<PAGE>
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): March 31, 1999
CEC RESOURCES LTD.
(Exact Name of Registrant as Specified in Charter)
<TABLE>
<S> <C> <C>
Alberta 1-13630 98-0018241
(State or Other (Commission File Number) (I.R.S. Employer
Jurisdiction of Identification No.)
Incorporation)
</TABLE>
1605, 700 6th Avenue S.W., Calgary, Alberta, Canada T2P 0T8
(Address of principal executive offices, zip code)
Registrant's telephone number, including area code: (403) 265-7605
Not Applicable
Former Name or Former Address if Changed Since Last Report
<PAGE>
Item 2 Acquisitions or Disposition of Assets
(a) On March 31, 1999, CEC Resources Ltd. acquired for $2.1 million (CDN)
working interests in 17 natural gas wells and associated natural gas
gathering and compression facilities in the Wayne-Rosedale Field, located
in Alberta, Canada from Cometra Energy (Canada) Ltd. The acquisition was
funded with bank financing from Canadian Imperial Bank of Commerce
("CIBC").
(b) This acquisition increases CEC's working interest ownership in the Wayne-
Rosedale Field to approximately 97%. The acquisition of additional
ownership in the Wayne-Rosedale Field is consistent with CEC's strategy of
continuing to increase the value of its existing natural gas properties
through the development of proved reserves, creation of operating cost
efficiencies and the acquisition of additional working interests.
Item 7 Financial Statements and Exhibits
(c) Exhibits
2.1 Agreement of Purchase and Sale between Cometra Energy (Canada) Ltd. and
CEC Resources Ltd.
99.1 Press release dated April 5, 1999 re Wayne-Rosedale Acquisition.
Financial information required pursuant to Regulation S-X will be filed by
amendment no later than 60 days after the date of this report
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused the report to be signed on its behalf by the
undersigned thereunto duly authorized.
CEC Resources Ltd.
----------------------------------
(Registrant)
By: /s/ KEVIN D. STRUZESKI
-------------------------------
Kevin D. Struzeski
Treasurer
Date: April 15, 1999
<PAGE>
EXHIBITS
Exhibit No.
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2.1 Agreement of Purchase and Sale between Cometra Energy (Canada) Ltd. and
CEC Resources Ltd.
99.1 Press release dated April 5, 1999 re Wayne-Rosedale Acquisition.
<PAGE>
AGREEMENT OF PURCHASE AND SALE
WAYNE-ROSEDALE AREA, ALBERTA
COMETRA ENERGY (CANADA) LTD.
(AS SELLER)
And
CEC RESOURCES LTD.
(AS PURCHASER)
DATED: MARCH 15, 1999
<PAGE>
TABLE OF CONTENTS
ARTICLE 1
INTERPRETATION
--------------
1.1 Definitions 1
1.2 Schedules 6
1.3 References 7
1.4 Headings 7
1.5 Singular/Plural 7
1.6 Use of Canadian Funds 7
1.7 Derivatives 7
1.8 Interpretation if Closing Does Not Occur 7
1.9 Conflicts 8
1.10 Responsibility Extends to Legal Costs 8
1.11 References to Directors, Offices, Servants, Agents, Consultants and
Employees 8
ARTICLE 2
PURCHASE AND SALE
-----------------
2.1 Agreement of Purchase and Sale 8
2.2 Allocation of Purchase Price 8
2.3 Payment of Purchase Price 9
ARTICLE 3
THIRD PARTY RIGHTS AND CONSENTS
-------------------------------
3.1 Preferential Rights of Purchase and Consents 9
3.2 Operatorship and Third Parties 9
ARTICLE 4
PURCHASER'S REVIEW
------------------
4.1 Seller to Provide Access 10
4.2 Title Defects 10
I
<PAGE>
ARTICLE 5
ADJUSTMENTS
-----------
5.1 Benefits and Obligations to be Apportioned 12
5.2 Adjustments to Accounts 13
ARTICLE 6
INTERIM PROVISIONS
------------------
6.1 Assets to be Maintained in Proper Manner 14
6.2 Seller as Agent 15
6.3 Restrictions on Conduct of Business 15
ARTICLE 7
REPRESENTATIONS AND WARRANTIES OF PARTIES
-----------------------------------------
7.1 Seller's Representations and Warranties 16
7.2 Purchaser's Representations and Warranties 20
7.3 Survival of Representations and Warranties 21
7.4 No Merger 21
7.5 No Additional Representations or Warranties by Seller 22
ARTICLE 8
LIABILITY AND INDEMNIFICATION
-----------------------------
8.1 Responsibility of Seller 22
8.2 Responsibility of Purchaser 22
8.3 Limit on Seller's Responsibility 23
8.4 Environmental Indemnity 23
8.5 No Merger of Legal Responsibilities 24
8.6 Substitution and Subrogation 24
ARTICLE 9
CLOSING
-------
9.1 Place of Closing 24
9.2 Required Approvals 25
9.3 Conditions for Benefit of Purchaser 24
9.4 Conditions for Benefit of Seller 26
9.5 Waiver of Conditions 27
9.6 Failure to Satisfy Conditions 27
II
<PAGE>
ARTICLE 10
POST CLOSING ADMINSTRATION
--------------------------
10.1 Registration of Documents 27
10.2 Coordination of Administration Matters 27
10.3 Seller's Access to Documents 28
ARTICLE 11
CONFIDENTIALITY
---------------
11.1 Purchaser's Obligation to Maintain Information Confidential 29
11.2 Consultants and Advisors Bound 29
ARTICLE 12
ARBITRATION
-----------
12.1 Reference to Arbitration 29
12.2 Proceedings 30
ARTICLE 13
ASSIGNMENT
----------
13.1 Assignment Before Closing 30
ARTICLE 14
NOTICE
------
14.1 Service of Notice 30
14.2 Address for Notices 31
14.3 Right to Change Address 31
ARTICLE 15
PUBLIC ANNOUNCEMENTS
--------------------
15.1 Approval Required for Press Releases 32
15.2 Signs and Notifications to Governmental Agencies 32
III
<PAGE>
ARTICLE 16
MISCELLANEOUS PROVISIONS
------------------------
16.1 Further Assistance 32
16.2 Governing Law 33
16.3 Time 33
16.4 No Amendment Except in Writing 33
16.5 Waiver must be in Writing 33
16.6 Consequences of Termination 33
16.7 Supersedes Earlier Agreements 33
16.8 Enurement 33
16.9 No Merger 34
16.10 Invalidity of Provisions 34
16.11 Counterpart Execution 34
IV
<PAGE>
EXHIBIT 2.1
AGREEMENT OF PURCHASE AND SALE
WAYNE-ROSEDALE AREA, ALBERTA
THIS AGREEMENT made this 15th day of March, 1999
BETWEEN:
Cometra Energy (Canada) Ltd. ("Cometra") a body corporate, having an
office in the City of Calgary, in the Province of Alberta
(hereinafter called the "Seller")
- and -
CEC Resources Ltd., ("CEC") a body corporate, having an office in the
City of Calgary, in the Province of Alberta
(hereinafter called the "Purchaser")
WHEREAS the Seller has agreed to sell the Assets to the Purchaser and the
Purchaser has agreed to purchase the Assets from the Seller on the terms and
conditions set forth herein;
NOW THEREFORE in consideration of the premises and the mutual covenants and
warranties herein contained, the Parties agree as follows:
ARTICLE 1
INTERPRETATION
--------------
1.1 Definitions
In this Agreement, including the recitals and the Schedules, the following
terms shall have the respective meanings hereby assigned to them, subject
to Subclause 4.2 (d):
(a) "ARTC" means the royalty tax credit as provided for pursuant to the
----
Alberta Corporate Income Tax Act;
(b) "Agreement" means this document, together with the Schedules attached
---------
hereto and made a part hereof;
(c) "Assets" means the Petroleum and Natural Gas Rights, the Tangibles and
------
the Miscellaneous Interests;
(d) "Closing" means the exchange of Conveyance Documents on the Closing
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Date, the delivery by the Purchaser to the Seller of the Purchase
Price, and the transfer of the Assets by the Seller to the Purchaser;
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(e) "Closing Date" means 2:00 p.m. on March 31, 1999 or such other time
------------
and date as may be agreed to by the Parties;
(f) "Conveyance Documents" means the documents described in Subparagraphs
--------------------
9.3 (e) (i) and (ii), which provide for the assignment, transfer or
other disposition of the Assets to the Purchaser;
(g) "Days" means any day which is not a Saturday, Sunday or statutory
----
holiday in Calgary, Alberta;
(h) "Effective Date" means 8:00 a.m. on the 1st day of March, 1999;
--------------
(i) "Environmental Liabilities" means any and all environmental damage,
-------------------------
contamination or other environmental problem pertaining to the Assets,
whether or not caused by a breach of applicable Regulations, including
without limitation, any matters related to surface, underground, air,
groundwater or surface water contamination, the abandonment or
plugging of any well included as an Asset hereunder, the restoration
or reclamation of any part of the Assets; or the removal of or failure
to remove any materials, substances, foundations, structures or
equipment from the surface lands pertaining to the Assets;
(j) "Facilities" means the Seller's Interest in any gas gathering
-----------
facilities, plants, compressors and / or other facilities used in
connection with the production, transmission, and sale of Petroleum
Substances, whether or not such Facilities are located on the Lands,
including but not limited to those Facilities described in Schedule
"B" hereto;
(k) "GST" means the goods and service tax payable pursuant to the GST
---
Legislation;
(l) "GST Legislation" means the Excise Tax Act, 1980 RSC, c. E-1 5, as
---------------
amended and the regulations thereunder;
(m) "Lands" means the lands set forth and described in Schedule "A",
-----
insofar as rights to the Petroleum Substances underlying those lands
are granted by the Leases;
(n) "Leases" means the leases, licenses, permits and other documents of
------
title set forth and described in Schedule "A", by virtue of which the
holder thereof is entitled to drill for, win, take, own or remove the
Petroleum Substances within, upon or under the Lands or by virtue of
which the holder thereof is deemed to be entitled to a share of
Petroleum Substances removed from the Lands and includes,
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<PAGE>
if applicable, all renewals and extensions of such documents and all
documents issued in substitution therefor;
(o) "Miscellaneous Interests" means the Seller's Interest in and to all
-----------------------
