporation" or a member of a "restricted partnership" and,
except as described in Schedule F none of the Assets is a "restricted
property", as such terms are defined in the Alberta Income Tax Act;
dd. there are no outstanding authorizations for expenditures or other
outstanding financial commitments of the Corporation or the Subsidiary which
are due as of the date hereof or which may become due other than usual
operating expenses incurred in the normal conduct of operations other than
as described in Schedule G;
<PAGE>
17
ee. neither the Corporation nor the Subsidiary has elected not to participate in
operations in respect of the Assets which has resulted in the Corporation or
the Subsidiary to be in a penalty position which currently exists other than
as described in Schedule H;
ENVIRONMENTAL MATTERS
ff. it is not aware of and to its knowledge neither the Corporation nor the
Subsidiary has received:
i. any orders or directives which relate to environmental matters and
which require any material work, repairs, construction or capital
expenditures with respect to the Assets, where such orders or
directives have not been complied with in all material respects; or
ii. any demand or notice issued with respect to the material breach of any
environmental, health or safety law applicable to the Assets,
including without limitation, respecting the use, storage, treatment,
transportation or disposition of environmental contaminants, which
demand or notice remains outstanding on the date hereof; and
OTHER ASSETS
gg. attached as Schedule "D" is an accurate and complete list of all assets of
the Corporation and the Subsidiary other than the Assets.
3.2 NO ADDITIONAL REPRESENTATIONS
The Vendors make no representations or warranties except as expressly set
forth in this Article and in particular, and without limiting the generality of
the foregoing, the Vendors hereby expressly negate any representations or
warranties, whether written or verbal made by them or their agents, servants or
employees with respect to:
a. the quality, quantity or recoverability of Petroleum Substances within or
under the Lands or any lands pooled therewith;
b. the value of the Corporation, the Assets or the future cash flow therefrom;
c. the quality, condition, fitness or merchantability of the Tangibles; and
d. the environmental condition of the Assets.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
-----------------------------------------------
4.1 REPRESENTATIONS AND WARRANTIES OF THE PURCHASER TO THE VENDORS
The Purchaser represents and warrants to the Vendors that:
<PAGE>
18
CORPORATE STANDING, POWER AND AUTHORIZATIONS
a. the Purchaser is duly organized and validly existing under the law of the
jurisdiction of its incorporation and has the corporate power to own or
lease its property and assets and to carry on its business as now conducted
by it and is duly qualified to carry on business in the Province of Alberta
and each other jurisdiction in which the nature of its business or the
property or assets owned or leased by it makes such qualification necessary;
b. the Purchaser has all requisite power and authority to enter into this
Agreement and all documents to be delivered pursuant hereto and to perform
its obligations hereunder and thereunder;
c. the execution and delivery of this Agreement and all documents to be
delivered pursuant hereto, the performance by the Purchaser of its
obligations hereunder and thereunder and the consummation of the
transactions contemplated herein and therein do not and will not:
i. result in the breach of or violate any term or provision of the
articles, by-laws or other governing documents of the Purchaser; or
ii. conflict with, result in a breach of, constitute a default under, or
accelerate or permit the acceleration of the performance required by,
any agreement, instrument, licence, permit or authority to which the
Purchaser is a party or by which it is bound or give to any person any
interest or right, including any right of purchase, termination,
cancellation or acceleration under any such agreement, instrument,
license, permit or authority; or
iii. violate any provision of law or administrative regulation or any
judicial or administrative order, award, judgment or decree applicable
to the Purchaser;
d. this Agreement has been duly authorized, executed and delivered by the
Purchaser and all documents to be delivered by the Purchaser pursuant hereto
will be duly executed and delivered and this Agreement does and such
documents will constitute legal, valid and binding obligations of the
Purchaser enforceable in accordance with their respective terms; and
FINDER'S FEES
e. the Purchaser has not incurred any obligation or liability, contingent or
otherwise, for brokerage fees, finder's fees, agent's commission or other
similar forms of compensation with respect to the transactions contemplated
herein.
