-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MjSkOb3P8t15cMBCNXtxUCHBODWj/9oznSi+6kWGbMtLk7i2qLfoHpFsXfxvIwMl tvnbkK9jkXckj/sOwOWOZQ== /in/edgar/work/20000705/0001028596-00-000173/0001028596-00-000173.txt : 20000920 0001028596-00-000173.hdr.sgml : 20000920 ACCESSION NUMBER: 0001028596-00-000173 CONFORMED SUBMISSION TYPE: 20FR12G PUBLIC DOCUMENT COUNT: 14 FILED AS OF DATE: 20000705 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PROMAX ENERGY INC CENTRAL INDEX KEY: 0001117353 STANDARD INDUSTRIAL CLASSIFICATION: [ ] IRS NUMBER: 000000000 STATE OF INCORPORATION: A1 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 20FR12G SEC ACT: SEC FILE NUMBER: 000-30943 FILM NUMBER: 667361 BUSINESS ADDRESS: STREET 1: STE 200 707-7TH AVE SW STREET 2: CALGARY ALBERTA CITY: CANADA STATE: A0 ZIP: 00000 BUSINESS PHONE: 4032618880 MAIL ADDRESS: STREET 1: STE 200 707-7TH AVE SW STREET 2: CALGARY ALBERTA CITY: CANADA STATE: A0 ZIP: 00000 20FR12G 1 0001.txt REGISTRATION STATEMENT UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 20-F REGISTRATION STATEMENT PURSUANT TO SECTION 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR FISCAL YEAR ENDED DECEMBER 31, 1999 PROMAX ENERGY INC. ----------------------------------------------------- (Exact name of Registrant as specified in its charter) Commission File No. -------------------- British Columbia, Canada ---------------------------------------------- (Jurisdiction of incorporation or organization) Suite 200 707 - 7th Avenue S.W. Calgary, Alberta, Canada T2P 0Z2 --------------------------------------- (Address of principal executive offices) Securities registered or to be registered pursuant to Section 12(b) of the Act. Title of each class Name of each exchange on which registered None None Securities registered or to be registered pursuant to Section 12(g) of the Act. Common Stock (Title of Class) A total of 29,969,258 shares of common stock of Registrant were issued and outstanding as of June 1, 2000. No other classes of stock were issued and outstanding Indicate by a check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No X --------- ----------- Indicate by check mark which financial statement item the registrant has elected to follow. Item 17 X Item 18 ------ ------ 1
TABLE OF CONTENTS PART I Item 1. Description of Business. . . . . . . . . . . . . . . . . . . .3 Item 2. Description of Property. . . . . . . . . . . . . . . . . . . 14 Item 3. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . 18 Item 4. Control of Registrant. . . . . . . . . . . . . . . . . . . . 18 Item 5. Nature of Trading Market . . . . . . . . . . . . . . . . . . 20 Item 6. Exchange Controls and Other Limitations Affecting Security Holders. . . . . . . . . . . . . . . . . . . . . 21 Item 7. Taxation . . . . . . . . . . . . . . . . . . . . . . . . . . 22 Item 8. Selected Financial Data. . . . . . . . . . . . . . . . . . . 28 Item 9. Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . . . 28 Item 9A. Quantitative and Qualitative Disclosures about Market Risk . 31 Item 10. Directors and Officers of Registrant . . . . . . . . . . . . 31 Item 11. Compensation of Directors and Officers . . . . . . . . . . . 33 Item 12. Options to Purchase Securities from Registrant of Subsidiaries. . . . . . . . . . . . . . . . . . . . . . 34 Item 13. Interest of Management in Certain Transactions . . . . . . . 35 PART II Item 14. Description of Securities to be Registered . . . . . . . . . 35 PART III Item 15. Defaults Upon Senior Securities. . . . . . . . . . . . . . . 36 Item 16. Changes in Securities, Changes in Security for Registered Securities and Use of Proceeds. . . . . . . . . . . . . . 36 PART IV Item 17. Financial Statements . . . . . . . . . . . . . . . . . . . . 37 Item 18. Financial Statements . . . . . . . . . . . . . . . . . . . . 37 Item 19. Financial Statements and Exhibits. . . . . . . . . . . . . . 37
2 As used herein, references to the "Company" and "Promax" refer to Promax Energy Inc., and its subsidiaries, unless the context indicates otherwise. References to Shares herein refer to (i) Class "A" Voting - Common Shares of the Company, no par value per Share (the "Common Shares"). The Company publishes its financial statements in Canadian dollars. In this Form 20-F, references to "dollars" or "$" are to Canadian dollars. Except as otherwise stated herein, all monetary amounts in this Form 20-F have been presented in dollars. The Company publishes annual reports containing annual audited consolidated financial statements and opinions thereupon by independent public auditors. Such financial statements are prepared on the basis of generally accepted accounting principles in Canada ("Canadian GAAP") expressed in Canadian dollars. The Company has published quarterly updates and semi-annual reports containing unaudited financial information prepared on the same basis as its audited Canadian GAAP consolidated financial statements. The discussion below contains certain "forward-looking statements" (as such term is defined in the rules promulgated pursuant to the Securities Act) that are based on the beliefs of the Company's management, as well as the assumptions made by, and information currently available to, the Company's management. Such forward-looking statements are subject to the safe harbor created by the Private Securities Litigation Reform Act of 1995. The Company's actual result, performance or achievements in fiscal 2000 and beyond could differ materially from those expressed in, or implied by, any such forward-looking statements. Factors that could cause or contribute to such material differences include, but are not limited to, those discussed in Item 1 of this Form 20-F, as well as those discussed elsewhere in this Form 20-F. The Company undertakes no obligation to release publicly any updates or revisions to any such forward-looking statements that may reflect events or circumstances occurring after the date of this Form 20-F. PART I Item 1. Description of Business. - --------------------------------- Promax Energy Inc., (the "Company") is a junior oil and gas exploration company focusing primarily on natural gas exploration, recovery and production. The Company's principal offices are located at Suite 200, 707 7th Avenue S.W., Calgary, Alberta, Canada T2P 0Z2. The Company was originally incorporated in British Columbia, Canada, as Red Fork Resources, Inc., to pursue gold mining opportunities. The Company invested in a number of mining projects from 1980 to 1998. In 1981, the Company changed its name to Tamara Resources, Inc. The Company again changed its name in 1994 to Matrix Energy, Inc. In 1998, many of the Company's gold claims expired. At that time, the Company divested itself of its few remaining gold properties and decided to focus its attention on oil and natural gas exploration and production. 3 On February 3, 1999, the Company changed its name to Promax Energy Inc. In March 1999, the Company purchased a 30% working interest in 23,040 contiguous acres of oil and gas leases in 37 sections of developed and undeveloped land; 15 miles of pipeline and surface dehydration facility; 21 standing gas wells with multiple horizons all of which were non-producing in the Cessford area of South Eastern Alberta, Canada. By December 31, 1999, the Company increased its working interest in these properties and facilities to 94.8%. The Company acquired these interests from a number of parties by issuing approximately 17,026,295 common shares and paying approximately $2,686,068 to the various owners of the interests in the Cessford area. The Cessford area is a well known gas prone area. In March 2000, the Company retained Citadel Engineering, Ltd., ("Citadel") to analyze the Company's holdings. Citadel prepared a Reserve Report on the 18 sections of the Company's Cessford properties which have been proved up. The report showed 23 billion standard cubic feet ("BSCF") of proved and 12 BSCF of probable reserves related to those 18 sections. Said reserves were appraised at CDN $32,000,000 using a 12% discount rate. On June 1, 2000, Citadel updated its Reserve Report. Based on increased market price the Company's reserves were appraised at CDN $55,745,000 using a 12% discount rate. Citadel did not analyze the Company's holdings in the other 23 sections because those properties have not yet been proved up. Real Property -------------- The acreage the Company acquired potentially has nine geological zones. From shallowest to deepest, these include Belly River, Milk River, Medicine Hat, Second White Specks, Viking, Upper and Lower Mannville, Glauconitic, Detrital and Bakken Sands. The Milk River and Medicine Hat formations appear to be the most consistent for natural gas production as they extend in area for over 65 miles. The Colony and Glauconitic zones offer the potential for the greatest natural gas reserves per well drilled. Because these zones are channel mode in nature, however, natural gas will not appear in all areas. Given its geological make up, the Glauconitic zone is well suited for geologic and seismic testing. Viking is divided into the Viking "A" and Viking "B" formations. Viking "B", while less spectacular in flow rate is more consistent in it is presentation. Because of this, the Company believes Viking "B" will be one of its most productive formations. Upper and Lower Mannville are currently the most prolific production formations of the group. The Company believes this area's full potential has not yet been realized. This group accounts for 23.6% of the total discovered gas reserve in the Western Canadian Sedimentary Basin. A recent study by the Geological Survey of Canada estimates that 39% of the total gas resources of the Mannville group remain undiscovered. 4 To date, the Detrital reserves in the Cessford area have been classified as probable. Commercial gas has been produced in this area from the Bakken Sands formation. The Company feels that through future drilling it can establish reserves in this area. The Company's land holdings are easily accessible for exploration and development. The Energy Conservation Board of Alberta has designated the Cessford grasslands as "Special Areas." This requires that there be only minimal surface disturbance by entities operating in the area. This also means the Company will be responsible to remediate surface damage caused in these areas. The Company anticipates its remediation efforts will be limited primarily to replanting native grasses. The Company believes that the designation of these lands as Special Areas carries certain benefits for the Company. Principally, the Company believes it will be much less expensive to remediate the damage caused by its vehicles traveling on the sparsely populated lands, than having to build and maintain costly roads. Moreover, the Company's Cessford land interests involve only a few landowners, making it easier for the Company to build and maintain good working relationships. All of the Company's land holdings are held under leasehold agreements. Each of these lease agreements was obtained for a one time charge, which the Company has already paid, as discussed above. These lease agreements continue in perpetuity so long as the Company pursues oil and gas operations. If the Company discontinues its oil and gas operations, the properties revert to the Crown. Production ---------- Existing Wells -------------- The Company has 21 standing natural gas and oil wells, seven of which were drilled by the Company's predecessor in 1997 and 1998 with a 100% success rate. Of the Company's 21 wells, 12 are currently tied into the Company's existing pipeline. In April 2000, the Company put the first of its tied-in wells into production. A second tied-in well was put into production in May 2000. In April and May 2000, the Company produced, had processed and sold 3,168 standard cubic foot ("MCF") and 6,519 MCF respectively. By July 2000, the Company anticipates reactivating three more tied-in wells, at a cost of approximately $50,000 per well. The Company also expects to tie-in and produce six of its existing free standing wells by July 2000, at a cost of about $100,000 per well. The Company is currently investigating another six of its wells for completion, redrilling or refracturing so they can productively be reactivated. The Company believes up to five of its 21 wells may be abandoned within the next year. Drilling -------- Currently, the Company is not engaged in any drilling activities. The Company, however, has spent significant time investigating new drilling, completion and production enhancement techniques. In particular, the Company has studied improved drilling practices, including improved bits, underbalanced drilling, better drilling fluids and cementing, enhanced 5 fracturing technology, and drilling procedures which should increase productivity, while reducing damage to producing zones. The Company believes it has also improved its likelihood of locating natural gas reserves because it has obtained access to an extensive seismic database covering more than 500 miles of the Cessford area, which covers much of the land held by the Company. This database should enhance the Company's ability to identify targets within the region that in the past would have been hard to detect, thereby increasing the likelihood of successful drilling activities. The Company would like to drill 15 new wells by year end 2000. The Company estimates it will cost approximately $300,000 to drill, tie-in and put into production each new well. The Company's ability to drill 15 new wells by year end will be limited by several factors including, among other things, available funding, time constraints, and the ability to identify appropriate drilling sites. The Company expects to fund the cost of its drilling activities with the proceeds from its currently open private placement stock offering in Canada, bank loans and revenue from production. The private placement is scheduled to close on June 30, 2000. The shares are being offered at $0.50, with a maximum offering of 6,000,000 shares. To date the Company has raised approximately $1,500,000 in the private placement. The Company will rely on management to identify potentially successful drilling sites and to manage drilling activities. The Company does not own, nor does it intend to purchase drilling equipment. Rather, the Company will hire independent contractors to drill the new wells. Farm-in Agreements ------------------ In addition to its own wells, the Company is negotiating farm-in agreements with owners of other wells in the Cessford area. A farm-in agreement typically provides the owner of a producing well access to a pipeline to transport its oil or natural gas to a processing facility where it can be processed and sold. The Company is currently negotiating farm-in agreements with owners of gas wells in the area of the Company's existing, or to be constructed, pipeline. The Company will tie-in these wells to its pipeline and transport the gas to a processing facility. As is customary in the industry, in exchange for these services, the Company will acquire a percentage ownership in each farmed-in well. The Company anticipates it will cost approximately $100,000 per well to tie-in these farm-in wells. This estimate includes the cost of necessary surface equipment. At this time, the Company is uncertain how many farm-in agreements it may establish. Transportation -------------- In addition to its land holdings, the Company currently owns 15 miles of existing flow line. At the time the Company acquired the pipeline, it was inactive. The Company recently had its pipeline recertified by an independent contractor registered with the Energy Utilities Board. The pipeline has been reactivated and is being used to transport natural gas produced by its two recently reactivated wells. At the terminus of the Company's existing flow line, there is a gas processing plant owned by an independent third party. 6 The Company has contracted for the construction of up to an additional 28 miles of flow line with construction to begin in June 2000. This additional pipeline is needed so the Company can tie-in some of its existing free standing wells, to tie in farm-in wells, and to tie-in new wells the Company may drill. The projected cost of the additional pipeline is $3,100,000. Rather than pay the entire cost up front, the Company has negotiated an agreement with an independent contractor whereby the contractor received an initial cash payment of $100,000. Once the first leg of the pipeline is finished, the contractor will also receive a 4.8% working interest from the Company, and will become a joint venture partner with the Company. The contractor will receive monthly payments from the Company based on a percentage of natural gas it produces and sells to retire the outstanding $3,000,000 by the Company. The contractor will retain title to the new pipeline until the balance has been fully paid. Following retirement of the outstanding balance, the contractor will receive a transportation royalty based on flow through the pipeline in perpetuity. The Company has the right to buy back this transportation royalty from the contractor at any time. Processing ---------- The Company is currently having its natural gas processed at a processing plant located at the terminus of the Company's existing pipeline. This facility is capable of processing 13 million CF per day. It is currently processing less than one million CF per day. Pursuant to its agreement with owner of the processing plant, the Company pays a $250 per month processing fee and a flat fee of $0.35 or $0.25 per MCF based on the pressure at which the gas is put into the processing plant. The Company will be able to take advantage of the lower cost per MCF once daily delivery to the plant reaches approximately 1.5 million CF per day. The Company will continue to have its natural gas processed at the plant until its daily production exceeds 10 million CF. At that time, the Company will reactivate the inactive gas processing facility it currently owns to process the natural gas production which exceeds the current processing plant's capacity. The term of the Company's agreement with the independent processing plant is month to month. Either party may terminate the agreement by providing the other 30 days written notice. The processing plant is connected directly to the Nova Gas pipeline, which is a network of pipelines extending approximately 13,500 miles. The majority of natural gas transmitted within Canada is transmitted through this pipeline. The Nova Gas pipeline also carries approximately one-third of all natural gas exported from Canada to the United States. The Company also has a direct connection to the Nova Gas pipeline via its inactive processing plant. Marketing and Sales ------------------- It is standard practice in the industry for natural gas producers to contract out the marketing and sales of its natural gas. The Company has negotiated an agreement with Premstar Energy Canada, Ltd., ("Premstar") an energy procurement and management service company. Premstar markets natural gas in Canada and the United States. Premstar will purchase 7 natural gas produced by the Company, and resell it on the spot market. Premstar purchased all of the natural gas the Company produced in April and May 2000. The Company anticipates Premstar will continue to purchase and resell all of the natural gas the Company can produce for the foreseeable future. If, however, Premstar cannot sell all of gas produced by the Company, the Company may negotiate contracts with additional natural gas marketers to sell the Company's natural gas. Pursuant to the Company's agreement with Premstar, once the Company's gas is placed in the Nova Gas pipeline the Company receives payment for it. The purchase price the Company will receive will vary based on current market price. As with its agreement with the gas processing plant, the agreement with Premstar may be terminated at any time by either party upon 30 days written notice. Market for our Product ---------------------- Use of natural gas in the end-user sector in Canada and the United States is expected to increase significantly, particularly in the electric utility industry where natural gas is the fuel of choice. Consumption of natural gas for power generation in both countries is expected to double between 1997 and 2010. Natural gas production in Canada is forecasted to increase at an annual rate of two to three percent per year to meet ever increasing consumption. The U.S. Energy Information Administration ("EIA") estimates that natural gas imports from Canada will grow by 72% between 1996 and 2020, rising from 2.9 trillion standard cubic feet ("TCF") to 5.0 TCF. This increase in imports will only partly meet the forecasted growth in U.S. consumption, which is anticipated to grow from 19 TCF in 1998 to 27 TCF by 2020. The Company believes that environmental, economic, and national security issues will play a factor in driving demand for natural gas. In particular: - Natural gas is a cleaner fossil fuel than either coal or oil and is seen as a way to reduce greenhouse gas emissions; - Reserves of natural gas are relatively abundant, competitively priced and serviced by a well developed infrastructure; and - Natural gas is an indigenous source of energy for Canada and the United States. Moreover, over the past decade, volatile hydrocarbon prices have prompted the major oil and gas producers in Alberta to reconsolidate their holdings, with an emphasis on exploring large areas. This has created opportunities for emerging companies to gain a foothold in smaller promising areas. Areas like Cessford offer minimal upside for mid-sized to large oil and gas companies. The Company believes, however, that small emerging companies, like Promax that have lower overhead and costs, can profitably exploit these areas. Risk Factors ------------ This Form 20-F contains various forward-looking statements. These statements can be identified by the use of the forward-looking words "anticipate," "estimate," "project," "likely," "believe," "intend," "expect," or similar words. These statements discuss future expectations, contain projections regarding future developments, operations, or financial 8 conditions, or state other forward-looking information. When considering such forward-looking statements, you should keep in mind the risk factors noted in this section and other cautionary statements throughout this document. You should also keep in mind that all forward-looking statements are based on management's existing beliefs about present and future events outside of management's control and on assumptions that may prove to be incorrect. If one or more risks identified in this document, or any applicable filings materializes, or any other underlying assumptions prove incorrect, our actual results may vary materially from those anticipated, estimated, projected, or intended. Among the key factors that may have a direct bearing on our operating results are risks and uncertainties described under "Risk Factors," including those attributable to the lack of significant operating revenues, exploration risks, and uncertainties regarding our ability to obtain capital sufficient to continue our operations and pursue proposed business strategy. We do not intend to update any forward-looking statements, except as may occur as part of our ongoing periodic reports filed with the SEC. Risks of Natural Gas Drilling and Production -------------------------------------------- Natural gas drilling and production activities are subject to numerous risks, many of which are beyond the Company's control. These risks include: - no commercially productive natural gas reservoirs will be found; - natural gas drilling and production activities may be shortened, delayed or canceled; and - our ability to develop, produce and market our reserves may be limited by: - title problems, - weather conditions, - compliance with governmental requirements, and - mechanical difficulties or shortages or delays in the delivery of drilling rigs, and other equipment. The Company cannot assure that the wells it reactivates and the new wells it drills will be productive or that the Company will recover all or any portion of its investment. Drilling for natural gas may be unprofitable due to dry wells and wells that are productive but do not produce sufficient net revenues after drilling, operating and other costs. In addition, the Company's properties may be susceptible to hydrocarbon draining from production by other operations on adjacent properties. Other operating risks include: - fire; - explosions; - blow-outs; - pipe failure; - abnormally pressured formations; and 9 - environmental hazards, including: - oil spills, - gas leaks, - ruptures, and - discharges of toxic gases. If any of these operating risks occur, the Company could suffer substantial losses. Substantial losses also may result from injury or loss of life, severe damage to or destruction of property, clean-up responsibilities, regulatory investigation and penalties and suspension of operations. In accordance with industry practice, the Company maintains insurance against some, but not all, of the risks described above. The Company cannot assure that its insurance will be adequate to cover losses or liabilities. Also, the Company cannot predict the continued availability of insurance at premium levels that justify its purchase. Price Volatility ---------------- Historically, the price of natural gas has been volatile and subject to wide fluctuations in response to numerous factors, including: - changes in the supply and demand for such fuels; - political conditions in oil, natural gas, and other fuel- producing areas; - the extent of domestic production and importation of such fuels and substitute fuels in relevant markets; - weather conditions; - the competitive position of each such fuel as a source of energy as compared to other energy sources; - the refining capacity of processors; - the effect of governmental regulation on the production, transportation, and sale of oil, natural gas, and other fuels; Low prices and/or highly volatile prices for natural gas may adversely affect our ability to secure financing or enter into suitable arrangements with industry participants. In addition, a low or volatile price for the natural gas being recovered could adversely affect revenue and other operations. Environmental Regulations. -------------------------- The Company's operations are subject to environmental laws and regulations. Such laws and regulations may require completion of a costly environmental impact assessment and government review process prior to commencing exploratory and/or development activities. In addition, such environmental laws and regulations may restrict, prohibit, or impose significant liability in connection with spills, releases, or emissions of 10 various substances produced in association with fuel exploration and development. The Company believes it is currently in material compliance with applicable laws and regulations. The Company cannot, however, provide assurance of such compliance or that applicable regulations or administrative policies or practices will not be changed by the various governmental entities. The cost of compliance with current laws and regulations or changes in environmental laws and regulations could require significant expenditures. Moreover, if the Company breachs any governing laws or regulations, it may be compelled to pay significant fines, penalties, or other payments. Costs associated with environmental compliance or noncompliance may have a material adverse impact on the Company's financial condition or results of operations in the future. Hedging Transactions may Limit Potential Gains. ----------------------------------------------- In order to manage its exposure to price risks in the marketing of our oil and natural gas production, the Company may enter into natural gas price hedging arrangements with respect to a portion of its expected production. The hedging arrangements may include futures contracts on the New York Mercantile Exchange. While intended to reduce the effects of volatile natural gas prices, such transactions may limit the Company's potential gains if natural gas prices were to rise substantially over the price established by the hedge. In addition, such transactions may expose the Company to the risk of loss in certain circumstances, including instances in which: - production is less than expected; there is a widening of price differentials between delivery - points for production and - the delivery point assumed in the hedge arrangement; - the counterparties to the Company's futures contracts fail to perform the contracts; or - a sudden, unexpected event materially impacts oil or natural gas prices. Acquisition of New Reserves Depends on Successful Development and Exploration Activities ------------------------------------------------------------------ The rate of production from natural gas properties declines as reserves are depleted. The Company's proved reserves will decline as reserves are produced unless it acquires additional properties containing proved reserves, conducts successful exploration and development activities or, through engineering studies, identifies additional reserves. The Company's future natural gas production is therefore highly dependent upon its level of success in acquiring or finding additional reserves. The Company cannot assure that its exploration and development activities will result in increases in reserves. The Company's operations may be curtailed, delayed or cancelled if we lack necessary capital and by other factors, such as title problems, weather, compliance with governmental regulations, mechanical problems or shortages or delays in the delivery of equipment. The Company's ability to continue to acquire producing properties or companies that own such properties assumes that major integrated oil companies and independent oil companies will continue to divest many of their oil and natural gas properties. The Company cannot assure that such divestitures will continue or that it will be able to acquire such properties at acceptable prices or develop additional reserves in the future. 11 Estimates of Proved Reserves and Future Net Revenue are Uncertain and Inherently Imprecise --------------------------------------------------------------------- This registration statement contains estimates of the Company's proved natural gas reserves and the estimated future net revenue from such reserves. The process of estimating natural gas reserves is complex and involves decisions and assumptions in the evaluation of available geological, geophysical, engineering and economic data. Therefore, these estimates are imprecise. Actual future production, natural gas prices, revenues, taxes, development expenditures, operating expenses and quantities of recoverable natural gas reserves most likely will vary from those estimated. Any significant variance could materially affect the estimated quantities and present value of reserves set forth in this registration statement. In addition, the Company may adjust estimates of proved reserves to reflect production history, results of exploration and development, prevailing natural gas prices and other factors, many of which are beyond its control. It cannot be assumed that the present value of future net revenues referred to in this registration statement is the current market value of the Company's estimated natural gas reserves. In accordance with SEC requirements, the estimated discounted future net cash flows from proved reserves are generally based on prices and costs as of the end of the year of the estimate. Actual future prices and costs may be materially higher or lower than the prices and costs as of the end of the year of the estimate. Any changes in consumption by natural gas purchasers or in governmental regulations or taxation will also affect actual future net cash flows. Dependence on Key Personnel --------------------------- The Company depends heavily on the efforts of its officers, Alexander T. Lemmens and James R. Clark; and Richard N. Mellis, a Company director. The unavailability of these individuals could have a materially adverse effect on the Company's business. The Company recently entered into one- year service agreements to retain the services of these individuals. The Company's success is also dependent upon its ability to obtain skilled technical personnel, either through employment or as independent contractors. While we have not experienced difficulties in employing or retaining such personnel, our failure to do so in the future could adversely affect our business. Penny Stock Rule ---------------- The Company's common stock is covered by a Securities and Exchange Commission rule that imposes additional sales practice requirements on broker-dealers who sell these securities to persons other than established customers and accredited investors, generally institutions with assets in excess of $5,000,000 or individuals with net worth in excess of $1,000,000 or annual income exceeding$200,000 or $300,000 jointly with their spouse. For transactions covered by the rule, the broker-dealer must make a special suitability determination for the purchaser and transaction prior to the sale. Consequently, the rule may affect the ability of broker-dealers to sell the Company's securities and also may affect the ability of purchasers 12 of the Company's stock to sell their shares in the secondary market. It may also cause broker-dealers to be less willing to make a market in the Company's securities and it may affect the level of news coverage received by the Company. First Year Plan of Operation ---------------------------- Cash Considerations: -------------------- As of March 31, 2000 Promax had $696,915 cash on hand. The Company recently applied for and was granted a revolving term loan through Alberta Treasury Branches. The Company is currently authorized to borrow up to $1,000,000 at its current production level, with the possibility of gaining access to up to $10,000,000 based on future production levels. Promax also expects to raise up to $3,000,000 in a flow through private placement of up to 6,000,000 shares at $0.50 per share. The Company is currently offering shares for sale. The offering is being made solely in Canada and will close on June 30, 2000. To date the Company has raised approximately $1,500,000 through this private placement. As discussed above, the Company has also negotiated an agreement with an independent contractor to build up to 28 miles of pipeline for the Company at an estimated cost of $3,100,000. The contractor will be compensated as follows: an initial payment of $100,000; upon completion of the first leg of the pipeline, the contractor will receive a 4.8 working interest from the Company; the $3,000,000 outstanding balance will be repaid from a percentage of sales on a monthly basis, until the contractor is fully compensated; thereafter, the contractor will receive a transportation royalty in perpetuity. The Company has the option to purchase the transportation royalty at any time. Cash flow from operations will increase dramatically in July 2000 when the first leg of the new pipeline is completed. At that point earnings before interest depreciation and taxes ("EBIDT") should exceed $350,000 per month and grow to $900,000 per month by December 2000 as additional wells are tied in. The Company believes the above funds will be sufficient to meet its current exploration and capital budget. Promax has a number of opportunities to be involved in additional projects. The Company is currently reviewing these opportunities. Additional capital will be required if Promax elects to become involved. Capital markets will be considered for funds to allow Promax to participate in these other projects. Expenditure Expected: --------------------- During the year Promax anticipates spending funds on: - Surface facilities for wells to be connected to the new pipeline, at a cost of approximately $65,000 per well; 13 - Drilling and completion of up to fifteen new wells, which should cost about $200,000 per well; - Drillable land acquisitions. The Company anticipates it could spend up to $500,000 on the acquisition of additional acreage from the Crown; - Fracing and workovers of several existing wells, which could cost up to $150,000 per well. - Tie in six additional wells, at an estimated cost of about $100,000 per well. - A portion of cash flow from natural gas sales will be used to pay for up to an additional 28 miles of pipeline, at a cost of $3,100,000, as discussed above. - Costs to run the company include office rent, payroll, administrative expense, consulting geological and engineering personnel, gas processing fees, field operators, auditors, lawyers, interest and various other expenses encountered by an operating company. Gas Plant: ---------- Promax will have its gas processed at an underutilized processing plant located at the terminus of its existing pipeline. This plant has capacity for 13 million cubic feet of gas per day. Currently the plant handles less than 1 million cubic feet per day. The Company will plan for additional facilities once Promax is producing in excess of 10 million cubic feet per day. Employees: ---------- As gas production increases there will be a staff increase, however, this will be mainly at the field level. At this time, rather than hire employees to address this need, the Company will seek to hire experienced individuals on contract basis. The Company believes it may need an additional three to four such individuals to supervise operations, order out services required and enhance production. New Products or Services ------------------------ There are no new products being developed, nor is there any research and development activity being done by the Company other than monitoring the industry for improvements in drilling and production technologies. Item 2. Description of Property. - --------------------------------- Office Space - ------------ The Company currently sub-leases 3700 square feet of office space in downtown Calgary, Alberta for $4,600 per month. The Company's lease is for a term of six months and expires September 1, 2000. The sub-lease is renewable for a period of two years following expiration of the current sub-lease. The Company is not leasing this office space from any officer, director or affiliate of the Company. The Company believes this office space is adequate for its current and anticipated needs for the foreseeable future. 14 Oil and Natural Gas Properties ------------------------------ Developed and Undeveloped Acreage --------------------------------- As of May 1, 2000, the Company's natural gas reserves included working interests in 41 sections 18 of which have been developed in the Cessford area of Alberta, Canada. The working interests held by the Company include 21 standing gas wells with multiple horizons, seven of which were drilled since 1997. The Company has no reserves offshore or inside the United States. The following table sets forth the developed and undeveloped leasehold acreage held by the Company at March 1, 2000. Developed acres are acres that are spaced or assignable to productive wells. Undeveloped acres are acres on which wells have not been drilled or completed to a point that would permit the production of commercial quantities of oil and gas, regardless of whether or not such acreage contains proved reserves. Gross acres are the total number of acres in which the Company has a working interest. Net acres are the sum of the Company's fractional interests owned in the gross acres.
Gross Net Total --------- --------- --------- Developed acreage: Proven 10,240 9,708 19,948 Probable 1,280 955 2,335 Undeveloped acreage 14,720 13,955 28,675 --------- --------- --------- Total acreage 26,240 24,618 50,958
Title to Properties ------------------- As is customary in the oil and gas industry, the Company conducts only a perfunctory title examination at the time properties believed to be suitable for drilling operations are first acquired. Prior to commencement of drilling operations, a thorough drill site title examination is normally conducted and curative work is performed with respect to significant defects. During acquisitions, title reviews are performed on all material properties being acquired. Reserves -------- Citadel Engineering, Ltd., ("Citadel"), the Company's independent petroleum engineering consulting firm, has made estimates of the Company's natural gas reserves as of March 1, 2000, with an update effective June 1, 2000. Citadel's report covers the estimated present value of future net cash flows before income taxes (undiscounted, discounted at 10%, 12% and 15%) attributable to the Company's estimated future net cash flows therefrom. The quantities of the Company's proved reserves of natural gas presented below include only those amounts which the Company reasonably expects to recover in the future from probable natural gas reservoirs under existing economic and operating conditions. Proved developed reserves are limited to those quantities which are recoverable commercially at current 13 prices and costs, under existing regulatory practices and with existing technology. Accordingly, any changes in prices, operating and development costs, regulations, technology or other factors could significantly increase or decrease estimates of Promax's proved developed reserves. Promax's proved undeveloped reserves include only those quantities which Promax reasonably expects to recover from the drilling of new wells based on geological evidence from offsetting wells. The risks of recovering these reserves are higher from both geological and mechanical perspective than the risks of recovering proved developed reserves. The following table sets forth estimates of the proved natural gas reserves of the Company as of June 1, 2000, as evaluated by Citadel Engineering, Ltd.
Natural Gas (MMSCF) Developed W.I.O. Net Proven Non-Producing 22,435 18,515 Probable Non-Producing 12,366 10,210 --------- --------- Total 34,801 28,725
Working Interest Ownership ("W.I.O.") means net reserves, after deduction of all outside working interests, but before deduction of lessor and overriding royalties and before Crown royalties. Net reserves ("Net") means reserves after deduction of all outside working interests and overriding and lessor royalties. The net cash flow forecasts are after direct lifting costs, normal allocated overhead and future investments but before income taxes. Crown Royalties in the Province of Alberta, as applicable to natural gas, including rebates under ARTC, as revised from time to time, have also been utilized. The following table sets forth, as of June 1, 2000, estimates of reserves and production forecasts. These estimates were prepared on the basis of prevailing conditions, and generally accepted engineering methods. Although these estimates are considered reasonable, future performance may vary from the forecast presented herein and may justify either an increase or decrease in the reserves. Probable reserves were risked at 50% and cash flow values are quoted in a constant dollar basis at CDN $5.57/MCF using a June 1, 2000 market price. The net cash flow forecasts are after direct lifting costs, normal allocated overhead and future investments but before income taxes. Crown Royalties in the Province of Alberta, as applicable to natural gas, including rebates under ARTC, as revised from time to time, have also been utilized.
Constant Dollar (in thousands) Undiscounted Discounted 10% 12% 15% Proved Producing $ 8,635 $ 4,119 $ 3,721 $ 3 ,251 Proved Developed Non-Producing $79,648 $40,475 $36,705 $32,173 Probable 47,102 19,703 17,286 14,466 Total $135,385 $64,297 $57,712 $49,890
13 As required by the Securities and Exchange Commission, the estimates of net proved reserves and proved developed reserves and the estimated future net revenues from such reserves set forth above, have been made in accordance with the provisions of Statement of Financial Accounting Standards No. 69, "Disclosures about Oil and Gas Producing Activities." Estimated future net cash flows from proved reserves are determined by using estimated quantities of proved reserves and the periods in which they are expected to be developed and produced based on economic conditions at the date of the report. The estimated future production is priced at current prices at the date of the report. The resulting estimated future cash inflows are then reduced by estimated future costs to develop and produce reserves based on cost levels at the date of the report. No deduction has been made for depletion, depreciation or for indirect costs, such as general corporate overhead. The discounted value was computed by discounting future net revenues at the indicated percentage per annum, without deduction for income taxes. The estimation of natural gas reserves is a complex and subjective process which is subject to continued revisions as additional information becomes available. Reserve estimates prepared by different engineers from the same data can vary widely. Assumptions have to be made regarding the timing of future production and the timing and amount of future development and production costs. The calculations assume that economic conditions existing at the end of the reporting period will continue. Other, but equally valid, assumptions might lead to a significantly different final result. Therefore, the reserve data presented herein should not be construed as being exact. Any reserve estimate presented herein should not be construed as being exact. Any reserve estimate depends in part on the quality of available data, engineering and geologic interpretation, and thus represents only an informed professional judgment. Subsequent reservoir performance may justify upward or downward revision of such estimate. The information provided, therefore, does not represent management's estimate of the Company's expected future cash flows or value of proved and probable reserves. The Company has filed estimates of proved and probable reserves with the Canadian Venture Exchange. Those estimates do not differ materially from those contained in this document. Producing Wells --------------- The Company has two producing wells as of June 1, 2000. Both of these wells are existing wells which the Company re-activated in April and May 2000 after the Company's existing 15 miles of pipeline was re-certified. The wells produce approximately 400 MCF per day. Production, Unit Prices And Costs ---------------------------------- The following table sets forth information with respect to sales of production and average unit prices and costs for the periods indicated. 17
Year ended Years ended June December 31, June 30, June 30, 1999 (2) 1998 1997 Production: Gas (MMSCF) NIL NIL NIL Average sales prices (1) N/A N/A N/A Average production costs N/A N/A N/A per BOE (2)
(1) The average sales prices for the years ended December 31, 1999, and June 30, 1998 and 1997 would have been CDN $3.28 GJ for natural gas. (2) The components of production costs may vary substantially among wells depending on the methods of recovery employed and other factors, but generally include production taxes, lease overhead, maintenance and repair, labor and utilities. Drilling Activity ----------------- The 21 standing gas wells in which the Company has a working interest were all drilled prior to the Company's acquisition of said interest. To date, the Company has not drilled any additional wells. The Company anticipates beginning a drilling program during the summer of 2000 and may drill up to 15 new wells prior to the winter of 2000. The Company will contract out all drilling activities to independent contractors. The Company owns no drilling equipment. Present Activities ------------------ At the time the Company acquired its working interest in the Cessford properties and assets, the 21 standing wells were all inactive, as was the pipeline. The Company spent the past six months reactivating the pipeline and having it recertified for use. In April 2000, the Company reactivated the first of the 21 standing wells. The second was reactivated in May 2000. The Company anticipates reactivating three more of its standing wells and tying in and putting into production six of its existing wells by the end of June 2000. Item 3. Legal Proceedings. --------------------------- Neither the Company, nor any of its officers and directors is a party to any litigation. Item 4. Control of Registrant. ------------------------------- To the best of the Company's knowledge, it is not directly or indirectly owned or controlled by another corporation or by any foreign government. The following table sets forth as of March 29, 2000 the name and the number of shares of the Registrant's Common Stock, no par value per share, held of record or beneficially by each person who held of record, or was known by the Registrant to own beneficially, more than 10% of the 18 29,969,258 issued and outstanding shares of the Registrant's Common Stock, and the name and shareholdings of each director and of all officers and directors as a group.