property, assets and rights, other than the Petroleum and Natural Gas
Rights and the Tangibles, to the extent such property, assets and
rights pertain to the Petroleum and Natural Gas Rights or the
Tangibles, or any rights relating thereto, including, without
restricting the generality of the foregoing, the Seller's Interest in:
(i) all contracts, agreements and documents, to the extent that
they relate directly to the Petroleum Substances, the
Petroleum and Natural Gas Rights or the Tangibles, including
agreements for the construction, ownership and operation of
any facilities and agreements for the sale, processing or
transportation of Petroleum Substances;
(ii) all subsisting rights to enter upon, use and occupy the
surface of any of the Lands, of any lands upon which any
Tangibles are located or of any lands to be crossed in order
to gain access to any of the Lands or the Tangibles;
(iii) the wellbores and casing of all Wells; and
(iv) copies of engineering records, accounting records, files,
reports, and data related to the Petroleum Substances, the
Petroleum and Natural Gas Rights, the Wells or the Tangibles,
excluding the Seller's tax and financial records, economic
evaluations and geophysical data;
(p) "Party" means a person, partnership or corporation, which is bound by
-----
this Agreement;
(q) "Permitted Encumbrances" means:
----------------------
(i) any encumbrances, overriding royalties, net profits interests
and other burdens identified in Schedule "A";
(ii) subject to Articles 3 and 4 and Paragraph 9.3(e)(iii) any
preferential rights of purchase or any similar restriction
applicable to any of the Assets, as identified in Schedule
"A";
(iii) the terms and conditions of the Leases, including, without
limitation, the requirement to pay any rentals or royalties to
the grantor thereof to maintain the Leases in good standing
and any gross royalty trusts applicable to the grantor's
interest in any of the Leases;
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<PAGE>
(iv) the right reserved to or vested in any grantor, government or
other public authority by the term of any Lease or by the
Regulations to terminate any Lease;
(v) easements, rights of way, servitudes or other similar rights
in land, including, without in any way limiting the generality
of the foregoing, 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;
(vi) rights of general application reserved to or vested in any
governmental authority to levy taxes on the Petroleum
Substances or the income or revenue therefrom;
(vii) the Regulations and any rights reserved to or vested in any
municipality or governmental, statutory or public authority to
control or regulate any of the Assets in any manner;
(viii) the reservations, limitations, provisos and conditions in any
grants or transfers from the Crown of any of the Lands or
interests therein, and statutory exceptions to title;
(ix) agreements and plans relating to pooling or unitization,
provided that any pooling or unit agreement applicable to the
Lands shall be identified in Schedule "C";
(x) 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;
(xi) the agreements identified in Schedule "D" respecting the
processing, treating, gathering, compression or transmission
of the Petroleum Substances or the operation of wells by
contract field operators;
(xii) 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 Seller's share
of the costs and expenses thereof which costs and expenses are
not due as of the Closing Date and which shall be adjusted
pursuant to Article 5; and
(xiii) agreements for the sale of Petroleum Substances, which either
are terminable on not greater than thirty (30) days' notice
(without an early termination penalty or other cost) or are
identified in Schedule "D";
(r) "Petroleum and Natural Gas Rights" means the Seller's Interest in and
--------------------------------
to the Lands, and the Leases to the extent they pertain to the Lands;
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<PAGE>
(s) "Petroleum Substances" means petroleum, natural gas, sulphur and every
--------------------
other mineral or substance, or any of them, the right to explore for
which, or an interest in which, is granted pursuant to the Leases,
insofar only as they pertain to the Lands;
(t) "Purchase Price" means the amount payable by the Purchaser to the
--------------
Seller pursuant to Clause 2.2, as modified by the adjustments provided
for herein;
(u) "Regulations" means all statutes, laws, rules, orders and regulations
-----------
in effect from time to time and made by governments, governmental
boards or agencies having jurisdiction over the Assets;
(v) "Right of First Refusal" means any pre-emptive right of the purchaser
-----------------------
or similar right whereby any party, other than the Seller or the
Purchaser, has the right to acquire or purchase all or a portion of
the Assets as a consequence of the Seller having agreed to sell the
Assets to the Purchaser in accordance herewith;
(w) "SEC" means Security and Exchange Commission;
---
(x) "Seller" means Cometra Energy (Canada), Ltd.
------
(y) "Seller's Interest" means, in respect of each property, right or asset
-----------------
comprising the Assets, the entire right, title, interest, and estate
of the Seller as more specifically described in Schedule "A" and "B"
hereto. Further, Seller's Interest shall include the entire right,
title, interest, and estate in respect of each property, right or
asset comprising the Assets more specifically described in Schedule
"A" of Golden Reef Energy Ltd. pursuant to the terms and conditions of
that certain Agency Agreement dated March 15, 1999 between Purchaser,
Seller and Golden Reef Energy Ltd., attached as Schedule "J" hereto.
(z) "Tangibles" means the Seller's Interest in the Facilities and in all
---------
tangible depreciable property that are:
(i) used, or intended for use, in connection with production,
processing, gathering, storage, treatment, compression or
transportation operations relating to the Petroleum Substances
and the Petroleum and Natural Gas Rights, including, without
limitation, the well equipment, if any, relating to the Wells;
and
(ii) any additional items, whether located on or off the Lands,
that are indicated in Schedule "B" to be specifically included
as Tangibles or Facilities;
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<PAGE>
(aa) "Title Defect" means a defect, deficiency or discrepancy in or
------------
affecting the title of the Seller in and to any of the Assets,
including other than as specifically disclosed herein or in Schedule
"A", which in the Purchaser's opinion, acting reasonably, is
sufficiently material and adverse to the Seller's title, or the
condition of the Assets, that it is not acceptable to the Purchaser;
(bb) "Wells" means all producing, shut-in, water source, disposal,
-----
injection, and similar wells located on the Lands, together with all
well licenses relating thereto.
1.2 Schedules
The following Schedules are attached hereto and made part of this
Agreement;
(a) Schedule "A", which includes:
(i) Part I - Land Schedule (including Penalties, Sellers
Interest, Lands, Leases, Encumbrances and Rights of First
Refusal)
(b) Schedule "B", which includes:
(i) Part I - Facilities
(ii) Part II - Wells and Unique Well Identifier Listing,
(c) Schedule "C", which includes Units
(d) Schedule "D", which includes Marketing Agreements, Natural Gas
Purchase and Sales Agreements, Processing Agreements, Compression
Agreements, Gathering Agreements, Firm and Interruptible
Transportation Agreements, Treating Agreements, Facility Agreements,
and Contract Operating Agreements.
(e) Schedule "E", which includes Authority for Expenditures
(f) Schedule "F", which includes Lawsuits and Claims
(g) Schedule "G", which is the form of General Conveyance
(h) Schedule "H", which is the form of the certificate to be provided
pursuant to Article 7 with respect to the truth of a Parties
representations and warranties; and
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<PAGE>
(i) Schedule "I", which is the form of the certificate to be provided
pursuant to Article 6 with respect to the belief of the Seller that
there has been no substantial damage or alteration to the Assets; and
(j) Schedule "J", which is the form of Agency Agreement.
1.3 References
The references "hereunder", "herein" and "hereof" refer to the provisions
of this Agreement, and references to Articles, Clauses, Subclauses,
Paragraphs or Subparagraphs herein refer to Articles, Clauses, Subclauses,
Paragraphs or Subparagraphs of this Agreement. Any reference to time shall
refer to Mountain Standard Time or Mountain Daylight Savings Time during
the respective intervals in which each is in force.
1.4 Headings
The headings of the Articles, Clauses, Schedules and any other headings,
captions or indices herein are inserted for convenience of reference only
and shall not be used in any way in construing or interpreting any
provision hereof.
1.5 Singular/Plural
Whenever the singular or masculine or neuter is used in this Agreement or
in the Schedules, it shall be interpreted as meaning the plural or feminine
or body politic or corporate, and vice versa, as the context requires.
1.6 Use of Canadian Funds
All references to "dollars" or "$" herein shall refer to lawful currency of
Canada.
1.7 Derivatives
Where a term is defined herein, a capitalized derivative of such term shall
have a corresponding meaning unless the context otherwise requires.
1.8 Interpretation if Closing Does Not Occur
In the event that Closing does not occur, each provision of this Agreement
which presumes that the Purchaser has acquired the Assets hereunder shall
be construed as having been contingent upon Closing have occurred.