ARTICLE 5
COVENANTS OF THE VENDORS
------------------------
5.1 COVENANTS OF THE VENDORS
Each of the Vendors covenants and agrees that, until the Closing or this
Agreement has been terminated, whichever is the earlier, it:
<PAGE>
19
a. will use its best efforts to fulfil the conditions set forth in Articles 8
and 9 to the extent that the fulfilment of the same is within the control of
it;
b. will make all necessary filings and applications under applicable federal
and provincial laws and regulations required in connection with the
transactions contemplated herein and take all reasonable action necessary to
be in compliance with such laws and regulations; and
c. will make available, or cause to be made available, to the Purchaser as soon
as possible all documents and agreements as may be necessary to enable the
Purchaser to effect a thorough investigation of the Corporation, the
Subsidiary and their respective businesses, properties, assets and financial
status.
ARTICLE 6
COVENANTS OF THE PURCHASER
--------------------------
6.1 COVENANTS OF THE PURCHASER
The Purchaser covenants and agrees that, until the Closing or this
Agreement has been terminated, whichever is the earlier, it:
a. will use its best efforts to fulfil the conditions set forth in Articles 7
and 9 to the extent the fulfilment of the same is within the control of the
Purchaser; and
b. will keep confidential any and all information relating to the Vendors, the
Corporation and the Subsidiary provided to the Purchaser pursuant to this
Agreement and not otherwise known to the Purchaser or the public.
ARTICLE 7
CLOSING CONDITIONS OF THE VENDORS
---------------------------------
7.1 CONDITIONS PRECEDENT
The obligation of the Vendors to complete the transactions contemplated
herein is subject to the fulfilment of the following conditions precedent on or
before the Closing Time or such other time as is specified below:
a. the representations and warranties made by the Purchaser herein shall be
true at the Closing Time as if made at and as of such time, the Purchaser
shall have provided certificates of two officers of the Purchaser certifying
such accuracy at the Closing Time and the Vendors shall have no knowledge to
the contrary;
b. the Purchaser shall have complied with its respective covenants herein and
the Purchaser shall have provided certificates of two officers of the
Purchaser certifying at the Closing Time that the Purchaser has complied
with its respective covenants herein and the Vendors shall have no knowledge
to the contrary;
c. there shall have been no action taken under any existing applicable law or
regulation, nor any statute, rule, regulation or order which is enacted,
enforced, promulgated or issued by
<PAGE>
20
any court, department, commission, board, regulatory body, government or
governmental authority or similar agency, domestic or foreign, that:
i. makes illegal or otherwise directly or indirectly restrains, enjoins
or prohibits the transactions contemplated herein; or
ii. results in a judgment or assessment of material damages directly or
indirectly relating to the transactions contemplated herein; and
7.2 WAIVER OF CONDITIONS
The conditions precedent set forth in Section 7.1 are for the benefit of
the Vendors and may be waived, in whole or in part, by the Vendors at any time.
If any of the said conditions precedent shall not be complied with or waived by
the Vendors on or before the date required for the fulfilment thereof, the
Vendors may, in addition to the other remedies it may have at law or equity,
rescind and terminate this Agreement by notice to the Purchaser.