Title of Amount and Nature of Class Name of Beneficial Owner Beneficial Ownership Percentage of Class - ------------------------------------------------------------------------------------- Common Alexander T. Lemmens(1) 5,760,000 19.2% 603 Willowbrook Drive S.E. Calgary, Alberta T2J 1N6 Common Richard N. Mellis(2) 5,448,730 18.2% 434 Sierra Madre Court S.W. Calgary, Alberta T3H 3M4 Common Starrock Resources Ltd.(2) 3,000,000 10.0% Box 19, Site 10, R.R. #4 Calgary, Alberta T2M 4L4 Common Mustang Investments Ltd.(3) 3,000,000 10.0% 30-237 4th Ave. SW Calgary, Alberta T2P 4X7 - ------------------------------------------------------------------------------------- Common All Officers, Directors as a Group: (4 persons) 14,175,940 47.3% - -------------------------------------------------------------------------------------
(1) The shares attributed to Alexander T. Lemmens, a Company Officer and Director, include 5,500,00 shares held personally by him, 250,000 shares held of record by Annex Resources, Ltd., a company owned by him and his wife, and 10,000 shares held of record by his daughter Michelle Lemmens. (2) The shares attributed to Richard N. Mellis, a Company Director, include 3,000,000 shares held of record by Starrock Resources Ltd., Mr. Mellis is the President of Starrock and may be deemed a beneficial owner of these shares; 150,000 shares held of record by RNM Services Ltd., Mr. Mellis is president of RNM and may be deemed the beneficial owner of these shares; 2,198,730 shares held of record by four companies in which Mr. Mellis' wife is an officer or director, and may be deemed to be beneficially owned by him; and 100,000 shares held of record by Mr. Mellis. (3) The shares attributed to Mustang Investments, Ltd., include 2,500,000 share held of record by Mustang and 500,000 shares held of record by 773440 Alberta Ltd. Mustang has owns a controlling interest in 773440 Alberta Ltd., and may be deemed to be the beneficial owner of these shares. 19 Item 5. Nature of Trading Market. ---------------------------------- The Company's common stock is listed on the Canadian Venture Exchange ("CDXN"), (formerly the Vancouver Stock Exchange), under the symbol "PMY". The Company's securities are not listed on any stock exchange in the United States and there is no established trading market for the securities of the Company in the United States. As of April 4, 2000 the Company had 142 shareholders holding 29,969,258 shares of common stock. Of the 142 shareholders, 125 are Canadian residents, 9 are residents of the United States and 9 are residents of other countries. The total number of Company common shares held by residents of the United States is 135,981. The Company's common stock is not traded or registered in the form of American Depositary Receipts. The Company has never declared a dividend on its Common Stock.
HIGH LOW VOLUME ---------- ---------- ---------- First Quarter January 1, 1998- $0.12 $0.12 9,200 Mar. 31, 1998 Second Quarter 0.25 0.13 277,100 Apr.1, 1998- June 30, 1998 Third Quarter 0.23 0.10 359,400 July 1, 1998- Sept. 30, 1998 Fourth Quarter 0.10 0.05 388,700 Oct. 1, 1998- Dec. 31, 1998 First Quarter (Pre-Split) 0.09 0.07 49,000 Jan 1, 1999- Feb. 2, 1999* First Quarter (Post-Split) 1.15 0.31 106,003 Feb. 3, 1999*- Mar. 31, 1999 Second Quarter 1.10 0.48 83,600 Apr. 1, 1999- June 30, 1999 Third Quarter 0.53 0.30 55,500 July 1, 1999- Sept 30, 1999 20 Fourth Quarter 0.48 0.24 147,080 Oct. 1, 1999- Dec. 31, 1999 First Quarter 0.80 0.35 217,660 Jan. 1, 2000- Mar. 31, 2000 - ---------------------------------------------------------------------------
* On February 3, 1999, the Company reverse split its outstanding common shares on a 5:1 share basis. The above quotations, as provided by CDXN, (formerly VSE), represent the high and low trades expressed in Canadian Dollars and the volume for each of the above indicated quarters. Item 6. Exchange Controls and Other Limitations Affecting Security Holders. ------------------------------------------------------------------- There are no governmental laws, decrees or regulations in Canada relating to restrictions on the export or import of capital, or affecting the remittance of interest, dividends or other payments to non-resident holders of the Company's common shares. Any remittances of dividends to United States residents are, however, subject to a 15% withholding tax (5% if the shareholder is a corporation owning at least 10% of the outstanding common shares of the Company) pursuant to Article X of the reciprocal tax treaty between Canada and the United States. See Item 7 - "Taxation." Except as provided in the Investment Canada Act, there are no limitations under the laws of Canada, the Province of British Columbia or in the Memorandum or Articles of the Company on the right of foreigners to hold or vote the common shares of the Company. The Investment Canada Act requires a non-Canadian making an investment to acquire control, directly or indirectly, of a Canadian business, the gross assets of which exceed certain defined threshold levels, to file an application for review with Investment Canada, the federal agency created by the Act. Provisions of the Investment Canada Act are complex and any non-Canadian contemplating an investment to acquire control of the Company should consult professional advisors as to whether and how the Investment Canada Act might apply. For the purposes of the Investment Canada Act, direct acquisition of control means a purchase of the voting interests of a corporation, partnership, joint venture or trust carrying on a Canadian business, or any purchase of all or substantially all of the assets used in carrying on a Canadian business. An indirect acquisition of control means a purchase of the voting interest of a corporation, partnership, joint venture or trust, whether a Canadian or foreign entity, which controls a corporation, partnership, joint venture or trust company carrying on a Canadian business in Canada. 21 Item 7. Taxation. ------------------ Material Canadian Federal Income Tax Consequences ------------------------------------------------- The following is a summary that describes the material Canadian federal income tax consequences applicable to a holder of common shares of the Company who is a resident of the United States and who is not a resident of Canada and who does not use or hold, and is not deemed to use or hold, his common shares of the Company in connection with carrying on a business in Canada (a "non-resident shareholder"). This summary is based upon the current provisions of the Income Tax Act (Canada)(the "ITA"), the regulations thereunder (the "Regulations"), the current publicly announced administrative and assessing policies of the Canada Customs and Revenue Agency, and all specific proposals (the "Tax Proposals") to amend the ITA and Regulations announced by the Minister of Finance (Canada) prior to the date hereof. This description is not exhaustive of all possible Canadian federal income tax consequences and, except for the Tax Proposals, does not take into account or anticipate any changes in law, whether by legislative, governmental or judicial action, nor does it take into account provincial or foreign tax considerations which may differ significantly from those discussed herein. Dividends --------- Dividends paid on the common shares of the Company to a non-resident holder will be subject to withholding tax. The Canada-U.S. Income Tax Convention (1980) (the"Treaty") provides that the normal 25% withholding tax rate is reduced to 15% on dividends paid on shares of a corporation resident in Canada (such as the Company) to residents of the United States, and also provides for a further reduction of this rate to 5% where the beneficial owner of the dividends is a corporation which is a resident of the United States which owns at least 10% of the voting shares of the corporation paying the dividend. Capital Gains ------------- A non-resident of Canada is not subject to tax under the ITA in respect of a capital gain realized upon the disposition of a share of a Canadian resident corporation that is listed on a prescribed stock exchange, unless the share represents "taxable Canadian property" to the holder thereof. The Company is a Canadian resident corporation and the Canadian Venture Exchange is a prescribed stock exchange for purposes of the ITA. A common share of the Company will be taxable Canadian property to a non-resident holder if, at any time during the period of five years immediately preceding the disposition, the non-resident holder, persons with whom the non-resident holder did not deal at arm's length, or the non- resident holder and persons with whom he did not deal at arm's length owned not less than 25% of the issued shares of any class or series of the Company. In the case of a non-resident holder to whom shares of the Company represent taxable Canadian property and who is resident in the United States, no Canadian taxes will be payable on a capital gain realized on such shares by reason of the Canada-U.S. Income Tax convention (1980) (the "Treaty") unless the value of such shares is derived principally from real property situated in Canada. In such a case, certain transitional relief under the Treaty may be available. 22 Material United States Federal Income Tax Consequences ------------------------------------------------------ The following is a summary of United States federal income tax considerations material to a holder of Common Shares and who is a United States citizen or resident or a United States domestic corporation who owns the Common Shares as a capital asset ("United States Investor"). This description is not exhaustive of all possible income tax consequences applicable to United States Investors and does not address the tax consequences of United States Investors subject to special provisions of federal income tax law such as tax exempt organizations, trusts and significant shareholders. Prospective investors are advised to consult their own tax advisors with respect to their particular circumstances and with respect to the effects of state, local or foreign tax laws to which they may be subject. This summary is based on the Internal Revenue Code of 1986, as amended (the "Code"), Treasury regulations, court decisions and current administrative rulings and pronouncements of the United States Internal Revenue Service ("IRS") that are currently applicable, all of which are subject to change, possibly with retroactive effect. There can be no assurance that future changes in applicable law or administrative and judicial interpretations thereof will not adversely affect the tax consequences discussed herein. Investors are advised to consult their own tax advisors regarding the tax consequences of acquiring, holding or disposing of the Common Share in light of their particular circumstances. Basis. A United States Investor will have a basis in the Common Share equal to his or her purchase price for United States federal tax purposes. Dividends. Cash dividends paid out of the Company's current and accumulated earnings and profits to a holder of Common Share who is a United States Investor will be taxed as ordinary income for United States federal income tax purposes. Cash distributions in excess of the current and accumulated earnings and profits of the Company will first be treated, for United States federal income tax purposes, as a nontaxable return on capital to the extent of the United States Investor's basis in the Common Share and then as gain from the sale or exchange of a capital asset. As discussed above in "Material Canadian Federal Income Tax Considerations,"such dividends generally will also be subject to a Canadian withholding tax. The deduction for dividends received which is usually available to corporate shareholders is generally not available for dividends paid from a foreign corporation such as the Company. Pursuant to Sections 164 and 901 of the Code, a United States Investor may generally elect, for U.S. federal income tax purposes, to claim either a deduction from gross income for such Canadian withholding taxes or a credit against its United States federal income taxes with respect to such Canadian taxes. The choice of taking a deduction or claiming a credit is up to the taxpayer. 23 In general, a United States Investor, other than a shareholder owning 10% or more of the voting power of the Company, will be entitled to claim a foreign tax credit only for taxes, if any, imposed on dividends paid to such United States Investor (such as withholding taxes) and not for taxes, if any, imposed on the Company or on any entity in which the Company has made an investment. The amount of the foreign tax credit that may be claimed is limited to that proportion of the tax against which the credit is taken that the holder's taxable income from non-United States sources bears to the holder's entire taxable income for that taxable year. The foreign tax credit limitation is applied separately to different categories of income. Generally, for purposes of applying such foreign tax credit limitations, dividends are included in the passive income category. Dispositions of Common Shares. Subject to the discussion below of the consequences of the Company being treated as a Passive Foreign Investment Company or a Foreign Investment Company, gain or loss realized by a United States Investor (other than a 10-percent shareholder of the Company) on the sale or other disposition of Common Share will be subject to United States federal income tax as capital gain or loss in an amount equal to the difference between such United States Investor's basis in the Common Share and the amount realized on the disposition. In general, such capital gain or loss will be long-term capital gain or loss if the United States Investor has held the Common Shares for more than one (1) year at the time of the sale or exchange. In general, gain from a sale, exchange or other disposition of the Common Share by a United States Investor will be treated as U.S. source income. Special United States Federal Income Tax Considerations ------------------------------------------------------- Passive Foreign Investment Company. The Company believes that it is a passive foreign investment company ("PFIC") for United States federal income tax purposes with respect to a United States Investor. The Company will be a PFIC with respect to a United States Investor if, for any taxable year in which such United States Investor held the Company's shares, either (i) at least 75% of the gross income of the Company for the taxable year is passive income, or (ii) at least 50% of the Company's assets are attributable to assets that produce or are held for the production of passive income. In each case, the Company must take into account a pro rata share of the income and the assets of any company in which the Company owns, directly or indirectly, 25% on more of the stock by value (the "look- through" rules). Passive income generally includes dividends, interest, royalties, rents (other than rents and royalties derived from the active conduct of a trade or business and not derived from a related person), annuities, and gains from assets that produce passive income. As a non- publicly held (for United States Federal income tax purposes), non-CFC, the Company would apply the 50% asset test based on the value of the Company's assets. Because the Company is a PFIC, unless a United States Investor who owns shares in the Company elects (a section 1295 election) to have the Company treated as a"qualified electing fund" (a "QEF") as described below, the following rules will apply: 1. Distributions made by the Company during a taxable year to a United States Investor who owns shares in the Company that are an "excess distribution"(defined generally as the excess of the amount received with respect to the shares in any taxable year over 125% of the 24 average received in the shorter of either the three previous years or such United States Investor's holding period before the taxable year) must be allocated ratably to each day of such shareholder's holding period. The amount allocated to the current taxable year and to years when the corporation was not a PFIC must be included as ordinary income in the shareholder's gross income for the year of distribution. The remainder is not included in gross income but the shareholder must pay a deferred tax on that portion. The deferred tax amount, in general, is the amount of tax that would have been owed if the allocated amount had been included inincome in the earlier year, plus interest. The interest charge is at the rate applicable to deficiencies in income taxes. 2. The entire amount of any gain realized upon the sale or other disposition of the share will be treated as an excess distribution made in the year of sale or other disposition and as a consequence will be treated as ordinary income and, to the extent allocated to years prior to the year of sale or disposition, will be subject to the interest charge described above. A shareholder that makes a section 1295 election will be currently taxable on his or her pro rata share of the Company's ordinary earnings and net capital gain (at ordinary income and capital gains rates, respectively) for each taxable year of the Company, regardless of whether or not distributions were received. The shareholder's basis in his or her shares will be increased to reflect taxed but undistributed income. Distributions of income that had previously been taxed will result in a corresponding reduction of basis in the shares and will not be taxed against as a distribution to the shareholder. A shareholder may make a section 1295 election with respect to a PFIC for any taxable year of the shareholder (shareholder's election year). A section 1295 election is effective for the shareholder's election year and all subsequent taxable years of the shareholder. (In temporary regulations, Treasury provides procedures for both retroactive and protective elections). Once a section 1295 election is made it remains in effect, although not applicable, during those years that the Company is not a PFIC. Therefore, if the Company requalifies as a PFIC, the section 1295 election previously made is still valid and the shareholder is required to satisfy the requirements of that election. Once a shareholder makes a section 1295 election, the shareholder may revoke the election only with the consent of the Commissioner. If the shareholder makes the section 1295 election for the first tax year of the Company as a PFIC that is included in the shareholder's holding period, the PFIC qualifies as a pedigreed QEF with respect to the shareholder. If a QEF is an unpedigreed QEF with respect to the shareholder, the shareholder is subject to both the non-QEF and QEF regimes. Certain elections are available which enable shareholders to convert an unpedigreed QEF into a pedigreed QEF thereby avoiding such dual application. A shareholder making the section 1295 election must make the election on or before the due date, as extended, for filing the shareholder's income tax return for the first taxable year to which the election will apply. A shareholder must make a section 1295 election by completing Form 8621; attaching said Form to its federal income tax return; receiving in the Form the information provided in the PFIC Annual Information Statement or if the 25 shareholder calculated the financial information, a statement to that effect; and filing a copy of the Form with the Philadelphia Service Center. As provided in IRS Notice 88-125, the PFIC Annual Information Statement must include the shareholder's pro rata shares of the ordinary earnings and net capital gain of the PFIC for the PFIC's taxable year or information that will enable the shareholder to calculate its pro rata shares. In addition, the PFIC Annual Information Statement must contain information about distributions to shareholders and a statement that the PFIC will permit the shareholder to inspect and copy its permanent books of account, records, and other documents of the PFIC necessary to determine that the ordinary earnings and net capital gain of the PFIC have been calculated according to federal income tax accounting principles. Temporary regulations have recently clarified that a shareholder may obtain the books, records and other documents of the foreign corporation necessary for the shareholder to determine the correct earnings and profits and net capital gain of the PFIC according to federal income tax principles and calculate the shareholder's pro rata shares of the PFIC's ordinary earnings and net capital gain. In that case, the PFIC must include a statement in its PFIC Annual Information Statement that it has permitted the shareholder to examine the PFIC's books of account, records, and other documents necessary for the shareholder to calculate the amounts of ordinary earnings and net capital gain. Special rules apply with respect to the calculation of the amount of the foreign tax credit with respect to excess distributions by a PFIC or inclusions under a QEF. Controlled Foreign Corporations. Sections 951 through 964 and Section 1248 of the Code relate to controlled foreign corporations ("CFCs"). A foreign corporation that qualifies as a CFC will not be treated as a PFIC with respect to a shareholder during the portion of the shareholder's holding period after December 31, 1997, during which the shareholder is a 10% United States shareholder and the corporation is a CFC. (The PFIC provisions continue to apply in the case of PFIC that is also a CFC with respect to shareholders that are less than 10% United States shareholders). The 10% United States shareholders of a CFC are subject to current U.S. tax on their pro rata shares of certain income of the CFC and their pro rata shares of the CFC's earnings invested in certain U.S. property. The effect is that the CFC provisions may impute some portion of such a corporation's undistributed income to certain shareholders on a current basis and convert into dividend income some portion of gains on dispositions of stock which would otherwise qualify for capital gains treatment. The Company does not believe that it will be a CFC. Even if the Company were classified as a CFC in a future year, however, the CFC rules referred to above would apply only with respect to 10% shareholders. Personal Holding Company/Foreign Personal Holding Company/Foreign Investment Company. A corporation will be classified as a personal holding company (a"PHC") if at any time during the last half of a tax year (i) five or fewer individuals (without regard to their citizenship or residence) directly or indirectly or by attribution own more than 50% in value of the corporation's stock and (ii) at least 60% of its ordinary gross income, as specially adjusted, consists of personal holding company income (defined 26 generally to include dividends, interest, royalties, rents and certain other types of passive income). A PHC is subject to a United States federal income tax of 39.6% on its undistributed personal holding company income (generally limited, in the case of a foreign corporation, to United States source income). A corporation will be classified as a foreign personal holding company (an "FPHC") and not a PHC if at any time during a tax year (i) five or fewer individual United States citizens or residents directly or indirectly or by attribution own more than 50% of the total combined voting power or value of the corporation's stock and (ii) at least 60% of its gross income consists of foreign personal holding company income (defined generally to include dividends, interest, royalties, rents and certain other types of passive income). Each United States shareholder in a FPHC is required to include in gross income, as a dividend, an allocable share of the FPHC's undistributed foreign personal holding company income (generally the taxable income of the FPHC, as specially adjusted). A corporation will be classified as a foreign investment company (an "FIC") if for any taxable year it (i) is registered under the Investment Company Act of1940, as amended, as a management company or share investment trust or is engaged primarily in the business of investing or trading in securities or commodities (or any interest therein) and (ii) 50% or more of the value or the total combined voting power of all the corporation's stock is owned directly or indirectly (including stock owned through the application of attribution rules) by United States persons. In general, unless an FIC elects to distribute 90% or more of its taxable income (determined under United States tax principles as specially adjusted) to its shareholders, gain on the sale or exchange of FIC stock is treated as ordinary income (rather than capital gain) to the extent of such shareholder's ratable share of the corporation's earnings and profits for the period during which such stock was held. The Company believes that it is not and will not be a PHC, FPHC or FIC. No assurance can be given, however, as to the Company's future status. U.S. Information Reporting and Backup Withholding. Dividends are generally subject to the information reporting requirements of the Code. Dividends may be subject to backup withholding at the rate of 31% unless the holder provides a taxpayer identification number on a properly completed Form W-9 or otherwise establishes an exemption. The amount of any backup withholding will not constitute additional tax and will be allowed as a credit against the United States Investor's federal income tax liability. Filing of Information Returns. Under a number of circumstances, a United States Investor acquiring shares of the Company may be required to file an information return at the Internal Revenue Center where they are required to file their tax returns with a copy to the Internal Revenue Service Center, Philadelphia, PA19255. In particular, any United States Investor who becomes the owner, directly or indirectly, of 10% or more of the shares of the Company will be required to file such a return. Other filing requirements may apply, and United States Investors should consult their own tax advisors concerning these requirements. 27 Item 8. Selected Financial Data. --------------------------------- The selected financial data presented below for the five year period ended December 31 is derived from the Company's independent auditors. The information set forth below should be read in conjunction with the Consolidated Financial Statements of the Company (including related notes thereto and "Management's Discussion and Analysis of Financial Condition and Results of Operations."
Promax Energy Inc. (in Canadian dollars) For Three Months Ended For Year Ended 03/31/00 12/31/99 6/30/99 6/30/98 6/30/97 6/30/96 6/30/95 Revenue -$0- -$0- -$0- -$0- -$0- -$0- -$0- Income (Loss) from Continuing Operations (164,827) (131,522) (239,159) (181,079) (78,659) (95,555) (53,695) Income (Loss) from Continuing Operations per Share (0.006) (0.015) (0.030) (0.029) (0.013) (0.019) (.01) Total Assets 12,651,774 11,793,553 3,801,707 934,768 356,657 308,203 55,297 Long-term Debt, Capital Leases, And Redeemable Preferred Stock -0- -0- -0- -0- -0- -0- -0- Cash Dividend per Share -0- -0- -0- -0- -0- -0- -0-
Since June 1, 1970, the government of Canada has permitted a floating exchange rate to determine the value of the Canadian dollar as compared to the United States dollar. For the past fiscal years ended December 31, the following exchange rates were in effect for Canadian dollars exchanged for United States dollars, expressed in terms of Canadian dollars (based on the noon buying rates in New York City, for cable transfers in Canadian dollars, as certified for customs purposes by the Federal Reserve Bank of New York.)
YEAR AVERAGE LOW-HIGH YEAR END/PERIOD END ---------- ---------- ---------------------- ------------------- 1995 $1.373 Low $1.346 High $1.413 $1.369 1996 $1.364 Low $1.338 High $1.375 $1.362 1997 $1.385 Low $1.349 High $1.427 $1.427 1998 $1.484 Low $1.417 High $1.543 $1.543 1999 $1.486 Low $1.461 High $1.519 $1.472
The Company has not issued any dividends in the past five fiscal years. Item 9. Management's Discussion and Analysis of Financial Condition and Results of Operations. --------------------------------------------------------------------- 28 The following discusses the Company's financial condition and results of operations based upon its financial statements which have been prepared in accordance with Canadian Generally Accepted Accounting Principles. Results of Operations for the Three Months Ended March 31, 2000, Compared to the Three Months Ended March 31, 1999. ---------------------------------------------------------------- Revenues: --------- There were no operating revenues in either period, however there were some fees charged of $22,924 in the 1999 period and interest income of $2,373 in the 2000 period. Expenses: --------- General and administrative expenses increased by $153,672 from $13,528 for the three months ended March 31, 1999 to $167,200 for the three month period to March 31, 2000. The significant increase was the result of the Company hiring staff and consultants to proceed to put gas wells on stream. Net Income (Loss): ------------------ The Company incurred a net loss during the period ended March 31, 2000 of ($164,827) compared to net income of $9,396 in the same period for 1999. Results of Operations Six Month Period Ended December 31, 1999, Compared to the Year Ended June 30, 1999 --------------------------------------------------------------- Revenue: -------- There was no operating revenue in either of the periods. Expenses: --------- General and administrative expenses for the period ended December 31, 1999 were $105,540 compared to $127,358 for the year ended June 30, 1999. The relative increase is largely related to accounting and legal fees that increased from $16,703 to $25,943. These fees relate mainly to preparation of a prospectus. Net Loss: --------- The Company incurred as net loss of $131,522 for the six months ended December 31, 1999 compared to a net loss of $239,159 for the year ended June 30, 1999. As there was no revenue, these losses were mainly general and administrative costs associated with raising money and pursuing business opportunities. A large part of the June 30, 1999 loss relates to the write-off of resource properties and exploration costs totaling $137,889. Year Ended June 30, 1999, Compared to the Year Ended June 30, 1998 ------------------------------------------------------------------ Revenue: -------- There was no operating revenue in either of the periods. Expenses: --------- General and administrative expenses for the fiscal year ended June 30, 1999 increased by $45,130 from $82,228 from fiscal year 1998 to $127,358 for fiscal 1999. The main reason for the increase was an increase in amortization from $1,274 in 1998 to $42,616 in 1999. During 1999 the Company bought the Cessford property and there was amortization on the oil and equipment that was purchased. 28 Net Loss: --------- The Company incurred a loss of $239,159 in fiscal 1999 compared to a loss of $181,079 in fiscal 1998. The losses in both rears were composed mainly of the expenses noted above combined with write-off of mineral properties and exploration costs of $413,889 in 1999 and $106,272 in 1998. Losses in 1999 were reduced by fee revenue to joint venture partners of $26,249. Year Ended June 30, 1998, Compared to the Year Ended June 30, 1997 ------------------------------------------------------------------ Revenues: --------- There was no operating revenue in either of the periods. Expenses: --------- General and administrative expenses for the fiscal year ended June 30, 1998 were $82,228 compared to $78,659 for fiscal 1997. Expenses were similar for the two years as the Company changed emphasis from mining to oil and gas. Net Loss: --------- The Company incurred a loss of $181,079 for fiscal 1998 compared to a loss of $75,377 for fiscal 1997. 1998 losses included the write off of mineral properties and exploration costs of $106,272. Liquidity and Capital Resources ------------------------------- The Company owns 41 sections of oil and gas mineral rights in the Cessford area of Alberta, Canada, 21 standing gas wells and 15 miles of gas pipeline. The Company anticipates that five of its gas wells will be flowing by early June of 2000 and another six will be tied in with the extension of the Company's pipeline by June 30, 2000. The Company has already arranged for the financing necessary to build additional pipeline and purchase facilities necessary to tie the wells into the pipeline. By July 2000, the monthly revenue is expected to exceed $660,000 based on the expectation of production levels of four million cubic feet per day of gas and a sales price of $5.50 per thousand cubic feet. The Company believes, through increasing cash flow as more wells are tied in, an operating line of credit of $1,000,000, and planned equity financing of up to $3,000,000, it should have sufficient funds to meet its capital requirements this year. The equity financing will be used for exploration activities. If the Company is not successful in raising the full $3,000,000 then the number of wells that were planned to be drilled will be reduced from a possible 15 wells to the number that funds raised support. The Company has recently farmed-in on an additional 53 sections and is close to finalizing additional farm-ins on another 24 sections. On a number of these farm-in lands there are more wells to be tied into the pipeline. By the year ended December 31, 2000 Promax expects to have in excess of 25 wells tied in and producing in excess of 10 million cubic feet of gas per day. Using a sales price of $5.50 per thousand cubic feet, monthly revenue is expected to reach $1,650,000. At this level Promax will have cash available to start an expanded drilling program in the spring of 2001. As of March 31, 2000 and March 31, 1999, the Company's Working Capital was $831,736 and $70,093 respectively. The increase in working capital was 30 due to equity financing activities. As at December 31, 1999 and June 30, 1999 the Company's working capital was $187,832 and $24,642 respectively. In both periods the Company raised equity capital. The Company has no long term debt. Cash and shares have been used to purchase a substantial interest in the Cessford properties. Through raising capital and issuing shares, the Company achieved a 94.8% working interest in the properties as of December 31, 1999. For the six months ended December 31, 1999 Shareholder's Equity increased by $8,074,144 from $3,680,128 at June 30, 1999 to $11,754,272 at December 31, 1999. This reflects the equity financing activity for this time period. The book value of the Company's interest in Resource Properties increased by $7,832,148 from $2,742,077 at June 30, 1999 to $10,574,225 at December 31, 1999. Using a discount factor of 12%, the engineering evaluation of the 18 sections that have been proven up comes in at $55,745,000. Item 9A. Quantitative and Qualitative Disclosures About Market Risk. --------------------------------------------------------------------- Not applicable. Item 10. Directors and Officers of Registrant. -----------------------------------------------
Date When Number of Common Shares Principal Nominee became Beneficially Name and Present Occupations for an Officer of Owned or Over Position with the Preceding Five Director of Which Control or Company Years the Company Direction is Exercised - ------------------------------------------------------------------------------------- Robert L. Card Financial September 1993 735,500 Director Consultant, Aries Management, Ltd., since 1980. President and Chairman of Matrix Energy (Predecessor of the Company.) - ------------------------------------------------------------------------------------- 31 - ------------------------------------------------------------------------------------- Alexander T. President, CEO and January 2000 5,760,000 Lemmens, Chairman of Promax Chairman and CEO Energy, Inc., since 2000; President, Chairman of the Board, and Director of Aldrilco Inc., from December 1997 to December 1999, and prior thereto, Vice-President of Corporate Development with Precision Drilling Corporation, 1994 to 1997. - ------------------------------------------------------------------------------------- Norman J. Oilfield Executive June 1997 2,013,310 McAllister and Consultant, Director Canada West Resources, Inc., since 1997. President, McAllister Petroleum Services from 1980 to 1997. - ------------------------------------------------------------------------------------- Richard N. Mellis Land and June 1998 5,448,630 Director Environmental Consultant, R.N.M. Services, Ltd., since 1984 - ------------------------------------------------------------------------------------- James R. Clark Vice President, January 2000 68,400 Vice-president, Promax Energy Secretary, since 2000. Vice Treasurer President, Aldrilco, Inc., 1998 to 1999. President, Nortech Geomatics, Inc., 1995 to 1998. - ------------------------------------------------------------------------------------- Shelia O'Shea President, Leross May 2000 150,000 Director Oilfield Services since 1995. Director, Aldrilco, Inc., 1996 to 1999. - -------------------------------------------------------------------------------------
32 Item 11. Compensation of Directors and Officers. ------------------------------------------------- The following table sets forth certain summary information concerning the compensation paid or accrued during the Registrant's last completed fiscal years to the Company's, or its principal subsidiaries, chief executive officers during such period (as determined at December 31, 1999 the end of the Registrant's last completed fiscal year).