- 7 -
<PAGE>
1.9 Conflicts
If there is any conflict or inconsistency between a provision of the body
of this Agreement and that of a Schedule or a Conveyance Document, the
provision of the body of this Agreement shall prevail. If any term or
condition of this Agreement conflicts with a term or condition of a Lease
or the Regulations, the term or condition of such Lease or the Regulations
shall prevail, and this Agreement shall be deemed to be amended to the
extent required to eliminate any such conflict.
1.10 Responsibility Extends To Legal Costs
References to costs in the liability and indemnification obligations
prescribed by Clauses 8.1, 8.2, 8.4 and Subclause 10.2(b) shall be deemed
to include reasonable legal costs on a solicitor-client basis.
1.11 References to Directors, Offices, Servants, Agents, Consultants and
Employees
References herein to directors, officers, servants, agents, consultants and
employees of the Seller shall mean directors, officers, servants, agents,
consultants and employees of the partners comprising the Seller.
ARTICLE 2
PURCHASE AND SALE
-----------------
2.1 Agreement of Purchase and Sale
The Purchaser agrees to purchase the Assets from the Seller and the Seller
agrees to sell the Assets to the Purchaser on the terms and conditions set
forth herein.
2.2 Allocation of Purchase Price
The Purchase Price payable by the Purchaser to the Seller for the Assets is
Two Million One Hundred Thousand Dollars ($ 2,100,000.00 ), and shall be
allocated among, the Assets as follows:
(a) To Petroleum and Natural Gas Rights $1,680,000.00
(b) To Tangibles $ 419,999.00
(c) To Miscellaneous Interests $ 1.00
-------------
TOTAL $2,100,000.00
=============
The amount allocated above to Petroleum and Natural Gas rights shall be
adjusted pursuant to Article 5.
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<PAGE>
2.3 Payment of Purchase Price
The Purchase Price shall be paid by the Purchaser to the Seller at Closing,
subject to any reductions as may be made pursuant to Articles 3 and 4 and
any adjustments provided for in Article 5 or as otherwise provided in this
Agreement. The Purchaser shall also remit to the Seller at Closing the
seven percent (7%) goods and services tax applicable to that portion of the
Purchase Price allocated to the Tangibles, in accordance with the Excise
Tax Act (Canada), being $29,399.93 (Seller's GST Registration Number is
873188966RT.) All amounts payable pursuant to this Clause shall be paid by
certified check, bank draft, or wire transfer to the account specified by
Seller.
ARTICLE 3
THIRD PARTY RIGHTS AND CONSENTS
-------------------------------
3.1 Preferential Rights of Purchase and Consents
(a) If any of the Assets are subject to a preferential right of purchase
or similar restriction, or if the disposition herein requires the
consent of any third party, the Seller shall promptly serve all
notices as are required under such preferential purchase or consent
provision. Each such notice shall include a request for a waiver of
any preferential or similar right to purchase any of the Assets and
for the granting of any consent that may be required. The Seller
acknowledges and agrees that if any such Rights of First Refusal are
exercised, the Purchaser shall have the option to terminate this
Agreement and neither Party shall have any further obligation to the
other Party hereunder.
(b) The Purchaser, acting reasonably and in good faith, shall provide to
the Seller the value placed by the Purchaser on any of the Assets with
respect to which the Seller is required to specify a value in a notice
served pursuant to this Clause, and otherwise provided for in this
Agreement. The Seller shall not be obligated to use such a value
where, in the Seller's opinion, acting reasonably, the value is
unreasonable.
(c) If the holder of any preferential right to purchase any of the Assets
exercises such right, or a third party required to give a necessary
consent refuses to give such consent, such right or refusal, as the
case may be, shall be considered a Title Defect for the purposes of
Subclause 4.2(b)
3.2 Operatorship and Third Parties
Nothing in this agreement shall be interpreted as any assurance by the
Seller that the Purchaser will be able to serve as operator with respect to
any of the Assets in which
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<PAGE>
interests are held by third parties, whether or not such Assets are
presently operated by the Seller.
ARTICLE 4
PURCHASER'S REVIEW
------------------
4.1 Seller to Provide Access
The Seller shall, subject to the Regulations and all contractual and
fiduciary obligations and limits:
(a) at the offices of the Seller, in Calgary, Alberta during normal
business hours, provide the Purchaser and its nominees reasonable
access to the Seller's records, files and documents directly relating
to the Assets, for the purpose of the Purchaser's review of the Assets
and the Seller's title thereto, including, without limitation, the
Leases and applicable operating agreements, unit agreements,
overriding royalty agreements and production sale contracts; and
(b) provide the Purchaser and its nominees with a reasonable opportunity
to inspect the Assets at the Purchaser's sole cost, risk and expense,
insofar as the Seller can reasonably provide access to the Assets.
4.2 Title Defects
(a) Any review of the Seller's title to the Assets shall be undertaken by
the Purchaser with reasonable diligence. Not later than five (5) days
prior to the Closing Date, the Purchaser shall give the Seller written
notice of the Title Defects which the Purchaser does not waive. Such
notice shall specify such Title Defects in reasonable detail, the
Assets directly affected thereby (the "Affected Assets") and the
Purchaser's requirements for the rectification or curing thereof. The
Seller shall thereupon diligently make reasonable efforts to cure such
Title Defects not later than two (2) days prior to the Closing Date.
(b) Insofar as the Title Defects described in the Purchaser's notice have
not been cured to the Purchaser's reasonable satisfaction, but subject
to Clause 9.5 with respect to preferential purchase rights and
required consents, the Purchaser may elect, on or before the Closing
Date by written notice to the Seller, to do one of the following:
(i) delay the Closing Date to such later date as is agreed by the
Parties, so as to provide the Seller with additional time to
cure the remaining Title Defects;
(ii) waive such uncured Title Defects and proceed with Closing;
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<PAGE>
(iii) proceed only with the purchase of only those Assets not directly
affected by the Title Defects which have not been waived by the
Purchaser (the "Unaffected Assets"), in which case the Purchase
Price shall be reduced by the portion of the Purchase Price
applicable (as of the Effective Date) to the Affected Assets, by
agreement of the Parties, or by Article 12; or
(iv) terminate this Agreement, if the portion of the Purchase Price
applicable to the Affected Assets is ten percent (10%) or more
of the Purchase Price, by agreement of the Parties, or by
Article 12, as the case may be.
However, failure of the Purchaser to make such election at or before
the Closing Date shall be deemed to be an election pursuant to
Paragraph (ii) of this Subclause 4.2(b).
(c) In the event that the portion of the Purchase Price applicable to the
Affected Assets for the reduction provided for in Paragraph
4.2(b)(iii) is to be determined pursuant to Article 12:
(i) then prior to proceeding with the purchase of the Unaffected
Assets, the Purchaser shall deduct from the Purchase Price an
amount equal to the Purchaser's good faith estimate of the
portion of the Purchase Price applicable to the Affected Assets
and deposit such amount in trust with a Canadian chartered bank
in an interest bearing account; and
(ii) the funds retained in trust pursuant to Paragraph (a) of this
Subclause and the accrued interest thereon shall be released
from trust following determination pursuant to Article 12. To
the extent that the amount held in trust varies from such
determination, any excess or deficiency and the interest which
accrued thereon shall either be paid by the Purchaser to the
Vendor within fifteen (15) days of such determination or be
retained by the Purchaser, as applicable.
(d) If a portion of the Assets is excluded from the Closing pursuant to
this Clause:
(i) the terms "Assets", "Lands", "Leases", "Miscellaneous
Interests", "Petroleum and Natural Gas Rights" and "Tangibles"
shall be construed as meaning only that portion of the subject
matter of those terms with respect to which Closing occurs; and
(ii) the term "Purchase Price" shall be construed to be the amount of
the Purchase Price remaining after the reduction provided for in
Paragraph 4.2 (b)(iii), and the allocation of the Purchase Price
pursuant to Clause 2.2
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<PAGE>
shall be determined by agreement of the Parties or by Article 12
and adjusted accordingly.
ARTICLE 5
ADJUSTMENTS
-----------
5.1 Benefits and Obligations to be Apportioned
(a) All benefits and obligations of any kind and nature accruing, payable,
paid, received or receivable with respect to the Assets (including,
without limitation, maintenance, development, capital and operating
costs, ARTC credits or any other tax or royalty credits, advances,
payments with respect to the Permitted Encumbrances, proceeds from the
sale of production, expenses, and fees for processing, treating,
transportation and compression, accounts receivable and incentives
accruing pursuant to the Regulations) shall be apportioned, as of the
Effective Date, between the Seller and the Purchaser, on an accrual
basis, in accordance with generally accepted accounting principles,
subject to the provisions of this Agreement. All such benefits and
obligations accruing up to the Effective Date shall be for the
Seller's account and all those accruing after the Effective Date shall
be for the Purchaser's account. All costs of whatever nature
pertaining to work performed or goods or services provided with
respect to the Assets prior to the Effective Date shall be borne by
the Seller, notwithstanding that such costs may be payable in whole or
in part after the Effective Date.