ARTICLE 8
CLOSING CONDITIONS OF THE PURCHASER
-----------------------------------
8.1 CONDITIONS PRECEDENT
The obligation of the Purchaser to complete the transactions contemplated
here in is subject to fulfilment of the following conditions precedent on or
before the Closing Time or such other time as is specified below:
a. the representations and warranties made by the Vendors herein shall be true
at the Closing Time as if made at and as of such time;
b. the Vendors shall have complied with their respective covenants herein;
c. the Vendors shall have provided the Purchaser with opinions of the Vendors'
Counsel reasonably satisfactory to the Purchaser, dated on the Closing Date
and addressed to the Purchaser and the Purchaser's Counsel, to the effect
that:
i. the Corporation is duly incorporated, organized and validly existing
under the law of the jurisdiction of its incorporation and is duly
qualified to own or lease its property and assets and to carry on
business in the Province of Alberta and such other jurisdictions in
which the nature of its business or the property or assets owned or
leased by it makes such qualification necessary;
ii. the execution and delivery by the Vendors of this Agreement and all
documents delivered pursuant hereto, the performance by the Vendors of
their respective obligations hereunder and thereunder and the
consummation by the Vendors of the transactions contemplated herein
and therein do not and will not:
A. result in the breach of or violate any term or provision of the
articles, by-laws or other governing documents of the
Corporation;
<PAGE>
21
B. conflict with, result in a breach of, constitute a default under
or accelerate or permit the acceleration of the performance
required by, any agreement, instrument, license, permit or
authority to which the Corporation is a party or is bound or to
which its property or assets is subject or result in the creation
of any Encumbrance upon any of its property or assets, under any
such agreement, instrument, license, permit or authority or give
to any person any interest or right, including any right of
purchase, termination, cancellation or acceleration under any
such agreement, instrument, license, permit or authority, in each
case as known to such counsel, without special inquiry;
C. violate any provision of law or administrative regulation or any
judicial or administrative order, award, judgment or decree
applicable to the Corporation, as known to such counsel, without
special inquiry;
iii. there are, to the knowledge of such counsel without inquiry beyond
that set forth in the opinion, no actions, suits or proceedings
commenced or contemplated affecting any of the Corporation, at law or
in equity or before or by any Governmental Authority; and
iv. as to the issued and outstanding capital of the Corporation and the
Subsidiary.
In giving such opinion, the Vendors' Counsel may rely, in respect of matters
of fact, upon certificates of senior officers of the Corporation and the
Subsidiary or any other appropriate person;
d. before giving effect to the transactions contemplated by this Agreement,
there shall not have been any material adverse change, financial or
otherwise, in the business, financial condition, assets, properties,
liabilities or operations of the Corporation or the Subsidiary or any
occurrences or circumstances which have resulted or might reasonably be
expected to result in a material adverse change thereto;
e. the board of directors of each of the Corporation and the Subsidiary shall
have been reconstituted to the satisfaction of the Purchaser;
f. each of the officers, directors and employees of the Corporation and the
Subsidiary shall have resigned and released the Corporation or the
Subsidiary, as the case may be, from all liabilities or claims which they
may have;
g. there shall have been no action taken under any existing applicable law or
regulation, nor any statute, rule, regulation or order which is enacted,
enforced, promulgated or issued by any court, department, commission, board,
regulatory body, government or governmental authority or similar agency,
domestic or foreign, that:
i. makes illegal or otherwise directly or indirectly restrains, enjoins
or prohibits the transactions contemplated herein;
ii. results in a judgment or assessment of material damages directly or
indirectly relating to the transactions contemplated herein; or
<PAGE>
22
iii. imposes or confirms material limitations on the ability of the
Purchaser to effectively exercise full rights of ownership of the
Securities, including, without limitation, the right to vote any such
securities.
8.2 WAIVER OF CONDITIONS
The conditions precedent set forth in Section 8.1 are for the benefit of
the Purchaser and may be waived, in whole or in part, by the Purchaser at any
time. If any of the said conditions precedent shall not be complied with or
waived by the Purchaser on or before the date required for the fulfilment
thereof, the Purchaser may, in addition to the other remedies it may have at law
or equity, rescind and terminate this Agreement by notice to the Vendors.
ARTICLE 9
INTERIM MATTERS
---------------
9.1 INTERIM MATTERS
In the period commencing on the Effective Date and ending at Closing, the
Corporation and the Subsidiary shall operate and maintain the Assets in a proper
and prudent manner in accordance with good industry practices and neither the
Corporation nor the Subsidiary shall, without the prior written approval of the
Purchaser:
a. authorize or make any expenditure in respect of the Assets, other
than:
i. usual operating expenditures incurred and allocable to the Assets
pursuant to existing authorizations and under existing operating
agreements with arms' length third parties;
ii. capital expenditures required in accordance with good industry
practice to a maximum of $25,000 gross expenditures for any
single operation; and
iii. expenditures required by reason of an emergency event endangering
life or property;
b. sell, transfer or otherwise dispose of any of the Assets; or
c. enter into any transaction not in the ordinary course of business.