Summary Compensation Table ------------------------------ Long Term Compensation -------------------------- Annual Compensation Awards Payouts ------------------------------- ---------- --------- Other Restri All Name and Annual -icted Other Principal Compen- Stock Options LTIP Compen- Position Year Salary Bonus sation Awards /$SARS Payouts sation - ------------------------------------------------------------------------------------- John R. MacMillan 12/99 $ -0- -0- -0- -0- -0- -0- -0- Former President/ 6/99 -0- -0- -0- -0- -0- -0- -0- Director Lana Bea Turner 12/99 $ -0- -0- -0- -0- -0- -0- -0- Former Secretary 6/99 12,000 -0- -0- -0- -0- -0- -0- - -------------------------------------------------------------------------------------
None of the Directors of the Company received any remuneration for acting as Director of the Company. Directors of the Company are paid out- of-pocket expenses incurred in attending meetings of the Board of Directors. During 1999, the Company did not have any bonus, deferred compensation, employee benefit, or retirement plan. Such plans may be adopted by the Company at such time as deemed reasonable by the board of directors. The Company does not have a compensation committee, all decisions regarding compensation are determined by the board of directors. The Company did not grant any stock options or stock appreciation rights to any of its executive officers during the year ended June 1999 or the six months ended December 1999 (which is now the Company's fiscal year end). In February, March, April and May 2000, the Company issued stock options to purchase shares of the Company's common stock to its officers, directors, employees and consultants. These options were not issued in lieu of compensation. There are no compensatory plans or arrangements, including payments to be received from the Company, with respect to any person named in cash compensation set out above which would in any way result in payments to any such person because of his resignation, retirement, or other termination of such person's employment with the company or its subsidiaries, or any change in control of the Company, or a change in the person's responsibilities following a changing in control of the Company. In January 2000, the Company entered into a Services Agreement with Annex Resources, Ltd., for engineering, planning and promotional services 33 to be rendered by Alexander T. Lemmens, the Company's CEO, President and Chairman of the Board. Annex is owned by Lemmens and his wife. Under the Agreement, Lemmens receives compensation on an hourly basis at a rate of $100 per hour, with a cap of $3,000 per month until cash flow is generated. Once cash flow is generated, Lemmens will continue to be compensated at $100 per hour, but the cap becomes $6,000 per month. The Agreement also provides that Lemmens will receive an automotive allowance of $0.35/km plus gas costs; reimbursement for normal business expenses as approved by Senior Management; and a cellular phone for business use. The term of this Services Agreement is one year. In February 2000, the Company entered into a Services Agreement with 818708 Alberta, Ltd., for financial management, banking, planning and promotional services to be rendered by James R. Clark, the Company's Vice President, Secretary and Treasurer. 818708 Alberta is owned by Clark's wife. Under the Agreement, Clark receives compensation on an hourly basis at a rate of $75 per hour, with a cap of $3,000 per month until cash flow is generated. Once cash flow is generated, Clark will continue to be compensated at $75 per hour, but the cap becomes $6,000 per month. The Agreement also provides that Clark will receive an automotive allowance of $0.35/km plus gas costs; reimbursement for normal business expenses as approved by Senior Management; and a cellular phone for business use. The term of this Services Agreement is one year. In February 2000, the Company entered into a Services Agreement with RNM Services, Ltd., for land management, financing, planning and promotional services to be rendered by Richard N. Mellis, a Company Director. RNM is owned by Mellis. Under the Agreement, Mellis receives compensation of $2,000 per month. The Agreement also provides that Mellis will receive an automotive allowance of $0.35/km plus gas costs; reimbursement for normal business expenses as approved by Senior Management; and a cellular phone for business use. The above services agreements between the Company and the above affiliated persons are on terms at least as favorable as those that could have been obtained from unaffiliated parties on an arm's length basis. Item 12. Options to Purchase Securities From Registrant or Subsidiaries. ------------------------------------------------------------ Stock Options ------------- The Company has, from time to time, granted stock options to purchase common shares to its officers, directors, consultants and employees. The options have been granted on various terms resulting from negotiation between the Company and such persons and the exercise price per share was based on the average trading price of the Company's shares pursuant to the policies of the Alberta Stock Exchange (the "Exchange"). The exercise price for all options currently issued by the Company is equal to or in excess of the market price of the Company's stock at the date of issuance less the maximum discount permitted under the by-laws and polices of The Alberta Stock Exchange (or any stock exchange on which the Shares are then listed). The options are non-assignable and have been granted as incentives and not in lieu of any compensation for services. As at June 1, 2000 the Company has granted outstanding options to its officers, directors, consultants and employees to purchase an aggregate of 2,925,000 common shares as follows: 34
Options Held by Directors Number Exercise Expiry by Officers of Shares Price Date and Directors ----------------------------------------------------- Outstanding Options 1,000,000 $0.50 Feb. 2, 2005 1,000,000 1,075,000 $0.42 Mar. 7, 2005 320,000 400,000 $0.35 Apr. 3, 2005 400,000 450,000 $0.42 May 5, 2005 -0- ----------------------------------------------------- Total Options: 2,925,000 1,720,000
The Company also has the following outstanding warrants and options to purchase common shares of the Company:
Warrants -------- Number of Common Shares Underlying Warrants Exercise Price Expiration Date -------------------------- -------------- --------------- 310,000 $1.25 July 29, 2000 300,000 $1.00 August 6, 2000 1,866,000 $0.25 October 31, 2000
Item 13. Interest of Management in Certain Transactions. --------------------------------------------------------- In March 1999, the Company entered into a purchase agreement with Starrock Resources, Ltd., ("Starrock") to purchase up to a 75% working interest in oil and gas leases owned by Starrock in the Cessford area of Alberta, Canada. The Company agreed to purchase this interest for $8,000,000. In March 1999, the Company paid $2,677,018 in cash to acquire 30% of Starrock's working interest in the property. In October 1999, the Company settled the remaining outstanding balance of $5,322,981.30, by issuing 11,828,847 shares of its common stock to Starrock. Richard N. Mellis, a Company director is the president if Starrock. Also, during the fourth quarter of 1999, the Company purchased well abandonment deposits for $65,439 and petroleum and natural gas leases for $32,771 from Starrock. No officer, director, or any associate of an officer or director is, or within the past three years has been, indebted to the Company. PART II ------- Item 14. Description of Securities to be Registered. ----------------------------------------------------- The Company's authorized share capital consists of 100,000,000 common shares without par value, of which 29,969,258 were issued and outstanding as of May 31, 2000. All of the authorized common shares of the Company, once issued, rank equally as to dividends, voting powers, and participation in assets. 35 Holders of common shares are entitled to one vote for each common share held of record on all matters to be acted upon by the shareholders. Holders of common shares are entitled to receive such dividends as may be declared from time to time by the Board of Directors, in its discretion, out of funds legally available therefore. The articles of the Company do not provide for cumulative voting. Upon liquidation, dissolution or winding up of the Company, holders of common shares are entitled to receive pro rata the assets of Company, if any, remaining after payments of all debts and liabilities. No common shares have been issued subject to call or assessment. There are no pre- emptive or conversion rights and no provisions for redemption or purchase for cancellation, surrender, or sinking or purchase funds. There are no restrictions on the repurchase or redemption of common shares by the Company while there is any arrearage in the payment of dividends or sinking fund instalments. Provisions as to the modification, amendment or variation of the rights attaching to the common shares or provisions are contained in the British Columbia Company Act (the "BCCA"). The BCCA requires approval by a special resolution (i.e., approved by at least three-quarters of the votes cast at a meeting of the shareholders of the Company or consented to in writing by each shareholder of the Company) of the Company's shareholders in order to effect any of the following changes: (a) subdivide all or any of its unissued, or fully paid issued, shares with par value into shares of smaller par value; (b) subdivide all or any of its unissued, or fully paid issued, shares without par value so that the number of those shares is increased; (c) consolidate all or any of its shares with par value into shares of larger par value; (d) consolidate all or any of its shares without par value so that the number of those shares authorized is reduced; (e) change all or any of its unissued, or fully paid issued, shares with par value into shares without par value; (f) change all or any of its unissued shares without par value into shares with par value; (g) alter the name or designation of all or any of its shares, whether issued or unissued; or (h) alter the provisions as to the maximum price or consideration at or for which shares without par value may be issued. PART III -------- Item 15. Defaults upon Senior Securities. ------------------------------------------ Not applicable. Item 16. Changes in Securities, Changes in Securities and Use of Proceeds ------------------------------------------------------------------ Not applicable. 36 PART IV ------- Item 17. Financial Statements. ------------------------------- (All numbers are Canadian Dollars unless otherwise noted) Consolidated Financial Statements of the Company for the Three Months Ended March 31, 2000 (unaudited) and Years Ended December 31, 1999, June 30, 1999, 1998 and 1997, reported on by Elliott, Tulk, Pryce, Anderson, Chartered Accountants. These financial statements are expressed in Canadian dollars and were prepared in accordance with Canadian Generally Accepted Accounting Principles, which are substantially the same as United States Generally Accepted Accounting Principles. For a history of the exchange rates in effect between the Canadian dollar and the United States dollar, see ITEM 8 - - Selected Financial Data. Item 18. Financial Statements. ------------------------------- Not applicable. Item 19. List of Financial Statements and Exhibits. ---------------------------------------------------- (a) Financial Statements All Audited Statements are in Canadian Dollars and presented on a consolidated basis. Financial Statements Filed as Part of the Registration Statement: Financial Statements of the Company for the Three Months Ended March 31, 2000 (unaudited) and Years Ended December 31, 1999, June 30, 1999, 1998 and 1997, reported on by Elliott, Tulk, Pryce, Anderson, Chartered Accountants: Auditor's Reports dated March 21, 2000, October 18, 1999, August 25, 1998, and October 28, 1997. Balance Sheets Statement of Loss and Deficit Statement of Cash Flows Notes to Financial Statements 37 (b) Exhibits. The following exhibits are included as part of this report:
Exhibit SEC Exhibit Number Reference Title of Document Location - -------- ----------- ---------------------------------- ---------- 1.01 1 Articles of Incorporation 81 And Bylaws 1.02 1 Certificate of Incorporation 115 1.03 1 Certificate of Name Change to 117 Tamara Resources Inc. 1.04 1 Certificate of Name Change to 121 Matrix Energy Inc. 1.05 1 Certificate of Name Change to 125 Promax Energy Inc. 1.06 1 Certificate of Continuance 129 3.01 3 Agreement to Purchase and Sale 136 Dated March 19, 1999 3.02 3 Addendum to Agreement of March 205 19, 1999, Dated March 19, 1999 3.03 3 Addendum to Agreement of March 207 19, 1999, Dated May 11, 1999 3.04 3 Amending Agreement Dated 209 May 31, 1999 3.05 3 Revised Agreement of Purchase and 212 Sale, Dated August 27, 1999 3.06 3 Amending Agreement to Agreement 218 of Purchase and Sale, Dated September 30, 1999 3.07 3 Pipeline Construction and Limited 224 Recourse Financing Agreement 38 SIGNATURES Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the Registrant certifies that it meets all of the requirements for filing on Form 20-F and has duly caused this Form 20-F to be signed on its behalf by the undersigned, thereunto duly authorized. Promax Energy Inc. a British Columbia corporation Dated: June 27, 2000 By: /S/ Alexander T. Lemmens, ------------------------------ Alexander T. Lemmens President Dated: June 27, 2000 By:/S/ James R. Clark, ------------------------------ James R. Clark Chief Financial Officer 39 /Letterhead/ ProMax Energy Inc. First Quarter Report March 31, 2000 40 /Letterhead/ ProMax Energy Inc. TO THE SHAREHOLDERS During the three month period ending March 31, 2000, ProMax Energy, Inc. (the "Corporation") completed a $1,000,000 private placement that allowed the Corporation to proceed to acquire various Working Interests, Joint Venture Interests, and Gross Overriding Royalty Interests in exchange for common shares of the corporation, which increased ProMax's interest to 94.8 percent in its core area of Cessford, Alberta. The funds from the private placement will also allow the Corporation to begin the reactivation of at least five wells and the tie-ins of six additional gas wells. Also within the first quarter, a contract was entered into on a limited resource basis to build 15 kilometers of pipeline that will bring the six wells on-stream. With no debt and positive working capital the Corporation is prepared to bring the gas from these wells to market in the near future. ProMax Energy, Inc., is a junior oil and gas exploration and production company focusing primarily on natural gas in south eastern Alberta. It has acquired and executed Letter of Intent to develop 60,160 acres of oil and gas leases with varying working interest of 50 to 100 percent. It will also construct and operate up to 70 kilometers of gas gathering system; acquiring and re-process up to 1400 kilometers of seismic; and tie-in and operate up to 26 suspended gas wells. ProMax is well positioned to play a key role in the development of AMI (Area of Mutual Interest) covering over 400,000 acres in its area of focus. /S/ Alexander T. Lemmons Alexander T. Lemmons President and CEO May 19, 2000 41 /Letterhead/ ProMax Energy, Inc. BALANCE SHEET (unaudited)
As at As at March 31 March 31 2000 1999 $ $ ASSETS - ------ CURRENT ASSETS Cash 696,915 278,362 Accounts receivable 105,336 106,305 Deposits and prepaid expenses 114,388 - ------------ ------------ 916,639 384,667 CAPITAL ASSETS 317,573 404,188 RESOURCE PROPERTIES 10,762,095 2,518,609 DEFERRED EXPLORATION EXPENSES 655,467 5,163 ------------ ------------ 12,651,774 3,312,627 ============ ============ LIABILITIES CURRENT LIABILITIES Accounts payable and accrued liabilities 46,712 114,574 Deposits held 38,191 200,000 ------------ ------------ 84,903 314,574 PROVISIONS FOR SITE RESTORATION 30,000 - FUTURE INCOME TAXES 343,958 - SHAREHOLDERS' EQUITY CAPITAL STOCK 12,087,732 4,921,894 SUBSCRIPTIONS RECEIVED 2,425,796 - RETAINED EARNINGS (DEFICIT) (2,320,615) (1,923,841) ------------ ------------ 12,192,913 2,998,053 ------------ ------------ 12,651,774 3,312,627 ============ ============
42 /Letterhead/ ProMax Energy, Inc. STATEMENT OF PROFIT AND LOSS (unaudited)
For the For the Three Three Months Months Ended Ended March 31 March 31 2000 1999 $ $ INCOME Resources Properties - 22,924 Other 2,373 - ----------- ----------- 2,373 22,924 ----------- ----------- EXPENSES General and Administrative 112,293 13,528 Oil and Gas Operations 3,655 - Depreciation and Depletion 51,252 - ----------- ----------- 167,200 13,528 ----------- ----------- NET INCOME (LOSS) FOR THE PERIOD (164,827) 9,396 RETAINED EARNINGS (DEFICIT) - BEGINNING OF PERIOD (2,155,788) (1,933,237) ----------- ----------- RETAINED EARNINGS (DEFICIT) - END OF PERIOD (2,320,615) (1,923,841) =========== ===========
43 /Letterhead/ ProMax Energy, Inc. STATEMENT OF CASH FLOWS (unaudited)
For the For the Three Three Months Months Ended Ended March 31 March 31 2000 1999 $ $ CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES Net earnings (loss) for the period Items not involving cash: (164,827) 9,396 Amortization 51,252 - ----------- ----------- (113,575) 9,396 Change in non-cash working capital items (38,574) (270,589) ----------- ----------- (152,149) (261,193) ----------- ----------- FINANCING ACTIVITIES Capital stock issued 826,377 2,459,500 ----------- ----------- 826,377 2,459,500 ----------- ----------- INVESTING ACTIVITIES Acquisition of resource properties (66,820) (1,523,149) Acquisition of capital assets (2,078) (401,009) ----------- ----------- (68,898) (1,924,158) ----------- ----------- INCREASE (DECREASE) IN CASH 605,330 274,149 CASH - BEGINNING OF PERIOD 91,585 4,213 ----------- ----------- CASH - END OF PERIOD 696,915 278,362 =========== ===========
44 PROMAX ENERGY INC. FINANCIAL STATEMENTS FOR THE PERIODS ENDED DECEMBER 31, 1999 AND JUNE 30, 1999 45 AUDITORS' REPORT ----------------- To the Shareholders of Promax Energy Inc. We have audited the balance sheets of Promax Energy Inc. as at December 31, 1999 and June 30, 1999 and the statements of operations and deficit, and cash flows for the periods then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free from material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management as well as evaluating the overall financial statement presentation. In our opinion, these financial statements present fairly, in all material respects, the financial position of the Company as at December 31, 1999 and June 30, 1999 and the results of its operations and cash flows for the periods then ended in accordance with generally accepted accounting principles. As required by the British Columbia Company Act, we report that, in our opinion, these principles have been applied on a basis consistent with that of the preceding period. /S/ "Elliott, Tulk, Pryce, Anderson" CHARTERED ACCOUNTANTS Vancouver, B.C. March 21, 2000 46 PROMAX ENERGY INC. BALANCE SHEETS
As at As at December 31, June 30, 1999 1999 $ $ ASSETS CURRENT ASSETS Cash 91,585 17,614 Accounts receivable 32,025 110,059 Deposits and prepaid expenses 103,503 18,548 ------------ ------------ 227,113 146,221 CAPITAL ASSETS (Note 3) 336,748 378,076 RESOURCE PROPERTIES (Note 4) 10,574,225 2,742,077 DEFERRED EXPLORATION EXPENSES (Note 5) 655,467 535,333 ------------ ------------ 11,793,553 3,801,707 ============ ============ LIABILITIES CURRENT LIABILITIES Accounts payable and accrued liabilities 23,361 33,051 Deposits held 15,920 88,528 ------------ ------------ 39,281 121,579 ------------ ------------ SHAREHOLDERS' EQUITY CAPITAL STOCK (Note 6) 5,704,394 5,189,394 SUBSCRIPTIONS RECEIVED (Note 6) 8,205,666 515,000 DEFICIT (2,155,788)(2,024,266) ------------ ------------ 11,754,272 3,680,128 ------------ ------------ 11,793,553 3,801,707 ============ ============
APPROVED BY THE BOARD /S/ Alexander T. Lemmens, Director - -------------------------- /S/ Richard Mellis Director - -------------------------- 47 PROMAX ENERGY INC. STATEMENTS OF OPERATIONS AND DEFICIT
For the For the six months twelve months Ended ended December June 31, 1999 30, 1999 $ $ EXPENSES Accounting and legal 25,943 16,703 Administration - 12,500 Amortization 42,279 42,616 Bank charges and interest 186 327 Consulting fees 1,836 - Equipment rental 2,040 1,487 Office and miscellaneous 11,322 13,087 Rent 11,388 14,796 Shareholder relations 1,190 2,505 Telephone and communications 867 5,420 Transfer agent and filing fees 6,982 15,486 Travel and entertainment 1,507 2,431 ------------ ------------ 105,540 127,358 ------------ ------------ OTHER INCOME (EXPENSES) Interest 1,633 237 Resource properties and exploration costs written off - (137,889) Fees 1,241 26,249 Public offering costs (28,856) - Loss on sale of capital assets - (389) ------------ ------------ (25,982) (111,801) ------------ ------------ NET LOSS FOR THE PERIOD (131,522) (239,159) DEFICIT - BEGINNING OF PERIOD (2,024,266) (1,785,107) ------------ ------------ DEFICIT - END OF PERIOD (2,155,788) (2,024,266) ============ ============
48 PROMAX ENERGY INC. STATEMENTS OF CASH FLOWS
For the For the six months twelve months Ended ended December June 31, 1999 30, 1999 $ $ ------------ ------------ CASH FROM (USED IN) OPERATING ACTIVITIES; Net loss for the year (131,522) (239,159) Items not involving cash Amortization 42,279 42,616 Resource properties and exploration Costs written off - 137,889 Loss on sale of capital assets - 398 ------------ ------------ (89,243) (58,256) Changes in non-cash working capital items (71,327) (507,548) ------------ ------------ (160,570) (568,804) ------------ ------------ FINANCING ACTIVITY Share subscriptions received 396,460 3,015,000 ------------ ------------ INVESTING ACTIVITY Deferred exploration expenses (120,134) 121,559 Acquisition of resource properties (40,834) (2,175,077) Acquisition of capital assets (951) (415,818) ------------ ------------ (161,919) (2,469,336) ------------ ------------ INCREASE (DECREASE) IN CASH 73,971 (20,140) CASH - BEGINNING OF PERIOD 17,614 37,754 ------------ ------------ CASH - END OF PERIOD 91,585 17,614 ============ ============
49 PROMAX ENERGY INC NOTES TO FINANCIAL STATEMENTS 1. NATURE OF OPERATIONS The Company which, until 1999 was in the business of acquiring and exploring resource properties, is in the business of oil and gas exploration and development. On February 3, 1999 the Company changed its name from Matrix Energy Inc. to Promax Energy Inc. The recoverability of values assigned to resource properties is dependent upon the discovery of economically recoverable reserves, confirmation of the Company's interests in the underlying resource claims, the ability to obtain necessary financing to complete development, and future profitable production or proceeds from disposition. 2. SIGNIFICANT ACCOUNTING POLICIES These financial statements have been prepared in accordance with generally accepted accounting principles in Canada, on the assumption that the Company is a going concern. The ability of the Company to continue as a going concern is dependent on its ability to obtain necessary financing to discharge its liabilities as they become due, and upon attaining future profitable operations. Because a precise determination of certain assets and liabilities is dependent on future events, the preparation of the financial statements involves the use of estimates based on careful judgement. These financial statements have, in management's opinion, been prepared within reasonable limits of materiality using the significant accounting policies noted below: a) Resource properties Costs relating to the acquisition and exploration of resource properties are deferred until the properties are placed into commercial production, sold, allowed to lapse or abandoned. These costs are to be amortized over the estimated useful life of the property following commencement of production, or written off as properties are sold or abandoned. Costs ascribed to mineral properties do not necessarily reflect present or future values. b) Capital assets Capital assets are stated at cost. Amortization is provided on capital assets utilizing the straight line basis at the following rates: Computer equipment 20% Furniture and fixtures 20% Oil and gas equipment 20% c) Loss per share At the current stage of development in the Company's operations, loss per share information is not considered meaningful and has not been reported. 50 PROMAX ENERGY INC. NOTES TO THE FINANCIAL STATEMENTS 2. SIGNIFICANT ACCOUNTING POLICIES Continued d) Fair market value of financial instruments The carrying value of cash, accounts receivable and accounts payable approximate fair market value because of the short maturity of those instruments. 3. CAPITAL ASSETS
December 31, June 30, 1999 1999 Accumulated Net Book Net Book Cost Amortization Value Value $ $ $ $ Computer equipment 8,784 1,756 7,028 7,906 Furniture and fixtures 5,455 2,727 2,728 2,304 Oil and gas equipment 408,740 81,748 326,992 367,866 ----------- ----------- ----------- ----------- 422,979 86,231 336,748 378,076 =========== =========== =========== ===========
4. RESOURCE PROPERTIES December 31, June 30, 1999 1999 $ $ Cessford, Alberta Acquisition costs for 94.80% working interest in certain petroleum and natural gas lands and leases in the Cessford area of Alberta. 10,574,225 2,742,077 =========== ===========
5. DEFERRED EXPLORATION EXPENSES
December 31, June 30, 1999 1999 $ $ Cessford, Alberta Balance, beginning of period 535,333 - Consulting 61,191 13,453 Drilling 26,741 38,704 Management 28,343 16,626 Seismic - 466,550 Travel 3,859 - ----------- ----------- Balance, end of period 655,467 535,333 =========== ===========
51 PROMAX ENERGY INC NOTES TO FINANCIAL STATEMENTS 6. CAPITAL STOCK
Authorized: 100,000,000 Common shares without par value Allotted: # $ June 30, 1998 1,550,000 232,500 Shares issued during the year (1,550,000) (232,500) Subscriptions received - for cash 515,000 515,000 ------------ ------------ June 30, 1999 515,000 515,000 Shares issued during the year (515,000) (515,000) Subscriptions received - for cash 1,866,000 396,460 Subscriptions received - for resource property 16,850,948 7,809,206 ------------ ------------ December 31, 1999 18,716,948 8,205,666 ============ ============ Issued: June 30, 1998 6,201,883 1,974,894 Issuance of allotted shares 1,550,000 232,500 Private placements - cash 1,500,000 225,500 Warrants exercised - cash 150,000 30,000 Consolidation 5:1 (7,521,507) - Private placement - cash 5,580,000 2,232,000 Warrants exercised - cash 570,000 495,000 ------------ ------------ June 30, 1999 8,030,376 5,189,894 Issuance of allotted shares 515,000 515,000 ------------ ------------ December 31, 1999 8,545,376 5,704,894 ============ ============
Warrants and options: Warrants have been issued entitling the holders thereof to purchase 10,000 shares at $1.25 per share until June 11, 2000. No stock options were outstanding at December 31, 1999. Escrowed shares: 60,000 shares are currently held in escrow subject to release upon regulatory approval. 52 PROMAX ENERGY INC. NOTES TO FINANCIAL STATEMENTS 7. RELATED PARTY TRANSACTIONS As disclosed in Note 4 the Company purchased the remaining interest of the Cessford Resource property from Starrock Resources Ltd., a company controlled by a director. Also during the period the Company purchased well abandonment deposits for $65,439 and petroleum and natural gas leases for $32,771 from Starrock Resources Ltd. 8. SUBSEQUENT EVENTS Subsequent to December 31, 1999 the Company: a) issued the allotted shares disclosed in Note 6; and b) issued 2,531,584 shares for cash proceeds of $886,054. c) issued notes payable for $130,100 to acquire certain resource properties which were later paid by the issuance of 345,857 shares at deemed cost of $121,050 and $9,050 cash. 9. UNCERTAINTY DUE TO THE YEAR 2000 ISSUE The Year 2000 Issue arises because many computerized systems use two digits rather than four to identify a year which could result in errors when information using the year 2000 dates is processed. Such errors could occur before, on or after January 1, 2000 and the effect thereof cannot be determined. It is not possible to be certain that all aspects of the Year 2000 Issue affecting the Company, including those related to the efforts of customers, suppliers, or other third parties, will be fully resolved. 53 PROMAX ENERGY INC. (formerly Matrix Energy Inc.) FINANCIAL STATEMENTS FOR THE YEARS ENDED JUNE 30, 1999 AND 1998 54 /Letterhead/ AUDITORS' REPORT ---------------- To the Shareholders of Promax Energy Inc. (formerly Matrix Energy Inc.) We have audited the balance sheets of Promax Energy Inc. (formerly Matrix Energy Inc.) as at June 30, 1999 and 1998 and the statements of operations and deficit, and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free from material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management as well as evaluating the overall financial statement presentation. In our opinion, these financial statements present fairly, in all material respects, the financial position of the Company as at June 30, 1999 and 1998 and the results of its operations and cash flows for the years then ended in accordance with generally accepted accounting principles. As required by the British Columbia Company Act, we report that, in our opinion, these principles have been applied on a basis consistent with that of the preceding year. /S/ "Elliott, Tulk, Pryce, Anderson" CHARTERED ACCOUNTANTS Vancouver, B.C. October 18, 1999 55 PROMAX ENERGY, INC. (formerly Matrix Energy, Inc.) BALANCE SHEETS AS AT JUNE 30, 1999 AND 1998
1999 1998 $ $ ASSETS CURRENT ASSETS Cash 17,614 37,754 Accounts receivable 110,059 9,941 Prepaid expenses 18,548 2,020 ----------- ----------- 146,221 49,715 CAPITAL ASSETS (Note 3) 378,077 5,272 RESOURCE PROPERTIES (Note 4) 2,742,077 85,000 DEFERRED EXPLORATION EXPENSES (Note 5) 535,333 794,781 ----------- ----------- 3,801,708 934,768 =========== =========== LIABILITIES CURRENT LIABILITIES Accounts payable and accrued liabilities 33,052 512,481 Deposits held 88,528 - ----------- ----------- 121,580 512,481 ----------- ----------- SHAREHOLDERS' EQUITY CAPITAL STOCK (Note 6) 5,189,394 1,974,894 SUBSCRIPTIONS RECEIVED (Note 6) 515,000 232,500 DEFICIT (2,024,266) (1,785,107) ----------- ----------- 3,680,128 422,287 ----------- ----------- 3,801,708 934,768 =========== ===========
APPROVED BY THE BOARD /S/ Robert L. Card Director - ------------------- /S/ John R. MacMillan Director - --------------------- 56 PROMAX ENERGY, INC. (formerly Matrix Energy, Inc.)
STATEMENTS OF OPERATIONS AND DEFICIT FOR THE YEARS ENDED JUNE 30, 1999 AND 1998 1999 1998 $ $ EXPENSES Accounting and legal 16,703 9,628 Administration 12,500 32,125 Amortization 42,616 1,274 Bank charges and interest 327 240 Equipment rental 1,487 - Office and miscellaneous 13,087 10,528 Rent 14,796 13,703 Shareholder relations 2,505 932 Telephone and communications 5,420 - Transfer agent and filing fees 15,486 10,825 Travel and entertainment 2,431 2,973 ----------- ----------- 127,358 82,228 OTHER INCOME (EXPENSES) Expense recoveries - 6,000 Interest 237 1,421 Resource properties and exploration costs written off (137,889) (106,272) Fees 26,249 - Loss on sale of capital assets (398) - ----------- ----------- (111,801) (98,851) ----------- ----------- NET LOSS FOR THE YEAR (239,159) (181,079) ----------- ----------- DEFICIT - BEGINNING OF YEAR (1,785,107) (1,604,028) ----------- ----------- DEFICIT - END OF YEAR (2,024,266) (1,785,107) =========== ===========
57 PROMAX ENERGY, INC. (formerly Matrix Energy, Inc.)
STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED JUNE 30, 1999 AND 1998 1999 1998 $ $ CASH FROM (USED IN): OPERATING ACTIVITIES Net loss for the year (239,159) (181,079) Items not involving cash Amortization 42,616 1,274 Resource properties and exploration costs written off 137,889 106,272 Loss on sale of capital assets 398 - ----------- ----------- (58,256) (73,533) Change in non-cash working capital items (507,547) 287,276 ----------- ----------- (565,803) 213,743 ----------- ----------- FINANCING ACTIVITY Share subscriptions received 3,015,000 256,500 ----------- ----------- INVESTING ACTIVITIES Deferred exploration expenses 121,559 (614,637) Proceeds from disposal (acquisition) of resources properties (2,175,077) 56,000 Acquisition of capital assets (415,819) (2,683) ----------- ----------- (2,469,337) (561,320) ----------- ----------- DECREASE IN CASH (20,140) (91,077) CASH - BEGINNING OF YEAR 37,754 128,831 ----------- ----------- CASH - END OF YEAR 17,614 37,754 =========== ===========
58 PROMAX ENERGY INC. (formerly Matrix Energy Inc.) NOTES TO THE FINANCIAL STATEMENTS FOR THE YEARS ENDED JUNE 30, 1999 AND 1998 1. NATURE OF OPERATIONS The Company which, until 1999 was in the business of acquiring and exploring resource properties, is in the business of oil and gas exploration and development. On February 3, 1999 the Company changed its name from Matrix Energy Inc. to Promax Energy Inc. The recoverability of values assigned to resource properties is dependent upon the discovery of economically recoverable reserves, confirmation of the Company's interests in the underlying resource claims, the ability to obtain necessary financing to complete development, and future profitable production or proceeds from disposition. 2. SIGNIFICANT ACCOUNTING POLICIES These financial statements have been prepared in accordance with generally accepted accounting principles in Canada, on the assumption that the Company is a going concern. The ability of the Company to continue as a going concern is dependent on its ability to obtain necessary financing to discharge its liabilities as they become due, and upon attaining future profitable operations. Because a precise determination of certain assets and liabilities is dependent on future events, the preparation of the financial statements involves the use of estimates based on careful judgement. These financial statements have, in management's opinion, been prepared within reasonable limits of materiality using the significant accounting policies noted below: a) Resource properties Costs relating to the acquisition and exploration of resource properties are deferred until the properties are placed into commercial production, sold, allowed to lapse or abandoned. These costs are to be amortized over the estimated useful life of the property following commencement of production, or written off as properties are sold or abandoned. Costs ascribed to mineral properties do not necessarily reflect present or future values. b) Capital assets Capital assets are stated at cost. Amortization is provided on capital assets utilizing the straight line basis at the following rates: Computer equipment 20% Furniture and fixtures 20% Oil and gas equipment 20% c) Loss per share At the current stage of development in the Company's operations, loss per share information is not considered meaningful and has not been reported. 59 PROMAX ENERGY INC. (formerly Matrix Energy, Inc.) NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED JUNE 30, 1999 AND 1998 2. SIGNIFICANT ACCOUNTING POLICIES (continued) d) Fair market value of financial instruments The carrying value of cash, accounts receivable and accounts payable approximate fair market value because of the short maturity of those instruments. 3. CAPITAL ASSETS
1999 1998 Accumulated Net Book Net Book Cost Amortization Value Value $ $ $ $ Computer equipment 8,784 878 7,906 - Furniture and fixtures 4,505 2,200 2,305 5,272 Oil and gas equipment 408,740 40,874 367,866 - ---------- ---------- ---------- ---------- 422,029 43,952 378,077 5,272 ========== ========== ========== ==========
4. RESOURCE PROPERTIES
1999 1998 $ $ ----------- ----------- a) La Paz County, Arizona A 100% interest in four unpatented mineral claims in La Paz County, Arizona acquired for $6,000 plus 100,000 of its shares (lapsed in 1999). - 36,000 b) Oxide Peak, British Columbia A 100% interest in two mineral claims in the Omineca Mining Division of British Columbia acquired for 20,000 of its shares (lapsed in 1999). - 4,000 c) Tomcat Group, British Columbia A 100% interest in two mineral claims in the Nicola Mining Division of British Columbia acquired for $25,000 plus 100,000 of its shares (lapsed in 1999). - 45,000
60 PROMAX ENERGY INC. (formerly Matrix Energy, Inc.) NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED JUNE 30, 1999 AND 1998
4. RESOURCE PROPERTIES Continued 1999 1998 $ $ ----------- ----------- d) Cessford, Alberta i) The Company has a 30% interest, being 22.368% of the total interest in petroleum and natural gas lands and leases in the Cessford area of Alberta. The Company has an option to acquire a 14% interest, being 10.438% of the total interest, per annum for the next five years, commencing March 19, 2000, by making annual payments of $1,064,596 plus interest at bank prime. The Company also has the right to make all or part of the first two annual payments by issuing common shares at a price to be determined by market conditions. As long as the annual payments are current the Company has the right to drill and produce the lands as if it owned the total interest. 2,281,278 - ii) Other miscellaneous Cessford interests. 460,799 - ------------ ------------ 2,742,077 85,000 ============ ============ 61
5. DEFERRED EXPLORATION EXPENSES
1999 1998 $ $ a) La Paz County, Arizona - 40,762 b) Oxide Peak, British Columbia - 22,694 c) Tomcat Group, British Columbia - 5,163 d) Amex Joint Venture, Alberta and Montana - 726,162 e) Cessford, Alberta 535,333 - ------------ ------------ 535,333 794,781 ============ ============
62 PROMAX ENERGY INC. (formerly Matrix Energy, Inc.) NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED JUNE 30, 1999 AND 1998 6. CAPITAL STOCK
Authorized: 100,000,000 Common shares without par value Allotted: # $ June 30, 1997 - - Subscriptions received 1,550,000 232,500 ------------ ------------ June 30, 1998 1,550,000 232,500 Shares issued during the year (1,550,000) (232,500) Subscriptions received - for resource property 482,000 482,000 Subscriptions received - for cash 33,000 33,000 ------------ ------------ June 30, 1999 515,000 515,000 ============ ============ Issued: June 30, 1997 6,081,883 1,950,894 Shares issued for mineral properties 120,000 24,000 ------------ ------------ June 30, 1998 6,201,883 1,974,894 Issuance of allotted shares 1,550,000 232,500 Private placements - cash 1,500,000 225,500 Warrants exercised - cash 150,000 30,000 Consolidation 5:1 (7,521,507) - Private placement - cash 5,580,000 2,232,000 Warrants exercised - cash 570,000 495,000 ------------ ------------ June 30, 1999 8,030,376 5,189,894 ============ ============
Warrants and options: Warrants have been issued entitling the holders thereof to purchase 10,000 shares at $1.25 per share until June 11, 2000. No stock options were outstanding at June 30, 1999. Escrowed shares: 60,000 shares are currently held in escrow subject to release upon regulatory approval. 63 PROMAX ENERGY INC. (formerly Matrix Energy, Inc.) NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED JUNE 30, 1999 AND 1998 7. RELATED PARTY TRANSACTIONS Included in the determination of net loss for the year are expenses recoverable from a company controlled by a director recorded at the exchange amount of $Nil (1998 - $6,000). Deferred exploration costs includes fees paid to a director recorded at the exchange amount of $6,000. 8. SUBSEQUENT EVENTS Subsequent to June 30, 1999 the Company: a. exercised 100% of the outstanding options pursuant to the agreement to acquire the Cessford Alberta resource property and will issue 11,828,847 shares at $0.45 per share to settle the obligation. b. issued the allotted shares disclosed in Note 6. c. terminated an engagement with Yorkton Securities Inc. to be their Agent for a best efforts public offering and forfeited a deposit of $15,000. 9. UNCERTAINTY DUE TO THE YEAR 2000 ISSUE The Year 2000 Issue arises because many computerized systems use two digits rather than four to identify a year which could result in errors when information using the year 2000 dates is processed. Such errors could occur before, on or after January 1, 2000 and the effect thereof cannot be determined. It is not possible to be certain that all aspects of the Year 2000 Issue affecting the Company, including those related to the efforts of customers, suppliers, or other third parties, will be fully resolved. 64 MATRIX ENERGY INC. FINANCIAL STATEMENTS FOR THE YEARS ENDED JUNE 30, 1998 AND 1997 /Letterhead/ AUDITORS' REPORT ---------------- To the Shareholders of Matrix Energy Inc. We have audited the balance sheets of Matrix Energy Inc. as at June 30, 1998 and 1997 and the statements of operations and deficit, and changes in financial position for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free from material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management as well as evaluating the overall financial statement presentation. In our opinion, these financial statements present fairly, in all material respects, the financial position of the Company as at June 30, 1998 and 1997 and the results of its operations and changes in its financial position for the years then ended in accordance with generally accepted accounting principles. As required by the British Columbia Company Act, we report that, in our opinion, these principles have been applied on a basis consistent with that of the preceding year. /S/ "Elliott, Tulk, Pryce, Anderson" CHARTERED ACCOUNTANTS Vancouver, B.C. August 25, 1998 65 MATRIX ENERGY, INC. BALANCE SHEETS AS AT JUNE 30, 1998 AND 1997
1998 1997 $ $ ----------- ----------- ASSETS CURRENT ASSETS Cash 37,754 128,831 Accounts receivable 9,941 5,896 Prepaid expenses 2,020 3,195 ----------- ----------- 49,715 137,922 CAPITAL ASSETS (Note 3) 5,272 3,863 MINERAL PROPERTIES (Note 4) 85,000 141,000 DEFERRED EXPLORATION EXPENSES (Note 5) 794,781 73,872 ----------- ----------- 934,768 356,657 ----------- ----------- LIABILITIES CURRENT LIABILITIES Accounts payable and accrued liabilities 512,481 9,791 SHAREHOLDERS' EQUITY CAPITAL STOCK (Note 6) 1,974,894 1,950,894 SUBSCRIPTIONS RECEIVED (Note 6) 232,500 - DEFICIT (1,785,107) (1,604,028) ----------- ----------- 422,287 346,866 ----------- ----------- 934,768 356,657 =========== ===========
APPROVED BY THE BOARD /S/ Robert L. Card Director - --------------------- /S/ Michael Iannacone Director - ----------------------- 66 MATRIX ENERGY, INC. STATEMENTS OF OPERATIONS AND DEFICIT FOR THE YEARS ENDED JUNE 30, 1998 AND 1997