(b) Notwithstanding adjustments that may be made pursuant to Subclause
5.1(a) relating to proceeds from the sale of production, there will be
a price adjustment for natural gas sold by the Seller with respect to
the Assets between the Effective Date and the Closing Date. The
Seller will pay to the Purchaser $0.3675/GigaJoule based on the sales
volume of natural gas between the Effective Date and the Closing Date.
Pursuant to Subclause 5.2(a) below, the amount of this adjustment will
be estimated by Seller and included on the interim statement of
adjustments presented at Closing.
(c) All rentals and all similar payments required to preserve any of the
Leases and all taxes (other than income taxes and taxes based on the
volume of the production of Petroleum Substances) levied with respect
to the Assets shall be apportioned between the Seller and the
Purchaser on a per diem basis as of the Effective Date, unless and to
the extent that such apportionment is waived by the Seller.
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(d) All Petroleum Substances including natural gas, oil and liquified
petroleum products, which were produced, but not sold, as of the
Effective Date shall be credited to the Seller.
5.2 Adjustments to Accounts
(a) An interim accounting and adjustment may, upon the request of either
Party, be conducted for Closing, based on the Seller's and the
Purchaser's good faith estimate of all adjustments to be made for the
transactions herein pursuant to this Article, and a final accounting
and adjustment shall be conducted within twelve (12) months of the
Closing Date. Subject to Subclauses (b) and (c) of this Clause, the
Parties shall not be obligated to make any adjustments after such
twelve (12) month period unless such adjustment has been specifically
requested, by notice, within such period. All adjustments shall be
settled by payment by the Party required to make payment hereunder
within thirty (30) days of being notified of the determination of the
amount owing.
(b) During the twelve (12) month period following the Closing Date, the
Purchaser may audit the books, records and accounts of the Seller
respecting the Assets, for the purpose of effecting adjustments
pursuant to this Article. Such audit shall be conducted upon
reasonable notice to the Seller at the Seller's or Seller's attorney's
offices during the Seller's normal business hours, and shall be
conducted at the sole expense of the Purchaser. Any claims or
discrepancies disclosed by such audit shall be made in writing to the
Seller within one (1) month following the completion of such audit,
and the Seller shall respond in writing to any claims or discrepancies
within one (1) month of the receipt of such claims. To the extent
that the Parties are unable to resolve any outstanding claims or
discrepancies disclosed by such audit within one (1) month of the
Seller's response thereto, such audit exceptions shall be resolved
pursuant to Article 12.
(c) Purchaser is a publicly traded entity and as such is obligated to
abide by certain rules and regulations promulgated by the SEC. In the
event that SEC regulations require an independent audit of Seller's
books, records, assets, and accounts, relating to the required Assets,
Seller agrees to cooperate fully with Purchaser to complete such
audit. Seller's cooperation shall include making available on a
timely basis all of the Seller's original accounting records with
respect to the Assets and related information, and Seller's personnel
needed to answer direct inquiries. Seller further agrees to provide
such reasonable further written representation as Purchaser may
require regarding any future audit with respect to the Assets.
(d) Notwithstanding the preceding subclauses of this Clause and Clause
7.3, any adjustments resulting from joint venture audits, royalty
audits or Crown royalty invoices relating to the Assets:
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<PAGE>
(i) relating to the period prior to the Effective Date and for
which audit queries are outstanding at the Closing date;
(ii) that occur after the Closing Date but not later than two years
after the Closing Date or within the applicable period in the
governing operating agreements included in Miscellaneous
Interests, whichever is later, in the case of joint venture
audits;
(iii) that occur after the Closing Date but not later than four years
after the Closing Date in the case of the Crown royalty
invoices; or
(iv) that occur after the Closing Date but not later than four years
after the Closing Date in the case of royalty audits
shall be made as they are established and payment for them shall be
made by the Party required to make payment hereunder within 30 days of
being notified in writing of the determination of the amount owing.
(e) Subject to Subclause 4.2(c), any amount owing to a Party by the other
Party pursuant to any provision of this Agreement after Closing and
remaining unpaid after thirty (30) days prior written request from one
party to the other, shall bear compound interest, as computed monthly,
from the day such amount was due to be paid until the day such amount
was paid, at the rate of two (2%) percent per annum above the rate
designated as the prime rate for Canadian dollar commercial loans by
the main branch of the Canadian Imperial Bank of Canada in Calgary,
regardless of whether such Party has given the other Party prior
notice of the accrual of interest hereunder.
(f) All adjustments provided for in this Article shall be adjustments to
the Purchase Price.
ARTICLE 6
INTERIM PROVISIONS
------------------
6.1 Assets to be Maintained in Proper Manner
Possession of the Assets shall not pass to the Purchaser until after
Closing on the Closing Date. The Seller shall maintain the Assets on
behalf of the Purchaser in a proper and prudent manner in accordance with
good oil field practice and the Regulations until Closing. The Seller
shall maintain insurance respecting the Assets until the Closing Date.
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<PAGE>
6.2 Seller as Agent
(a) Insofar as the Seller maintains the Assets and takes actions with
respect thereto on behalf of the Purchaser pursuant to this Article,
the Seller shall be deemed to have been the agent of the Purchaser
hereunder. The Purchaser ratifies all actions which the Seller takes
or refrains from taking pursuant to the terms of this Article, with
the intention that all such actions shall be deemed to be those of the
Purchaser;
(b) The Purchaser shall indemnify the Seller and its directors, officers,
servants, agents, consultants or employees against all liabilities,
losses, costs (including legal costs on a solicitor-client basis),
claims or damages which the Seller or its directors, officers,
servants, agents, consultants or employees may suffer or incur as a
result of maintaining the Assets as the agent of the Purchaser
pursuant to this Article, insofar as such liabilities, losses, costs,
claims or damages are not a direct result of the gross negligence or
willful misconduct of the Seller or its directors, officers, servants,
agents, consultants or employees. An action or omission of the Seller
or its directors, officers, servants, agents, consultants or employees
shall not be regarded as gross negligence or willful misconduct,
however, to the extent it was done or omitted to be done in accordance
with the instructions of or with the concurrence of the Purchaser.
6.3 Restrictions on Conduct of Business
While acting as agent for the Purchaser pursuant to this Article, the
Seller shall not, without the prior written consent of the Purchaser:
(a) voluntarily assume any obligation or commitment with respect to
the Assets, where the Seller's share of the expenditure associated
with such obligation or commitment is estimated to exceed
$5,000.00;
(b) surrender or abandon any of the Assets;
(c) resign, or agree to resign as Operator of Assets;
(d) amend any agreement or enter into any new agreement respecting the
Assets;
(e) propose any operation with respect to the Assets or initiate the
exercise of any right arising as a result of the ownership of the
Assets;
(f) sell, transfer or otherwise dispose of the Assets, or any of them,
except as may be required by the Seller to comply with its
obligations respecting any preferential rights, as provided in
Article 3; or
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<PAGE>
(g) grant a security interest or any encumbrance with respect to any
of the Assets.
However, the Seller may assume such obligations or commitments and propose
or initiate such operations or exercise any such right or option without
the prior consent of the Purchaser, if the Seller reasonably determines
that such expenditures or actions are necessary for the protection of life
or property, in which case the Seller shall promptly notify the Purchaser
of such intention or actions and the Seller's estimate of the costs and
expenses associated therewith.