<PAGE>
23
ARTICLE 10
TITLE REVIEW
------------
10.1 TITLE DEFECTS
From time to time and in any event by at least 4:30 p.m. (Calgary
time) on the date which is three business days prior to the Closing Date the
Purchaser shall give Vendors written notice of all matters of which Purchaser is
aware which in the opinion of Purchaser constitute defects which adversely
affect the title of the Corporation to the Assets and which Purchaser does not
waive (all of which are herein referred to as "Title Defects"). Prior to the
Closing Time, Vendors shall diligently make all reasonable efforts to cure or
remove all Title Defects. If all Title Defects are not cured or removed at or
before the Closing Time, Purchaser shall then elect in writing either:
a. with the agreement of the Vendors to grant a further period or periods
of time within which the Vendors may use to cure or remove such title
defects;
b. to waive such uncured title defects;
c. with the agreement of the Vendors, to adjust the Purchase Price
payable by Purchaser to the Vendors; or
d. to terminate this agreement in its entirety.
Failure by Purchaser to elect by 4:30 p.m. (Calgary time) on the date which is
one day prior to the Closing Date shall be irrefutably and conclusively deemed
to be an election to waive all uncured Title Defects.
ARTICLE 11
ENVIRONMENTAL MATTERS
---------------------
11.1 REMEDIAL WORK
As soon as reasonably practicable following Closing the Purchaser and
the Principal Shareholders, or a representative of them, shall cause a third
party whom is selected by such parties to reclaim the active flare pits, the
inactive flare stack and well sites of the dry and abandoned or abandoned wells
set forth and described in Schedule "E" hereto (the "Identified Assets") in
order to satisfy the "Alberta Tier I Criteria Standards" set by Alberta
Environmental Protection (the "Agreed Upon Standard").
11.2 RELEASE FROM PURCHASE PRICE HOLDBACK
Upon completion of such reclamation work which is required in order for
the Identified Assets to satisfy the Agreed Upon Standard, Purchaser and the
Principal Shareholders or their representative shall cause the Environmental
Consultant to inspect the Identified Assets to determine whether the Identified
Assets satisfy the Agreed Upon Standard and if the Identified Assets satisfy the
Agreed Upon Standard then Purchaser shall forward to Vendors' Counsel a notice
signed by each of the Purchaser and the Principal Shareholders directing
Vendors' Counsel to release to the Purchaser from the Purchase Price Holdback
the cost of the performance of the remedial work. If, on the date which is one
hundred sixty five (165) days following Closing, the
<PAGE>
24
Purchaser and the Principal Shareholders have not delivered to Vendors' Counsel
a notice as aforesaid to release funds from the Purchase Price Holdback then as
soon as practicable thereafter the Purchaser and the Principal Shareholders, or
a representative of them, shall meet to discuss the amount which can reasonably
be expected to be the cost to the Purchaser of the work which is required in
order for the Identified Assets to be reclaimed to satisfy the Agreed Upon
Standard (the "Cleanup Cost"). If the parties reach an agreement as to the
Cleanup Cost then the Purchaser shall then forward to Vendors' Counsel a notice
signed by each of the Purchaser and the Principal Shareholders setting forth the
amount of the Cleanup Cost and directing Vendors' Counsel to release such amount
from the Purchase Price Holdback to Purchaser. If an agreement as aforesaid is
not reached by the date which is one hundred eighty (180) days following
Closing, then Purchaser shall forward to Vendors' Counsel a notice (a "Dispute
Notice") signed by it setting forth the amount which it has reasonably estimated
to be the Cleanup Cost and the matter shall be referred to arbitration in
accordance with the Arbitration Act (Alberta) or other similar legislation in
force in the province of Alberta from time to time.