1998 1997 $ $ ----------- ----------- EXPENSES Accounting and legal 9,628 3,465 Administration 32,125 36,050 Amortization 1,274 650 Bank charges and interest 240 236 Office and miscellaneous 10,528 8,196 Rent 13,703 15,400 Shareholder relations 932 1,957 Transfer agent and filing fees 10,825 6,556 Travel and entertainment 2,973 6,149 ----------- ----------- 82,228 78,659 ----------- ----------- OPERATING LOSS (82,228) (78,659) OTHER INCOME (EXPENSES) Expense recoveries 6,000 - Interest 1,421 3,282 Mineral properties and exploration costs written off (106,272) - ----------- ----------- NET LOSS FOR THE YEAR (181,079) (75,377) DEFICIT - BEGINNING OF YEAR (1,604,028) (1,528,651) ----------- ----------- DEFICIT - END OF YEAR (1,785,107) (1,604,028) =========== ===========
67 MATRIX ENERGY, INC. STATEMENTS OF CHANGES IN FINANCIAL POSITION FOR THE YEARS ENDED JUNE 30, 1998 AND 1997
1998 1997 $ $ CASH FROM (USED IN): OPERATING ACTIVITIES Net loss for the year (181,079) (75,377) Items not involving cash Amortization 1,274 650 Mineral properties and exploration costs written off 106,272 - ----------- ----------- (73,533) (74,727) Change in non-cash working capital items 499,820 (20,003) ----------- ----------- 426,287 (94,730) ----------- ----------- FINANCING ACTIVITY Share subscriptions received 232,500 141,540 ----------- ----------- INVESTING ACTIVITIES Deferred exploration expenses (747,181) (44,267) Acquisition of mineral property - (5,000) Acquisition of capital assets (2,683) (3,559) ----------- ----------- (749,864) (52,826) ----------- ----------- DECREASE IN CASH (91,077) (6,016) CASH - BEGINNING OF YEAR 128,831 134,847 ----------- ----------- CASH - END OF YEAR 37,754 128,831 =========== ===========
68 MATRIX ENERGY, INC. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEARS ENDED JUNE 30, 1998 AND 1997 1. NATURE OF OPERATIONS The Company is in the business of acquiring and exploring mineral properties. There has been no determination whether properties held contain mineral reserves which are economically recoverable. The recoverability of values assigned to mineral properties is dependent upon the discovery of economically recoverable reserves, confirmation of the Company's interests in the underlying mineral claims, the ability to obtain necessary financing to complete development, and future profitable production or proceeds from disposition. 2. SIGNIFICANT ACCOUNTING POLICIES These financial statements have been prepared in accordance with generally accepted accounting principles in Canada, on the assumption that the Company is a going concern. The ability of the Company to continue as a going concern is dependent on its ability to obtain necessary financing to discharge its liabilities as they become due, and upon attaining future profitable operations. Because a precise determination of certain assets and liabilities is dependent on future events, the preparation of the financial statements involves the use of estimates based on careful judgement. These financial statements have, in management's opinion, been prepared within reasonable limits of materiality using the significant accounting policies noted below: a) Mineral properties Costs relating to the acquisition and exploration of mineral properties are deferred until the properties are placed into commercial production, sold, allowed to lapse or abandoned. These costs are to be amortized over the estimated useful life of the property following commencement of production, or written off as properties are sold or abandoned. Costs ascribed to mineral properties do not necessarily reflect present or future values. b) Capital assets Capital assets consists of office furniture and equipment stated at cost less accumulated amortization, which is recorded on the straight line basis over five years. c) Loss per share At the current stage of development in the Company's operations, loss per share information is not considered meaningful and has not been reported. d) Fair market value of financial instruments The carrying value of cash, accounts receivable and accounts payable approximate fair market value because of the short maturity of those instruments. 69 MATRIX ENERGY, INC. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEARS ENDED JUNE 30, 1998 AND 1997 3. CAPITAL ASSETS
1998 1997 Accumulated Net Book Net Book Cost Amortization Value Value $ $ $ $ Furniture and fixtures 7,710 2,438 5,272 3,863 =========== =========== =========== ===========
4. MINERAL PROPERTIES
1998 1997 $ $ ----------- ----------- a) La Paz County, Arizona A 100% interest in four unpatented mineral claims in La Paz County, Arizona acquired for $6,000 plus 100,000 of its shares. 36,000 36,000 b) Oxide Peak, British Columbia A 100% interest in two mineral claims in the Omineca Mining Division of British Columbia acquired for 20,000 of its shares. 4,000 5,000 c) Tomcat Group, British Columbia A 100% interest in two mineral claims in the Nicola Mining Division of British Columbia acquired for $25,000 plus 100,000 of its shares. 45,000 - d) White Bear Arm Region, Labrador 100 mineral claims in the White Bear Arm region of SE Labrador, Newfoundland (lapsed in 1998). - 50,000 e) Walpole, Saskatchewan An option to two petroleum and natural gas leases comprising of 640 acres, in the Walpole area of Saskatchewan (lapsed in 1998). - 50,000 ----------- ----------- 85,000 141,000 =========== ===========
70 MATRIX ENERGY, INC. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEARS ENDED JUNE 30, 1998 AND 1997 5. DEFERRED EXPLORATION EXPENSES
1998 1997 $ $ ------------ ------------ a) La Paz County, Arizona 40,762 40,006 b) Oxide Peak, British Columbia 22,694 22,594 c) Tomcat Group, British Columbia 5,163 - d) Amex Joint Venture, Alberta and Montana 726,162 - e) White Bear Arm Region, Labrador - 11,272 ----------- ----------- 794,781 73,872 =========== ===========
In 1998 the Company entered into an agreement allowing it to earn a participating interest in oil and gas leases in the Amex Joint Venture of up to 50% before payout (37.5% after payout) by contributing $10,500,000 of an estimated total of $21,000,000 expenditures relating to the project. 6. CAPITAL STOCK
Authorized: 25,000,000 Common shares without par value Allotted: # $ ----------- ----------- June 30, 1996 285,000 85,500 Shares issued during year (285,000) (85,500) ----------- ----------- June 30, 1997 - - Subscriptions received 1,550,000 232,500 ----------- ----------- June 30, 1998 1,550,000 232,500 =========== =========== Issued: June 30, 1996 5,078,883 1,723,854 Issuance of allotted shares 285,000 85,500 Private placements - cash 215,000 64,500 Warrants exercised - cash 450,000 67,500 Warrants exercised - cash 53,000 9,540 ----------- ----------- June 30, 1997 6,081,883 1,950,894 Shares issued for mineral properties 120,000 24,000 ----------- ----------- June 30, 1998 6,201,883 1,974,894 =========== ===========
71 MATRIX ENERGY, INC. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEARS ENDED JUNE 30, 1998 AND 1997 6. CAPITAL STOCK (continued) Warrants and options: Warrants have been issued entitling the holders thereof to purchase 500,000 shares in aggregate at $0.35 each until expiry on July 4, 1998. The subscriptions received at June 30, 1998 entitle the subscribers to shares as indicated above plus warrants to purchase 1,550,000 shares at $0.20 each until July 29, 1999 or at $0.25 each thereafter until expiry on July 29, 2000. No stock options were outstanding at June 30, 1998. Escrowed shares: 300,000 shares are currently held in escrow subject to release upon regulatory approval. 7. RELATED PARTY TRANSACTIONS Included in the determination of net loss for the year are expenses recoverable from a company controlled by a director recorded at the exchange amount of $6,000. Loss for the previous year includes fees paid to a director and a company controlled by that director recorded at the exchange amount of $5,800. 8. COMPARATIVE FIGURES The comparative figures for 1997 have been reclassified where necessary to ensure comparability with those of the current period. Such reclassification has no impact on reported losses. 9. SUBSEQUENT EVENTS Subsequent to June 30, 1998 the Company has: a) issued the allotted shares disclosed in Note 6. b) issued 150,000 shares at $0.20 each in respect of warrants exercised. c) received $225,000 pursuant to a private placement for 1,500,000 shares at $0.15 each subject to regulatory approval. d) allowed the La Paz County mineral claims to lapse. e) allowed the Oxide Peak Group mineral claims to lapse. 72 MATRIX ENERGY INC. FINANCIAL STATEMENTS FOR THE YEARS ENDED JUNE 30, 1997 AND 1996 73 /Letterhead/ AUDITORS' REPORT ---------------- To the Shareholders of Matrix Energy Inc. We have audited the balance sheet of Matrix Energy Inc. as at June 30, 1997 and 1996 and the statements of operations and deficit, and changes in financial position for the year then ended. These financial statements are the responsibility of the company's management. Our responsibility is to express an opinion on these statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free from material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosure in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management as well as evaluating the overall financial statement presentation. In our opinion, these financial statements present fairly, in all material respects, the financial position of the company as at June 30, 1997 and 1996 and the results of its operations and changes in its financial position for the year then ended in accordance with generally accepted accounting principles. As required by the British Columbia Company Act, we report that, in our opinion, these principles have been applied on a basis consistent with that of the preceding year. The comparative figures presented for the year ended June 30, 1996 are based upon financial statements which were examined by other auditors who expressed their opinion without reservation in a report dated August 9, 1996. /S/ "Elliot, Tulk, Pryce, Anderson" CHARTERED ACCOUNTANTS Vancouver, B.C. October 28, 1997 74 /Letterhead/ MATRIX ENERGY, INC. BALANCE SHEETS
AS AT JUNE 30, 1997 AND 1996 1997 1996 $ $ ASSETS CURRENT ASSETS Cash 128,831 134,847 Accounts receivable 5,896 1,354 Prepaid expenses 3,195 5,443 ------------ ------------ 137,922 141,644 CAPITAL ASSETS (Note 3) 3,863 954 MINERAL PROPERTIES (Note 4) 141,000 136,000 DEFERRED EXPLORATION EXPENSES 53,423 29,605 OTHER ASSETS 20,449 - ------------ ------------ 356,657 308,203 ============ ============ LIABILITIES CURRENT LIABILITIES Accounts payable and accrued liabilities 9,791 27,500 ------------ ------------ SHAREHOLDERS' EQUITY CAPITAL STOCK (Note 5) 1,950,894 1,809,354 DEFICIT (1,604,028) (1,528,651) ------------ ------------ 346,866 280,703 ------------ ------------ 356,657 308,203 ============ ============
MATRIX ENERGY INC. STATEMENTS OF OPERATIONS AND DEFICIT FOR THE YEARS ENDED JUNE 30, 1997 AND 1996 1997 1996 $ $ EXPENSES Accounting and legal 3,465 5,410 Administrative 36,050 38,400 Amortization 650 294 Bank charges and interest 236 243 Office and miscellaneous 8,196 9,324 Rent 15,400 12,172 Shareholder relations 1,957 6,108 Transfer agent and filing fees 6,556 8,915 Travel and entertainment 6,149 14,689 ------------ ------------ 78,659 95,555 ------------ ------------ OPERATING LOSS (78,659) (95,555) OTHER INCOME Interest 3,282 2,684 ------------ ------------ NET LOSS FOR THE YEAR (75,377) (92,871) ------------ ------------ DEFICIT - BEGINNING OF YEAR (1,528,651) (1,435,780) ------------ ------------ DEFICIT - END OF YEAR (1,604,028) (1,528,651) ============ ============ 76 MATRIX ENERGY INC. STATEMENTS OF CHANGES IN FINANCIAL POSITION FOR THE YEARS ENDED JUNE 30, 1997 AND 1996
1997 1996 $ $ CASH FROM (USED IN): OPERATING ACTIVITIES Net loss for the year (75,377) (92,871) Item not involving cash: Amortization 650 294 ------------ ------------ (74,727) (92,577) Change in non-cash working capital items (45,452) 24,498 ------------ ------------ (120,179) (68,079) ------------ ------------ FINANCING ACTIVITIES Share subscription received - 78,000 Capital stock issued for cash 141,540 194,550 ------------ ------------ 141,540 272,550 ------------ ------------ INVESTING ACTIVITIES Acquisition of mineral properties - (50,000) Deferred exploration expenses (23,818) (29,605) Acquisition of capital assets (3,559) - ------------ ------------ (27,377) (79,605) ------------ ------------ INCREASE (DECREASE) IN CASH (6,016) 124,866 CASH - BEGINNING OF YEAR 134,847 9,981 ------------ ------------ CASH - END OF YEAR 128,831 134,847 ============ ============
77 MATRIX ENERGY INC. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEARS ENDED JUNE 30, 1997 AND 1996 1. NATURE OF OPERATIONS The Company is in the business of acquiring and exploring mineral properties. There has been no determination whether properties held contain mineral reserves which are economically recoverable. The recoverability of valuations assigned to mineral properties is dependent upon the discovery of economically recoverable reserves, the ability to obtain necessary financing to complete development, and future profitable production or proceeds from disposition. 2. SIGNIFICANT ACCOUNTING POLICIES a) Mineral Properties Costs relating to the acquisition and exploration of mineral properties are deferred until the properties are placed into commercial production, sold allowed to lapse or abandoned. These costs are to be amortized over the estimated useful life of the property following commencement of production, or written off as properties are sold or abandoned. b) Capital assets Capital assets are stated at cost less accumulated amortization, which is recorded over the useful lives of the assets on the straight line basis at the following annual rates: Furniture and fixtures 20% 3. CAPITAL ASSETS
1997 1996 Accumulated Net Book Net Book Cost Amortization Value Value $ $ $ $ Furniture and fixtures 5,027 1,164 3,863 954 =========== =========== =========== ===========
4. MINERAL PROPERTIES a) La Paz County, Arizona In 1994, the Company acquired a 100% interest in four unpatented mineral claims in La Paz Count, Arizona for $6,000 plus 100,000 of its shares. 78 MATRIX ENERGY INC. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEARS ENDED JUNE 30, 1997 AND 1996 4. MINERAL PROPERTIES (continued) b) White Bear Arm Region, Labrador In 1996, the Company acquired 100 mineral claims in the White Bear Arm region of SE Labrador, Newfoundland, for $25,000 plus 100,000 of its shares. c) Walpole, Saskatchewan In 1996, the Company acquired an option to two petroleum and natural gas leases comprising 640 acres, in the Walpole area of Saskatchewan for $25,000 plus 100,000 of its shares. d) Oxide Peak, British Columbia In 1997, the Company acquired a 100% interest in two mineral claims know as the Oxide Peak Group in the Omineca Mining Division of British Columbia for an undertaking to issue 20,000 of its shares as consideration. 5. CAPITAL STOCK
Authorized: 25,000,000 Common shares without par value Allotted: # $ ----------- ----------- June 30, 1995 50,000 7,500 Shares issued during year (50,000) (7,500) Share subscriptions received 285,000 85,500 ----------- ----------- June 30, 1996 285,000 85,500 Shares issued during year (285,000) (85,500) ----------- ----------- June 30, 1997 - - =========== =========== Issued: June 30, 1995 3,581,883 1,479,304 Private placements - cash 1,297,000 194,550 Shares issued for mineral properties 200,000 50,000 ----------- ----------- June 30, 1996 5,078,883 1,723,854 Private placements - cash 500,000 150,000 Warrants exercised - cash 450,000 67,500 Warrants exercised - cash 53,000 9,540 ----------- ----------- June 30, 1997 6,081,883 1,950,894 =========== ===========
79 MATRIX ENERGY INC. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEARS ENDED JUNE 30, 1997 AND 1996 5. CAPITAL STOCK (continued) Warrants and options: Warrants have been issued entitling the holders thereof to purchase 500,000 shares in aggregate at $0.30 each until July 4, 1997 or at $0.35 each thereafter until expiry on July 4, 1998. No stock options were outstanding at June 30, 1997. Escrowed shares: 300,000 shares are currently held in escrow subject to release upon regulatory approval. 6. RELATED PARTY TRANSACTIONS Included in the determination of net loss for the year are fees paid to a director and a company controlled by that director recorded at the exchange amount of $5,800 (1996 - $32,500). 7. COMPARATIVE FIGURES The comparative figures for 1996 have been reclassified where necessary to ensure comparability with those of the current period. Such reclassification has no impact on reported losses. 8. LOSS PER SHARE At the current stage of development in the Company's operations, loss per share information is not considered meaningful. 9. SUBSEQUENT EVENTS Subsequent to June 30, 1997 the Company has: a) issued 20,000 shares in respect of the Oxide Peak Group interest as disclosed in Note 3(d). b) acquired a 100% interest in the Tomcat Group of40 mineral claim units in the Nicola Mining Division of British Columbia for $25,000 plus 100,000 of its shares. c) allowed the option to the Saskatchewan petroleum and natural gas leases to lapse. 80 EX-1 2 0002.txt ARTICLES OF INCORPORATION AND BYLAWS EXHIBIT 1.01 -------------- ARTICLES OF INCORPORATION AND BYLAWS 81 FORM 1 (SECTION 7) COMPANIES ACT MEMORANDUM I wish to be formed into a Company with limited liability under the Companies Act in pursuance of this Memorandum. 1. The name of the Company is RED FORK RESOURCES INC. 2. The authorized capital of the Company consists of Twenty-Five Million (25,000,000) Shares without par value. 3. I agree to take the number and kind and class of shares in the Company set opposite my name FULL NAMES, RESIDENT ADDRESSES NUMBER AND KIND AND CLASS AND OCCUPATIONS OF SUBSCRIBERS OF SHARES TAKEN STEPHEN F.X. O'NEILL, Solicitor ONE (1) COMMON SHARE 8258 Rosswood Place, Burnaby TOTAL SHARES TAKEN: ONE ( 1 ) COMMON SHARE DATED at Vancouver, British Columbia, this 15-day of September, 1980. 82 ARTICLES TABLE OF CONTENTS
PART ARTICLE SUBJECT 1. INTERPRETATION 1.1 Definition 1.2 & 1.3 Construction of Words 1.4 Companies Act Definitions Applicable 1.5 Table "A" Inapplicable 2. SHARES AND SHARE CERTIFICATES 2.1 Member entitled to Certificate 2.2 Replacement of Lost or Defaced Certificate 2.3 Recognition of Trusts 2.4 Execution of Certificates 2.5 Assistance for Purchase of Company's Shares or Debt Obligations 2.6 Form of Certificate 2.7 Delivery to Joint Holders 3. ISSUE OF SHARES 3.1 Directors Authorized 3.2 Commissions and Brokerage 3.3 Conditions of Issue 4. SHARE REGISTERS AND TRANSFERS 4.1 Registers of Members, Transfers and Allotments 4.2 Branch Registers of Members 4.3 No Closing of Register of Members 4.4 Transferability and Instrument of Transfer 4.5 Submission of Instruments of Transfer 4.6 Execution of Instrument of Transfer 4.7 Enquiry as to Title Not Required 4.8 Transfer Fee 5. TRANSMISSION OF SHARES 5.1 Personal Representative Recognized on Death 5.2 Persons in Representative Capacity 6. ALTERATION OF CAPITAL 6.1 Ordinary Resolution Required 6.2 Other Capital Alterations 6.3 Creation, Variation and Abrogation of Special Rights and Restrictions 6.4 Consent of Class Required 6.5 Articles Apply to New Capital 6.6 Special Rights of Conversion 6.7 Class Meetings of Members 83 7. PURCHASE OF SHARES 7.1 Company Authorized to Purchase or Redeem its Shares 7.2 & 7.3 Redemption of Shares 8. BORROWING POWERS 8.1 Powers of Directors 8.2 Negotiability of Debt Obligations 8.3 Special Rights on Debt Obligations 8.4 Registers of Debt Obligations and Holders Thereof 8.5 Execution of Debt Obligation Documents 9. GENERAL MEETINGS 9.1 Annual General Meetings 9.2 Waiver of Annual General Meeting 9.3 Classification of General Meetings 9.4 Requisition of General Meetings 9.5 Notice for General Meetings 9.6 Waiver of Notice 9.7 Notice of Special Business at General Meeting 10. PROCEEDINGS 10.1 Special Business 10.2 Quorum 10.3 Requirement of Quorum 10.4 Lack of Quorum 10.5 Chairman 10.6 Alternate Director 10.7 Adjournments 10.8 Decisions by Show of Hands or Poll 10.9 Resolution Need Not Be Seconded 10.10 Casting Vote 10.11 Manner of Taking Poll 10.12 Casting Votes 10.13 Demand for Poll 10.14 Demand for Poll not to Prevent Continuance of Meeting 10.15 Retention of Bal1ots Cast on a Poll 84 11. VOTES OF MEMBERS 11.1 Number of Votes Per Share or Member 11.2 Votes of Persons in Representative Capacity 11.3 Votes by Joint Holders 11.4 Representative of a Corporate Member 11.5 Votes by Committee of a Member 11.6 Appointment by Proxyholders 11.7 Execution of Proxy Instrument 11.8 Qualification of Proxyholder 11.9 Deposit of Proxy 11.10 Validity of Proxy Vote 11.11 Form of Proxy 11.12 Revocation of Proxy 12. DIRECTORS 12.1 Responsible for Management 12.2 Number of Directors 12.3 Share Qualification of Directors 12.4 Remuneration and Expenses of Directors 12.5 Appointment of Attorneys 12.6 Directors interested in Transactions with company 12.7 Right to Office and Contract with Company 12.8 Director Acting in Professional Capacity 12.9 Director Receiving Remuneration from Other Interests 13. TERMINATION OF DIRECTORSHIP OF DIRECTORS 13.1 Termination of Directorship 13.2 Removal of Directors 14. RETIREMENT AND ELECTION OF DIRECTORS 14.1 Election at Annual General Meetings 14.2 Eligibility of Retiring Director 14.3 Continuance of Directors 14.4 Election of Less than Required Number of Directors 14.5 Filing a Casual Vacancy 14.6 Additional Directors 85 15. PROCEEDINGS OF DIRECTORS 15.1 Meetings - Quorum - Chairman 15.2 Quorum 15.3 Call and Notice of Meetings 15.4 Competence of Quorum 15.5 Meetings by Conference Telephone 15.6 Continuing Directors May Act During a Vacancy 15.7 Validity of Acts of Directors 15.8 Newly Elected Directors 15.9 Waiver of Notice of Meetings 15.10 Majority Rule 15.11 Resolution in Writing Effective 15.12 Appointment of Executive Committee 15.13 Appointment of Committees 15.14 Procedure at Meetings 16. OFFICERS 16.1 President and Secretary Required 16.2 Persons Holding More Than One Office and Remuneration 16.3 Disclosure of Conflicting Interests 17. MINUTES, DOCUMENTS AND RECORDS 17.1 Minutes to be kept 17.2 Records Office 18. EXECUTION OF DOCUMENTS 18.1 Affixation of Seal to Documents 18.2 Mechanical Reproduction of Signatures 18.3 Official Sea1 for Other Jurisdictions 19. DIVIDENDS 19.1 Declaration of Dividends 19.2 Proportionate to Number of Shares Held 19.3 Dividend Bears No Interest 19.4 Payment in Specie Permitted 19.5 Capitalization of Undistributed Surplus 19.6 Payment of Dividends 19.7 Effect of Transfer of Dividends 19.8 Fractional Shares 19.9 Reserves 86 20. ACCOUNTS 20.1 Accounts to be kept 20.2 Location of Accounts 20.3 Inspection of Accounts 21. NOTICES 21.1 Method of Giving Notice 21.2 Notice of Joint Holders 21.3 Notice of Personal Representative 21.4 Notice Deemed Effective 21.5 & 21.6 Date Notice Deemed Given 21.7 Persons to Receive Notice 22. RECORD DATES 22.1 Record Date 22.2 No Closure of Register of Members 23. INDEMNIFICATION AND PROTECTION OF DIRECTORS, OFFICERS, EMPLOYEES AND CERTAIN AGENTS 23.1 Party to Legal Proceedings 23.2 Officers, Employees, Agents 23.3 Extent of Indemnification 23.4 Persons Undertaking Liabilities 23.5 Limitation of Liability 23.6 Directors May Rely 23.7 Company May Purchase Insurance 24. RESTRICTIONS 24.1 Number of Members 24.2 No Securities to be Offered to the Public 24.3 Restrictions on Transfers of Shares
87 "COMPANY ACT" ARTICLES Of RED FORK RESOURCES INC. PART 1 INTERPRETATION 1. 1 In these Articles, unless the context otherwise requires: (a) "Board of Directors" or "Board" means the directors of the company for the time being; (b) "Companies Act" means the Companies Act of the Province of British Columbia from timeto time in force and all amendments thereto and includes all regulations and amendments thereto made pursuant to that Act; (c) "directors" means the directors of the Company for the time being; (d) "month" means calendar month; (e) "ordinary resolution" has the meaning assigned thereto by the Companies Act; (f) "register" means the register of members be kept pursuant to the Companies Act; (g) "registered address" of a member shall be his address as recorder in the registered (h) "registered address" of a director means his address as recorded in the Company's registerof directors to be kept pursuant to the Companies Act; (i) "seal" means the common seal of the Company, if the Company has one; (j) "special resolution" has the meaning assigned thereto by the Company Act.1. 2 Expressions referring to writing shall be construed as including references to printing, lithography, typewriting, photography and other modes of representing or reproducing wordsin a visible form. 88 1. 3 Words importing the singular include the plural and vice versa; and words importing a male person include a female person and a corporation. 1.4 The definitions in the Companies Act shall with the necessary changes and so far as applicable apply to these Articles. 1.5 The regulations contained in Table A in the First Schedule to the Companies Act shall not apply to the Company. PART 2 - SHARES AND SHARE CERTIFICATES 2.1 Every member is entitled, without charge, to one certificate representing the share or shares of each class held by him or upon paying a sum not exceeding the amount permitted by the Companies Act, as the directors may from time to time determine, several certificates each for one or more of those shares; provided that, in respect of a share or shares held jointly by several persons, the Company shall not be bound to issue more than one certificate, and deliveryof a certificate for a share to one of several joint. Holders or to his duly authorized agent shall be sufficient delivery to all; and provided further that the Company shall not be bound to issue certificates representing redeemable shares, if such shares are to be redeemed within one month of the date on which they were allotted. Any share certificate may be sent through the post by registered prepaid mail to the member entitled thereto at his registered address, and theCompany shall not be liable for any lossoccasi6ned to the member owing to any such share certificate so sent being lost in the post or stolen. 2.2 If a share certificate: (a) is worn out or defaced, the directors may, upon production to them of that certificate and uponsuch other terms if any as they may think fit, order the certificate to be cancel1ed and may issue a new certificate in lieu thereof; (b) is lost, stolen, or destroyed, then upon proof thereof to the satisfaction of the directors and upon such indemnity, if any, as the directors deem adequate being given, a new share certificatein place thereof shall be issued to the person entitled to the lost, stolen or destroyed certificate, or (c) represents more than one share and the registered owner thereof surrenders it to the Company with a written request that the Company issue registered in his name two or more certificates each representing a specified number of shares and in the aggregate representing the same number of shares as the certificate so surrendered, the Company shall cancel the certificate so surrendered and issue in place thereof certificates in accordance with the request. 89 A sum, not exceeding that permitted by the Companies Act, as the directors may from time to time fix, shall be paid to the Company for each certificate issued under this article. 2.3 Except as required by law or statute or these articles, no person shall be recognized by the Company as holding any share upon any trust, and the Company shall not be bound by or compelled in any way to recognize (even when having notice thereof) any equitable, contingent, future or partial interest in any share or any interest in any fractional part of a share or (except only as by law or statute or these articles provided or as ordered by a court of competent jurisdiction) any other rights in respect of any share except an absolute right to the entirety thereof in the registered holder. 2.4 Every share certificate shall be signed manua11y by at least one officer or director of the Company, or by or on behalf of a registrar, branch registrar, transfer agent or branch transferagent of the Company and any additional signatures may be printed or otherwise mechanically reproduced and a certificate signed in either of those fashions shall be as valid as if signed manually, not withstanding that any person whose signature is so printed or mechanically reproduced on a share certificate has ceased to hold the office that he is stated on such certificate to hold at the date of the issue of a share certificate. 2.5 Save as provided by the Companies Act, the Company" shall not give financial assistance by means of a loan, guarantee, the provision of security or otherwise for the purpose of or in connection with the purchase of or subscription by any person for shares or debt obligations issued by the Company or an affiliate of the Company or upon the security, in whole or in part, of a pledge or other charge upon the shares or debt obligations issued by the Company or an affiliate of the Company. 2.6 Every share certificate issued by the Company shall be in such form as the directors approve and shall comply with the Companies Act. 2.7 The certificates of shares registered in the name of two or more persons shall be delivered to the person first named on the register. PART 3 - ISSUE OF SHARES 3.1 Subject to the Companies Act and to any direction to the contrary contained in a resolution passed at a general meeting authorizing any increase of capital, the issue of shares, whether in the original or any increased capital of the Company, shall be under the control of the directors who may, subject to the rights of the holders of the shares of the Company for the time being issued, al1ot or otherwise dispose of, and/or grant options on, shares authorized but not yet issued at such time and to such persons, including directors, and in such manner and upon such terms and conditions, and at such price or for such consideration, as the directors, in their absolute discretion, may determine . 90 3.2 The directors on behalf of the Company may pay a commission or allow a discount to any person in consideration of his subscribing or agreeing to subscribe, whether absolutely or conditionally, for any shares with a par value in the Company, or procuring or agreeing to procure subscriptions, whether absolutely or conditionally, for any such shares provided that the rate of the commission or discount shall not in the aggregate exceed 25 per cent of the subscription price of such shares, or an amount equivalent to such percentage. The Company may also pay such brokerage as may be lawful. 3.3 No share may be issued until it is fully paid by the receipt by the Company of the full consideration therefor in cash, property or past services actually performed for the Company.A document evidencing indebtedness of the person to whom the shares are allotted is not property for the purpose of this Article. The value of property and services for the purpose of this Article shall be the value determined by the directors by resolution to be, in all circumstances of the transaction, the fair market value thereof. PART 4 - SHARE REGISTERS AND TRANSFERS 4.1 The Company shall keep or cause to be kept a register of members, a register of transfers and a register of allotments within British Co1umbia, all as required by the Companies Act, and may combine one or more of such registers. If the Company's capital shall consist of more than one class of shares, a separate register of members, register of transfers and register of allotments may be kept in respect of each class of shares. The directors on behalf of the Company may appoint a trust company to keep the register of members, register of transfers and register of allotments or, if there is more than one class of shares, the directors may appoint a trust company, which need not be the same trust company, to keep the register of members, the register of transfers and the register of allotments for each class of share. The directors on behalf of the Company may also appoint one or more trust companies, including the trust company which keeps the said registers of its shares or of a class thereof, as transfer agent for its shares or such class thereof, as the case may be, and the same or another trust company or companies as registrar for its shares or such class thereof, as the case may be. The directors may terminate the appointment of any such trust company at any time and may appoint another trust company in its place. 4.2 Unless prohibited by the Companies Act, the Company may keep or cause to be kept one or more branch registers of members at such place or places as the directors may from time to time determine. 4.3 The Company shall not at any time close its register of members save and except as permitted by the Companies Act. 4.4 Subject to the restrictions, if any, set forth in these Articles, any member may transfer his shares by instrument in writing executed by or on behalf of such member and delivered to the Company or its transfer agent. The instrument of transfer of any share of the Company shall be in the form, if any, on the back of the Company's form of share certificates, and in any form which the directors may approve. If the directors so require, each instrument of transfer shall be in respect of only one class of share. 91 4.5 Every instrument of transfer shall be executed by the transferor and left at the registered office of the Company or at the office of its transfer agent or registrar for registrationtogether with the share certificate for the shares to be transferred and such other evidence, if any, as the directors or the transfer agent or registrar may require to prove the title of the transferor or his right to transfer the shares. All instruments of transfer where the transfer is registered shall be retained by the Company or its transfer agent or registrar and any instrument of transfer, where the transfer is not registered, shall be returned to the person depositing the same together with the share certificate which accompanied the same when tendered for registration. The, transferor shall remain the holder of the share until the name of the transferee is entered on the register in respect of that share. 4.6 The signature of the registered owner of any shares, or of his duly authorized attorney, upon the instrument of transfer constitutes an authority to the Company to register the shares specified in the instrument of transfer in the name of the person named in that instrument of transfer as transferee or, if no person is so named, then in any name designated in writing by the person depositing the share certificate and the instrument of transfer with the Company or its agents. 4.7 The Company, and its directors, officers and agents are not bound to enquire into any title of the transferee of any shares to be transferred, and are not liable to the registered or any intermediate owner of those shares, for registering the transfer. 4.8 There shall be paid to the Company in respect of the registration of any transfer a sum, not exceeding that permitted by the Companies Act, as the directors deem fit. PART 5 - TRANSMISSION OF SHARES 5.1 In the case of the death of a member the legal personal representative of the deceased shall be the only person recognized by the Company as having any title to or interest in the shares registered in the name of the deceased. Before recognizing any legal personal representative the directors may require him to obtain a grant of probate or letters of administration in British Columbia. 5.2 Any person, who becomes entitled to a share as a result of the death or bankruptcy of any member, upon producing the evidence required by the Companies Act, or who becomes entitled to a share as a result of an order of a court of competent jurisdiction or a statute, upon producing such evidence as the directors think sufficient that he is so entitled, may be registered as holder of the share or may transfer the share. PART 6- ALTERATION OF CAPITAL 6.1 The Company may by ordinary resolution filed with the Registrar amend its Memorandum to increase the share capital of the Company by (a) creating shares with par value or shares without par value, or both (b) increasing the number of shares with par value or shares without par value, or both (c) increasing the par value of a class of shares with par value, if no shares of that class are issued. 6.2 The Company may by special resolution alter its Memorandum to subdivide, consolidate, change from shares with par value to shares without par value, or from shares without par value to shares with par value, or change the designation of, all or any of its shares but only to such extent, in such manner and with such consents of members holding a class of shares which is the subject of or affected by such alteration, as the Companies Act provides. 6.3 The Company may alter its Memorandum or these Articles (a) by special resolution, to create, define and attach special rights or restrictions to anyshares, and (b ) by special resolution and by otherwise complying with any applicable provision of itsMemorandum or these Articles, to vary or abrogate any special rights and restrictionsattached to any shares and in each case by filing a certified copy of such resolution with the Registrar but no right or special right attached to any issued shares shall be prejudiced or interfered with unless all members holding shares of each class whose right or special right is so prejudiced or interfered with consent thereto in writing, or unless a resolution consenting thereto is passed at a separate class meeting of the holders of the shares of each such class by a majority of three-fourths or such greater majority as may be specified by the special rights attached to the class of shares, of the issued shares of such class. 6.4 Notwithstanding such consent in writing or such resolution, no such alteration shall be valid as to any part of issued shares of any class unless the holders of the rest of the issued shares of such class either all consent thereto in writing or consent thereto by a resolution passed by the votes of members holding three-fourths of the rest of such shares. 6.5 Except as otherwise provided by conditions imposed at the time of creation of any new shares or by these Articles, any addition to the authorized capital resulting from the creation of new shares shall be subject to the provisions of these Articles. 93 6.6 If the Company is or becomes a reporting company, no resolution to create, vary or abrogate any special right of conversion attaching to any class of shares shall be submitted to any meeting of members unless, if so required by the Companies Act, the British Co1umbia Securities Commission shall have consented to the resolution. 6.7 Unless these Articles otherwise provide, the provisions of these Articles relating to general meetings shall apply, with the necessary changes and so far as they are applicable, to a class meeting of members holding a particular class of shares but the quorum at a class meeting shall be one person holding or representing by proxy one-third of the shares affected. PART 7 - PURCHASE AND REDEMPTION OF SHARES 7.1 Subject to the special rights and restrictions attached to any class of shares, the Company may, by a resolution of the directors and in compliance with the Companies Act, purchase any of its shares at the price and upon the terms specified in such resolution or redeem any class of its shares in accordance with the special rights and restrictions attaching thereto. No such purchase or redemption shall be made if the Company is insolvent at the time of the proposed purchase or redemption or if the proposed purchase or redemption would render the Company insolvent. Unless the shares are to be purchased through a stock exchange or the Company is purchasing the shares from dissenting members pursuant to the requirements of the Companies Act, the Company shall make its offer to purchase pro rata to every member who holds shares of the class or kind, as the case may be, to be purchased. 7.2 If the Company proposes at its option to redeem some but not all of the shares of any class, the directors may, subject to the special rights and restrictions attached to such class of shares, decide the manner in which the shares to be redeemed shall be selected. 7.3 Subject to the provisions of the Companies Act, any shares purchased or redeemed by the Company may be sold or issued by it, but, while such shares are held by the Company ,it shall not exercise any vote in respect of these shares and no dividend shall be paid thereon. PART 8 - BORROWING POWERS 8.1 The directors may from time to time at their discretion authorize the Company to borrow any sum of money for the purposes of the Company and may raise or secure the repayment of that sum in such manner and upon such terms and conditions, in all respects, as they think fit, and in particular, and without limiting the generality of the foregoing, by the issue of bonds or debentures, or any mortgage or charge, whether specific or floating, or other security on the undertaking or the whole or any part of the property of the Company, both present and future. 94 8. 2 The directors may make any debentures, bonds or other debt obligations issued by the Company by their terms, assignable free from any equities between the Company and the person to whom they maybe issued, or any other person who 1awfully acquires the same by assignment, purchase, or otherwise, howsoever . 8.3 The directors may authorize the issue of any debentures, bonds or other debt obligations of the Company at a discount premium or otherwise, and with special or other rights or privileges as to redemption, surrender, drawings, allotment of or conversion into or exchange for shares, attending at general meetings of the Company and otherwise as the directors may determine at or before the time of issue. 