ARTICLE 7
REPRESENTATIONS AND WARRANTIES OF PARTIES
-----------------------------------------
7.1 Seller's Representations and Warranties
The Seller represents and warrants to the Purchaser that:
(a) Standing: Seller is a corporation, duly organized, valid and
--------
subsisting under the laws of its respective jurisdiction of
incorporation, and duly registered and authorized to carry on business
in the jurisdiction in which the Lands are located;
(b) Requisite Authority: The Seller has the requisite capacity, power and
-------------------
authority to execute this Agreement and the Conveyance Documents and
to perform the obligations to which it thereby becomes subject;
(c) No Conflict: The execution and delivery of this Agreement and the
-----------
completion of the sale of the Assets in accordance with the terms of
this Agreement are not and will not be in violation or breach of, or
be in conflict with:
(i) any term or provision of the charter, by-laws or other governing
documents of the Seller;
(ii) any agreement, instrument, permit or authority to which the
Seller is a party or by which the Seller is bound; or
(iii) the Regulations or any judicial order, award, judgement or
decree applicable to the Seller or the Assets;
(d) Execution and Enforceability: The Seller has taken all actions
----------------------------
necessary to authorize the execution and delivery of this Agreement,
and, as of the Closing Date, the Seller shall have taken all actions
necessary to authorize and complete the sale of the Assets in
accordance with the provisions of this Agreement, including but not
limited to any and all regulatory approvals which are required to
convey the Assets in accordance with this Agreement. This Agreement
has been
- 16 -
<PAGE>
validly executed and delivered by the Seller, and this Agreement and
all other documents executed and delivered on behalf of the Seller
hereunder shall constitute valid and binding obligations of the Seller
enforceable in accordance with their respective terms and conditions;
(e) Residency for Tax Purposes: The Seller is not a non-resident of Canada
--------------------------
within the meaning of the Income Tax Act (Canada);
(f) No Finders' Fees: The Purchaser shall not have any responsibility for
----------------
any obligation or liability, contingent or otherwise, for brokers' or
finders' fees, if any, incurred by the Seller with respect to the
transaction herein;
(g) Lawsuits and Claims: To the best of the information, knowledge and
-------------------
belief of the Seller, there are no unsatisfied judgements, claims,
proceedings, actions, governmental investigations or lawsuits in
existence, contemplated or threatened against or with respect to the
Assets or the interest of the Seller therein, and there exists no
particular circumstance which the Seller reasonably believes will give
rise to such a claim, proceeding, action, governmental investigation
or lawsuit;
(h) Compliance with Leases and Agreements: To the best of the information,
-------------------------------------
knowledge and belief of the Seller, no act or omission has occurred
whereby the Seller is, or would be, in default under the terms of the
Regulations, any Lease or any agreement pertaining to the Assets,
where such a default would impact materially and adversely upon the
Assets, or any of them;
(i) No Default Notices: The Seller has not received any notice of default
------------------
under 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;
(j) Payment of Royalties and Taxes: To the best of the information,
------------------------------
knowedge and belief of the Seller, all royalties and all ad valorem,
property, production, severance and similar taxes and assessments
based on, or measured by, the Seller's ownership of the Assets, the
production of Petroleum Substances from the Lands or the receipt of
proceeds therefrom that are payable by the Seller and which accrued
prior to the Closing Date have been or will be properly and fully paid
and discharged in the manner and at the time prescribed by the Leases
and the Regulations;
(k) Encumbrances: The Seller does not warrant its title to the Assets, but
------------
does warrant that the Seller's Interest in the Assets is free and
clear of any and all liens, mortgages, pledges, claims, options,
encumbrances, overriding royalties, net profits interest or other
burdens, other than the Permitted Encumbrances, created by, through,
or under the Seller;
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<PAGE>
(l) No Reduction: The Seller's Interest in the Assets is not subject to
------------
reduction by payout of a Well or otherwise, or subject to modification
in size or nature by virtue of any right or interest granted by,
through or under the Seller or of which the Seller is otherwise aware
except for the Permitted Encumbrances and any such rights and
interests identified in Schedule "A";
(m) Sale Agreements: Except as identified in Schedule "A", the Petroleum
---------------
Substances are not subject to any gas balancing agreements or similar
agreements nor any agreements for the sale of Petroleum Substances
which cannot be terminated unilaterally by the Purchaser on thirty
(30) days' notice or less (without an early termination penalty or
other cost) nor any agreements or obligations which would require the
Seller or any party acting on its behalf to deliver Petroleum
Substances to the purchaser thereof without receiving in due course
(and being entitled to retain) full payment at current market price or
the contract price therefor;
(n) Environmental Matters: The Seller is not aware of and has not received:
---------------------
(i) any orders or directives pursuant to the Regulations which relate
to environmental matters and which require any 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;
(ii) any demand or notice issued pursuant to the Regulations with
respect to the breach of any environmental, health or safety law
applicable to the Assets, including, without limitation, any
Regulations respecting the use, storage, treatment,
transportation or disposition of environmental contaminants,
which demand or notice remains outstanding as of the date hereof;
or
(o) Condition of Wells: To the best of the information, knowledge and
------------------
belief of the Seller, each Well has been drilled and, if completed,
completed and operated in accordance with good oil and gas field
practices and the material requirements of the Regulations;
(p) Abandonment of Wells: The Seller has not received any notice from any
--------------------
governmental authority or any other person requiring or giving notice
to abandon any of the Wells. To the best of the information,
knowledge and belief of the Seller, each well which has been abandoned
has been plugged and abandoned, and the wellsite therefor properly
restored, in accordance with good oil and gas field practices and the
material requirements of the Regulations;
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<PAGE>
(q) Condition of Tangibles: To the best of the information, knowledge and
----------------------
belief of the Seller the Tangibles have been constructed, installed,
maintained and operated in accordance with generally accepted
engineering practices, good oil and gas field practices and the
material requirements of the Regulations. With respect to the Assets
operated by Seller all requisite permits, rights of way, and licenses
have been filed with the appropriate agency and received by Seller,
are current, and are fully transferable to Purchaser;
(r) Authorized Expenditures: There are no outstanding authorizations for
-----------------------
expenditure or other outstanding financial commitments respecting the
Assets pursuant to which expenditures are or may be required by the
Purchaser or in respect of which any amount is outstanding, other than
as set forth in Schedule "E" or as may be authorized on behalf of the
Purchaser in accordance herewith;
(s) Area of Mutual Interest: None of the Lands are subject to an agreement
-----------------------
which provides for an area of mutual interest, except as specifically
identified in Schedule "A";
(t) Rights of First Refusal: None of the Assets are subject to a Right of
-----------------------
First Refusal except as specifically identified in Schedule "A";
(u) Assets do not Comprise Substantially all of Seller's Assets: The
-----------------------------------------------------------
Assets do not comprise all or substantially all of the Seller's
assets;
(v) Quiet Enjoyment: Subject at all times to the Seller's other
---------------
representations and warranties made pursuant to this Clause, the
Permitted Encumbrances, and the satisfaction of the obligations
required to maintain the Leases in good standing by the applicable
lessees, the Purchaser may, for the remainder of the term of the
Leases, hold and utilize the Assets for the Purchaser's own use and
benefit without any interruption by the Seller;
(w) Production Penalty: None of the Wells is subject to any production
------------------
penalty of any nature including, without limitation, contractual
penalties or restrictions as a result of non-participation in
operations, except as listed or reflected in Schedule "A";
(x) Full Disclosure: The Seller has made full disclosure to the Purchaser
---------------
of all information it has or to which it has access relevant to
environmental damage, liabilities or problems in respect of the
Assets, and has made available to the Purchaser all documents and
materials relating to the Assets, and to the Seller's knowledge no
information relating to any environmental damage, liabilities or
problems in respect of the Assets has not been disclosed to the
Purchaser;
(y) Seller's Interest In and To Tangibles: The interest of the Seller in
-------------------------------------
and to, and its share of the costs and expenses associated with, the
property, assets,
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<PAGE>
interests and rights comprising the Tangibles is as stated on Schedule
"A" and Schedule "B" attached hereto. Without restricting the
generality of the foregoing, none of the Tangibles is leased or
rented;
(z) Seller is Not an "Above-limit" Corporation The Seller is not an
------------------------------------------
"above limit" corporation", a "restricted corporation", a member of an
"above-limit partnership" or "restricted partnership" or associated
with a "restricted corporation" and none of the Assets is a
"restricted resource property" as such terms are defined in the
Alberta Corporate Tax Act, as amended; and
(aa) ARTC eligibility: The Seller's interest in the Assets are 100%
----------------
eligible for tax credits under the ARTC Program;
(bb) Transportation and Processing Agreements: Except as set out in
----------------------------------------
Schedule "D", the Assets are not subject to any agreements for the
transportation, sale, processing, treating or disposal of Petroleum
Substances or of any substances produced in association therewith, nor
to any agreements which provide for the contract operation of any of
the Assets by a third party.
7.2 Purchaser's Representations and Warranties
The Purchaser represents and warrants to the Seller that:
(a) Standing: The Purchaser is a corporation, duly organized, valid and
--------
subsisting under the laws of its jurisdiction of incorporation, and
duly registered and authorized to carry on business in the
jurisdiction in which the Lands are located;
(b) Requisite Authority: The Purchaser has the requisite capacity, power
-------------------
and authority to execute this Agreement and the Conveyance Documents
and to perform the obligations to which it thereby becomes subject;
(c) No Conflict: The execution and delivery of this Agreement and the
-----------
completion of the purchase of the Assets in accordance with the terms
of this Agreement are not and will not be in violation or breach of,
or be in conflict with:
(i) any term or provision of the charter, by-laws or other governing
documents of the Purchaser; or
(ii) the Regulations or any judicial order, award, judgement or decree
applicable to the Purchaser;
(d) Execution and Enforceability: The Purchaser has taken all actions
----------------------------
necessary to authorize the execution and delivery of this Agreement
and, as of the Closing Date, the Purchaser shall have taken all
actions necessary to authorize and complete the purchase of the Assets
in accordance with the provisions of this
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<PAGE>
Agreement. This Agreement has been validly executed and delivered by
the Purchaser, and this Agreement and all other documents executed and
delivered on behalf of the Purchaser hereunder shall constitute valid
and binding obligations of the Purchaser enforceable in accordance
with their respective terms and conditions;
(e) Residency for Tax Purposes: The Purchaser is not a non-resident of
--------------------------
Canada within the meaning of the Income Tax Act (Canada);
(f) No Sales Commission: The Purchaser has not incurred any obligation or
-------------------
liability, contingent or otherwise, for brokers' or finders' fees with
respect to the transactions herein for which the Seller shall have any
responsibility.
7.3 Survival of Representations and Warranties
Each Party acknowledges that the other is relying on the representations
and warranties made by such Party pursuant to Clause 7.1 or 7.2, as the
case may be, in entering into this Agreement, and shall be completing the
purchase and sale of the Assets in reliance on such representations and
warranties. The representations and warranties in Clauses 7.1 and 7.2
shall be true on the Effective Date and on the Closing Date, and such
representations and warranties shall continue in full force and effect and
shall survive the Closing Date for a period of one (1) year, for the
benefit of the Party for whom such representations and warranties were
made. In the absence of fraud, however, no claim or action shall be
commenced with respect to a breach of any such representation or warranty,
unless, within such one (1) year period, written notice specifying such
breach in reasonable detail has been provided to the Party who made such
representation or warranty.