ARTICLE 12
BREACHES OF REPRESENTATIONS AND WARRANTIES OF VENDORS
-----------------------------------------------------
12.1 RELEASES FROM PURCHASE PRICE HOLDBACK
If, on or before the date which is one hundred twenty (120) days
following Closing, Purchaser determines that the Vendors have breached a
representation and warranty contained in Article 3 then it shall forthwith
advise the Vendors of such breach together with particulars thereof and an
estimate of the amount which can reasonably be expected to compensate the
Purchaser for the breach. As soon as practicable thereafter the Purchaser and
the Principal Shareholders shall meet to discuss the alleged breach and the
amount which can reasonably be expected to compensate the Purchaser for the
breach. If the parties reach an agreement that a breach has occurred and the
amount which can reasonably be expected to compensate the Purchaser for the
breach then the Purchaser shall then forward to Vendors' Counsel a notice signed
by each of the Purchaser and the Principal Shareholders setting forth details as
to the alleged breach and the amount which the Purchaser and the Vendors have
agreed is sufficient to compensate the Purchaser for such breach and directing
Vendors' Counsel to release certain funds from the Purchase Price Holdback to
Purchaser. If an agreement as aforesaid is not reached by the date which is one
hundred twenty (120) days following Closing, then Purchaser shall forward to
Vendors' Counsel a notice (a "Dispute Notice") signed by it setting forth
details as to the alleged breach and the amount which it has estimated can
reasonably be expected to compensate it for the breach and the matter shall be
referred to arbitration as set forth in Section 12.2.
12.2 ARBITRATION
If the Purchaser and the Principal Shareholders are unable to agree as to
whether a breach has occurred and the amount which would be reasonably necessary
to reimburse the Purchaser for such breach then such matter will be referred to
arbitration in accordance with the Arbitration Act (Alberta) or other similar
legislation in force in the province of Alberta from time to time.
<PAGE>
25
ARTICLE 13
CLOSING
-------
13.1 PLACE OF CLOSING
Closing shall take place at the offices of the Purchaser's Counsel at
the Closing Time, or at such other place as may be agreed upon by the parties
hereto.
ARTICLE 14
TERMINATION
-----------
14.1 RETURN DOCUMENTS
If this Agreement is validly terminated pursuant to any provision of
this Agreement, the parties shall return all materials and copies of all
materials delivered to the Purchaser, or the Vendors as the case may be, or
their agents, and each party hereto shall take all reasonable steps to return
the parties hereto to their respective positions prior to the date hereof and,
except for the obligations set forth in subsection 6.1(b) (which shall survive
any termination of this Agreement and continue in full force and effect), no
party shall have any further obligations to any other party hereunder with
respect to this Agreement.
ARTICLE 15
NOTICES
-------
15.1 NOTICES
Any notice, consent, waiver, direction or other communication required
or permitted to be given under this Agreement by a party to any other party
shall be in writing and shall be delivered by hand delivery, facsimile
transmission or (provided that the mailing party does not know and should not
reasonably have known of any disruption or anticipated disruption of postal
service which might affect delivery of the mail) by registered mail (postage
prepaid), addressed to the party to whom the notice is to be given, at its
address for service herein. Any notice, consent, waiver, direction or other
communication aforesaid shall, if hand delivered or delivered by telex or
facsimile transmission, be deemed to have been given and received on the date on
which its was hand delivered or delivered by facsimile transmission to the
address provided herein (if a business day and, if not, the next succeeding
business day) and if sent by registered mail be deemed to have been given and
received on the third business day at the point of delivery following the date
on which it was so sent.
<PAGE>
26
15.2 ADDRESS FOR SERVICE
The address for service of each of the parties hereto shall be as
follows:
if to the Purchaser:
c/o PetroCorp Incorporated
Suite 300, North Atrium
16800 Greenspoint Park Drive
Houston, Texas 77060-2391
ATTENTION: Mr. Fletcher Hicks
Facsimile No.: (281) 873-7213
with a copy to
Hoar Lee & Boers
1220, 144 - 4th Avenue S.W.
Calgary, Alberta
T2P 3N4
ATTENTION: Gary Lee
Facsimile No.: (403) 262-4860
if to the Vendors:
c/o Burnet, Duckworth & Palmer
1400, 350 - 7th Avenue S.W.
Calgary, Alberta
T2P 3N9
ATTENTION: Mr. Keith A. Greenfield
Facsimile No.: (403) 260-0330
with a copy to
The Prudential Insurance Company of America
500, 200 Consilium Place
Scarborough, Ontario
M1H 3C4
ATTENTION: Mr. Mike Weir
<PAGE>
27
with a copy to:
Peters & Co. Limited
2500, 350 - 7th Avenue S.W.
Calgary, Alberta
T2P 4N1
ATTENTION: Mr. J. Cameron Bailey
Facsimile No.: (403) 266-4116
and with a copy to:
HOOPP Resources Inc.