8.4 The Company shall keep or cause to be kept in accordance with the Companies Act (a) a register of its debentures and debt obligations, and (b) a register of the holders of its bonds, debentures and other debt obligations, and subject to the provisions of the Companies Act may keep or cause to be kept one or more branch registers of the holders of its bonds, debentures, or other debt obligations within or with out the Province of British Columbia as the directors may from time to time determine and the directors may by resolution, regulations or otherwise make such provisions as they think fit respecting the keeping of ,such branch registers.8.5 If the directors so authorize, or if any instrument under which any bonds, debentures or other debt obligations of the Company are issued so provides, any bonds, debentures and other debt obligations of the Company, instead of being manually signed by the directors or officers authorized in that behalf, may have the facsimile signatures of such directors or officers printed or otherwise mechanically reproduced thereon and in either case, shall be as valid as if signed manually, but no such bond, debenture or other debt obligation shall be issued unless it is manually signed, countersigned or certified by or on behalf of a trust company or other transfer agent or registrar duly authorized by the directors or the instrument under which such bonds, debentures or other debt obligations are issued so to do. Notwithstanding that any persons whose facsimile signature is so used shall have ceased to hold the office that he is stated on such bond, debenture or the date of the actual issue other debt obligation to hold at the date of the actual issue thereof, the bond, debenture or other debt obligation shall be valid and binding on the Company. PART 9- GENERAL MEETINGS 9.1 Subject to Article 9.2 and to the Companies Act the first annual general meeting shall be held within 15 months from the date of incorporation and thereafter an annual general meeting shall be held once in every calendar year at such time, not being more than 13 months after the holding of the last preceding annual general meeting, and place as the directors shall appoint. In default of the meeting being so held, the meeting shall be held in the month next following and may be called by any two members in the same manner as nearly as possible as that in which meetings are to be called by the directors. 95 9.2 If the Company is not a reporting company and if all members entitled to attend and vote at the annual general meeting of the Company consent in writing each fear to the business required to be transacted at the annual general meeting, that business shall be as valid as if transacted at an annual general meeting duly convened and held and, it is not :1ecessary of, or the Company to hold an annual general meeting that year. 9.3 Every general meeting, other than an annual general meeting, shall be called an extraordinary general meeting. 9.4 Any such requisition, and the meeting to be called pursuant thereto, shall comply with the provisions of the Company 9.5 Not less than 21 days' notice of any general meeting specifying the time and place of meeting and in case of special business, the general nature of that business shall be given in the manner mentioned in Article 21, or in such other manner, if any, as may be prescribed by ordinary resolution whether previous notice thereof has been given or not, to any person as may by law or under these articles or other regulations of the Company entitled to receive such notice from the Company. But the accidental omission to give notice of any meeting to, or the non-receipt of any such notice by, any of such persons shall not invalidate any proceedings at that meeting. 9.6 Persons entitled to notice of a general meeting may waive or reduce the period of notice convening the meeting, by unanimous consent in writing, and may give such waiver before, during or after the meeting. 9.7 Where any special business includes the presenting, considering, approving, ratifying or authorizing of the execution of any document, then the portion of any notice relating to such document shall be sufficient if the same states that a copy of the document or proposed document is or will be available for inspection by members at a place in the Province of British Columbia specified in such notice during business hours in any specified working day or days prior to the date of the meeting. PART 10- PROCEEDINGS AT GENERAL MEETINGS 10.1 The following business at a general meeting shall be deemed to be special business : (a) all business at an extraordinary general meeting, and (b) all business that is transacted at an annual general meeting, with the exception of the consideration of the financial statement and the report of the directors and auditors, the election of directors, the appointment of the auditors and such other business as, under these Articles ought to be transacted at an annual general meeting, or any business which is brought under consideration by the report of the directors. 96 10.2 Save as otherwise herein provided a quorum for a general meeting shall be: two members or proxyholders representing two members, or one member and a proxyholder representing another member, personally present at the commencement of the meeting and holding or representing by proxy not less than one-tenth of the issued shares of a class-of shares the holders of which are entitled to attend and to vote at such meeting. 10.3 No business, other than the election of a chairman and the adjournment of the meeting shall be transacted at any general meeting unless the quorum requisite was present at the commencement of the meeting. 10.4 If within one-half hour from the time a appointed for a meeting a quorum is not present, the meeting if convened by requisition of the members, shall be dissolved; but in any other case it shall stand adjourned to the same day in the next week at the same time and place. If at such adjourned meeting a quorum is not present within one-half hour from the time appointed, the members present shall be a quorum. 10.5 The Chairman of the Board, if any, or in his absence the President of the Company shall be entitled to preside as chairman at every general meeting of the Company . 10.6 If at any meeting neither the Chairman of the Board , if any, nor President is present within fifteen minutes after the time appointed for holding time meeting or is willing to act as chairman, the directors present shall choose some one of their number to be chairman. If no director be present or if all the directors present decline to take the chair or shall fail to so choose, the members present shall choose one of their number to be chairman. 10. 7 The chairman of the meeting may, with the consent of any meeting at which a quorum is present and shall if so directed by the meeting, adjourn the meeting from time to time and from place to place, but no business shall be transacted at any adjourned meeting other than tile business left unfinished at the meeting from which the adjournment took place. When a meeting is adjourned for 30 days or more, notice of the adjourned meeting shall be given as in the case of a general meeting. Save as aforesaid, it shall not be necessary to give any notice of an adjournment or of the business to be transacted at an adjourned meeting. 10.8 Subject to the provisions of the Companies Act every question submitted to a general meeting shall be decided on a show of hands unless a poll is, before or on the declaration of the result of the show of hands, directed by the chairman or demanded by a member entitled to vote who is present in person or by proxy, and the chairman shall declare to the meeting the decision on every question in accordance with the result of the show of hands or the poll, and such decision shall be entered in the book of proceedings of the Company. A declaration by the chairman that a resolution has been carried or carried unanimously or by a particular majority, or lost or not carried by a particular majority, and an entry to that effect in the book-containing the minutes of the proceedings of the Company shall be conclusive evidence of the fact without proof of the number or proportion of the votes recorded in favor of or against such resolution. 97 10.9 No resolution proposed at a meeting need be seconded and the chairman of any meeting shall be entitled to move or second a resolution. 10.10 In case of an equality of votes upon a resolution, the chairman will have, either on a show of hands or on a poll, a casting or second vote in addition to the vote or votes to which he may be entitled as a member. 10.11 Subject to the provisions of Article 10.12 if a poll is duly demanded as aforesaid, it shall be taken in such manner and at such time within seven days from the date of the meeting and place as the chairman of the meeting directs, and either at once or after an interval or adjournment not exceeding seven days, and the result of the poll shall be deemed to be the resolution of the meeting at which the poll is demanded. A demand for a poll may be withdrawn. In the case of any dispute as to the admission or rejection of a vote, the chairman shall determine the same and such determination made in good faith shall be final and conclusive. 10.12 A member entitled to more than one vote need not, if he votes, use all his votes or cast all the votes he uses in the same way. 10.13 No poll may be demanded on the election of a chairman of a meeting and a poll demanded on a question of adjournment shall be taken at the meeting without adjournment 10.14 The demand of a poll shall not prevent the continuance of a meeting for the transaction of any business other than the question on which poll has been demanded 10.15 Every ballot cast upon a poll and every proxy appointing a proxyholder who cast a ballot upon a poll shall be retained by the Secretary for the period and be subject to the inspection as the Companies Act may provide. PART 11 VOTES OF MEMBERS 11.1 Subject to any special rights or restrictions for the time being attached to any shares, on a show of hands every member present in person shall have one vote, and on a poll every member, present in person or by proxy, shall have one vote for each share of which he is the holder. 11.2 Any person who is not registered as a member but is entitled to vote at any general meeting in respect of a share, may vote the share in the same manner as if he were a member but, unless the directors have previously admitted his right to vote at the meeting in respect of the share, he shall satisfy the directors of his right to vote the share before the time for holding the meeting, or adjourned meeting, as the case may be, at which he proposes to vote. 98 11.3 In the case of joint registered holders of a share the vote of the senior who exercises a vote, whether in person or by proxyholder shall be accepted to the exclusion of the votes of the other joint registered holders; and for this purpose seniority shall be determined by the order in which the names stand in the registered of member. Several legal personal representatives of a deceased member whose shares are registered in his sole name shall for the purpose of this Article be deemed joint registered holders 11.4 Any corporation not being a subsidiary which is a member of the Company may by resolution of its directors or other governing body authorize such person as it thinks fit to act as its representative at any general Meeting or class meeting the person so authorized shall be entitled to exercise in respect of and at such meeting the same powers on behalf of the corporation which he represents as that corporation could exercise if it were anindividual member of the Company personally present without limitations, including , without limitation the right unless restricted by such resolution, to appoint a proxyholder to represent such corporation, and shall be counted for the purpose of forming a quorum if present at the meeting. Evidence of the appointment of any such representative may be sent to the Company by written instrument, telegram, telex or any method of transmitting legibly recorded messages within the time fixed for filing of proxies for such meeting. Notwithstanding the foregoing, a corporation being a member may appoint a proxyholder. 11.5 A member of unsound mind entitled to attend and vote, in respect of whom an order has been made by any court having jurisdiction, may vote, whether on a show of hands or on a poll, by his committee, curator bonis, or other person in the nature of a committee or curator bonis appointed by that court, and any such committee, curator bonis, or other person may appoint a proxyholder. 11.6 A member holding more than one share in respect of which he is entitled to vote shall be entitled to appoint one or more proxyholders (but not more than five) to attend, act and vote for him on the same occasion. If such a member should appoint more than one proxyholder for the same occasion he shall specify the number of shares each proxyholder shall be entitled to vote. 11.7 A proxy or an instrument appointing a duly authorized representative of a. corporation shall be in writing, under the hand of the appointor or of his attorney duly authorized in writing, or, if such appointor is a corporation, either under its seal or under the hand of an officer or attorney duly authorized. 11.8 Any person may act as proxyholder whether or not he is entitled on his own behalf to be present and to vote at the meeting at which he acts as proxyholder. The proxy may authorize the person so appointed to act as proxyholder for the appointor for the period, at such meeting or meetings and to the extent permitted by the Companies Act. 11.9 A proxy and the power of attorney or other authority, if any, under which it is signed or a notarially certified copy thereof shall be deposited at the registered office of the Company or at such other place as is specified for that purpose the notice, calling the meeting, not less than 48 hours before the time for holding the meeting at which the person 99 named in the proxy proposes to vote, or shall be deposited with the chairman if the meeting prior to the commencement thereof. In addition to any other method of depositing proxies provided for in these Articles, the directors may from time to time make regulations permitting the lodging of proxies a appointing proxyholders at some place or places other than the place at which a meeting or adjourned meeting of members is to be held and for particulars of such proxies to be cabled or telegraphed or sent in writing before the meeting or adjourned meeting to the Company or any agent of the Company for the purpose of receiving such particulars and providing that proxies appointing a proxyholder so lodged may be voted upon as though the proxies themselves were produced to the chairman of the meeting or adjourned meeting as required by this Part and votes given in accordance with such regulations shall be valid and shall be counted. 11.10 A vote given in accordance 'with the terms of a proxy shall be valid notwithstanding the previous death or insanity of the member or revocation of the proxy or of the authority under which the proxy was executed, or the transfer of the share in respect of which the proxy is given, provided no prior notice in writing of the death, insanity, revocation or transfer as aforesaid shall have been received at the registered office of the Company or by the chairman of the meeting or adjourned meeting before the vote was given. 11.11 Unless, in the circumstances, the Companies Act requires any other form of proxy, a proxy appointing a proxyholder, whether for a specified meeting or otherwise, shall be dated and in the form following, or in any other form that the directors shall approve: (Name of Company) The undersigned being a member named Company hereby appoints (or failing him - -------------------------- of -------------------------------------- as proxyholder for the undersigned to attend and vote for and on behalf of the general meeting of the Company the ------------------------------------- day of, , 19 and at any adjournment of that meeting. - ----- ----- --- Signed this day of , 19 . ------------ ----------- --- signature 11.12 Every proxy may be revoked by an instrument in writing (a) executed by the member giving the same or by his attorney authorized in writing or, where the member is a corporation, by a duly authorized officer or attorney of the corporation; and 100 (b) delivered either at the registered office of the Company at any time up to and includingthe last business day preceding the day of the meeting, or any adjournment thereof at which the proxy is to be used, or to the chairman of the meeting on the day of the meeting or any adjournment thereof before any vote in respect of which the proxy is to be used shall have been taken or in any other manner provided by law. PART 12- DIRECTORS 12.1 The management of the business of the Company shall be vested in the directors and the directors may exercise all such powers and do all such acts and things as the Company is, by these Articles or otherwise, authorized to exercise and do, and which are not by these Articles or by statute or otherwise lawfully directed or required to be exercised or done by the Company in general meeting, but subject nevertheless to the provisions of all laws affecting the Company if and of these Articles and to any regulations not being inconsistent with these Articles which shall from time to time be made by the Company in general meeting but no regulation made by the Company in general meeting shall invalidate any prior Act of the directors that would have been valid if that regulation had not been made. l2.2 The subscribers to the Memorandum of the Company are the first directors the directors to succeed the first directors may be appointed in writing by a majority of the subscribers to the Memorandum or at a meeting of the subscribers, or if not so appointed, they shall be elected by the members entitled to vote be the same as the number of directors so appointed or elected. The number of directors, excluding additional directors, may be fixed or changed from time to time by ordinary resolution, whether previous notice thereof as been given or not, but notwithstanding anything, contained in these Articles the number of directors shall never be less than one or, if the Company is or becomes a reporting company, less than three. 12.3 A director shall not be required to have any share qualification but any person not being a member of the Company who becomes a director shall be deemed to have agreed to be bound by the provisions of the Articles to the same extent as if he were a member of the Company. 12.4 The remuneration of the directors as such may from time to time be determined by the directors or, if the directors shall so decide by the members. Such remuneration may be in addition to any salary or other remuneration paid to any officer or employee of the Company as such who is also a director. The directors shall be repaid such reasonable traveling, hotel and other expenses as they incur in and about the business of the Company and if any director shall perform any professional or other services for the Company that in the opinion of the directors are outside the ordinary duties of a director or shall otherwise be specifically occupied in or about the Company's business, he may be paid a remuneration to be fixed by the Board, or, at the option of such director, by the Company in general meeting and such remuneration may be either in addition to, or in substitution for any other remuneration that he may be entitled to receive. The directors on behalf of the Company, unless otherwise determined by ordinary resolution, maypay a gratuity or pension or allowance on retirement to any director who has held any salaried office or place of profit with the Company or to his Spouse or dependents and may make contributions to any fund and pay premiums for the purchase or provision of any such gratuity, pension or allowance. 101 12.5 The directors may from time to time and at any time by power of attorney appoint any Company, firm or person or" body of persons, whether nominated directly or indirectly by the directors, to be the attorney or attorneys of the Company for such purposes and with such powers, authorities and discretions, not exceeding those vested in or exercisable by the directors under these Articles, and for such period and subject to such conditions as they may think fit, and any such powers of attorney may contain such provisions for the protection and convenience of persons dealing with any such attorney as the directors may think fit and may also authorize any such attorney to delegate all or' any of the powers, authorities and discretions vested in him. 12.6 A director who is in any way, whether directly or indirectly, interested in a contract or proposed contract or transaction with the Company shall declare the nature or extent of his interest at a meeting of the directors in accordance with the provisions of the Companies Act. A director shall not vote in respect of any such contract or transaction with the Company in which he is interested and if he shall do so his vote shall not be counted, but he may be counted in the quorum present at the meeting at which such vote is taken. Subject to the Companies Act, the foregoing shall not apply to (a) any contract or transaction relating to a loan to the Company, which a director or a specified corporation or a specified firm in which he has an interest has guaranteed or joined in guaranteeing the repayment of the loan or any part of the loan, or (b) any contract or transaction made or to be made with, or for the benefit of a holding corporation or a subsidiary corporation of which a director is a director, or (c) if authorized by ordinary resolution pursuant to Article 12.4, the remuneration of the directors. Subject to the Companies Act the foregoing prohibitions and exceptions thereto may from time to time be suspended or amended to any extent by ordinary resolution, either generally or in respect of any particular contract, arrangement or transaction or for any particular period. 12.7 A director may hold any office or place of profit under the Company, other than auditor, in conjunction with his office of director for such period and on such terms, as to remuneration or otherwise, as the directors may determine. Subject to compliance with the Companies Act, no director or intended director shall be disqualified by his office from contracting with the Company either with regard to his tenure of any such office or place of profit or as vendor, purchaser or otherwise. 12.8 Any director may act by himself or his firm in a professional capacity for the Company, and he or his firm shall be entitled to remuneration for professional services as if he were not a director. 102 12.9 A director may be or become a director or other officer or employee of, or otherwise interested in, any corporation or firm in which the Company may be interested as a shareholder or otherwise, and, subject to comp1iance with the provisions of the Companies Act, such director shall not be accountab1e to the Company for any remuneration or other benefits received by him as director, officer or employee of, or from his interest in, such other corporation or firm, unless the Company in general meeting otherwise directs. 12.10 Any director may, from time to time, appoint any person who is approved by resolution of the directors to be his alternate director. The appointee, while he holds office as an alternate director, shall be entitled to notice of meetings of the directors and, in the absence of the director for whom he is an alternate, to attend and vote thereat as a director or sign any resolution of directors to be consented to in writing, and shall not be entitled to be remunerated otherwise than out of the remuneration of the director appointing him. Any director may make or revoke an appointment of his alternate director by notice in writing or by telegram or cable to be delivered or addressed, postage or other charges prepaid, to the registered office of the Company. The directors may by resolution revoke any appointment of an alternate director, any- such revocation to become effective upon notice thereof having been given to the director who made the appointment. No person shall act as an alternate for more than one director at any giventime and no director may act as an alternate for any other director. PART 13- TERMINATION OF DIRECTORSHIP OF DIRECTORS l3.1 The office of Director shall be vacated if the Director. 1. resigns his office by notice in writing delivered to the registered office of the Company; or 2. is convicted of an indictable offense and the other directors shall have resolved to remove him; or 3. ceases to be qualified to act as a director pursuant to the Company Act; or 4. is found to be incapable of managing his own affairs by reason of mental infirmity. 13.2 The Company may by special resolution remove any director before the expiration of his period of office, and may by an ordinary resolution appoint another person in his stead. PART 14- RETIREMENT AND ELECTION OF DIRECTORS 14.1 At each annual general meeting of the Company all the directors shall retire and the members entitled to vote thereat shall elect a Board of Directors consisting of the number of directors for the time being fixed pursuant to these Articles. If the Company is, or becomes, a company that is not a reporting company and the business to be transacted at any annual general meeting is consented to in writing by all the members who are entitled to attend and vote thereat such annual general meeting shall be deemed for the purpose of this Part to have been held on such written consent becoming effective. 103 14.2 A retiring director shall be eligible for re-election. 14.3 Where the Company fails to hold an annual general meeting in accordance with the Companies Act, the directors then in office shall be deemed to have been elected or appointed as directors on the last day on which the annual general meeting could have been held pursuant to these Articles and they may hold office until other directors are appointed or elected or until the day on which the next annual general meeting is held. 14.4 If at any general meeting at which there should be an election of directors, the places of any of the retiring directors are not filled by such election, such of the retiring directors who are not re-elected as may be requested by the newly-elected directors shall, if willing to do SO, continue in office to complete the number of directors for the time being fixed pursuant to these Articles until further new directors are elected at a general meeting convened for the purpose. If any such election or continuance of directors does not result in the election or continuance of the number of directors for the time being fixed pursuant to these Articles such number shall be fixed at the number of directors actually elected or continued in office. 14.5 Any casual vacancy occurring in the Board of Directors may be filled by the remaining directors or director 14.6 Between successive annual general meetings the directors shall have power to appoint one or more additional directors but not more than two times the number of directors fixed pursuant to these Articles and in effect at the last general meeting at which directors were elected. Any director so appointed shall hold office only until the next following annual general meeting of the Company, but shall be eligible for election at such meeting and so long as he is an additional director the number of directors shall be increased accordingly. PART 15- PROCEEDINGS OF DIRECTORS 15.1 The directors may meet together at such places as they think fit for the dispatch of business, adjourn and otherwise regulate their meetings and proceedings, as they see fit. The Chairman of the Board, if any, or in his absence the President of the Company, shall be chairman of all meetings of the Board, but if at any meeting neither the Chairman of the Board, if any, nor the President shall be present within 30 minutes after the time appointed for holding the same or if both the Chairman of the Board and the President, belong present decline to act, the directors present may choose some one of their number to be chairman at such meeting. A director interested is to be counted in a quorum notwithstanding his interest. 104 15.2 The quorum necessary for the transaction of the business of the directors may be fixed by the directors and if not so fixed shall be two directors or, if the number of directors is fixed at one, shall be one director. 15.3 A director may at any time, and the Secretary, upon the written request of a director, shall call a meeting of the directors. Notice thereof specifying the time and place of such meeting shall be mailed, postage prepaid, addressed to each of the directors at his registered address at least 48 hours before the time fixed for the meeting or such lesser period as may be reasonable under the circumstances, or such notice may be given to each director either personally or by leaving it at his usual business or residential address or by telephone, telegram, telex or other method of transmitting visually recorded messages, at least 48 hours before such time or such lesser period as may be reasonable under the circumstances. It shall not be necessary to give to any director notice of a meeting of directors immediately following a general meeting at which such director has been elected or notice of a meeting of directors at which such director shall have been appointed. Accidental omission to give notice of a meeting of directors to, or the non-receipt of notice by, any director, shall not invalidate the proceedings at that meeting. 15.4 A meeting of the directors at which a quorum is present shall be competent to exercise all or any of the authorities, power and discretions for the time being vested in or exercisable by the directors. 15.5 A director may participate in a meeting of the Board or of any committee of the directors by means of conference telephones or other communications facilities by means of which all directors participating in the meeting can hear each other and provided that all such directors agree to such participation. A director participating in a meeting in accordance with this Article shall be deemed to be present at the meeting and to have so agreed and shall be counted in the quorum therefor and be entitled to speak and vote thereat. 15.6 The continuing directors may act notwithstanding any vacancy in their body, but, if and so long as their number is reduced below the number fixed pursuant to these Articles as the necessary quorum of directors, the continuing directors or director may act for the purpose of increasing the number of directors to that number, or for the purpose of summoning a general meeting of the Company, but for no other purpose. 15.7 Subject to the provisions of the Companies Act, all acts done by any meeting of the directors or of a committee of directors, or by any person acting as a director, shall, not-withstanding that it be afterwards discovered that there was some defect in the qualification, election or appointment of any such directors or of the members of such committee or person acting as aforesaid, or that they or any of them were disqualified, be as valid as if every such person had-been duly elected or appointed and was qualified to be a director. l5.8 For the first meeting of the Board to be held immediately following the appointment or election of a director or directors at an annual or general meeting of shareholder, or for a meeting of the Board at which a director is appointed to fill a vacancy in the Board, no notice of such meetings shall be necessary to the newly elected or appointed director or directors in order for the meeting to be duly constituted, provided that a quorum of directors is present. 105 15.9 Any director of the Company may file with the Secretary a document, executed by him waiving notice of any past, present or future meeting or meetings of the directors being, or required to have been, sent to him and may at any time withdraw such waiver with respect to meetings held thereafter. After filing such waiver with respect to future meetings and until such waiver is withdrawn no notice need be given to such director and, unless the director otherwise requires in writing to the Secretary, to his alternate director of any meeting or directors and all meetings of the directors so held shall be deemed not to be improperly called or constituted by reason of notice not having been given to such, director or alternate director. 15.10 Questions arising at any meeting of the directors shall be decided by a majority of votes. In case of an equality of votes the Chairman shall not, have a second or casting vote. 15.11 A resolution consented to in writing, whether by document, telegram, telex or and method of transmitting legibly recorded messages or other means, by a majority of the directors shall be as valid and effectual as if it had been passed at a meeting of the directors duly called and held. Such resolution may be in two or more counterparts which together shall be deemed to constitute one resolution in writing. Such resolution shall be filed with, the minutes of the proceedings of the directors and shall be effective on the date stated thereon or on the latest date stated on any counterpart. 15.12 The directors may, by resolution appoint an Executive Committee to consist of such member or members of their body as they think fit, which Committee shall have, and may exercise during the intervals between the meetings of the Board, all the powers vested in the Board except the power to fill vacancies in the Board, the power to change the membership of, or fill vacancies in, said Committee or any other committee of the Board and such other powers, if any, as may be specified in the resolution. The said committee shall keep regular minutes of its transactions and shall cause them to be recorded in books kept for that purpose, and shall report the same to the Board of Directors at such times as the Board of Directors may from time to time require. The Board shall have the power at any time to revoke or override the authority given to or acts done by the Executive Committee except as to acts done before such revocation or overriding and to terminate the appointment or change the membership of such Committee and to fill vacancies in it. The Executive Committee may make rules for the conduct of its business and may appoint such assistants as it may deem necessary. A majority of the members of said Committee shall constitute a quorum thereof. 15.13 The directors may by resolution appoint one or more committees consisting of such member or members of their body as they think fit and may delegate to any such committee between meetings of the Board such powers of the Board (except the power to fill vacancies in the Board and the power to change the membership of or fill vacancies in any committee of the Board and the power to appoint or remove officers appointed by the Board) subject to such conditions as may be prescribed in such resolution, and all committees so appointed shall keep regular minutes of their 106 transactions and shall cause them to be recorded in books kept for that purpose, and shall report the same to the Board of Directors at such times as the Board of Directors may from time to time require. The directors shall also have power at any time to revoke or override any authority given to or acts to be done by any such committees except as to acts done before such revocation or overriding and to terminate the appointment or change the membership of a committee and to fill vacancies in it. Committees may make rules for the conduct of their business and may appoint such assistants as they may deem necessary. A majority of the members of a committee shall constitute a quorum thereof. 15.6 The Executive Committee and any other committee may meet and adjourn as it thinks proper. Questions arising at any meeting shall be determined by a majority of votes of the members of the committee present, and in case of an equality of votes the chairman shall not have a second or casting vote. A resolution approved in writing by all the members of the Executive Committee or any other committee shall be as valid and effective as if it had been passed at a meeting or such Committee duly called and constituted. Such resolution may be in two or more counterparts which together shall be deemed to constitute one resolution in writing. Such resolution shall be filed with the minutes of the proceedings of the committee and shall be effective on the date stated thereon or on the latest date stated in any counterpart. PART 16- OFFICERS 16.1 The directors shall, from time to time, appoint a President, and a Secretary and such other officers, if any, as the directors shall determine and the directors may, at any time, terminate any such appointment. No officer shall be appointed unless he is qualified in accordance with the provisions of the Companies Act. 16.2 One person may hold more than one of such offices except that the offices of President and Secretary must be held by different persons unless the Company has only one member. Any person appointed as the Chairman of the Board, the President or the Managing Director shall be a director. The other officers need not be directors. The remuneration of the officers of the Company as such and the terms and conditions of their tenure of office or employment shall from time to time be determined by the directors, such remuneration may be by way of salary, fees, wages, commission or participation in profits or any other means or all of these modes and an officer may in addition to such remuneration be entitled to receive after he ceases to holdsuch office or leaves the employment of the Company a pension or gratuity. The directors may decide what functions and duties each officer shall perform and may entrust to and confer upon him any of the powers exercisable by them upon such terms and conditions and with such restrictions as they think fit and may from time to time revoke, withdraw, alter or vary all or any of such functions, duties and powers. The Secretary shall, inter alia, perform the functions of the Secretary specified in the Companies Act. 107 16.3 Every officer of the Company who holds any office or possesses any property whereby, whether directly or indirectly, duties or interests might be created in conflict with his duties or interests as an officer of the Company shall, in writing, disclose to the President the fact and the nature, character and extent of the conflict. PART 17- MINUTES DOCUMENTS AND RECORDS 17.1 The directors shall cause minutes to be duly entered in books provided for the purposes: (a) of all appointments of officers. (b) of the names of the directors or their alternates present at each meeting of directors and of any committee of directors; (c) of all orders made by the directors or committees of directors ; (d) of all resolutions and proceedings of general meetings of the Company and of all meetings of the directors and of committees of directors .17. 2 The directors shall cause the Company to keep at its records office or at such other place as the Companies Act may permit, the documents, copy documents, registers, minutes, and records which the Company is required by the Companies Act to keep at its records office or such other PART 18 - EXECUTION OF DOCUMENTS 18.1 The directors may provide a seal for the Company and, if they do so, shall provide for the safe custody of the seal which shall not be affixed to any instrument except in the presence of the following persons, namely, 1. any two directors, or (b) one of the Chairman of the Board, the President, the Managing Director, a director and a Vice-President together with one of the Secretary, the Treasurer, the Secretary-Treasurer, an Assistant Secretary, an Assistant Treasurer and an Assistant Secretary-Treasurer, or (c) if the Company shall have only one member, the President or the Secretary, or (d) such person or persons as the directors may from time to time by resolution appoint and the said directors, officers, person or persons in whose presence the seal is so affixed to an instrument shall sign such instrument. For the purpose of certifying under seal true copies of any document or resolution the seal may be affixed in the presence of any one of the foregoing persons. 108 18.2 To enable the seal of the Company to be affixed to any bonds, debentures, share certificates, or other securities of the Company, whether in definitive or interim form, on which facsimiles of any of the signatures of the directors or officers of the Company are in accordance with the Companies Act and/or these Articles, printed or otherwise mechanically reproduced there may be delivered to the firm or company employed to engrave, lithograph or print such definitive or interim bonds, debentures, share certificates or other securities one or more unmounted dies reproducing the Company's seal and the Chairman of the Board, the President, the managing Director or a Vice-President and the Secretary, Treasurer, Secretary-Treasurer, an Assistant Secretary, an Assistant Treasurer or an Assistant Secretary-Treasurer may by a document authorize such firm or company to cause the Company's seal to be affixed to, such definitive or interim bonds, debentures, share certificates or other securities by the use of such dies. Bonds, debentures, share certificates or other securities to which the Company's seal has been so affixed shall for all purposes be deemed to be under and to bear the Company's seal lawfully affixed thereto. 18.3 The Company may have for use in any other province, state, territory or country an official seal which shall have on its face the name of the province, state, territory or country where it is to be used and all of the powers conferred by the Companies Act with respect thereto may be exercised by the directors or by a duly authorized agent of the Company. PART 19- DIVIDENDS 19.1 The directors may declare dividends and fix the date of record therefor and the date for payment thereof. No notice need be given of the declaration of any dividend. 19.2 Subject to the terms of shares with special rights or restrictions, all dividends shall be declared according to the number of shares held. 19. 3 No dividend shall bear interest against the Company. 19. 4 The directors may direct payment of any dividend wholly or partly by the distribution of specific assets or of paid-up shares, bonds, debentures or other debt obligations of the Company, or in any one or more of those ways, and, where any difficulty arises in regard to the distribution, the directors may settle the same as they think expedient, and in particular may fix the value for distribution of specific assets, and may determine that cash payments shall be made to a member upon the basis of the value so fixed in place of fractional shares, bonds, debentures or other debt obligations in order to adjust the rights of all parties, and may vest any of those specific assets in trustees upon such trusts for the persons entitled as may seem expedient to the directors. 