7.4 No Merger
The representations and warranties in Clauses 7.1 and 7.2 shall be deemed
to apply to all assignments, conveyances, transfers and other documents
conveying any of the Assets from the Seller to the Purchaser. There shall
not be any merger of any of such representations or warranties in such
assignments, conveyances, transfers or other documents, notwithstanding any
rule of law, equity or statute to the contrary, and all such rules are
hereby waived.
7.5 No Additional Representations of Warranties by Seller
The Seller makes no representations or warranties to the Purchaser in
addition to those expressly enumerated in Clause 7.1.
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<PAGE>
ARTICLE 8
LIABILITY AND INDEMNIFICATION
-----------------------------
8.1 Responsibility of Seller
Subject to Clauses 8.3 and 8.4 and provided that Closing has occurred, the
Seller shall:
(a) be liable to the Purchaser for all losses, costs, damages and expenses
whatsoever which the Purchaser may suffer, sustain, pay or incur; and
(b) indemnify and save the Purchaser and its directors, officers,
servants, agents, consultants and employees harmless from and against
all claims, liabilities, actions, proceedings, demands, losses, costs,
damages and expenses whatsoever which may be brought against or
suffered by the Purchaser, its directors, officers, servants, agents,
consultants or employees or which they may sustain, pay or incur
as a direct result of any matter or thing arising out of, resulting from,
attributable to or connected with the Assets and occurring prior to the
Effective Date, except any losses, costs, damages, expenses, claims,
liabilities, actions, proceedings and demands to the extent that the same
either are reimbursed (or reimbursable) by insurance maintained by the
Purchaser or are caused by the gross negligence or willful misconduct of
the Purchaser, its directors, officers, servants, agents, consultants,
employees or assigns. The indemnity granted by the Seller herein, however,
is not a title warranty and does not provide an extension of any
representation or warranty contained in Clause 7.1. Notwithstanding any
provision herein, the liability of the Seller and the indemnity hereby
granted by the Seller to the Purchaser shall only apply with respect to
claims made within one (1) year following the Closing Date.
8.2 Responsibility of Purchaser
Subject to Paragraph 8.4 and provided that Closing has occurred the
Purchaser shall:
(a) be liable to the Seller for all losses, costs, damages and expenses
whatsoever which the Seller may suffer, sustain, pay or incur; and
(b) indemnify and save the Seller and its directors, officers, servants,
agents, consultants and employees harmless from and against all
claims, liabilities, actions, proceedings, demands, losses, costs,
damages and expenses whatsoever which may be brought against or
suffered by the Seller, its directors, officers, servants, agents,
consultants or employees or which they may sustain, pay or incur;
as a direct result of any matter or thing arising out of, resulting from,
attributable to or connected with the Assets and occurring subsequent to
the Effective Date, except any losses, costs, damages, expenses, claims,
liabilities, actions, proceedings and demands to
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<PAGE>
the extent that the same either are reimbursed (or reimbursable) by
insurance maintained by the Seller or are caused by the gross negligence or
willful misconduct of the Seller, its directors, officers, servants,
agents, consultants, employees or assigns. Notwithstanding the foregoing,
however, the assumption of liability, indemnification and release provided
for in this Clause shall not apply to any losses, costs, claims, damages,
expenses and liabilities suffered, sustained, paid or incurred by the
Seller that would have been disclosed to the Purchaser prior to Closing but
for a breach of any of the Seller's representations and warranties in
Clause 7.1 or that result from the Seller's breach of any covenants or
other obligations hereunder, and nothing in this Clause shall operate
either to limit any representation or warranty made by the Seller pursuant
to Clause 7.1 or to affect the Purchaser's right to make a claim against
the Seller for the breach of such a representation or warranty. Further,
the responsibility of the Purchaser prescribed by this Clause does not
provide an extension of any representation or warranty contained in Clause
7.2. Notwithstanding any provision herein, the liability of the Purchaser
and the indemnity hereby granted by the Purchaser to the Seller shall only
apply with respect to claims made within one (1) year following the Closing
Date.
8.3 Limit on Seller's Responsibility
In no event shall the total of the liabilities and indemnities of the
Seller under this Agreement exceed the Purchase Price, except in the event
of fraud.
8.4 Environmental Indemnity
Notwithstanding the foregoing provisions of this Article but subject to the
Seller's representations and warranties in Clause 7.1, and pursuant to
Paragraph 7.3, the Purchaser acknowledges that with respect to the
environmental condition of the Assets, it is acquiring the Assets on an "as
is" basis. The Purchaser acknowledges that it is familiar with the
condition of the Assets, including the past and present use of the Lands
and the Tangibles, that the Seller has provided the Purchaser with a
reasonable opportunity to inspect the Assets at the sole cost, risk and
expense of the Purchaser (insofar as the Seller could reasonably provide
access) and that the Purchaser is not relying upon any representation or
warranty of the Seller as to the condition, environmental or otherwise, of
the Assets. Provided that Closing has occurred, the Purchaser further
agrees that it shall:
(a) be solely liable and responsible for any and all losses, costs,
damages and expenses which the Seller may suffer, sustain, pay or
incur; and
(b) indemnify and save the Seller and its directors, officers, servants,
agents, consultants and employees harmless from any and all claims,
liabilities, actions, proceedings, demands, losses, costs, damages and
expenses whatsoever which may be brought against or suffered by the
Seller, its directors, officers, servants, agents, consultants or
employees or which they may sustain, pay or incur;
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<PAGE>
as a direct result of any matter of thing arising out of, resulting from,
attributable to or connected with any Environmental Liabilities pertaining
to the Assets, regardless of the date from which they may have accrued.
Once Closing has occurred, the Purchaser shall be solely responsible for
all Environmental Liabilities respecting the Lands, including, without
limitation, the abandonment of all Wells and the reclamation of the surface
lands pertaining to the Lands, and the Purchaser hereby releases the Seller
from any claims the Purchaser may have against the Seller with respect to
all such liabilities and responsibilities. Notwithstanding the foregoing,
however, the assumption of liability, indemnification and release provided
for in this Clause shall not apply to any Environmental Liabilities that
would have been disclosed to the Purchaser prior to Closing but for a
breach of any of the Seller's representations and warranties in Clause 7.1
and nothing in this Clause shall operate either to limit any representation
or warranty made by the Seller pursuant to Clause 7.1 or to affect the
Purchaser's right to make a claim against the Seller for the breach of such
a representation or warranty.
8.5 No Merger of Legal Responsibilities
The liabilities and indemnities created in this Article shall be deemed to
apply to, and shall not merge in, all assignments, transfers, conveyances,
novations, trust agreements and other documents conveying any of the Assets
from the Seller to the Purchaser, notwithstanding the terms of such
assignments, transfers, conveyances, novations and other documents, the
Regulations or any rule of law or equity to the contrary, and all such
rules are hereby waived.
8.6 Substitution and Subrogation
Insofar as is possible, each Party shall have full rights of substitution
and subrogation in and to all covenants, representations and warranties by
others previously given or made in respect of the Assets or any of them.
ARTICLE 9
CLOSING
-------
9.1 Place of Closing
Unless otherwise agreed in writing by the Parties, Closing shall take place
at the offices of the Seller at 1400, 333 - 5th Avenue S.W., Calgary, T2P
3B6, Canada on the Closing Date.
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<PAGE>
9.2 Required Approvals
It is a condition precedent to Closing that any and all approvals required
under the Regulations shall have been obtained or that such approval shall
have been waived, otherwise lapsed or is a form of approval which is
customarily obtained subsequent to Closing.
9.3 Conditions for Benefit of Purchaser
The obligation of the Purchaser to complete the purchase hereunder is
subject to the following conditions precedent:
(a) No Substantial Damage: There shall have been no damage to or
---------------------
alteration of any of the Assets between the Effective Date and the Closing
Date which, in the Purchaser's reasonable opinion, would materially and
adversely affect the value of the Assets, except and to the extent approved
in writing by the Purchaser. In addition, the Seller shall have delivered
to the Purchaser a certificate of a senior officer of the Seller in the
form of Schedule "I";
(b) Availability of Documents: The Seller shall have provided the nominees
-------------------------
of the Purchaser with reasonable access to the Seller's records and
documents pertaining to the Assets pursuant to Article 4, in order to
confirm the Seller's title to the Assets;
(c) Material Compliance by Seller: The Seller shall have performed or
-----------------------------
complied in all material respects with each of the terms, covenants
and conditions of this Agreement to be performed or complied with by
the Seller at or prior to the Closing Date;
(d) Representations are True: The Seller's representations and warranties
------------------------
in Clause 7.1 shall be true in all material respects as of the
Effective Date and the Closing Date and the Seller shall have
delivered to the Purchaser a certificate of a senior officer of the
Seller, in the form of Schedule "H"; and
(e) Delivery of Conveyance and Related Documents: The Seller shall have
--------------------------------------------
delivered the following to the Purchaser;
(i) a General Conveyance, in the form attached as Schedule "G",
executed by the Seller;
(ii) all specific assignments, registerable transfers, novation
agreements, trust agreements and other instruments required to
convey the Seller's Interest in the Assets to the Purchaser
which have been executed by the Seller but not by third parties,
unless and to the extent that the Purchaser allows the Seller to
deliver such documents to the Purchaser at a
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<PAGE>
later date, provided that such documents shall not require the
Seller to assume or incur any obligation, or to provide any
representation or warranty, beyond that contained in this
Agreement;
(iii) copies of all consents to disposition and waivers of Rights of
First Refusal obtained by the Seller with respect to the sale of
the Assets to the Purchaser and other evidence satisfactory to
the Purchaser confirming the obtaining of all necessary consents
to dispositions and waivers of rights of first refusal with
respect to the sale of the Assets to the Purchaser;
(iv) originals of the Seller's records, files, reports and data
pertaining to the Assets, insofar as such delivery is permitted
and required hereunder, unless and to the extent that the
Purchaser agrees to allow the Seller to deliver such records,
files, reports and data at a later date; and
(v) such other documents as may be specifically required hereunder
or as may be reasonably requested by the Purchaser upon
reasonable notice to the Seller.