1400, 1 Toronto Street
Toronto, Ontario
M5C 3B2
ATTENTION: Ms. Safia Mehta
Facsimile No.: (416) 369 0292
or such other address as may be designated by notice to the other parties
hereto.
ARTICLE 16
DISCLOSURE
----------
16.1 FUTURE DISCLOSURE
Neither party shall disclose, by press release, or otherwise, any aspect
of the transactions contemplated herein, without prior written consent of the
other party. Notwithstanding the foregoing if either party is required by law or
administrative regulation to make any disclosure relating to the transactions
contemplated herein that party shall inform the other party as to the wording of
such disclosure prior to its being made.
ARTICLE 17
MISCELLANEOUS
-------------
17.1 ENTIRE AGREEMENT
This Agreement, together with documents to be delivered pursuant hereto,
constitutes the entire agreement between the parties hereto, and cancels and
supersedes all prior agreements and understandings between the parties hereto,
with respect to the subject matter hereof.
<PAGE>
28
17.2 FURTHER ASSURANCES
Each party hereto shall, from time to time, and at all times hereafter,
at the request of the other party hereto, but without further consideration, do
all such further acts and execute and deliver all such further documents and
instruments as shall be reasonably required in order to fully perform and carry
out the terms and intent hereof.
17.3 SURVIVAL
The representations, warranties, covenants and agreements herein and
in any document delivered pursuant hereto shall survive the Closing and remain
in full force and effect provided that no party hereto shall be liable in
respect of any representation or warranty unless the party seeking to rely upon
such representation or warranty shall have given notice to the party who made
such representation or warranty of its intention to make such claim on or before
the date which is one hundred twenty (120) days following Closing. The
Purchaser hereby acknowledges to and covenants and agrees with the Vendors that
all recourse, rights, powers and remedies of the Purchaser for or in respect of
the breach by the Vendors of the representations and warranties set forth in
Article 3 are limited to the rights, recourse and remedies of the Purchaser set
forth and described in Article 12 and to the Purchase Price Holdback as
described in subsection 2.2(a)(i). For further clarification and without
limiting the generality the foregoing:
a. the Vendors' liability for breaches of the representations and warranties
set forth in Article 3 is limited to the exercise by the Purchaser of its
rights in and to the Purchase Price Holdback described in this Agreement;
b. no recourse shall be had by the Purchaser hereunder to any of the other
property of the Vendors; and
c. no judgment for any deficiency shall exist against the Vendors if the
Purchase Price Holdback as described in section 2.2(a)(i) is insufficient to
satisfy any claim made by the Purchaser hereunder.
17.4 LIMITATIONS
Notwithstanding anything in this Agreement to the contrary, the Purchaser
shall have no remedy or cause of action against the Vendors for breach of
representation, warranty, covenant or indemnity for any circumstance, matter or
thing actually known to the Purchaser or any employee, agent, consultant or
representative thereof as at the date of this Agreement.
17.5 POWER OF ATTORNEY OF CERTAIN VENDORS
Each of the Vendors other than the Principal Shareholders (the "Other
Shareholders") hereby irrevocably nominates, constitutes and appoints Peters &
Co. Limited, with full power of substitution, as agent and true and lawful
attorney:
a. to act as it's representative at Closing and to execute in its name and on
its behalf all closing receipts and documents required;
<PAGE>
29
b. to complete or correct any errors or omissions in this Agreement and any
other document provided by such Other Shareholder;
c. to execute and deliver any amendment to this Agreement;
d. to approve any certificates or other documents addressed to such Other
Shareholder;
e. to waive, in whole or in part, any representations, warranties, covenants or
conditions for the benefit of such Other Shareholder and contained in any
agreement between the Purchaser and the Vendors; and
f. to approve any of the matters set forth in this Agreement which require the
agreement of such Other Shareholder.
The power of attorney granted above is irrevocable, is a power coupled with an
interest and, to the extent permitted by law, is valid and binding on the estate
of such Other Shareholder and will be exercisable during any subsequent legal
incapacity of such Other Shareholder and extends to and is binding upon the
heirs, executors, administrators and other legal representatives and the
successors and assigns of such Other Shareholder. Each Other Shareholder
agrees to be bound by any representation or action made or taken by Peters & Co.