109 19.5 Notwithstanding anything contained in these Articles the directors may from time to time capitalize any undistributed surplus on hand of the Company and may from time to time issue as fully paid and non-assessable any unissued shares or any bonds, debentures or other debt obligations of the Company as a dividend representing such undistributed surplus on hand or any part thereof. 19.6 Any dividend, interest or other monies payable in cash in respect of shares may be paid by cheque or warrant sent through the post directed to the registered address of the holder, or, in the case of joint holders, to the registered address of that one of the joint holders who is first named on the register or to such person and to such address as the holder or joint holders may in writing direct. Every such cheque or warrant shall be made payable to the order of the person to whom it is sent. Any one of two or more joint holders may give effectua1 receipts for any dividends, bonuses or other monies payable in respect of the shares held by them as joint holders. 19.7 A transfer of a share shall not pass the right to any dividend declared thereon before the registration of the transfer in the register. 19.8 Notwithstanding any other provisions of these Articles should any dividend result in any shareholders being entitled to a fractional part of a share of the Company, the directors shall have the right to pay such shareholders in place of that fractional share, the cash equivalent thereof calculated on the par value thereof or, in the case of shares without par value, calculated on the price or consideration for which such shares were or were deemed to be issued, and shall have the further right and complete discretion to carry out such distribution and to adjust the rights of the shareholders with respect thereto on as practical and equitable a basis as possible including the right to arrange through a fiscal agent or otherwise for the sale, consolidation or other disposition of those fractional shares on behalf of those shareholders of the Company. 19.9 The directors may, before declaring any dividend, set aside out of the profits of the Company such sums as they think proper as appropriations from income, which shall at the discretion of the directors, be applicable for meeting contingencies, or for equa1izing dividends, or for any other purpose to which the profits of the Company may be properly applied, and pending such application may, either be employed in the business of the Company or be invested in such investments as the directors in their discretion may from time to time determine. PART 20 - ACCOUNTS 20.1 The directors shall cause records and books of accounts to be kept as necessary to properly record the financial affairs and conditions of the Company and to comply with the provisions of statutes applicable to the Company. 110 20.2 The directors shall determine the place at which the accounting records of the Company shall be kept and those records shall be open to the inspection of any director during the normal business hours of the Company. 20.3 Unless the directors determine otherwise, or unless otherwise determined by an ordinary resolution, no member of the Company shall be entitled to inspect the accounting records of the Company. PART 21 - NOTICES 21.1 A notice may be given to any member or director, either personally or by sending it by post to him in a prepaid letter, envelope or wrapper addressed to the member or director at his registered address. A certificate signed by the Secretary or other officer of the Company or a person of any other corporation acting on behalf of the Company that the letter, envelope or wrapper containing the notice, statement or report was so addressed, prepaid and mailed shall be conclusive evidence thereof. 21.2 A notice may be given by the Company to joint members in respect of a share registered in their names by giving the notice to the joint member first named in the register of members in respect of that share. 21.3 A notice may be given by the Company to the persons entitled to a share in consequence of the death or bankruptcy of a member by sending it through the post in a prepaid letter, envelope or wrapper addressed to them by name, or by the title of representatives of the deceased, or trustee of the bankrupt, or by any like description, at the address, if any, supplied for the purpose by the persons c1aiming to be so entitled, or until that address has been so supplied, by giving the notice in any manner in which the same might have been given if the death or bankruptcy had not occurred. 21.4 Any notice or document sent by post to or left at the registered address of any member shall, notwithstanding that member is then deceased and whether or not the Company has notice of his death, be deemed to have been duly served in respect of any registered shares, whether held solely or jointly with other persons by that deceased member, until some other person is registered in his place as the member or joint member in respect of those shares, and that service shall for all purposes of these articles be deemed a sufficient service of such notice or document on his personal representatives and all persons, if any, jointly interested with him in those shares. 21.5 Any notice sent by post shall be deemed to have been served on the business day following that on which the letter, envelope or wrapper containing that notice is posted, and in providing service thereof it shall be sufficient to prove that the letter, envelope or wrapper containing the notice was properly addressed and put in a Canadian Government post office, postage prepaid. 21.6 If a number of days' notice or a notice extending over any other period is required to be given, the day of service shall not, unless it is otherwise provided in these Articles, be counted in the number of days or other period required. 111 21.7 Notice of every general meeting shall be given in the manner authorized by these Articles, to: (a) every member holding a share or shares carrying the right to vote at such meetings on the record date or, if no record date was established by the directors, on the date of the mailing, (b) the personal representative of a deceased member, and (c) the trustee in bankruptcy of a bankrupt member. PART 22- RECORD DATES 22.1 The directors may fix in advance a date, which shall not be more than the maximum number of days permitted by the Companies Act preceding the date of any meeting of members or any class thereof or of the payment of any dividend or of the proposed taking of any other proper action requiring the determination of members as the record date for the determination of the members entitled to notice of, or to attend and vote at, any such meeting and any adjournment thereof, or entitled to receive payment of any such dividend or for any other proper purpose and, in such case, notwithstanding anything elsewhere contained in these Articles, only members of record on the date so fixed shall be deemed to be members for the purposes aforesaid. 22.2 Where no record date is so fixed for the determination of members as provided in the preceding Article the date on which the notice is mailed or on which the resolution declaring the dividend is adopted, as the case may be, shall be the record date for such determination. PART 23 - INDEMNIFICATION AND PROTECTION OF DIRECTORS, OFFICERS, EMPLOYEES, AND CERTAIN AGENTS 23.1 The Company shall indemnify any person who was or is a party or is threatened to be made a party" to any threatened, pending or completed action or proceeding, whether or not brought by the Company or by a corporation or other legal entity or enterprise as hereinafter mentioned and whether civil, criminal or administrative, by reason of the fact that he is or was a director, officer, employee, or agent of the Company or is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, a partnership, joint venture, trust or other enterprise, against all costs, charges and expenses, including legal fees and any amount paid to settle the action or proceeding or satisfy a judgment, if he acted honestly and in good faith with a view to the best interests of the corporation or other legal entity or enterprise as aforesaid of which he is or was a director, officer, employee or agent, as the case may be, and exercised the care, diligence and skill of a reasonably prudent person, and with respect to any criminal or administrative, action or proceeding, he had reasonable grounds for believing that his conduct was lawful provided that the Company shall not be bound to indemnify any such person, other than a director, officer or an 112 employee of the Company, (who shall be deemed to have notice of this Article and to have contracted with the Company in the terms hereof solely by virtue of his acceptance of such office or employment) if in acting as agent for the Company or as a director, officer, employee or agent of another corporation or other legal entity or enterprise as aforesaid, he does so by written request of the Company containing an express reference to this Article and provided further that no indemnification of a director or former director of the Company; or director or former director of a corporation in which the Company is or was a shareholder, shall be made except to the extent approved by the Court pursuant to the Companies Act or any other statute. The determination of any action, suit or proceeding by judgment, order, settlement, conviction or otherwise shall not, of itself, create a presumption that the person did not act honestly and in good faith and in the best interests of the Company and did not exercise the care, diligence and skill of a reasonably prudent person and, with respect to any criminal action or proceeding, did not have reasonable grounds to believe that his conduct was lawful. 23.2 The Company shall indemnify any person other than a director in respect of any loss, damage, costs or expenses whatsoever incurred by him while acting as an officer, employee or agent for the Company unless such loss, damage, costs or expenses shall arise out of failure to comply with instructions, willful act or default or fraud by such person in any of which events the Company shall only indemnify such person if the directors, in their absolute discretion, so decide or the Company by ordinary resolution shall so direct. 23.3 The indemnification provided by this Part shall not be deemed exclusive of any other rights to which those seeking indemnification may be entitled under any other Part, or any valid and lawful agreement, vote of members or disinterested directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office, and shall continue as to a person who has ceased to be a director, officer, employee or agent and shall ensure to the benefit of the heirs, executors and administrators of such person. The indemnification provided by this article shall not be exclusive of any powers, rights, agreements or undertakings which may be lega11y permissib1e or authorized by or under any applicable law. Notwithstanding any other provisions set forth in this Part, the indemnification authorized by this Part shall be applicable only to the extent that any such-indemnification shall not duplicate indemnity or reimbursement which that person has received or shall receive otherwise than under this Part. 23.4 The directors are authorized from time to time to cause the Company to give indemnities to any director, officer, employee, agent or other person who has undertaken or is about to undertake any liability on behalf of the Company or any corporation controlled by it. 113 23.5 Subject to the Companies Act, no director or officer or employee for the time being of the Company shall be liable for the acts, receipts, neg1ects or defaults of any other director or officer or employee, or for joining in any receipt or act for conformity, or for any loss, damage or expense happening to the Company through the insufficiency or deficiency of title to any property acquired by order of the Board for the Company, or for any of the monies of or belonging to the Company shall be invested or for any loss or damages arising from the bankruptcy, insolvency, or tortious act of any person, firm or corporation with whom or which any monies, securities or effects shall be -lodged or deposited or for any loss occasioned by any error of judgment or oversight on his part or for any other loss, damage or misfortune whatever which may happen in the execution of the duties of his respective office or trust or in relation thereto unless the same shall happen by or through his own wilfu1 act or default, negligence, breach of trust or breach of duty. 23.6 Directors may rely upon the accuracy of any statement of fact represented by an officer of the Company to be correct or upon statements in a written report of the auditor of the Company and shall not be responsible or held liable for any loss or damage resulting from the paying of any dividends or otherwise acting in good faith upon any such statement. 23.7 The directors may cause the Company to purchase and maintain insurance for the benefit of any person who is or was a director, officer, employee or agent of the Company or is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, a partnership, joint venture, trust or other enterprise against any liability incurred by him as a director, officer, employee or agent. FULL NAMES, RESIDENT ADDRESSES NUMBER AND KIND AND CLASS AND OCCUPATIONS OF SUBSCRIBERS OF SHARES TAKEN STEPHEN F.X. O'NEILL, Solicitor ONE (l) COMMON SHARE 8258 Rosswood Place,Burnaby, B. C. TOTAL SHARES TAKEN: ONE (1) COMMON SHARE DATED AT Vancouver, B. C. this 15TH DAY OF September, 1980 114 EX-1 3 0003.txt CERTIFICATE OF INCORPORATION EXHIBIT 1.02 -------------- CERTIFICATE OF INCORPORATION 115 CANADA NUMBER PROVINCE OF BRITISH COLUMBIA 216983 Province of British Columbia Ministry of Consumer and Corporate Affairs REGISTRAR OF COMPANIES COMPANY ACT CERTIFICATE OF INCORPORATION I HEREBY CERTIFY THAT RED FORK RESOURCES INC. HAS THIS DAY BEEN INCORPORATED UNDER THE COMPANY ACT GIVEN UNDER MY HAND AND SEAL OF OFFICE AT VICTORIA, BRITISH COLUMBIA, THIS 26th DAY OF SEPTEMBER, 1980 ''B. Beckwith'' Asst. Deputy Registrar of Companies 116 EX-1 4 0004.txt CERTIFICATE OF NAME CHANGE EXHIBIT 1.03 ------------- CERTIFICATE OF NAME CHANGE TO TAMARA RESOURCES, INC. 117 CANADA NUMBER PROVINCE OF BRITISH COLUMBIA 216983 Province of British Columbia Ministry of Consumer and Corporate Affairs REGISTRAR OF COMPANIES COMPANY ACT CERTIFICATE I HEREBY CERTIFY THAT RED FORK RESOURCES INC. HAS THIS DAY CHANGED ITS NAME TO THE NAME TAMARA RESOURCES INC. GIVEN UNDER MY HAND AND SEAL OF OFFICE AT VICTORIA, BRITISH COLUMBIA, THIS 3lST DAY OF MARCH, 1981 L. G. HUCK DEPUTY REGISTRAR OF COMPANIES 118 FORM (Section 370) PROVINCE OF BRITISH COLUMBIA Certificate of Incorporation No. 216983 COMPANIES ACT SPECIAL RESOLUTION. The following special resolution was passed by the undermentioned Company on the date stated : Name of Company. RED FORK RESOURCES INC. . Date resolution passed: November 18th , 1980 See note (a) Resolution : RESOLVED AS A SPECIAL RESOLUTION THAT: The name of the Company be changed from "RED FORK RESOURCES INC. " to "TAMARA RESOURCES INC. " and that the first paragraph of the Memorandum of the Company be, altered accordingly. Certified a true copy the 18th day of November, 1980 (Signature) (Relationship to Company) 119 FORM 1 (SECTION 7) COMPANIES ACT MEMORANDUM I wish to be formed into a Company with limited liability under the Companies Act in pursuance of this Memoradum. 1. The name of the Company is RED FORK RESOURCES, INC. 2. The authorized capital of the Company consists of Twenty-Five (25,000,000) Shares without par value. 3. I agree to take the number and kind and class of shares in the Company set opposite my name. FULL NAMES, RESIDENT ADDRESSES NUMBER AND KIND AND CLASS AND OCCUPATIONS OF SUBSCRIBERS OF SHARES TAKEN STEPHEN R.X. O'NEILL, Solicitor ONE (1) COMMON SHARE TOTAL SHARES TAKEN: ONE (1) COMMON SHARE DATED at Vancouver, British Columbia, this 15-day of September, 1980. 120 EX-1 5 0005.txt CERTIFICATE OF NAME CHANGE EXHIBIT 1.04 -------------- CERTIFICATE OF NAME CHANGE TO MATRIX ENERGY, INC. 121 NUMBER: 216983 CERTIFICATE OF CHANGE OF NAME COMPANY ACT CANADA PROVINCE OF BRITISH COLUMBIA I Hereby Certify that TAMARA RESOURCES INC. has this day changed its name to MATRIX ENERGY INC. Issued under my hand at Victoria, British Columbia on February 18, 1994 JOHN So POWELL Registrar of Companies 122 FORM 20 (Section 370) PROVINCE OF BRITISH COLUMBIA Certificate of Incorporation No. 216983 COMPANY ACT SPECIAL RESOLUTION The following Special Resolutions were passed by the undermentioned Company on the date stated: Name of Company: TAMARA RESOURCES INC . Date Resolutions passed: September 14, 1993 RESOLVED AS SPECIAL RESOLUTIONS THAT: 1. The authorized capital of the Company be altered by consolidating all of the 25,000,000 common shares without par value, of which 5,737,121 shares are issued and outstanding into l0,000,000 common shares without par value, of which 2,294,848.4 shares are issued, every 2.5 of such shares before consolidation being consolidated into 1 consolidated share; 2. The authorized capital be increased from 10,000,000 common shares without par value, of which 2,294,848.4 shares are issued and outstanding to 25,000,000 common shares without par value, of which 2,294,848.4 common shares are issued and outstanding. 3. paragraph 20 of the Memorandum of the Company be amended to read as follows : 2. The authorized capital of the Company consist of 25,000,000 common shares without par value 4. The name of the Company be changed to MATRIX ENERGY INC. and that paragraph 1. of the Memorandum of the Company be altered accordingly. 5. The Memorandum be in the form attached hereto and marked Schedule "A" so that the Memorandum, as altered, shall at the time of filing comply with the Company Act. CERTIFIED a true copy this 20th day of September, 1993 (Signature) (Relationship to Company) 123 SCHEDULE "A" FORM 1 (Section 5) COMPANY ACT ALTERED MEMORANDUM (As altered by Special Resolution passed September 14, 1993) We wish to be formed into a company with limited liability under the Company Act pursuance of this Memorandum under the 1 . The name of the Company is MATRIX ENERGY INC. 2 . The authorized capital of the Company consists of TWENTY FIVE MILLION (25,000,000) common shares without par value. 124 EX-1 6 0006.txt CERTIFICATE OF NAME CHANGE EXHIBIT 1.05 ------------- CERTIFICATE OF NAME CHANGE TO PROMAX ENERGY, INC. 125 NUMBER: 216983 CERTIFICATE OF CHANGE OF NAME COMPANY ACT I Hereby Certify that MATRIX ENERGY INC. has this day changed its name to PROMAX ENERGY INC. Issued under my hand at Victoria, British Columbia on February 03, 1999 JOHN S. POWELL Registrar of Companies PROVINCE OF BRITISH COLUMBIA CANADA 126 FORM 19 (Section 348) PROVINCE OF BRITISH COLUMBIA Certificate No: 216983 COMPANY ACT SPECIAL RESOLUTION The following Special Resolutions were passed by the under-mentioned Company on the date stated: Name of Company. MATRIX ENERGY INC. Date Resolutions passed: December 14, 1998 RESOLVED AS SPECIAL RESOLUTIONS 1. Authorized Capital The authorized capital of the Company be altered by consolidating all of the 25,000,000 common shares without par value, of which 9,401,883 shares are issued and outstanding, into 5,000,000 common shares without par value, of which 1,880,376.6 are issued and outstanding; every five of such shares before consolidation being consolidated into one consolidated share; 2. The authorized capital of the Company be increased from 5,000,000 common shares without par value, of which 1,880,376.6 are issued and outstanding, to 100,000,000 common shares without par value of which 1,880,376.6 are issued and outstanding. 3. Paragraph 2. of the Memorandum of the Company be amended to read as follows: 2. The authorized capital of the Company consists of 100,000,000 common shares without par value." 4. Name Change The name of the Company be changed to "PROMAX ENERGY INC." and that paragraph 1. of the Memorandum of the Company be altered accordingly. 5. Alter Memorandum The Memorandum be in the form attached hereto and marked Schedule "A" so that the Memorandum, as altered, shall at the time of filing comply with the Company Act. CERTIFIED a true copy this 5th day of January, 1999. (Signature) Lee J. Tupper Solicitor (Relationship to Company) 127 SCHEDULE "A" FORM1 (Section 5) COMPANY ACT ALTERED MEMORANDUM (As altered by Special Resolution passed December 14, 1998) We wish to be formed into a company with limited liability under the Company Act in pursuance of this Memorandum. 1. The name of the Company is PROMAX ENERGY INC. 2. The authorized capital of the Company consists of one hundred million (100,000,000) common shares without par value. 128 EX-1 7 0007.txt CERTIFICATE OF CONTINUANCE EXHIBIT 1.06 -------------- CERTIFICATE OF CONTINUANCE 129 CORPORATE ACCESS NUMBER: 208839803 BUSINESS CORPORATIONS ACT CERTIFICATE OF CONTINUANCE PROMAX ENERGY INC. CONTINUED FROM BRITISH COLUMBIA TO ALBERTA ON 2000/06/08 130 Articles of Continuance For PROMAX ENERGY INC. Classes of Shares: SEE SCHEDULE ''A'' ATTACHED Restrictions on Share Transfer: NONE Number of Directors: Minimum Number of Directors: 3 Maximum Number of Directors: 10 Restrictions on Business To: NONE Restriction on Business From: NONE Other Rule or Provisions: NONE Registration Authorized by: ROGER D. CONNER SOLICITOR 131 Directors Service Request Number: 2084231 Alberta Corporation Type: Named Alberta Corporation Legal Entity Name: PROMAX ENERGY INC. French Equivalent Name: Nuans Report Name: French Name Nuans Report Number: French Name Nuans Report Date: REGISTERED ADDRESS: Street: #200, 707-7 AVENUE 8 Wo. City: CALGARY Province: ALBERTA Postal Code: T2P 0Z2 RECORDS ADDRESS: Street: #200, 707-7 AVENUE 8 Wo. City: CALGARY Province: ALBERTA Postal Code: T2P 0Z2 ADDRESS FOR SERVICE BY MAIL: Post Office Box: City: Province: Postal Code: Internet mail m: Classes of Shares and any Maximum Number (within each class): SEE SCHEDULE ''A'' ATTACHED. Restrictions on Share Transfer: NONE Minimum Number of Directors: 3 Maximum Number of Directors: 10 Restrictions on Business To: NONE Restrictions on Business From: NONE Other Provisions: NONE Professional Endorsement Provided: Directors Issue Shares In Series: Corporate Access Number in (Alberta) if applicable: 218204642 Future Dating Required: Registration Date: 2000/06/08 132
Directors - ------------------------ --------------------------------- Last Name: Card - ------------------------ --------------------------------- First Name: Robert - ------------------------ --------------------------------- Middle Name: Lawrence - ------------------------ --------------------------------- Street/Box Number: #3005, 1199 Marinaside Crescent - ------------------------ --------------------------------- City: Vancouver - ------------------------ --------------------------------- Province: British Columbia - ------------------------ --------------------------------- Postal Code: V6Z 2Y2 - ------------------------ --------------------------------- Country: - ------------------------ --------------------------------- Appointment Date: 2000/06/08 - ------------------------ --------------------------------- Resident Canadian: Y - ------------------------ --------------------------------- Status: Active - ------------------------ --------------------------------- - ------------------------ --------------------------------- Last Name: Lemmens - ------------------------ --------------------------------- First Name: Alexander - ------------------------ --------------------------------- Middle Name: T. - ------------------------ --------------------------------- Street/Box Number: 603 Willowbrook Drive SE - ------------------------ --------------------------------- City: Calgary - ------------------------ --------------------------------- Province: Aberta - ------------------------ --------------------------------- Postal Code: T2J IN6 - ------------------------ --------------------------------- Country: - ------------------------ --------------------------------- Appointment Date: 2000/06/08 - ------------------------ --------------------------------- Resident Canadian: Y - ------------------------ --------------------------------- Status: Active - ------------------------ --------------------------------- 133 - ------------------------ --------------------------------- Last Name: McAllister - ------------------------ --------------------------------- First Name: Norman - ------------------------ --------------------------------- Middle Name: J. - ------------------------ --------------------------------- Street/Box Number: #300, 400-5 Ave. SW - ------------------------ --------------------------------- City: Calgary - ------------------------ --------------------------------- Province: Alberta - ------------------------ --------------------------------- Postal Code: T2P 0L6 - ------------------------ --------------------------------- Country: - ------------------------ --------------------------------- Appointment Date: 2000/06/08 - ------------------------ --------------------------------- Resident Canadian: Y - ------------------------ --------------------------------- Status: Active - ------------------------ --------------------------------- - ------------------------ --------------------------------- Last Name: Mellis - ------------------------ --------------------------------- First Name: Richard - ------------------------ --------------------------------- Middle Name: N. - ------------------------ --------------------------------- Street/Box Number: 434 Sierra Madre Court SW - ------------------------ --------------------------------- City: Calgary - ------------------------ --------------------------------- Province: Alberta - ------------------------ --------------------------------- Postal Code: T3H 3M4 - ------------------------ --------------------------------- Country: - ------------------------ --------------------------------- Appointment Date: 2000/06/08 - ------------------------ --------------------------------- Resident Canadian: Y - ------------------------ --------------------------------- Status: Active - ------------------------ --------------------------------- 134 - ------------------------ --------------------------------- Last Name: O'Shea - ------------------------ --------------------------------- First Name: Shelia - ------------------------ --------------------------------- Middle Name: K. - ------------------------ --------------------------------- Street/Box Number: 200, 707-7 Ave. SW - ------------------------ --------------------------------- City: Calgary - ------------------------ --------------------------------- Province: Alberta - ------------------------ --------------------------------- Postal Code: T2P 0Z2 - ------------------------ --------------------------------- Country: - ------------------------ --------------------------------- Appointment Date: 2000/06/08 - ------------------------ --------------------------------- Resident Canadian: Y - ------------------------ --------------------------------- Status: Active - ------------------------ ---------------------------------
Name in Previous Corporate Access Previous Date Created in Jurisdiction Number in Previous Jurisdiction Previous Jurisdiction Jurisdiction - ----------------- ------------------- --------------- --------------- PROMAX 216983 BRITISH 1980/09/26 ENERGY INC. COLUMBIA - ----------------- ------------------- --------------- ---------------
Attachment Type Microfilm Bar Code Date Recorded - ------------------- ------------------- --------------- Share Capital Electronic 200/06/08 - ------------------- ------------------- --------------- Letter of Approval 10000396000979 2000/06/08 Registration Authorized By: RODGER D. CUTLER SOLICITOR 135
EX-3 8 0008.txt AGREEMENT OF PURCHASE AND SALE EXHIBIT 3.01 ------------- AGREEMENT OF PURCHASE AND SALE DATED MARCH 19, 1999 136
AGREEMENT OF PURCHASE AND SALE TABLE OF CONTENTS 1.00 INTERPRETATION. . . . . . . . . . . . . . . . . . . . . . . . . . .1 1.01 Definitions . . . . . . . . . . . . . . . . . . . . . . . .1 1.02 Schedules . . . . . . . . . . . . . . . . . . . . . . . . .6 1.03 References. . . . . . . . . . . . . . . . . . . . . . . . .6 1.04 Headings. . . . . . . . . . . . . . . . . . . . . . . . . .6 1.05 Singular/Plural . . . . . . . . . . . . . . . . . . . . . .7 1.06 Use of Canadian Funds . . . . . . . . . . . . . . . . . . .7 1.07 Derivatives . . . . . . . . . . . . . . . . . . . . . . . .7 1.08 Interpretation If Closing Does Not occur. . . . . . . . . .7 1.09 Conflicts . . . . . . . . . . . . . . . . . . . . . . . . .7 1.10 Responsibility Extends To Legal Costs . . . . . . . . . . .7 1.11 Knowledge or Awareness. . . . . . . . . . . . . . . . . . .7 2.00 PURCHASE AND SALE . . . . . . . . . . . . . . . . . . . . . . . . .8 2.01 Agreement Of Purchase And Sale. . . . . . . . . . . . . . .8 2.02 Allocation Of Purchase Price. . . . . . . . . . . . . . . .8 2.03 Calculation Of The Initial Interest Purchase Price . . . .8 2.04 Payment Of Initial Interest Purchase Price. . . . . . . . .8 2.05 Options . . . . . . . . . . . . . . . . . . . . . . . . . .9 2.06 Purchaser's Default In Exercising Options . . . . . . . . .9 2.07 Purchaser's Post-Closing Entitlements/obligations . . . . 10 3.00 THIRD PARTY RIGHTS AND CONSENTS . . . . . . . . . . . . . . . . . 11 3.01 Preferential Rights of Purchase and Consents. . . . . . . 11 3.02 Operatorship And Third Parties. . . . . . . . . . . . . . 13 4.00 PURCHASER'S REVIEW. . . . . . . . . . . . . . . . . . . . . . . . 13 4.01 Vendor To Provide Access. . . . . . . . . . . . . . . . . 13 4.02 Title Defects . . . . . . . . . . . . . . . . . . . . . . 13 5.00 ADJUSTMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 5.01 No Adjustment . . . . . . . . . . . . . . . . . . . . . . 14 6.00 INTERIM PROVISIONS. . . . . . . . . . . . . . . . . . . . . . . . 14 6.01 Assets To Be Maintained In Proper Manner. . . . . . . . . 14 6.02 Vendor as Agent . . . . . . . . . . . . . . . . . . . . . 14 6.03 Restrictions on Conduct of Business . . . . . . . . . . . 15 7.00 REPRESENTATIONS AND WARRANTIES OF PARTIES . . . . . . . . . . . . 15 7.01 Vendor's Representations And Warranties . . . . . . . . . 15 7.02 Purchaser's Representations And Warranties. . . . . . . . 18 7.03 Survival of Representations And Warranties. . . . . . . . 19 7.04 Limit on Vendor's Responsibility. . . . . . . . . . . . . 19 7.05 No Additional Representations or Warranties By Vendor . . 20 8.00 LIABILITY AND INDEMNIFICATON. . . . . . . . . . . . . . . . . . . 20 8.01 Responsibility of Purchaser . . . . . . . . . . . . . . . 20 8.02 Environmental Indemnity . . . . . . . . . . . . . . . . . 21 137 9.00 CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 9.01 Place of Closing. . . . . . . . . . . . . . . . . . . . . 22 9.02 Required Approvals. . . . . . . . . . . . . . . . . . . . 22 9.03 Conditions For Benefit of Purchaser . . . . . . . . . . . 22 9.04 Conditions For Benefit of Vendor. . . . . . . . . . . . . 23 9.05 Waiver of Conditions. . . . . . . . . . . . . . . . . . . 24 9.06 Failure To Satisfy Conditions . . . . . . . . . . . . . . 24 10.00 POST CLOSING ADMINISTRATION . . . . . . . . . . . . . . . . . . . 24 10.01 Registration of Documents . . . . . . . . . . . . . . . . 24 10.02 Coordination of Administrative Matters. . . . . . . . . . 24 11.00 CONFIDENTIALITY . . . . . . . . . . . . . . . . . . . . . . . . . 25 11.01 Purchaser's ob1igation To Maintain Information Confidential. . . . . . . . . . . . . . . . . . . . . . . 25 11.02 Consultants And Advisors Bound. . . . . . . . . . . . . . 25 12.00 ARBITRATION . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 12.01 Reference To Arbitration. . . . . . . . . . . . . . . . . 25 12.02 Proceedings . . . . . . . . . . . . . . . . . . . . . . . 26 13.00 ASSIGNMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 13.01 Assignments Before Closing. . . . . . . . . . . . . . . . 26 13.02 Assignments By Purchaser After Closing. . . . . . . . . . 26 14.00 NOTICE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 14.01 Service of Notice . . . . . . . . . . . . . . . . . . . . 26 14.02 Addresses For Notices . . . . . . . . . . . . . . . . . . 27 14.03 Right To Change Address . . . . . . . . . . . . . . . . . 27 15.00 PUBLIC ANNOUNCEMENTS. . . . . . . . . . . . . . . . . . . . . . . 27 15.01 Approval Required for Press Releases. . . . . . . . . . . 27 15.02 Signs And Notification To Governmental Agencies . . . . . 28 16.00 MISCELLANEOUS PROVISIONS. . . . . . . . . . . . . . . . . . . . . 28 16.01 Further Assurances. . . . . . . . . . . . . . . . . . . . 28 16.02 Governing Law . . . . . . . . . . . . . . . . . . . . . . 28 16.03 Time. . . . . . . . . . . . . . . . . . . . . . . . . . . 28 16.04 No Amendment Except In Writing. . . . . . . . . . . . . . 28 16.05 Waiver Must Be In Writing . . . . . . . . . . . . . . . . 29 16.06 Consequences Of Termination . . . . . . . . . . . . . . . 29 16.07 Supersedes Earlier Agreements . . . . . . . . . . . . . . 29 16.08 No Merger . . . . . . . . . . . . . . . . . . . . . . . . 29 16.09 Substitution And Subrogation. . . . . . . . . . . . . . . 29 16.10 Enurement . . . . . . . . . . . . . . . . . . . . . . . . 30
SCHEDULES Schedule" A " - Lands, Leases and Encumbrances; Production Sales Contracts; Unit Agreements; Facility Agreements; Wells; Authorizations for Expenditure For Which Purchaser is Responsible; Preferential Purchase Rights; Processing, Treating, Transportation and Contract Operating Agreements; Penalties Schedule "B" - General Conveyance Schedule "C" - (Vendor's/Purchaser's) Officer's Certificate - Representations are True Schedule "D" - Vendor's officer's Certificate - No Substantial Damage 138 AGREEMENT OF PURCHASE AND SALE CESSFORD AREA, ALBERTA THIS AGREEMENT made this 19th day of March, 1999. BETWEEN: STARROCK RESOURCES L TD., a body corporate having an office in the City of Calgary, in the Province of Alberta (hereinafter called the "Vendor") - and- PROMAX ENERGY INC., a body corporate having an office in the City of Calgary , in the Province of Alberta (hereinafter called the "Purchaser") WHEREAS the Vendor has agreed to sell the Assets to the Purchaser and the Purchaser has agreed to purchase the Assets from the vendor 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: 1.00 INTERPRETATION -------------- 1.01 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 3.01E: "Agreement" means this document, together with the Schedules attached hereto and made a part hereof. "Annual Option Interest" means an undivided 14% interest in the Petroleum and Natural Gas Rights (comprising one-fifth (1/5) of the Option Interest) which the Purchaser may acquire in each of the first 5 years following the Closing Date by exercise of an option pursuant to Clause 2.05. "Assets" means the Petroleum and Natural Gas Rights, the Tangibles and the Miscellaneous Interests. "Closing" means the exchange of Conveyance Documents on the Closing Date, the delivery by the Purchaser to the vendor of the Purchase Price, and the transfer of the Assets by the vendor to the Purchaser. 139 "Closing Date" means 2:00 p.m. on March 19, 1999, or such other time and date as may be agreed to by the Parties. "Conveyance Documents" means the documents described in Subparagraphs 9.03 (e) (i) and (ii), which provide for the assignment, transfer or other disposition of the Assets to the Purchaser. "Effective Date" means 10.00 a.m. on March 19, 1999. "Environmental Liabilities" means any and all environmental damage, contamination or other environmental problem arising out of, resulting from, attributable to or connected with operations relating 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 of the Wells, 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. "Event of Default" means anyone of the following: (a) the Purchaser fails to exercise an option granted pursuant to clause 2.05. (b) the Purchaser commits any act of bankruptcy or insolvency; or files a Proposal or Notice of Intention to Make a Proposal under the Bankruptcy and Insolvency Act (Canada); or the Purchaser assigns or is petitioned into bankruptcy; or an application is made concerning the Companies Creditors Arrangements Act, or the Purchaser takes advantage of or is otherwise involved as a debtor in any similar legislation governing the relationship of debtors and their creditors; (c) the Purchaser resolves or is ordered by a court to wind-up, dissolve or liquidate; (d) any of the Purchaser's assets or undertaking are seized or otherwise encumbered by virtue of any writ, judgment or order filed, entered or made against the Purchaser; or (e) the Purchaser breaches the Purchaser's covenant contained in Clause 2.07B. "Exercise Bonus Amount" means the amount payable to the vendor pursuant to clause 2.05 in addition to the Annual Option Interest Purchase Price as additional purchase price consideration which amount shall be equal to the amount arrived at by calculating interest on the Annual Option Insurance at a rate equal to the prime commercial lending rate of the Main Branch in Calgary of the Canadian Imperial Bank of Commerce, from the Closing Date until the Annual option Interest Purchase Price is paid by the Purchaser to the vendor. "GST" means tax payable pursuant to the Excise Tax Act (Canada). The Vendor's GST registration Number is 893059683RT. 140 "Intia1 Interest" means all of the Tangibles, miscellaneous Interests and an undivided 30% interest in the Petroleum and Natural Gas Rights. "Initial Interest Purchase Price" means the amount payable by the Purchaser to the vendor for the Initial Interest pursuant to Clause 2.03, as modified by the reductions herein. "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. "Leases" means the leases, licences, 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, if applicable, all renewals and extensions of such documents and all documents issued in substitution therefor. "Miscellaneous Interests" means the Vendor'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 vendor's Interest in: (a) 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; (b) all subsisting rights to enter upon, use and occupy the surface of any of the Lands,or 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; (c) the wellbores and casing of all Wells; and (d) copies of engineering records, files, reports and data that, in the Vendor's reasonable judgement, relate directly to the Petroleum Substances, the Petroleum and Natural Gas Rights, the Wells or the Tangibles, excluding the Vendor's tax and financial records, economic evaluations and geophysical data. Unless otherwise agreed in writing by the Parties, however, the Miscellaneous Interests shall not include agreements, documents or data to the extent that: they pertain to the Vendor's proprietary technology or interpretations; (b) they are owned or licensed by third parties with restrictions on their deliverability or disclosure by the Vendor to any assignee which is not an affiliate of the Vendor; or (c) they consist of seismic records or data, whether or not owned by the Vendor. 141 "Option Interest" means the undivided 70% interest in the Petroleum and Natural Gas Rights, being the remaining interest in the Petroleum and Natural Gas Rights included in the Assets but not forming part of the Initial Interest. "Party" means a person, partnership or corporation which is bound by this Agreement. "Permitted Encumbrances" means: (a) any encumbrances, overriding royalties, net profits interests and other burdens identified in Schedule "A"; (b) any preferential rights of purchase or any similar restriction applicable to any of the Assets, as identified in Schedule" A"; (c) 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; (d) 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; (e) 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; (f) rights of general application reserved to or vested in any governmental authority to levy taxes on Petroleum Substances or the income or revenue therefrom and governmental restrictions on production rates from wells or on operations being conducted on the Lands or otherwise affecting the value of any of the Assets; (g) agreements for the sale of Petroleum Substances, which are terminable on thirty (30) days' notice or less (without an early termination penalty or other cost) or are identified in Schedule" A"; (h) 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; (i) 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 Vendor's share of the costs and expenses thereof; (j) 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; 142 (k) agreements and plans relating to pooling or unitization, provided that any unit agreement applicable to the Lands shall be identified in Schedule ''A"; (l) the agreements, including any identified in Schedule "A" respecting the processing, treating or transmission of Petroleum Substances or the operation of wells by contract field operators; (m) penalties which are disclosed in Schedule ''A", and Which have arisen under operating procedures or similar agreements as a consequence of elections by the Vendor not to participate in operations on the Lands to which the penalty applies; (n) 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; and (o) mechanics', builders' or materialman's liens in respect of services rendered or goods supplied, but only insofar as such liens relate to goods or services for which payment is not due or the validity of which is being diligently contested by or on behalf of the Vendor; Petroleum and Natural Gas Rights" means the Vendor's Interest in and to the Lands, and the Leases pertaining thereto. "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. "Purchase Price" means the amount payable by the Purchaser to the Vendor for the Assets pursuant to Clause 2.02, as modified by the reductions provided for herein. "Regulation" means all statutes, laws, rules, orders and regulations in effect from time to time and made by governments or governmental boards or agencies having jurisdiction over the Assets. "Secured Assets" means all of the Unexercised Option Interest and an undivided percentage interest portion (equal to the Unexercised Option Interest) of the Purchaser's interest now owned or after the Closing Date acquired in petroleum and natural gas rights within, upon or underlying those lands located in Townships 23, 24, 25, 26 and Ranges 7, 8, 9, 10, all West of the Fourth Meridian and any equipment, improvements, facilities, intangible rights or other assets associated therewith. "Tangibles" means the Vendor's Interest, whether leased or owned, in and to all tangible depreciable property, and assets that are: (a) located in or on the Lands and used, or intended for use, in connection with production, processing, gathering, storage, treatment 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 143 (b) any additional items, whether located on or off the Lands, that are indicated in Schedule " A '' to be specifically included as Tangibles. "Title Defect" means a defect, deficiency or discrepancy in or affecting the title of the Vendor in and to any of the Assets, other than as specifically disclosed herein or in Schedule "A", which is sufficiently material and adverse to the enforcement of title that it would not be acceptable to a knowledgeable, prudent purchaser buying similar oil and gas properties, acting reasonably. "Unexercised Option Interest" means the undivided percentage interest portion of the Option Interest which has not been acquired by the Purchaser through its exercise of the options pursuant to Clause 2.05. "Vendor's Interest" means, in respect of a particular property, right or asset, the undivided interest of the Vendor in the Petroleum and Natural Gas Rights described as "Vendor's Interest" in Schedule " A " and a corresponding interest in the Tangibles and Miscellaneous Interests. "Wells" means all producing, shut-in, water source, disposal, injection, suspended, abandoned and similar wells located on the Lands including the wells described in Schedule "A". 