9.4 Conditions for Benefit of Seller
The obligation of the Seller to complete the sale hereunder is subject to
the following conditions precedent:
(a) Material Compliance by Purchaser: The Purchaser shall have performed
--------------------------------
or complied in all material respects with each of the terms, covenants
and conditions of this Agreement to be performed or complied with by
the Purchaser at or prior to the Closing Date;
(b) Payment of Purchase Price: The Purchaser shall have tendered to the
-------------------------
Seller the Purchase Price and the applicable goods and services tax in
the manner provided for in Clause 2.3, subject to any adjustments
provided for in Article 5 and any alteration expressly provided for
herein;
(c) Representations are True: The Purchaser's representations and
------------------------
warranties in Clause 7.2 shall be true in all material respects as of
the Effective Date and the Closing Date and the Purchaser shall have
delivered to the Seller a certificate of a senior officer of the
Purchaser, in the form of Schedule "H"; and
(d) Delivery of Documents: The Purchaser shall have executed and delivered
---------------------
to the Seller one copy of the General Conveyance in the form attached
as Schedule "G" and such other documents as may be specifically
required hereunder.
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<PAGE>
9.5 Waiver of Conditions
The conditions in Clauses 9.3 and 9.4 are for the sole benefit of the
Purchaser and the Seller respectively. The Party for the benefit of which
such conditions have been included may waive any of them, in whole or in
part, by written notice to the other Party, without prejudice to any of the
rights of the Party waiving such condition, including, without limitation,
reliance on or enforcement of the representations, warranties or covenants
which are preserved and pertain to conditions similar to the condition so
waived. However, the Purchaser may not waive the existence and operation
of any preferential right of a third party to purchase any of the Assets
or, without the concurrence of the Seller, any required consent of a third
party to the Seller's disposition of any of the Assets.
9.6 Failure to Satisfy Conditions
In the event any of the conditions in Clause 9.3 or 9.4 has not been
satisfied at or before the Closing Date and such condition has not been
waived by the Party for the benefit of which such condition has been
included, such Party may terminate this Agreement by written notice to the
other Party. However, a Party may not terminate this Agreement in such
manner after Closing, and its remedies thereafter, if any, with respect to
the failure to satisfy such condition shall be limited to damages.
ARTICLE 10
POST CLOSING ADMINISTRATION
---------------------------
10.1 Registration of Documents
The Purchaser shall register promptly after Closing, all documents
described in Paragraph 9.3 (e) which require registration. The Purchaser
shall bear all costs incurred in registering such documents and all costs
of preparing and registering any further assurances required to convey the
Assets to the Purchaser.
10.2 Coordination of Administrative Matters
(a) After Closing, until the Purchaser becomes the recognized holder of
the Assets in the place of the Seller, the Seller shall, to the extent
that the Purchaser is not recognized:
(i) receive and hold all proceeds, benefits and advantages accruing
from the Assets for the benefit, use and ownership of the
Purchaser, with entitlement to commingle any of them with its
own or any other assets;
(ii) in a timely manner deliver to the Purchaser all revenues,
proceeds and other benefits received by the Seller for the
Assets;
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<PAGE>
(iii) in a timely manner deliver to the Purchaser all third party
notices and communications received by the Seller for the
Assets;
(iv) in a timely manner deliver to third parties all notices and
communications as the Purchaser may reasonably request and all
monies and other items the Purchaser reasonably provides for the
Assets; and
(v) as agent of the Purchaser, do and perform all acts and things,
and execute and deliver all agreements, notices and other
documents and instruments, that the Purchaser reasonably
requests for the purpose of facilitating, the exercise of rights
to the ownership of the Assets.
(b) The Seller shall not be liable to the Purchaser for any loss or damage
suffered by the Purchaser in connection with the arrangements
established by Subclause 10.2(a), except to the extent that the loss
or damage is caused by the Seller's gross negligence or its willful
misconduct. The Purchaser shall:
(i) be liable to the Seller for all losses, costs, damages and
expenses whatsoever which the Seller may suffer, sustain, pay or
incur; and
(ii) indemnify and save harmless the Seller and its directors,
officers, servants, agents, consultants and employees from and
against any claims, liabilities, actions, proceedings, demands,
losses, costs, damages and expenses whatsoever which may be
brought against or suffered by any of them or which they may
sustain, pay or incur;
arising out of the performance by the Seller of its obligations under
Subclause 10.2(a), except to the extent that the loss or damage is
caused by the Seller's gross negligence or its willful misconduct. An
action or omission of the Seller or its directors, officers, servants,
agents or employees shall not be regarded as gross negligence or
willful misconduct, however, to the extent it was done or omitted to
be done in accordance with the instructions of or with the concurrence
of the Purchaser. Nothing in this Clause 10.2 shall be construed as
extending or restricting or limiting in any manner any of the other
covenants, warranties, representations or other obligations of the
Parties under this agreement.
10.3 Seller's Access to Documents
The Seller may retain or subsequently obtain from the Purchaser copies or
photocopies of any of the documents comprised in Miscellaneous Interests
that it considers necessary to enable it to comply with any Regulations or
the requirements of any authority or to conduct audits relating to the
period prior to the Effective Date.
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<PAGE>
ARTICLE 11
CONFIDENTIALITY
---------------
11.1 Purchaser's Obligation to Maintain Information Confidential
Information respecting the Assets shall be retained in confidence and used
only for the purposes of this acquisition, provided that upon Closing, the
Purchaser's rights to use or disclose such information shall be subject
only to any operating, unit or other agreements that may apply thereto.
Any additional information obtained as a result of such access which does
not relate to the Assets shall continue to be treated as confidential and
shall not be used by the Purchaser without the prior written consent of the
Seller. However, the restrictions on disclosure and use of information in
this Agreement shall not apply to information to the extent it:
(a) is or becomes publicly available through no act or omission of the
Purchaser or its consultants or advisors;
(b) is subsequently obtained lawfully from a third party, where the
Purchaser has made reasonable efforts to ensure that such third party
is not a party to or bound by any confidentiality agreement with the
Seller;
(c) is already in the Purchaser's possession at the time of disclosure,
without restriction on disclosure; or
(d) is required to be disclosed to any Governmental agency, tribunal or
other entity by due legal process.
11.2 Consultants and Advisors Bound
If the Purchaser employs consultants, advisors or agents to assist in its
review of the Assets pursuant to Article 4, the Purchaser shall be
responsible to the Seller for ensuring that such consultants, advisors and
agents comply with the restrictions on the use and disclosure of
information set forth in Clause 11.1.
ARTICLE 12
ARBITRATION
-----------
12.1 Reference to Arbitration
(a) Insofar as the Parties are unable to agree on any matter, which
expressly may be referred to arbitration hereunder, either Party may
serve the other Party written notice that it wishes such matter
referred to arbitration;
(b) The Parties shall meet within seven (7) days of the receipt of a
notice issued pursuant to Subclause 12.1(a), to attempt to agree on a
single arbitrator
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<PAGE>
qualified by experience, education and training, to determine such
matter. If the Parties are unable to agree on the selection of the
arbitrator, the Party which issued such notice shall forthwith make
application to a judge of the Court of Queen's Bench of the Province
of Alberta pursuant to the Arbitration Act of the Province of Alberta
(S.A. 1991, c. A-43.1), as amended from time to time, hereinafter
referred to as the "Arbitration Act") for the appointment of a single
arbitrator, and failing such action on the part of the Party which
issued such notice, the other Party may make such application.
12.2 Proceedings
(a) The arbitrator selected pursuant to Clause 12.1 shall proceed as soon
as is practicable to hear and determine the matter in dispute, and
shall be directed to provide a written decision respecting such matter
within forty-five (45) days of appointment. The Parties shall provide
such assistance and information as may be reasonably necessary to
enable the arbitrator to determine such matter;
(b) Except to the extent modified in this Article, the arbitrator shall
conduct any arbitration hereunder pursuant to the provisions of the
Arbitration Act.
ARTICLE 13
ASSIGNMENT
----------
13.1 Assignments Before Closing
Prior to Closing, neither Party may assign its interest in or under this
Agreement or to the Assets without the prior written consent of the other
Party, except as may be required by the Seller to comply with its
obligations respecting any preferential rights, as provided in Article 3.