Limited pursuant to such power of attorney and hereby waives any and all
defences which may be available to contest, negate or disaffirm the action of
Peters & Co, Limited taken in good faith under and within such power of
attorney.
17.6 PURCHASER'S EXAMINATION
The Purchaser acknowledges that it has made its own estimate and
appraisal of the extent and value of the reserves of the Petroleum Substances
attributable to the Lands and lands pooled therewith and has made its own
independent examination, analysis, evaluation and verification of the
Corporation and the Assets including a review of the Corporation's title thereto
and of the condition of the Assets including environment condition in, on and
under the Assets.
17.7 LIABILITY OF VENDOR
No Vendor shall be liable to the Purchaser or any other Vendor for any
misrepresentation or breach of warranty made to the Purchaser or covenant or
non-performance of obligations to the Purchaser under this Agreement by any
other Vendor provided, however, that the foregoing shall not restrict the
recourse of the Purchaser to the Purchase Price Holdback in accordance with the
terms hereof.
17.8 TIME
Time shall be of the essence in this Agreement.
17.9 AMENDMENTS
This Agreement may only be amended by a written instrument signed by the
parties hereto.
<PAGE>
30
17.10 GOVERNING LAW
This Agreement shall be governed by, and be construed in accordance
with, the laws of the Province of Alberta and applicable laws of Canada but the
reference to such laws shall not, by conflict of laws rules or otherwise,
require the application of the law of any jurisdiction other than the Province
of Alberta.
17.11 ATTORNMENT
Each party hereto hereby irrevocably attorns to the jurisdiction of
the Courts of the Province of Alberta in respect of all matters arising under or
in relation to this Agreement.
17.12 SEVERABILITY
If any one or more of the provisions or parts thereof contained in
this Agreement should be or become invalid, illegal or unenforceable in any
respect in any jurisdiction, the remaining provisions or parts thereof contained
herein shall be and shall be conclusively deemed to be, as to such jurisdiction,
severable therefrom and:
a. the validity, legality or enforceability of such remaining provisions or
parts thereof shall not in any way be affected or impaired by the severance
of the provisions or parts thereof severed; and
b. the invalidity, illegality or unenforceability of any provision or party
thereof contained in this Agreement in any jurisdiction shall not affect or
impair such provision or part thereof or any other provisions of this
Agreement in any other jurisdiction.
17.13 EXECUTION IN COUNTERPART
This Agreement may be executed in any number of counterparts with the
same effect as if all signatures to the counterparts had signed one document,
all such counterparts shall together constitute, and be construed as, one
instrument and each of such counterparts shall, notwithstanding the date of its
execution, be deemed to bear the date first above written.
17.14 WAIVER
No waiver by any party hereto shall be effective unless in writing and
any waiver shall affect only the matter, and the occurrence thereof,
specifically identified and shall not extend to any other matter or occurrence.
17.15 ENUREMENT
This Agreement shall enure to the benefit of and be binding upon the
parties hereto and their respective successors and assigns.
17.16 ASSIGNMENT
This Agreement may not be assigned by any party hereto without the
prior consent of the other parties hereto.
<PAGE>
31
17.17 RELIANCE
The parties hereto acknowledge and agree that they have entered into
this Agreement in reliance upon each of the representations, warranties,
covenants and agreements herein of the other party hereto.
IN WITNESS WHEREOF the parties hereto have executed this Agreement as
of the date first above written.
702056 ALBERTA LTD.
Per: ________________________________
<TABLE>
<CAPTION>
<S> <C>
HOOPP RESOURCES LTD. QUEEN-YONGE INVESTMENTS LIMITED
Per:______________________________ Per:______________________________
Per:______________________________ Per:______________________________
PETERS & CO. LIMITED 522104 ALBERTA LTD.
Per:______________________________ Per:______________________________
Per:______________________________ Per:______________________________
WILKINSON FAMILY TRUST GENEVA EQUITIES LTD.