1.02 Schedules --------- The following Schedules are attached hereto and made part of this Agreement: (a) Schedule "A", which includes: Part I - Lands, Leases and Encumbrances, Part II - Production Sales Contracts, Part III - Unit Agreements, Part IV Facility Agreements, Part V- Wells and Gathering System, Part VI - Authorizations for Expenditure, Part VII-Preferential Purchase Rights, Part VIII - Processing, Treating, Transportation and Contract Operating Agreements, Part IX- Penalties; (b) Schedule "B", which is the form of General Conveyance; (c) Schedule "C", which is the form of the certificate to be provided pursuant to Article 9.00 with respect to the truth of a Party's representations and warranties; and (d) Schedule "D", which is the form of the certificate to be provided pursuant to Article 9.00 with respect to the belief of the Vendor that there has been no substantial damage or alteration to the Assets. 144 1.03 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. 1.04 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 1.05 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. 1.06 Use of Canadian Funds --------------------- All references to "dollars" or "$" herein shall refer to lawful currency of Canada. 1.07 Derivatives ----------- Where a term is defined herein, a capitalized derivative of such term shall have corresponding meaning unless the context otherwise requires. 1.08 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 having occurred. 1.09 Conflict -------- 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 in this Agreement shall be deemed to include reasonable legal costs on a solicitor-client basis. 145 1.11 Knowledge of Awareness ---------------------- Where a representation or warranty in this Agreement is made on the basis of the knowledge or awareness of the Vendor, such knowledge or awareness consists only of the actual knowledge or awareness of the current officers and senior supervisory personnel of the Vendor and does not include knowledge or awareness of any other person or persons. 2.00 PURCHASE AND SALE ----------------- 2.01 Agreement of Purchase and Sale ------------------------------ The Purchaser agrees to purchase all of the Initial Interest from the vendor and the Vendor agrees to sell all of the Initial Interest to the Purchaser on the terms and conditions set forth herein. The Purchaser will have the right to acquire from the Vendor additional interests in the Petroleum and Natural Gas Rights on the exercise of options granted herein. 2.02 Allocation of Purchase Price ---------------------------- The Purchase Price payable by the Purchaser to the Vendor for the Assets is $8,000,000.00, as adjusted in clause 2.05, and shall be allocated among the Assets as follows: (a) To Petroleum and Natural Gas Rights $7,604,259.00 (b) To Tangibles $395,740.00 (c) To Miscellaneous Interests $1.00 TOTAL $8,000,000.00 In determining the Purchase Price, the Parties have taken into account the Purchaser's assumption of responsibility for the future abandonment and reclamation costs associated with the Assets, as set forth in this Agreement, and the Vendor's release of responsibility therefor. 2.03 Calculation of the Initial Interest Purchase Price. --------------------------------------------------- The Purchase Price payable by the Purchaser to the Vendor for the Initial Interest will be $2,677,018.70, being all of the Purchase Price allocated to the Tangibles and Miscellaneous Interests and 30% of the Purchase Price allocable to the Petroleum and Natural Gas Rights. 2.04 Payment of Initia1 Interest Purchase Price ------------------------------------------- The amount of$1,858,767.79 shall be paid by the Purchaser to the Vendor at Closing toward the Initial Interest Purchase Price, which is the Initial Interest Purchase Price less the amount of$618,250.91 already paid by the Purchaser to the Vendor as a deposit and the amount of $200,000.00 which amount shall be paid by the Purchaser to the Vendor on or before June 30,1999, subject to any reductions as may be made pursuant to Article 3.00 or as otherwise provided in this Agreement. The Purchaser shall also remit to the Vendor at Closing the 146 GST applicable to that portion of the Initial Purchase Price allocated to the Tangibles and on the amount attributable to any other Assets or expenses to which GST may apply. All amounts payable pursuant to this Clause and the following Clause 2.05 shall be paid by cheque payable in immediately avai1able funds to the Vendor. 2.05 Options ------- The Vendor hereby grants to the Purchaser five (5) successive annual options to acquire the Option Interest, which options will be for undivided 14% interests under and exercisable by the Purchaser delivering to the Vendor, on or before the anniversary of the Closing Date, the Annual Option Interest Purchase Price of$1,064,596.26, plus interest thereon at the prime rate per annum of the Main Branch in Calgary of the Exercise Bonus Amount and the Purchaser agrees to exercise all of the options granted herein. Upon the occurrence of an Event of Default all options granted herein which are unexercised shall immediately terminate and be of no further force and effect. 2.06 Purchaser's Default In Exercising Options ----------------------------------------- Upon the occurrence of an Event of default, in addition to the rights specified in Clause 2.07 hereof: A. all unexercised options granted in Clause 2.05 shall immediately terminate and be of no further force and effect; B. the Vendor will be entitled to a re-conveyance of the Secured Assets, and for this purpose the Purchaser hereby irrevocably appoints the Vendor as the Purchaser's lawful attorney with full power of substitution to endorse and transfer the Secured Assets from the Purchaser to the Vendor, with the power to make, execute and deliver all such documents, and perform all such acts, and do all matters or things, and with the right to use the name of the Purchaser whenever and wherever it may by deemed necessary or expedient, and which power and right shall include, but not be limited to, the following: (a) the power to make, execute and deliver on behalf of the Purchaser a General Conveyance in the form attached as Schedule "B" re-conveying the Unexercised Option Interest from the Purchaser to the Vendor; (b) the power to make, execute and deliver on behalf of the Purchaser all specific assignments, registrable transfers, novation agreements, trust agreements and other instruments required to convey the unexercised Option Interest to the Purchaser, provided that such documents shall not require the Vendor to assume or incur any obligation, or to provide any representation or warranty, beyond that contained in this Agreement; and (c) correspond and deal with governmental agencies having jurisdiction over the Unexercised Option Interest and make, execute and deliver on behalf of the Purchaser any and all specific assignments. registerable transfers or applications required to vest in the vendor all rights conferred on the Purchaser by such governmental authorities in respect of the Unexercised Option Interest. 147 2.07 Purchaser's Post-Closing Entitlements/Obligations: -------------------------------------------------- A. After Closing, while not in default of exercising an option granted pursuant to Clause 2.05, whether or not the Purchaser becomes the recognized holder in the place of the vendors of all or a portion of the Assets (including both the Initial Interest and the Option Interest): (a) the Purchaser shall be entitled to 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; (b) the Vendor shall in a timely manner deliver to the Purchaser all revenues, proceeds and other benefits received by the vendor for the Assets after deduction of any amounts owing by the Purchaser to the vendor relating to the Assets; (c) the vendor shall in a timely manner deliver to the Purchaser all third party notices and communications received by the vendor for the Assets; (d) the vendor shall 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; (e) the Vendor shall 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 incidental to the ownership of the Assets; and (f) the Purchaser shall be responsible for all obligations, expenses, costs, ingoings and outgoings of every kind and nature, accruing or payable with respect to the Assets, including, but not limited to, maintenance, development, capital and operating costs, advances, payments with respect to the Permitted Encumbrances, and authorizations for expenditures; Provided that, upon the occurrence of an Event of Default, the Vendor's obligations and the Purchaser's rights herein shall immediately terminate with respect to the Unexercised Option Interest and the Vendor will be entitled from that date for all intents and purposes to be recognized and hold itself out as holder of the Unexercised Option Interest. 148 B. The Purchaser covenants and agrees that, while any of the options granted pursuant to Clause 2.05 remain unexercised, the Purchaser shall: (a) not grant any security interest in or otherwise under the Assets or any pol1ion thereof; (b) not transfer, convey, assign or grant participation or options rights in the Assets or any portion thereof to any third party; (c) not permit or suffer any builder's lien to be registered or filed against the Assets or any portion thereof; (d) from time to time when requested by the Vendor, grant to the Vendor such security interests in the Secured Assets or any portion thereof that the vendor requires as security for the Purchaser's performance of its obligations contained in Clause 2.05, and to immediately execute and deliver to the vendor such security evidencing the said security interests in the form or forms approved by the vendor; C. The Vendor shall not be liable to the Purchaser for any loss or damage suffered by the Purchaser in connection with the arrangements established by the Purchaser in connection with the arrangement established by Subclause 2.07 A, except to the extent that the loss or damage is caused by the Vendor' s gross negligence or its wilful misconduct. The Purchaser shall: (a) be liable to the Vendor for all losses, costs, damages and expenses whatsoever which the vendor may suffer, sustain, pay or incur; and (b) indemnify and save harmless the vendor 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 Vendor of its obligations under Subclause 2.07A. An action omission of the vendor or its directors, officers, servants, agents or employees shall not be regarded as gross negligence or wilful 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 2.07 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. 149 D. After Closing, where the Purchaser is assuming operatorship of any of the Assets, the Purchaser shall be responsible for submission of any reports required by the Regulations, including but not limited to monthly production reports pertaining to the Assets. If requested by the Purchaser, the Vendor shall assist the purchaser in compiling pre-Closing production data. 3.00 THIRD PARTY RIGHTS AND CONSENTS ------------------------------- 3.01 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 Vendor 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. Notwithstanding the foregoing, the Parties acknowledge that the consent of buyers under production sale agreements may not be sought until after Closing. B. The Purchaser, acting reasonably and in good faith, shall provide to the Vendor the value placed by the Purchaser on any of the Assets with respect to which the Vendor is required to specify a value in a notice served pursuant to this Clause. The Vendor shall not be obligated to use such a value where, in the Vendor's opinion, 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, Closing shall then proceed with respect to those of the Assets which are not subject to such preferential right to purchase or consent. In such case, the Purchase Price shall be reduced by the portion of the Purchase Price allocated pursuant to Subclause 3.01B to the Assets directly affected by such preferential right to purchase or consent, or falling such allocation, by agreement of the Parties or by Article 12.00. D. If the portion of the Purchase Price applicable to the Assets directly affected by the preferential right to purchase or consent provided for in Subclause 3.01C is to be determined pursuant to Article 12.00: (a) then prior to Closing, 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 such directly affected Assets and deposit such amount in trust with a Canadian chartered bank in an interest bearing account; and (b) 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 12.00. To the extent that the amount held in trust varies from such determination, any excess or deficiency 150 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. E. If a portion of the Assets is excluded from the Closing pursuant to this Clause: (a) 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 (b) The term "Purchase Price" shall be construed to be the amount of the Purchase Price remaining after the reduction provided for in Subclause 3.01C, and the allocation of the Purchase Price pursuant to Clause 2.02 shall be determined by agreement of the Parties or by Article 12.00 and adjusted accordingly. 3.02 Operatorship And Third Parties ------------------------------ Nothing in this Agreement shall be interpreted as any assurance by the Vendor that the Purchaser will be able to serve as operator with respect to any of the Assets in which interests are held by third parties, whether or not such Assets are presently operated by the Vendor. 4.00 PURCHASER'S REVIEW ------------------ 4.01 Vendor To Provide Access ------------------------ The Vendor shall, subject to the Regulations and all contractual and fiduciary obligations and limits: (a) at the Vendor's office during normal business hours, provide the Purchaser and its nominees reasonable access to the Vendor's records, files and documents directly relating to the Assets, for the purpose of the Purchaser's review of the Assets and the Vendor'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 Vendor can reasonably provide access to the Assets. 4.02 Title Defects ------------- A. Any review of the Vendor's title to the Assets shall be undertaken by the Purchaser with reasonable diligence. Not later than ten (10) days prior to the Closing Date, the Purchaser shall give the Vendor written notice of the Title Defects which the Purchaser does not waive. Such notice shall specify such Title 151 Defects in reasonable detail, the Assets directly affected thereby (the II Affected Assets") and the Purchaser's requirements for the rectification or curing thereof. The Vendor shall there upon diligently make reasonable efforts to cure such Title Defects on or before 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, the Purchaser may elect, on or before the Closing Date by written notice to the vendor, to do one of the following: (a) delay the Closing Date to such later date as is agreed by the Parties, so as to provide the Vendor with additional time to cure the remaining Title Defects; (b) waive such uncured Title Defects and proceed with Closing; or (c) terminate this Agreement, if the portion of the Purchase Price applicable to the Assets directly affected by such uncured Title Defects is twenty-five percent (25%) or more of the Purchase Price, as determined by agreement of the Parties or by Article 12.00, 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 (b) of this Subclause. 5.00 ADJUSTMENTS ----------- 5.01 No Adjustment ------------- The Parties acknowledge that, in agreeing to the amount of the Purchase Price, the Parties determined that there shall be no adjustments to the Purchase Price for the vendor' s prepaid expenses accruing after the Effective Date or for any other item ordinarily adjusted between a vendor and Purchaser on a sale of assets of a similar nature to the sale contemplated by this Agreement. 6.00 INTERIM PROVISIONS ------------------ 6.01 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 vendor shall continue to 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 Vendor shall maintain insurance respecting the Assets until the Closing Date. 6.02 Vendor as Agent --------------- A. Insofar as the Vendor maintains the Assets and takes actions with respect thereto on behalf of the Purchaser pursuant to this Article, the Vendor shall be deemed to have been the agent of the Purchaser hereunder. The Purchaser ratifies all actions which the vendor 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. 152 B. The Purchaser shall indemnify the vendor and its directors, officers, servants, agents, consultants or employees against all liabilities, losses, costs, claims or damages which the vendor 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 wilful misconduct of the vendor or its directors, officers, servants, agents, consultants or employees. An action or omission of the vendor or its directors, officers, servants, agents, consultants or employees shall not be regarded as gross negligence or wilful 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. 6.03 Restrictions on Conduct of Business ----------------------------------- While acting as agent for the Purchaser pursuant to this Article, the vendor shall not, without the prior written consent of the Purchaser: (a) voluntarily assume any obligation or commitment with respect to the Assets, where the Vendor's share of the expenditure associated with such obligation or commitment is estimated to exceed $25,000.00; (b) surrender or abandon any of the Assets; (c) mend any agreement or enter into any new agreement respecting the Assets; (d) 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; (e) sell, transfer or otherwise dispose of the Assets, or any of them, except as may be required by the Vendor to comply with its obligations respecting any preferential rights, as provided in Article 3.00; or (f) grant a security interest or any encumbrance with respect to any of the Assets. However, the Vendor 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 Vendor reasonably determines that such expenditures or actions are necessary for the protection of life or property, in which case the Vendor shall promptly notify the Purchaser of such intention or actions and the Vendor's estimate of the costs and expenses associated therewith. 153 7.00 REPRESENTATIONS AND WARRANTIES OF PARTIES ----------------------------------------- 7.01 Vendor's Representations and Warranties --------------------------------------- The Vendor represents and warrants to the Purchaser that: (a) Standing: The Vendor is a corporation, duly organized, valid and subsisting and registered under the laws of the Province of Alberta, and authorized to carry on business in the jurisdiction where the Lands are located; (b) Requisite Authority The Vendor 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 constating or other governing documents of the Vendor; (ii) any agreement, instrument, permit or authority to which the Vendor is a party or by which the Vendor is bound; or (iii)the Regulations or any judicial order, award, judgement or decree applicable to the Vendor or the Assets; (d) Execution And Enforceability: The Vendor has taken all actions necessary to authorize the execution and delivery of this Agreement, and, as of the Closing Date, the Vendor shall have taken all actions necessary to authorize and complete the sale of the Assets in accordance with the provisions of this Agreement. This Agreement has been validly executed and delivered by the Vendor, and this Agreement and all other documents executed and delivered on behalf of the Vendor hereunder shall constitute valid and binding obligations of the Vendor enforceable in accordance with their respective terms and conditions; (e) Residency: Far Tax Purposes: The Vendor 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 Vendor with respect to the transactions herein; (g) Lawsuits And claims: To the best of the knowledge of the Vendor, 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 Vendor therein, and there exists no particular circumstance which the vendor reasonably believes will give rise to such a claim, proceeding, action, governmental investigation or lawsuit; 154 (h) Compliance With Leases and Agreements: To the best of the knowledge of the vendor , no act or omission has occurred whereby the vendor 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: Except as has been specifically identified in Schedule '' A", the Vendor 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 knowledge of the Vendor, all royalties and all ad valorem, property, production, severance and similar taxes and assessments based on, or measured by, the Vendor's ownership of the Assets, the production of Petroleum Substances from the Lands or the receipt of proceeds therefrom that are payable by the Vendor and which accrued prior to the Effective 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 Vendor does not warrant its title to the Assets, but does warrant that the Vendor's Interest in the Assets is free and clear of any and all liens, mortgages, pledges, claims, options, encumbrances, overriding royalties, net profits interests or other burdens created by, through or under the Vendor, other than the Permitted Encumbrances; (l) No Reduction: The vendor'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 Vendor 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 nor any agreements for the sale of Petroleum Substances which are not terminable on thirty (30) days' notice or less (without an early termination penalty or other cost); (n) Environmental Matters. The Vendor 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; or 155 (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 o environmental contaminants, which demand or notice remains outstanding as of the date hereof; except as have been specifically disclosed by the Vendor. by notice to the Purchaser prior to the Vendor's submission of this Agreement to the Purchaser for the Purchaser's execution; (o) Condition of Wells: To the best of the knowledge of the Vendor, 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: To the best of the knowledge of the Vendor, 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; (q) Condition Of Tangibles: To the best of the knowledge of the Vendor, 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; (r) Authorized Expenditures: There are no outstanding authorizations for expenditure or 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 "A" or as may be authorized on behalf of the Purchaser in accordance herewith; (s) Area Of Mutual Interest: No agreement affecting the lands provides for an area of mutual interest, except as specifically identified in Schedule "A"; (t) Quiet Enjoyment: Subject at all times to the Vendor'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 Vendor or any other person claiming by through or under the Vendor. 7.02 Purchaser's Representations And Warranties ------------------------------------------ The Purchaser represents and warrants to the Vendor 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; 156 (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) G.S.T.: The Purchaser is registered for GST purposes and will provide the Vendor with its registration number on the Closing Date; (d) 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 constating 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 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) Residence 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 vendor shall have any responsibility; (g) Investment Canada Act The Purchaser shall comply with the Investment Canada Act to the extent, if any, that it is applicable to the transactions herein; (h) Purchaser As Principal: The Purchaser is acquiring the Assets in its capacity as a principal, and is not purchasing the Assets for the purpose of resale or distribution to a third party; and (i) Transfers of Licences, Permits and Authorizations: The Purchaser is not aware of anything that would prohibit the Purchaser from obtaining or holding any well licences, authorizations or other permits or licenses related to the Assets with the relevant governmental authorities. 157 7.03 Survival of Representations and Warranties ------------------------------------------ Each Party acknowledges that the other may rely on the representations and warranties made by such Party pursuant to Clause 7.01 or7.02, as the case may be. The representations and warranties in Clauses 7.01 and 7.02 shall be true 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 which 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 period, written notice specifying such breach in reasonable detail has been provided to the Party which made such representation or warranty. 7.04 Limit on Vendor's Responsibility -------------------------------- In no event, except in the event of fraud, shall the total of the liabilities of the vendor under this Agreement exceed the Purchase Price. 7.05 No Additional Representations Or Warranties By Vendor ----------------------------------------------------- A. The Vendor makes no representations or warranties to the Purchaser in addition to those expressly enumerated in Clause 7.01. Except and to the extent provided in Clause 7.01, the Vendor does not warrant title to the Assets or make representations or warranties with respect to: (i) the quantity , quality or recoverability of Petroleum Substances respecting the Lands; (ii) any estimates of the value of the Assets or the revenues applicable to future production from the Lands; (iii)any engineering, geological or other interpretations or economic evaluations respecting the Assets; (iv) the rates of production of Petroleum Substances from the Lands; (v) the quality, condition or serviceability of the Assets; or (vi) the suitability of the use of the Assets for any purpose. The Purchaser acknowledges that it has made its own independent investigation, analysis, evaluation, verification and inspection of the Vendor's interests in the Assets and the state and condition thereof and that it has relied solely on such investigation, analysis, evaluation, verification and inspection as to its assessment of the condition (environmental or otherwise), quantum and value of the Assets. B. Except with respect to the representations and warranties in Clause 7 01 or in the event of fraud, the Purchaser forever releases and discharges the Vendor and its directors, officers, servants, agents and employees from any claims and all liability to the Purchaser or the Purchaser's assigns and successors, as a result of the use or reliance upon advice, information or materials pertaining to the Assets which was delivered or made available to the Purchaser by the Vendor or its directors, officers, servants, agents or employees prior to or pursuant to this Agreement, including, without limitation, any evaluations, projections, reports and interpretive or non- factual materials prepared by or for the vendor , or otherwise in the vendor's possession. 158 8.00 LIABILITY AND INDEMNIFICATION ----------------------------- 8.01 Responsibility of Purchaser --------------------------- Provided that Closing has occurred, the Purchaser shall: (a) be liable to the vendor for all losses, costs, damages and expenses whatsoever which the vendor may suffer, sustain, pay or incur; and (b) indemnify and save the Vendor 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 maybe brought against or suffered by the Vendor , 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 or accruing subsequent to the Effective Date, except any losses, costs, damages, expense, claims, liabilities, actions, proceedings and demands to the extent that the same either are reimbursed (or reimbursable) by insurance maintained by the Vendor or are caused by the gross negligence or wilful misconduct of the Vendor, its directors, officers, servants, agents, consultants, employees or assigns. The responsibility prescribed by this Clause, however, does not provide either an extension of any representation or warranty contained in Clause 7.02 or an additional remedy for the Purchaser's breach of such a representation or warranty. 8.02 Environmental Indemnity ----------------------- 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 Vendor 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 Vendor could reasonably provide access) and that the Purchaser is not relying upon any representation or warranty of the Vendor as to the condition, environmental or otherwise, of the Assets, except as is specifically made pursuant to Clause 7.01. 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 Vendor may suffer, sustain, pay or incur; and (b) indemnify and save the Vendor 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 vendor, its directors, officers, servants, agents, consultants or employees or which they may sustain, pay or incur; 159 as a direct result of any Environmental Liabilities, regardless of the date from which they may have accrued. This liability and indemnity shall apply without limit and without regard to cause or causes, including without limitation, the negligence or wilful misconduct of the parties or any other person. Once Closing has occurred, the Purchaser shall be solely responsible for all Environmental Liabilities, including, without limitation, the abandol1n1ent of all wells and the reclamation of the surface lands pertaining to the Lands, and the Purchaser hereby releases the vendor from any claims the Purchaser may have against the vendor with respect to all such liabilities and responsibilities. Nothing in this Clause, however, shall operate either to limit any representation or warranty made by the Vendor pursuant to Clause 7.01 or to affect the Purchaser's right to make a claim against the Vendor for the breach of such a representation or warranty. 9.00 CLOSING ------- 9.01 Place Of Closing ---------------- Unless otherwise agreed in writing by the Parties, Closing shall take place at the offices of the Vendor's solicitor at #900, 521 3rd Avenue S.W., Calgary , Alberta on the Closing Date. 9.02 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 foffi1 of approval which is customarily obtained subsequent to Closing. 9.03 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, provided that a change in the prices at which Petroleum Substances may be sold in no event shall be regarded as material damage to or an alteration of the Assets. In addition, the Vendor shall have delivered to the Purchaser a certificate of a senior officer of the Vendor in the form of Schedule "D"; (b) Availability of Documents: The Vendor shall have provided the nominees of the Purchaser with reasonable access to the Vendor's records and documents pertaining to the Assets pursuant to Article 4.00, in order to confirm the Vendor's title to the Assets; 160 (c) Material Compliance By Vendor: The Vendor 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 Vendor at or prior to the Closing Date; (d) Certificate That Representation Are Correct: The vendor shall have delivered to the Purchaser a certificate of a senior officer of the Vendor, in the form of Schedule "C"; and (e) Delivery of Conveyance Documents: The Vendor shall have delivered the following to the Purchaser. (i) a General Conveyance for the Assets, in the form attached as Schedule "B", which has been executed by the Vendor; (ii) all specific assignments, registerable transfers, novation agreements, trust agreements and other instruments required to convey the Assets to the Purchaser, unless and to the extent that the Purchaser allows the Vendor to deliver such documents to the Purchaser at a later date, provided that such documents shall not require the Vendor to assume or incur any obligation, or to provide any representation or warranty, beyond that contained in this Agreement; (iv) copies of all consents to disposition and waivers of preferential rights of purchase or any similar restriction obtained by the Vendor with respect to the sale of the Assets to the Purchaser; (v) originals of the Vendor'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 Vendor to deliver such records, files, reports and data at a later date; (vi) such other documents as may be specifically required hereunder or as may be reasonably requested by the Purchaser upon reasonable notice to the vendor; (vii)a written notice of the Vendor's intention to sell the Assets to the Purchaser, resign as Operator of the Lands and appoint the Purchaser as Operator in the Vendor's place, served on all working interest owners of the Lands; and (v) a copy of the corporate proceedings of the Vendor authorizing the Vendor to enter into this Agreement and consummate the transactions contemplated herein. 161 9.04 Conditional for Benefit Of Vendor --------------------------------- The obligation of the vendor 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 vendor the Purchase Price and the applicable goods and services tax in the manner provided for in Clause 2.03, subject to any adjustments provided for in Article 5.00 and any alteration expressly provided for herein; (c) Certification That Representations Are Correct: The Purchaser shall have delivered to the Vendor a certificate of a senior officer of the Purchaser, in the form of Schedule "C"; (d) Delivery Of Documents: The Purchaser shall have executed and delivered to the Vendor one copy of the General Conveyance in the form attached as Schedule "B" and such other documents as may be specifically required hereunder; and (e) Transfer of Wel1 Licenses: The Vendor shall have received evidence satisfactory to the Vendor, acting reasonably, that the relevant regulatory board or agency will approve the transfer to the Purchaser of well licenses and other licenses and permits pertaining to the Assets that are currently registered in the name of the Vendor. 9.05 Waiver Of Conditions -------------------- The conditions in Clauses 9.03 and 9.04 are for the sole benefit of the Purchaser and the Vendor 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 Vendor, any required consent of a third party to the Vendor's disposition of any of the Assets. 9.06 Failure To Satisfy Conditions ----------------------------- In the event any of the conditions in Clauses 9.03 or 9.04 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. 162 10.00 POST CLOSING ADMINISTRATION --------------------------- 10.01 Registration of Documents ------------------------- The vendor shall register promptly after Closing all documents described in Paragraph 9.03 (e) which require registration. The Purchaser shall reimburse the vendor for all costs incurred in registering such documents and shall bear all costs of preparing and registering any further assurances required to convey the Initial Interest to the Purchaser. 10.02 Vendor's Access to Documents ---------------------------- The Vendor 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. 11.00 CONFIDENTIALITY --------------- 11.01 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 vendor. 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 Vendor; or (c) is already in the Purchaser's possession at the time of disclosure, without restriction on disclosure. However, specific items of information shall not be considered to be in the public domain merely because more general information respecting the Assets is in the public domain. 11.02 Consultants And Advisors Bound ------------------------------ If the Purchaser employs consultants, advisors or agents to assist in its review of the Assets pursuant to Article 4.00, the Purchaser shall be responsible to the vendor for ensuring that such consultants, advisors and agents comply with the restrictions on the use and disclosure of information set forth in Clause 11.01 . 163 12.00 ARBITRATION ----------- 12.01 Reference To Arbitration ------------------------ 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. The Parties shall meet within seven (7) days of the receipt of a notice issued pursuant to Subclause 12.01A, to attempt to agree on a single arbitrator 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. 12.02 Proceedings ----------- A. The arbitrator selected pursuant to Clause 12.01 shall proceed as soon as is practicable to hear and deteI1l1ine 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. 13.00 ASSIGNMENT ---------- 13.01 Assignment 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 vendor to comply with its obligations respecting any preferential rights, as provided in Article 3.00. 164 13.02 Assignments By Purchase After Closing ------------------------------------- No assignment, transfer or other disposition of this Agreement or all or any portion of the assets by the Purchaser after Closing shall relieve the Purchaser from its obligations to the Vendor herein. The Vendor shall have the option to claim payment or performance of such obligations from the Purchaser or the assignee or transferee, and to bring proceedings in the event of default against either or all of them, provided that nothing herein shall entitle the vendor to receive duplicate payment or performance of the same obligation. 14.00 NOTICE ------ 14.01 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 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; (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) bv" 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, Sundays 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. 165 14.02 Addresses For Notices --------------------- The address for service of notices hereunder of each of the Parties shall be as follows: VENDOR: STARROCK RESOURCES LTD. #900, 521- 3rd Avenue S.W. Calgarv Alberta T2P 3T3 Telecopier: (403) 264-6654 PURCHASER: PROMAX ENERGY INC. #810, 1122 - 4th Street S.W Calgary, Alberta T2M lMl 14.03 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. 15.00 PUBLIC ANNOUNCEMENTS -------------------- 15.01 Approval Required For Press Release ----------------------------------- A. Subject to Clause 11.01, 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 15.01A, the Vendor shall be permitted to disclose information pertaining to this Agreement and the identity of the Purchaser, to the extent required to enable the Vendor to fulfil its obligations pertaining to preferential rights of purchase and other third party rights, in accordance with Article 3.00. 15.02 Signs And Notification To Governmental Agencies ----------------------------------------------- Following Closing, the Vendor may remove any signs which indicate the Vendor'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 3.00. 166 16.00 MISCELLANEOUS PROVISIONS ------------------------ 16.01 Further Assurance ----------------- 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 Vendor shall cooperate with the Purchaser as reasonably required to secure execution by third parties of the documents referred to in Subparagraph 9.03 (e) (ii). 16.02 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. 16.03 Time ---- Time shall be of the essence in this Agreement. 16.04 No Amendment Except In Writing ------------------------------ Subject to Clause 14.03, this Agreement may be amended only by written instrument executed by the Vendor and the Purchaser. 16.05 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. 16.06 Consequence Of Termination -------------------------- If this Agreement is terminated in accordance with its terms prior to Closing, then except for the provisions of Article 11.00 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 Vendor all materials delivered to the Purchaser by the Vendor hereunder, together with all copies of them that may have been made by or for the Purchaser. 167 16.07 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. 16.08 No Merger --------- The representations, warranties, liabilities and indemnities created in this Agreement 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 vendor 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. 16.09 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. 16.10 Enurement --------- Subject to the provisions of Article 13.00, this Agreement shall be binding upon and enure to the benefit of the Parties and their respective successors and permitted assigns. IN WITNESS WHEREOF the Parties have duly executed this Agreement. STARROCK RESOURCES LTD. PROMAX ENERGY INC. Per: /S/ Al Langard Per: /S/ Robert Card Per: /S/ J.R. MacMillan 168 This is SCHEDULE "A" to an Agreement of Purchase and Sale dated March 19, 1999 between STARROCK RESOURCES LTD. as Vendor and PROMAX ENERGY INC. as Purchaser.