ARTICLE 14
NOTICE
------
14.1 Service of Notice
Notwithstanding anything to the contrary contained herein, all notices
required or permitted hereunder shall be in writing. Any notice to be
given hereunder shall be deemed to be served properly if served in any of
the following modes:
(a) personally, by delivering the notice to the Party on which it is to be
served at that Party's address for service. Personally served notices
shall be deemed to be received by the addressee when actually
delivered as aforesaid, provided that such delivery shall be during
normal business hours on any day other than a Saturday, Sunday or
statutory holiday in Alberta. If a notice is not delivered on such a
day or is delivered after the addressee's normal business hours, such
notice
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<PAGE>
shall be deemed to have been received by such Party at the
commencement of the addressee's first business day next following the
time of the delivery; or
(b) by telecopier or telex (or by any other like method by which a written
message may be sent) directed to the Party on which it is to be served
at that Party's address for service. A notice so served shall be
deemed to be received by the addressee when actually received by it,
if received within normal business hours on any day other than a
Saturday, Sunday or statutory holiday in Alberta or at the
commencement of the next ensuing business day following transmission
if such notice is not received during such normal business hours; or
(c) by mailing it first class (air mail if to or from a location outside
of Canada) registered post, postage prepaid, directed to the Party on
which it is to be served at that Party's address for service. Notices
so served shall be deemed to be received by the addressee at noon,
local time, on the earlier of the actual date of receipt or the fourth
(4th) day (excluding Saturdays, Sunday and statutory holidays in
Alberta) following the mailing thereof. However, if postal service is
or is reasonably anticipated to be interrupted or operating with
unusual delay, notice shall not be served by such means during such
interruption or period of delay.
14.2 Addresses for Notices
The address for service of notices hereunder of each of the Parties shall
be as follows:
SELLER: Cometra Energy (Canada), Ltd.
1400, 333 - 5th Avenue S.W.
Calgary, Alberta T2P 3B6
Canada
Phone:403-262-6700
Fax: 403-262-7415
PURCHASER: CEC Resources Ltd.
1700 Broadway, Suite 1150 1605, 700 - 6th Avenue SW
Denver, Colorado 80290 Calgary, Alberta T2P 0T8
U.S.A Canada
Phone: 303-860-1575 Phone: 403-265-7605
Fax: 303-860-9128 Fax: 403-262-8167
14.3 Right to Change Address
A Party may change its address for service by notice to the other Party,
and such changed address for service thereafter shall be effective for all
purposes of this Agreement.
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<PAGE>
ARTICLE 15
PUBLIC ANNOUNCEMENTS
--------------------
15.1 Approval Required for Press Releases
(a) Subject to Clause 11.1, the Parties shall cooperate with each other in
relaying to third parties information concerning this Agreement and
shall receive written approval from the other Party of all press
releases and other releases of information prior to publication, which
approval may not be unreasonably withheld. However, nothing in this
Clause shall prevent a Party from furnishing any information to any
governmental agency or regulatory authority or to the public, insofar
only as is required by the regulations or securities laws applicable
to such Party, provided that a Party which proposes to make such a
public disclosure shall, to the extent reasonably possible, provide
the other Party with a draft of such statement a sufficient time prior
to its release to enable such other Party to review such draft and
advise that Party of any comments it may have with respect thereto;
(b) Notwithstanding Subclause 15.1(a), the Seller shall be permitted to
disclose information pertaining to this Agreement and the identity of
the Purchaser, to the extent required to enable the Seller to fulfil
its obligations pertaining to preferential rights of purchase and
other third party rights, in accordance with Article 3.
15.2 Signs and Notification to Governmental Agencies
Following Closing, the Seller may remove any signs which indicate the
Seller's ownership or operation of the Assets. If the Purchaser will be
the operator of the Assets, it shall be the responsibility of the Purchaser
to erect or install any signs required by governmental agencies which
pertain to the Assets. In addition, the Purchaser shall be responsible for
advising governmental agencies, contractors, suppliers and other affected
third parties of the Purchaser's interest in the Assets, subject to Article
3.
ARTICLE 16
MISCELLANEOUS PROVISIONS
------------------------
16.1 Further Assurances
At the Closing Date and thereafter as may be necessary, the Parties shall
execute, acknowledge and deliver such instruments and take such other
actions as may be reasonably necessary to fulfil their respective
obligations under this Agreement. The Seller shall cooperate with the
Purchaser as reasonably required to secure execution by third parties of
the documents referred to in Subparagraph 9.3 (e) (ii).
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<PAGE>
16.2 Governing Law
This Agreement shall be subject to and be interpreted, construed and
enforced in accordance with the laws in effect in the Province of Alberta.
Each Party accepts the jurisdiction of the courts of the Province of
Alberta and all courts of appeal therefrom.
16.3 Time
Time shall be of the essence in this Agreement.
16.4 No Amendment Except in Writing
Subject to Clause 14.3, this Agreement may be amended only by written
instrument executed by the Seller and the Purchaser.
16.5 Waiver must be in Writing
No waiver by any Party of any breach (whether actual or anticipated) of any
of the terms, conditions, representations or warranties contained herein
shall take effect or be binding upon that Party unless the waiver is
expressed in writing under the authority of that Party. Any waiver so
given shall extend only to the particular breach so waived and shall not
limit or affect any rights with respect to any other or future breach.
16.6 Consequences of Termination
If this Agreement is terminated in accordance with its terms prior to
Closing, then except for the provisions of Article 11 and the covenants,
warranties, representations or other obligations breached prior to the time
at which such termination occurs, the Parties shall be released from all of
their obligations under this Agreement. If this Agreement is so
terminated, the Purchaser shall promptly return to the Seller all materials
delivered to the Purchaser by the Seller hereunder, together with all
copies of them that may have been made by or for the Purchaser.
16.7 Supersedes Earlier Agreements
This Agreement supersedes all other agreements between the Parties with
respect to the Assets and expresses the entire agreement of the Parties
with respect to the transactions contained herein.
16.8 Enurement
This Agreement shall be binding upon and enure to the benefit of the
Parties and their respective successors and permitted assigns.
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<PAGE>
16.9 Non-Merger
The provisions of this Agreement shall not merge in any transfer,
assignment, novation agreement or other document or instrument issued
pursuant hereto or in connection herewith.
16.10 Invalidity of Provisions
In case any of the provisions (or portion thereof) of this Agreement should
be determined to be invalid, illegal or unenforceable in any respect, the
validity, legality or enforceability of the remaining provisions (or
portion there of) contained herein shall not in any way be affected or
impaired thereby.
16.11 Counterpart Execution
This Agreement may be executed in counterpart and all executed counterparts
together shall constitute one agreement.
IN WITNESS WHEREOF the Parties have duly executed this Agreement.
CEC RESOURCES LTD.
(Purchaser)
Per:_______________________________
Patrick R. McDonald
President
COMETRA ENERGY (CANADA) LTD.
(Seller)
Per:_______________________________
Kenneth H. Hayes
President
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<PAGE>
EXHIBIT 99.1
FOR IMMEDIATE RELEASE - April 5, 1999
Confirmation: Patrick R. McDonald, President
CEC Resources Ltd.
303-860-1575
CEC RESOURCES LTD. ACQUIRES NATURAL GAS PRODUCING PROPERTY
IN WAYNE-ROSEDALE FIELD
ALBERTA, CANADA
Denver, Colorado, April 5, 1999 -- CEC Resources Ltd., Alberta, Canada (AMEX:
CGS) announces that it has acquired for $2,100,000 working interests in 17
natural gas wells and associated natural gas gathering and compression
facilities in the Wayne-Rosedale Field, Alberta, Canada.
The transaction is expected to add to CEC's operating income and cash flow
beginning in the second quarter, 1999. The effective date of the transaction is
March 1, 1999. The acquisition will be funded with existing and additional bank
financing.
Patrick R. McDonald, CEC's President said the acquisition increases CEC's
working interest ownership in the Wayne-Rosedale Field to approximately 97%.
"The acquisition of additional ownership in the Wayne-Rosedale Field is
consistent with CEC's strategy of continuing to increase the value of its
existing natural gas properties through the development of proved reserves,
creation of operating efficiencies and the acquisition of additional working
interests."
The company estimates that as of March 1, 1999, the remaining proved reserves
before royalty of the properties to be acquired are approximately 2.1 billion
cubic feet of natural gas and approximately 48,000 barrels of oil and natural
gas liquids which equates to approximately 2.6 billion cubic feet (10:1 ratio)
of equivalent proved gas reserves.
Current daily production net to the acquired interest is approximately 1,000 mcf
of sales gas and 20 barrels of natural gas liquids and crude oil. Following the
acquisition, CEC daily production will be approximately 600 barrels of oil
equivalent with a 75% weighting to natural gas.
Since December 1998, CEC Resources has made three acquisitions in the Wayne-
Rosedale Field increasing its company-wide proved reserves by 5.1 billion cubic
feet of gas and 118,000 barrels of oil and natural gas liquids.
CEC intends to make additional oil and natural gas property acquisitions in an
effort to increase the size of its oil and natural gas assets and to add to
operating income and cash flow.
CEC Resources Ltd. is a Canadian energy company with offices in Calgary, Alberta
and Denver, Colorado. CEC is involved in the exploration and production of oil
and natural gas in Alberta and Saskatchewan.
####
This release may contain certain forward looking statements which are based on
assumptions that are subject to a wide range of uncertainties due to several
factors which are discussed more fully in the Company's periodic filings with
the Securities and Exchange Commission.