Per:______________________________ Per:______________________________
Per:______________________________ Per:______________________________
Per:______________________________
THE CANADA TRUST COMPANY IN TRUST FOR THE PRUDENTIAL INSURANCE COMPANY OF
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
AMERICA
Per:______________________________ Per:______________________________
Per:______________________________ Per:______________________________
</TABLE>
<PAGE>
32
<TABLE>
<CAPTION>
<S> <C>
PETERS & CO. LIMITED AS AGENT FOR THE BLACK DIAMOND CATTLE COMPANY
TRUSTEES FOR: W. Peter Colnett, J. (1988) LTD.
Cameron Bailey, Allan Ross, Martin
T. Davies, Kathleen A. Davies, Per:______________________________
George Gosbee, Karen Gosbee, Sharon
Grant, William D. Bonner, Debbie Per:______________________________
Bonner
Per:______________________________
Per:______________________________
LAURENTIAN BANK OF CANADA AS AGENT PETERS ADVISORY LTD.
FOR TRUSTEE FOR: Neil M. Smith
Per:______________________________ Per:______________________________
Per:______________________________ Per:______________________________
GEE & CO.
Per:______________________________ _________________________________
J. CAMERON BAILEY
Per:______________________________
_________________________________ _________________________________
BRUCE A. FIELL DAVID B. SNEDDON
_________________________________ _________________________________
HUGH F. OSLER WILFRED A. GOBERT
_________________________________ _________________________________
EDWARD ENGLAND RICK D. ROBERTSON
_________________________________
_________________________________ LOUISE DUCHESNE
LEONARD J. WEBB
_________________________________ _________________________________
RICHARD WARAKSA RANDALL OSTERLIN
</TABLE>
<PAGE>
33
<TABLE>
<CAPTION>
<S> <C>
_________________________________ _________________________________
ROBERT M. WILKINSON JAN CHABUN
_________________________________ _________________________________
R. BRADLEY HURTUBUISE ALEECE WRIGHT
_________________________________ _________________________________
MARTIN DAVIES SHIRLEY L. CHOMYN
</TABLE>
<PAGE>
The schedules to this agreement have been omitted. Such schedules are listed in
Section 1.2 of this agreement and shall be furnished supplementally to the
Commission upon request.
<PAGE>
EXHIBIT 99
FOR IMMEDIATE RELEASE
PETROCORP ACQUIRES CANADIAN COMPANY
HOUSTON (January 7, 1997)--PetroCorp Incorporated (NASDAQ:PETR) today
announced its acquisition of Millarville Oil & Gas Ltd., a privately held
Alberta corporation that owns and operates oil and gas properties in Alberta,
Canada. The transaction was completed on December 23, 1996.
Proved developed reserves acquired in the transaction total 0.9 million
barrels of oil and 6.4 Bcf of natural gas. Average net daily production from the
properties in 1996 was 443 barrels of oil and 2,770 Mcf of natural gas. The cash
acquisition price was $11.7 million ($US). PetroCorp, through its Canadian
subsidiary PCC Energy Limited, will become operator of approximately 65% of the
acquired reserves.
On an unaudited pro forma basis, as though the transaction occurred at the
beginning of 1996, the Millarville acquisition would have increased PetroCorp's
1996 revenues by $4.3 million, earnings by $0.9 million and cash flow by $2.9
million.
Neil McBean, President and Chief Executive Officer of PetroCorp, said,
"Strategically, the acquisition is a significant addition to our existing
holdings in Alberta, one of our core areas. The acquisition is also important in
establishing PetroCorp as an operator in Alberta, which we believe will open
other doors to opportunity there.
"We are very excited about these properties, both in the quality of
existing reserves, and the opportunity to increase the reserves through
additional development. We have already taken steps to improve the operating
efficiency of the properties. During the first half of 1997, we will be
acquiring 2-D and 3-D seismic data that we hope will confirm drilling plans for
the second half of the year. At the corporate level, only a minimal increase in
our staff will be necessary."
PetroCorp, a Houston-based company, explores, develops and acquires oil and
gas properties in North America. The Company operates principally in the states
of Colorado, Oklahoma, Kansas, Texas and Mississippi and in the province of
Alberta, Canada.
CONTACT: Craig K. Townsend, Vice President--Finance, (281) 875-2500.