Part I Lands, Leases and Encumbrances ----------------------------------------- Lease Vendor's Legal P&NG Zones Expiry Working Operator Description Lease Included Date Interest of (W4M) Number in Lease M/D/Y (%) Lease Encumbrances - ------------- ----------- ---------- ---------- --------- --------- ------------- 6-6-25-7 0492020031 Base MH Indefinite 74.56 Vendor Crown Lessor Royalty - ------------- ----------- ---------- ---------- --------- --------- ------------- 19-24-8 0497100596 All 10-30-02 74.56 Vendor Crown Lessor Royalty - ------------- ----------- ---------- ---------- --------- --------- ------------- 6-24-9 0495010052 All 1-5-00 37.28 Calahoo Crown Lessor Royalty - ------------- ----------- ---------- ---------- --------- --------- ------------- 17-24-9** 0490040297 Base Indefinite 74.56 Vendor Crown Lessor Viking Royalty - ------------- ----------- ---------- ---------- --------- --------- ------------- 18-24-9 0494110451 All 11-24-99 37.28 Calahoo Crown Lessor Royalty - ------------- ----------- ---------- ---------- --------- --------- ------------- 23-24-9 0497100597 All 10-30-02 74.56 Vendor Crown Lessor Royalty - ------------- ----------- ---------- ---------- --------- --------- ------------- 24-24-9 049700598 All 10-30-02 74.56 Vendor Crown Lessor Royalty - ------------- ----------- ---------- ---------- --------- --------- ------------- 30-24-9 12286 Base MH Indefinite 74.56 Vendor Crown Lessor Royalty 12286 Viking 4-24-99 74.56 Vendor Crown Lessor Royalty 0495010054 Below 1-5-00 37.28 Calahoo Crown Lessor Viking Royalty - ------------- ----------- ---------- ---------- --------- --------- ------------- 32-24-9 37514 Base Mann Indefinite 74.56 Vendor Crown Lessor Royalty - ------------- ----------- ---------- ---------- --------- --------- ------------- 34-24-9 0495090051 All 9-14-00 29.82 Seaton Crown Lessor Jordon Royalty - ------------- ----------- ---------- ---------- --------- --------- ------------- 35-24-9 0497100600 All 10-30-02 74.56 Vendor Crown Lessor Royalty - ------------- ----------- ---------- ---------- --------- --------- ------------- 36-24-9 0497100601 All 10-30-02 74.56 Vendor Crown Lessor Royalty - ------------- ----------- ---------- ---------- --------- --------- ------------- 2-24-10 0493040043 Base Indefinite 74.56 Vendor Crown Lessor Mann Royalty - ------------- ----------- ---------- ---------- --------- --------- ------------- 11-24-10 39535 Base Indefinite 74.56 Vendor Crown Lessor Viking Royalty 0498040317 Below 4-30-03 74.56 Vendor Crown Lessor Viking Royalty - ------------- ----------- ---------- ---------- --------- --------- -------------
169
This is Schedule "A" to an Agreement of Purchase and Sale dated March 19, 1999 between STARROCK RESOURCES LTD. as Vendor and PROMAX ENERGY INC. as purchaser Page 2 Lease Vendor's P&NG Zones Expiry Working Operator Location Lease Included Date Interest of (W4M) Number in Lease M/D/Y (%) Lease Encumbrances - --------------------------------------------------------------------------------- 13-24-10 0493040044 Base Mann 4-1-99 74.56 Vendor Crown Lessor Royalty - --------------------------------------------------------------------------------- 14-24-10 12286 Base Mann 10-30-02 74.56 Vendor Crown Lessor Royalty 12286 Viking 4-29-99 74.56 Vendor Crown Lessor Royalty 0495010055 Below 1-5-00 37.28 Calahoo Crown Lessor Viking Royalty - --------------------------------------------------------------------------------- 25-24-10 0496070046 All 7-11-00 74.56 Vendor Crown Lessor Royalty - --------------------------------------------------------------------------------- 7-25-8 0499020043 All 2-3-04 74.56 Vendor Crown Lessor Royalty - --------------------------------------------------------------------------------- 9-25-8 0498040318 All 4-30-03 74.56 Vendor Crown Lessor Royalty - --------------------------------------------------------------------------------- 15-25-8 0492010234 Base Mann Indefinite 45.31 Vendor Crown Lessor Royalty - --------------------------------------------------------------------------------- 16-25-8 0498040322 All 4-30-03 45.31 Vendor Crown Lessor Royalty - --------------------------------------------------------------------------------- 17-25-8 0498040323 All 4-30-03 74.56 Vendor Crown Lessor Royalty - --------------------------------------------------------------------------------- 18-25-8 0499020044 All 2-3-04 74.56 Vendor Crown Lessor Royalty - --------------------------------------------------------------------------------- 20-25-8 0492010235 Base Mann Indefinite 50.56 Vendor Crown Lessor Royalty - --------------------------------------------------------------------------------- 21-25-8 0492010236 Base Mann Indefinite 74.56 Vendor Crown Lessor Royalty - --------------------------------------------------------------------------------- 28-25-8 0492010237 Base Mann Indefinite 74.56 Vendor Crown Lessor Royalty - --------------------------------------------------------------------------------- 1-25-9 0497100603 All 10-30-02 74.56 Vendor Crown Lessor Royalty - --------------------------------------------------------------------------------- 4-25-9 8435 Base Mann Indefinite 74.56 Vendor Crown Lessor Royalty - --------------------------------------------------------------------------------- 5-25-9 12276 Base Mann Indefinite 74.56 Vendor Crown Lessor Royalty - --------------------------------------------------------------------------------- 170 - --------------------------------------------------------------------------------- 9-25-9 38435 Base Mann Indefinite 74.56 Vendor Crown Lessor Royalty - --------------------------------------------------------------------------------- 11-25-9** 0491070294 Base Indefinite 74.56 Vendor Crown Lessor Viking Royalty 0498040324 Below 4-30-03 74056 Vendor Crown Lessor Viking Royalty - --------------------------------------------------------------------------------- 12-25-9 0491030315 Base Indefinite 74.56 Vendor Crown Lessor Viking Royalty 0498040325 Below 4-30-03 74.56 Vendor Crown Lessor Viking Royalty - ---------------------------------------------------------------------------------
171 This is SCHEDULE "A" to an Agreement of Purchase and Sale dated March 19, 1999 between STARROCK RESOURCES LTD. as Vendor and PROMAX ENERGY INC. as Purchaser Page 3 All the above leases are subject to a 5% GORR. The leases marked with an ** are subject to an additional 6% GORR. Part II - Production Sales Contracts ------------------------------------- [None] Part III - Unit Agreements --------------------------- [None] Part IV - Facility Agreements ------------------------------- [None] 172 This is SCHEDULE "A" to an Agreement of Purchase and Sale dated March 19, 1999 between STARROCK RESOURCES LTD. as Vendor and PROMAX ENERGY INC. as Purchaser Page 4 Part V- Wells and Gathering Systems -------------------------------------- Cessford Equipment --------------------
Location (W4M) License Number Vendor Interest % - ------------------------ --------------------- -------------------- - ------------------------ --------------------- -------------------- 15-27-24-8 0205307 74.56 - ------------------------ --------------------- -------------------- 10-17-24-9 0146609 74.56 - ------------------------ --------------------- -------------------- 10-17-24-9 0176525 74.56 - ------------------------ --------------------- -------------------- 7-30-24-9 163072 74.56 - ------------------------ --------------------- -------------------- 7-30-24-9 0090208 74.56 - ------------------------ --------------------- -------------------- 9-32-24-9 0096821 74.56 - ------------------------ --------------------- -------------------- 12-2-24-10 161668 74.56 - ------------------------ --------------------- -------------------- 12a-2-24-10 163073 74.56 - ------------------------ --------------------- -------------------- 13-2-24-10 0076860 74.56 - ------------------------ --------------------- -------------------- 12-11-24-10 0075362 74.56 - ------------------------ --------------------- -------------------- 14-11-24-10 0145307 74.56 - ------------------------ --------------------- -------------------- 6-14-24-10* 0051035 74.56 - ------------------------ --------------------- -------------------- 6-6-25-7 0204986 74.56 - ------------------------ --------------------- -------------------- 6-15-25-8 0217157 45.31 - ------------------------ --------------------- -------------------- 8-16-25-8 0217156 45.31 - ------------------------ --------------------- -------------------- 6-20-25-8 0217843 74.56 - ------------------------ --------------------- -------------------- 6-21-25-8 0206367 74.56 - ------------------------ --------------------- -------------------- 10-28-25-8 0209012 74.56 - ------------------------ --------------------- -------------------- 6-4-25-9 0050887 74.56 - ------------------------ --------------------- --------------------
173 This is SCHEDULE "A" to an Agreement of Purchase and Sale dated March 19, 1999 between STARROCK RESOURCES LTD. as Vendor and PROMAX ENERGY INC. as Purchaser Page 5
- ------------------------ --------------------- -------------------- Location (W4M) License Number Vendor Interest (%) - ------------------------ --------------------- -------------------- 7-5-25-9 0051972 74.56 - ------------------------ --------------------- -------------------- 6-9-25-9 0052198 74.56 - ------------------------ --------------------- -------------------- 7-9-25-9 0412019 74.56 - ------------------------ --------------------- -------------------- 9-11-25-9 0189572 74.56 - ------------------------ --------------------- -------------------- 15-12-25-9 0151802 74.56 - ------------------------ --------------------- -------------------- - ------------------------ --------------------- -------------------- TOTALS - ------------------------ --------------------- -------------------- *Dehydrator Located at 6-14-24-10
174 This is SCHEDULE "A" to an Agreement of Purchase and Sale dated March 19, 1999 between STARROCK RESOURCES LTD. as Vendor and PROMAX ENERGY INC. as Purchaser Page 6
Cessford Pipeline ------------------ From To Outside Wall Line Location Location Diameter Thickness Length Number (W4M) (W4M) (inches) (inches) (Miles) - ----------- ----------- ----------- ----------- ----------- ----------- - ----------- ----------- ----------- ----------- ----------- ----------- 2 6-4-25-9 6-24-24-10 4.50 .125 4.25 - ----------- ----------- ----------- ----------- ----------- ----------- 18 6-24-24-10 6-14-24-10 4.50 .125 1.34 - ----------- ----------- ----------- ----------- ----------- ----------- - ----------- ----------- ----------- ----------- ----------- ----------- 7 6-14-24-10 3-6-24-10 3.50 .125 4.48 - ----------- ----------- ----------- ----------- ----------- ----------- 17 3-6-24-10 16-36-23-11 3.50 .125 .65 - ----------- ----------- ----------- ----------- ----------- ----------- - ----------- ----------- ----------- ----------- ----------- ----------- 14 7-30-24-9 6-30-24-9 2.50 .125 .15 - ----------- ----------- ----------- ----------- ----------- ----------- 15 13-2-24-10 12-11-24-10 2.50 .125 .80 - ----------- ----------- ----------- ----------- ----------- ----------- 16 12-11-24-10 6-14-24-10 2.50 .125 .80 - ----------- ----------- ----------- ----------- ----------- ----------- Total 4.50 inch line = 5.59 Total 3.50 inch line = 5.13 Total 2.50 inch line = 1.75
Replacement Value for Pipeline is projected at $15,000 per inch mile Calculated As: 4.50*5.59)(15,000) = 377,325 3.50(5.13)(15,000) = 269,325 2.50(1.75)15,000) = 65,625 Total Replacement Value $712,275 Establish Present Day Value at 75% of replacement value to allow for repairs if necessary $534,206 Vendor's Value at 74.56% Interest = $398,300 175 This is SCHEDULE "A" to an Agreement of Purchase and Sale dated March 19, 1999 between STARROCK RESOURCES LTD. as Vendor and PROMAX ENERGY INC. as Purchaser Page 7 Part VI Authorizations for Expenditure For Which Purchaser is Responsible ---------------------------------------------------- [None] Part VII Preferential Purchase Rights --------------------------------------- [None] Part VII Processing, Treating, Transportation and Contract Operating Agreements -------------------------------------------------------------- [None] Part IX Penalties --------------------- [None] 176 This is SCHEDULE "B" to an Agreement of Purchase and Sale dated March 19, 1999 between STARROCK RESOURCES LTD.as Vendor and PROMAX ENERGY INC. As Purchaser GENERAL CONVEYANCE Cessford Area, Alberta This Conveyance made this 19th day of March,1999. BETWEEN. STARROCK RESOURCES LTD. having an office in the City of Calgary, in the Province of Alberta (hereinafter called the "Vendor") - and - PROMAX ENERGY INC., a body corporate, having an office in the City of Calgary,in the Province of Alberta (hereinafter called the "Purchaser") WHEREAS the Vendor has agreed to sell and convey the Vendor's entire right, title, estate and interest in the Assets to the Purchaser and the Purchaser has agreed to purchase and accept all of the Vendor's right, title, estate and interest in and to the Assets; THE PARTIES AGREE AS FOLLOWS: 1. Definitions ----------- In this Conveyance, including the recitals, "Agreement" means the Agreement of Purchase and Sale dated the 19th day of March, 1999, between the Vendor and the Purchaser. In addition, the definitions provided for in the Agreement are adopted in this Conveyance. 2. Conveyance ---------- The Vendor , for the consideration provided for in the Agreement, the receipt and sufficiency of which is acknowledged by the Vendor, sells, assigns, transfers and conveys the Initial Interest to the Purchaser, and the Purchaser purchases and accepts such interest from the Vendor, TO HAVE AND TO HOLD the same absolutely, subject to the terms of the Agreement, the Permitted Encumbrances and compliance with the terms of the Leases. 3. Effective Time -------------- This Conveyance is effective as of the Closing Date. 177 4. Subordinate Document -------------------- This Conveyance is executed and delivered by the Parties pursuant to the Agreement for the purposes of the provisions of the Agreement, and the terms hereof shall be read in conjunction with the terms of the Agreement. The Agreement shall prevail if there is a conflict between the provisions of the Agreement and this Conveyance. 5. Enurement --------- This Conveyance ensures to the benefit of and is binding upon the Parties and their respective successors and permitted assigns. 6. Further Assurances ------------------ Each Party shall, after the date of this Conveyance, at the request of the other Party and without further consideration, do all further acts and execute and deliver all further documents which are reasonably required to perform and carry out the terms of this Conveyance. IN WITNESS WHEREOF the Parties have duly executed this Conveyance. STARROCK RESOURCES LTD. PER: /S/ Al Langard ---------------------------------- PER: ---------------------------------- PROMAX ENERGY INC. PER: /S/ Robert Card ---------------------------------- PER: /S/ J.R. MacMillan ---------------------------------- 178 This is SCHEDULE "C" to an Agreement of Purchase and Sale dated March 19, 1999, between STARROCK RESOURCES LTD. as Vendor and PROMAX ENERGY INC. as Purchaser VENDOR'S/PURCHASER'S OFFICER'S CERTIFICATE -------------------------------------------- (REPRESENTATIONS ARE TRUE) RE: Article 7.00 of the Agreement of Purchase and Sale ("Agreement") dated March 19, 1999, between STARROCK RESOURCES LTD. as Vendor and PROMAX ENERGY INC. as Purchaser. Unless otherwise stated, the definitions provided for in the Agreement are adopted in this Certificate. I, (name), (position) of (name of party) ("the Vendor" or "the Purchaser") hereby certify that: 1. Each of the covenants, representations and warranties of the (Vendor/Purchaser) contained in Article 7.00 of the Agreement is true and correct in all material respects as of the Closing Date. 2. This Certificate is made for and on behalf of the Vendor and is binding upon it, and I am not incurring and will not incur any personal liability whatsoever with respect to it. 3. This Certificate is made with full knowledge that the Vendor is relying on the same for the Closing of the transactions contemplated by the Agreement. IN WITNESS WHEREOF I have executed this Certificate the 19th day of March, 1999. ____________________________ ____________________________ WITNESS (OFFICER'S NAME) 179 This is SCHEDULE "D" to an Agreement of Purchase and Sale dated March 19, 1999, between STARROCK RESOURCES LTD. as Vendor and PROMAX ENERGY INC. as Purchaser VENDOR'S OFFICER'S CERTIFICATE ------------------------------ (NO SUBSTANTIAL DAMAGE) RE: Article 9.00 of the Agreement of Purchase and Sale ("Agreement") dated March 19, 1999, between STARROCK RESOURCES LTD, as Vendor and PROMAX ENERGY INC. as Purchaser. Unless otherwise stated, the definitions provided for in the Agreement are adopted in this Certificate. I, AL LANGARD, President of STARROCK RESOURCES LTD. ("the Vendor") hereby certify that: 1. To the best of the information, knowledge and belief of the Vendor, there has been no damage to or alteration of the Assets between the Effective Date and the Closing Date that would materially and adversely affect the value of the Assets. 2. This Certificate is made for and on behalf of the Vendor and is binding upon it, and I am not incurring and will not incur any personal liability whatsoever with respect to it. 3. This Certificate is made with full knowledge that the Purchaser is relying on the same for the Closing of the transactions contemplated by the Agreement. IN WITNESS WHEREOF I have executed this Certificate the 19th day of March, 1999. /S/ Al Langard" AL LANGARD, PRESIDENT --------------------- ---------------------------- 180 RECEIPT (G.S.T.) Starrock Resources Ltd. Hereby acknowledges receipt of the amount of Twenty-Seven Thousand, Seven Hundred One Dollar and Eighty Cents ($27,701.80) from Promax Energy Inc. this day of March, 1999. Starrock Resources Ltd. Per: /S/ Al Langard ----------------------------- 181 RECEIPT (G.S.T.) Starrock Resources Ltd. Hereby acknowledges receipt of the amount of One Million Eight Hundred Fifty Eight Thousand, Seven Hundred Sixty-Seven Dollars and Seventy-Nine Cents ($1,858,767.79) from Promax Energy Inc. this day of March, 1999. Starrock Resources Ltd. Per: /S/ Al Langard ---------------------------- 182 NEGATIVE PLEDGE AND UNDERTAKING --------------------------------- March 19, 1999 STARROCK RESOURCES l TD. #900, 521- 3 Avenue S.W. Calgary, Alberta T2P 3T3 Dear Sirs: In consideration of Starrock Resources Ltd. {the "Starrock") offering options as set forth in the Agreement of Purchase and Sale dated March 19, 1999 between Promax Energy Inc. and Starrock Resources Ltd., the undersigned undertakes and agrees that it will from time to time, when requested in writing by Starrock, and for so long as the said options remain unexercised by PROMAX ENERGY INC., immediately execute and deliver to, and in favour of Starrock, such further security, in the form Starrock requests on its assets and undertaking, whether now owned or hereafter acquired, including, without limitation, security in the form of fixed charges, floating charges, specific assignments of proceeds and contracts and general assignments of debts. The undersigned further undertakes and agrees that so long as the said options remain available to PROMAX ENERGY INC., and until the undersigned is released from its obligations under this letter of undertaking, it will maintain its assets and undertaking free from any and all mortgages, liens, charges, or security interests other than those granted to and in favour of Starrock. Given at the City of Calgary, in the Province of Alberta PROMAX ENERGY INC. Per: /S/ Robert Card ---------------------------- Per: /S/ J.R. McMillan ---------------------------- 183 PURCHASER'S OFFICER'S CERTIFICATE ----------------------------------- (REPRESENTATIONS ARE TRUE) RE: Article 7.00 of the Agreement of Purchase and Sale (" Agreement") dated March 19, 1999, between STARROCK RESOURCES LTD. As Vendor and PROMAX ENERGY INC. as Purchaser. Unless otherwise stated, the definitions provided for in the Agreement are adopted in this Certificate. I, Robert L. Card, Chairman of the Board of Directors of Promax Energy Inc. ("the Purchaser") hereby certify that: 1. Each of the covenants, representations and warranties of the Purchaser contained in Article 7.00 of the Agreement is true and correct in all material respects as of the Closing Date. 2. This Certificate is made for and on behalf of the Purchaser and is binding upon it, and I am not incurring and will not incur any personal liability whatsoever with respect to it. 3. This Certificate is made with full knowledge that the Purchaser is relying on the same for the Closing of the transactions contemplated by the Agreement. IN WITNESS WHEREOF I have executed this Certificate the 19th day of March, 1999. /S/ J.R. MacMillan /S/ Robert Card -------------------- -------------------- WITNESS ROBERT L.CARD 184 VENDOR'S OFFICER'S CERTIFICATE --------------------------------- (NO SUBSTANTIAL DAMAGE) RE: Article 9.00 of the Agreement of Purchase and Sale ("Agreement") dated March 19, 1999, between STARROCK RESOURCES LTD, as Vendor and PROMAX ENERGY INC. as Purchaser. Unless otherwise stated, the definitions provided for in the Agreement are adopted in this Certificate. I, AL LANGARD, President of STARROCK RESOURCES LTD. ("the Vendor") hereby certify that: 1. To the best of the information, knowledge and belief of the Vendor, there has been no damage to or alteration of the Assets between the Effective Date and the Closing Date that would materially and adversely affect the value of the Assets. 2. This Certificate is made for and on behalf of the Vendor and is binding upon it, and I am not incurring and will not incur any personal liability whatsoever with respect to it. 3. This Certificate is made with full knowledge that the Purchaser is relying on the same for the Closing of the transactions contemplated by the Agreement. IN WITNESS WHEREOF I have executed this Certificate the 19th day of March, 1999. /S/ Al Langard -------------------------- AL LANGARD, PRESIDENT 185 VENDOR'S OFFICER'S CERTIFICATE ------------------------------- (REPRESENTATIONS ARE TRUE) RE: Article 7.00 of the Agreement of Purchase and Sale ("Agreement") dated March 19, 1999, between STARROCK RESOURCES LTD. as Vendor and PROMAX ENERGY INC. as Purchaser. Unless otherwise stated, the definitions provided for in the Agreement are adopted in this Certificate. I, Al Langard, President, of Starrock Resources Ltd.. ("the Vendor") hereby certify that: 1. Each of the covenants, representations and warranties of the Vendor contained in Article 7.00 of the Agreement is true and correct in all material respects as of the Closing Date. 2. This Certificate is made for and on behalf of the Vendor and is binding upon it, and I am not incurring and will not incur any personal liability whatsoever with respect to it. 3. This Certificate is made with full knowledge that the Vendor is relying on the same for the Closing of the transactions contemplated by the Agreement. IN WITNESS WHEREOF I have executed this Certificate the 19th day of March, 1999. /S/ Al Langard ------------------------ AL LANGARD, PRESIDENT 186 May 1, 1999 PROMAX ENERGY INC. #810, 1122- 4th Street S.W. Calgary , Alberta T2M 1M1 Attention: Mr. Barclay Hambrook, President Dear Mr. Hambrook Re: Fixed and Floating Charge Debenture Granted by Promax Energy Inc. ("Promax") to Starrock Resources Ltd. ("Starrock") In conjunction with the closing of the transactions contemplated in the Agreement of Purchase and Sale dated March 19,. 1999 (" Agreement") between Starrock and Promax, Promax granted Starrock a Fixed and Floating Charge Debenture ("Debenture"), charging all property conveyed to Promax pursuant to the Agreement. As per instructions from Starrock, we did not register the Debenture with the Personal Property Registry of Alberta or by way of caveat or security notice against any leases conveyed to Promax. We have been instructed by Starrock to inform Promax that it is terminating the Debenture. The cancellation of the Debenture does not, however, abrogate, extinguish or diminish the obligations of Promax pursuant to the Agreement. Sincerely, /S/ Al Langard - ------------------ AL LANGARD 187 /Letterhead/ DRUMMOND PHILLIPS & SEVALRUD Barristers & Solicitors Allan L. Holme Direct Line: 221-8705 Assistant: Linda Wilson Direct Line: 221-8719 Our File No: 12771/06/MJL April 5, 1999 Mr. Al Langard Starrock Resources Ltd. Box 19, Site 10, RR 4 Calgary , Alberta T2M 4L4 Dear Mr. Langard: Re: Sale by Starrock Resources Ltd. ("Starrock") to Promax Energy Inc. ("Promax")of Assets in Cessford Area of Alberta We confirm completion of the above noted matter and accordingly enclose herewith the following: 1. fully executed copy of the Fixed and Floating Charge Debenture granted by Promax to Starrock, charging all property in Schedule" A" and after acquired property in the "Secured Property Area It as defined in item (k) on page 3; 2. our statement of account for services rendered herein. We confirm your previous instructions during our meeting of March 8, 1999, that we are not to register the enclosed debenture at the Personal Property Registry of Alberta or by way of caveat or security notice against the leases. However, we have recommended that such registrations be effected to protect Starrock's security and maintain its priority over other creditors of Promax or third party purchasers of the assets. We will await your further instructions in this regard. We understand that you have complete copies of all other closing documentation. Should you require another copy of any of the closing documents, please do not hesitate to contact our office directly. We trust you will find the foregoing and enclosed satisfactory and thank you for allowing us to be of service to you in this matter. Yours very truly, DRUMMOND, PHILLIPS & SEVALRUD /S/ Allan Holme ALLAN L. HOLME 900, 521 3rd Avenue S.W. Calgary, Alberta T2P 3T3 E-mail: dpslaw@telusplanet.net Facsimile: 403.264.6654 Telephone: 403.221.8700 188 FIXED AND FLOATING CHARGE-DEBENTURE ------------------------------------ 1. PROMAX ENERGY INC., a corporation incorporated having an office in the City of Calgary, in the Province of Alberta (hereinafter called the "Corporation"), for value received as security for the Corporation's obligations under an Agreement of Purchase and Sale dated March 19, 1999 between the Corporation and Starrock Resources Ltd. ('' Agreement of Purchase and Sale"), hereby acknowledges itself indebted and promises to pay to STARROCK RESOURCES LTD. (who and whose successors and assigns as holders of this Debenture are hereinafter collectively called the "Holder"), the sum of FOUR MILLION NINE HUNDRED AND FORTY TWO THOUSAND SEVEN HUNDRED AND SIXTY-EIGHT DOLLARS AND THIRTY FIVE CENTS ($4,942,768.35) being the Option Interest Purchase Price and also to pay to the Holder the Exercise Bonus Amount(s) payable under the Agreement of Purchase and Sale, in lawful money of Canada (hereinafter called the "principal sum") at #900, 521- 3 A venue S. W. , the City of Calgary, in the Province of Alberta, Canada. 2. In this Debenture, including this clause and any schedules hereto, unless there is something in the subject matter or context inconsistent therewith : (a) "Governmental Requirement" means any law, statute, code, ordinance, order, rule, regulation, judgment, decree, injunction, franchise, permit, certificate, licence, authorization or other direction or requirement (including, without limitation, any of the foregoing which relates to environmental standards or controls, energy regulations and occupational safety and health standards or controls) of any federal, provincial, county, municipal or other government, department, commission, board, court, agency or any other instrumentality or any of them, that exercises jurisdiction over the Corporation or any part of the Mortgaged Premises; (b) "hydrocarbons" means solid, liquid and gaseous hydrocarbons and any natural gas whether consisting of a single element or of two or more elements in chemical combination or uncombined and any other substances, whether a hydrocarbon or not, produced in association therewith and, without restricting the generality of the foregoing, includes oil-bearing shale, tar sands, crude oil, petroleum, helium and hydrogen sulphide; (c) "lien hereto" or "lien hereof" or "lien of this Debenture" means the security created or expressed to be created or required to be created by the Corporation by any provision of this Debenture; (d) "Mortgaged Premises" and "Mortgaged Property" mean all of the undertaking, property and assets, both present and future, of the Corporation, of whatsoever nature and kind and wheresoever situated, that are from time to time subject to any security interests, mortgages, liens, assignments, transfers, hypothecations, pledges or charges created under or secured by this Debenture" or by any indenture supplementary hereto and includes the Specifically Mortgaged Property and the Specifically Assigned Property. (e) "Operating equipment" means all surface and subsurface machinery, apparatus, equipment, facilities and other property and assets of whatsoever nature and kind (excluding drilling rigs, service 189 rigs, trucks, automotive equipment or other property or assets taken on the said lands or any part thereof to drill, service, stimulate or rework any well or wells or to conduct any other temporary operations on the said lands relative to exploring for or producing hydrocarbons) now or hereafter located on any of the said lands that are used or useful for the production, treatment, storage or transportation of any of the hydrocarbons including, without limiting the generality of the foregoing, oil wells, gas wells, water wells, injection wells, disposal wells, casing, tubing, rods, pumps and pumping equipment, christmas trees and other wellhead equipment, separators, flow lines, tanks, treaters, heaters, plants and systems to gather, treat and/or compress hydrocarbons, plants and systems to treat, dispose of or inject water or other substances, power plants, poles, lines, transformers, starters, controllers, machine shops, tools, spare parts and spare equipment, telegraph, telephone, radio and other communication equipment, racks, storage facilities, land records, contracts and seismic and geological data; (f) "permitted encumbrances" means: (i) liens for taxes not yet due or the validity of which is being contested in good faith by the Corporation and liens for the excess of the amount of any past due taxes for which a final assessment has not been received over the amount of such taxes as estimated by a responsible representative of the Corporation and in respect of which the Corporation has set aside cash reserves sufficient to fully pay and satisfy the same; (ii) undetermined or inchoate liens or charges incidental to current operations which have not at the time been duly registered in accordance with applicable law against the Corporation or its property and of which no notice has been served upon the Corporation in accordance with such law and in respect of which the Corporation has set aside cash reserves sufficient to fully pay and satisfy the same; (iii)liens incurred or created in the ordinary course of business on the Specifically Mortgaged Premises in favour of any other person who is conducting the development or operation of the Specifically Mortgaged Premises the cost of which would otherwise have been paid by the Corporation and in respect of which the Corporation has set aside cash reserves sufficient to fully pay and satisfy the same; (iv) pooling or unitization agreements hereinafter entered into by the Corporation in the ordinary course of business covering any part of the Specifically Mortgaged Premises; (v) assignments now or at any time hereinafter made by the Corporation to the Holder covering all or any part of the petroleum and natural gas rights owned from time to time by the Corporation whether or not the same form part of the Specifically Mortgaged Premises or otherwise, such assignments being made as collateral security for any present or future debts, liabilities or obligations of the Corporation to the Holder' 190 (vi) easements or rights in land granted to public utilities, pipe line owners, common carriers or similar bodies or to any municipality or governmental or other public authority which are not of such nature as to prevent or materially affect the use, for the purposes of the Corporation, of the Specifically Mortgaged Premises that is subject thereto; (vii) any interest of a third party under any pooling, unit, development, farmout, royalty or operating agreement affecting the petroleum and natural gas rights forming part of the Specifically Mortgaged Premises in effect at the date hereof, (viii) any lease or sublease of substances other than hydrocarbons granted by the Corporation; provided that any such lease or sublease does not interfere with the enjoyment by the Corporation of the Specifically Mortgaged Premises; (ix) any right of first refusal contained in any instrument affecting petroleum and natural gas rights comprising part of the Specifically Mortgaged Premises that is customary in the oil and gas industry in Canada; and (x) any general and specific assignment now or at any time hereafter made by the Corporation to the Holder of the book debts and accounts receivable of the Corporation to secure any of the present or future debts, liabilities or obligations of the Corporation to the Holder; (g) "Person" means any individual, corporation, partnership, joint venture, association, joint stock company, trust, unincorporated organization, government or any agency or political subdivision thereof, or any other form of entity recognized by law; (h) "petroleum and natural gas right" means any leasehold, permit, working royalty, overriding royalty, net profits, fee, mineral or other interest, estate or right in or in respect of any hydrocarbons including, without restricting the foregoing, any interest of the Corporation described in Schedule "A" hereto, . (i) "Receiver" means any receiver of all or any part of the Mortgaged Premises appointed pursuant to clause 17 hereof either by the Holder or by a court having jurisdiction and includes a receiver- manager; (j) "said lands" means all of those lands in or in respect of which the Corporation now holds or hereafter acquires a petroleum and natural gas right and includes those lands that are described in Schedule "A" hereto; (k) "Secured Property Area " means the geographic area described as Townships 23, 24, 25, 26 and Ranges 7, 8, 9, 10, all West of the Fourth Meridian; (l) "Specifically Assigned Property" means the hydrocarbons, together with the proceeds therefrom and receivables and all other monies accruing from time to time to the Corporation in respect of the Specifically Mortgaged Premises or any of them and referred to in subclause 4(b) hereof, 191 (m) "Specifically Mortgaged Premises" or "Specifically Mortgaged Property" means the properties, interests, rights and privileges of the Corporation set forth in subclause 4(a) hereof; and (n) "this Debenture", "hereby", "hereof" and "hereunder" means this instrument and every instrument entered into supplementary hereto or in implementation hereof; (o) all initially capitalized terms used and not otherwise defined herein shall have the meanings ascribed to those terms in the Agreement of Purchase and Sale. 3. This Debenture is not one of a series of debentures but is a single debenture, and no other debenture or other security (save and except for permitted encumbrances) shall rank in priority over or pari passu with this Debenture as a charge upon the interest of the Corporation in the Mortgaged Premises except any security granted by the Corporation to Holder. 4. As security for the payment of the principal sum, interest and all other monies from time to time secured hereby and as security for the performance and observance of the covenants, obligations and agreements on the part of the Corporation contained in this Debenture: (a ) the Corporation hereby grants, conveys, assigns, transfers, sets over, pledges, mortgages and charges as and by way of a first, fixed and specific mortgage, assignment and charge to and in favour of the Holder (subject only to the exception as to leaseholds hereinafter contained), the right, title and interest of the Corporation equal to the Unexercised Option Interest in and to: (i) the lands described in Schedule "A" hereto; (ii) the petroleum and natural gas rights held by the Corporation in the lands including the petroleum and natural gas rights of the Corporation described in Schedule "A" hereto; (iii)all lands that are or may be pooled or unitized with the lands described in Schedule "A" hereto; (iv) all operating equipment located on the lands described in Schedule "A"' (v) all leases, licences, permits, reservations, agreements, authorizations and other instruments under which the Corporation derives, holds, operates or maintains the petroleum and natural gas rights in the lands described in Schedule "A" and all rights, benefits, privileges and advantages of the Corporation to be derived therefrom; (vi) all contracts for the purchase or utilization of hydrocarbons from or allocated to the lands described in Schedule "A"; and (vii) all servitudes, leases, licences, privileges, easements, rights-of-way, rights of ingress or egress and other surface rights under which the Corporation derives or holds the right to drill for, produce, store, gather, treat or process hydrocarbons upon or in respect of the lands described in Schedule "A"' 192 (b) the Corporation hereby grants, bargains, sells, pledges, assigns, transfers, sets over and delivers unto the Holder, the right, title and interest equal to the Unexercised Option Interest now held and hereafter acquired by the Corporation in and to the: (i) all hydrocarbons produced from or allocated to the interest of the Corporation in the lands described in Schedule "A", (ii) all monies and proceeds derived from the sale or utilization of the hydrocarbons referred to in paragraph (i) of subclause 4(b) hereof; (iii) all monies receivable under contracts for the purchase, operation or utilization of hydrocarbons from or allocated to the interest of the Corporation in the lands described in Schedule "A"; and (iv) all proceeds accruing to the credit of the Corporation from time to time as a result of its ownership or operation of its interest in the petroleum and natural gas rights in the lands described in Schedule "A"; and (c) the Corporation hereby mortgages, pledges and charges as and by way of a floating charge to and in favour of the Holder (subject to the exception as to leaseholds hereinafter contained) and grants a security interest to the Holder in (i) the Corporation's estate and interest (equal to the Unexercised Option Interest) in any real property, both present and future located within or forming part of the Secured Property Area; and (ii) an interest (equal to the Unexercised Option Interest) in the Corporation's undertaking and all of the property and assets of the Corporation for the time being, both present and future, of whatsoever nature and kind and wheresoever situated (other than such property, assets, hydrocarbons and revenues of the Corporation as are validly and effectively subject to the fixed and specific mortgage, assignment and/or charge under subclauses (a) and (b) of this clause 4 or under any supplemental indenture hereto), including, without in any way limiting or restricting the generality of the foregoing, its uncalled capital and all present and future incomes, monies, sources of money, revenues, rents, creditors, accounts receivable, book debts, negotiable and non-negotiable instruments, shares, stocks, bonds, debentures, securities, choses in action, goodwill, trade marks, patents and patent rights, processes, inventions, franchises, powers, privileges, licences and all other property and things of value, real or personal, tangible or intangible, legal or equitable, that the Corporation may be possessed of or entitled to or that may at any time hereafter be acquired by the Corporation. TO HAVE AND TO HOLD the Mortgaged Premises and rights hereby conferred on the Holder for the use and purposes and with the power and authority and subject to the terms, conditions, provisos, covenants and stipulations herein expressed. 193 The mortgages and charges created and secured hereby shall not extend or apply to the last day of the term of any lease, whether oral or written, now held or hereafter acquired by the Corporation but should such mortgages or charges become enforceable and the Holder shall have determined to enforce the same, the Corporation shall thereafter stand possessed of such last day and shall hold it in trust to assign the same to any person who may acquire such term or the part thereof hereby mortgaged and charged in the course of any enforcement of the said mortgages and charges or any realization of the subject matter thereof. Notwithstanding the provisions contained in this clause 4, the Corporation shall remain liable to perform and observe all of its duties and obligations in respect of the Mortgaged Property to the same extent as if this Debenture had not been executed and the exercise by the Holder of any of its rights under this clause 4 shall not release the Corporation from performing and observing such duties and obligations and the Holder shall have no liability for the performance or observance of such duties or obligations by reason only of the execution and delivery of this Debenture. 5. (a) All parties producing, purchasing, taking, processing or receiving any hydrocarbons produced from or allocable to the interest of the Corporation in the said lands, or having in their possession any such hydrocarbons or proceeds therefrom, for which they or others are accountable to the Holder by virtue of the provisions of this Debenture, are authorized and directed to treat and regard the Holder as the assignee and transferee of the Corporation and entitled in the place and stead of the Corporation to receive the said hydrocarbons and the proceeds therefrom and are authorized and directed to remit all such proceeds directly to the Holder. and such parties and each of them shall be fully protected in so treating and regarding the Holder as such assignee and transferee and shall be under no obligation to see to the application by the Holder of any such proceeds received by it. The Corporation will, at the request of the Holder, furnish the Holder with the names of all parties purchasing or receiving such hydrocarbons and the names of all parties having in their possession such hydrocarbons or proceeds therefrom for which they or others are accountable to the Holder by virtue of this Debenture. (b) If the Corporation shall receive all or any portion of the proceeds of any sale or utilization of hydrocarbons or other monies that under subclause 4(b) hereof have been assigned to the Holder, the Corporation will hold such proceeds in trust for the Holder and will forthwith cause such proceeds to be remitted to the Holder. (c) The Corporation will execute, if and whenever requested by the Holder, transfers and division orders and all other appropriate instruments for the purpose of effecting the assignment made by the Corporation by subclause 4(b) hereof and the payment to the Holder of the production, proceeds and monies so assigned. The Corporation covenants to warrant and forever defend the title of the Holder to all proceeds of hydrocarbons and to all other monies received in accordance with the provisions hereof by the Holder and to hold the Holder and the purchaser or purchasers of 194 such hydrocarbons harmless against all liability and expense on account of any adverse claim asserted to any of such proceeds or monies. The covenants and indemnity in this subclause 5(c) contained and the lien hereof to secure the same shall survive and continue in full force and effect notwithstanding the payment of the principal sum, interest and other monies secured hereby and the release of the security of this Debenture. (d) All monies received by the Holder pursuant to the assignment contained in subclause 4(b) hereof shall be applied towards payment of the principal sum, interest and other monies secured hereby. (e) Any monies received by the Holder pursuant to this Debenture and remaining after payment in full of the principal sum, interest and of all other monies secured hereby shall, subject to the rights of other creditors of the Corporation, be paid to the Corporation, free of the assignment contained in subclause 4(b) hereof and without further obligation hereunder with respect thereto. (f) The Holder shall not be liable to ascertain the purchasers and the other persons liable for the payment of the proceeds and other monies assigned under subclause 4(b) hereof, or for its failure to collect or exercise diligence in collecting funds assigned hereunder and shall be accountable only for sums actually received by the Holder. (g) Nothing contained in this clause 5 shall, or shall be deemed, to limit the scope or effect of clause 4 hereof, or to detract from or limit the rights or remedies of the Holder under the provisions hereof including, without limitation, the right of the Holder, through a Receiver or otherwise, to collect and receive as part of the income from the Specifically Mortgaged Property all of the Corporation's income from the said lands, contracts, interests and rights described or referred to in clause 4 hereof. (h) Nothing contained herein shall detract from or limit the absolute obligation of the Corporation to make payment of all monies owing hereunder at the time and in the manner provided herein and to perform or observe hereunder, regardless of whether the proceeds or production assigned by subclause 4(b) hereof are sufficient to pay the same, or whether the assignment herein is operative or whether the proceeds or production assigned by subclause 4(b) hereof have been applied in accordance with the foregoing provisions of this clause 5, and the rights under this clause 5 shall be in addition to all other security of any and every character now or hereafter held by the Holder for the obligations of the Corporation secured hereby. (i) Whenever the principal sum, interest and other monies hereby secured shall have been paid in full and all covenants contained in this Debenture shall have been fulfilled, all to the satisfaction of the Holder, then the assignment contained in subclause 4(b) hereof shall become void and of no effect and the Holder, upon request of the Corporation, shall execute and deliver to, and at the expense of, the Corporation an instrument of release and satisfaction of the assignment contained in subclause 4(b) hereof. Until the purchaser of any hydrocarbons that are the subject of the lien hereof or other 195 person liable for the payment of monies assigned by the terms of subclause 4(b) hereof shall have received a certified copy of such an instrument of release and satisfaction or other contrary instructions from the Holder, such purchaser or other person shall make payment in accordance with the authorization and direction of this clause. The assignment evidenced by subclause 4(b) hereof shall also become void and of no effect with respect to any of the Specifically Mortgaged Property that is sold on enforcement of this Debenture, whether pursuant to the powers herein provided for or pursuant to an order of a court having jurisdiction. 6. Unless and until an Event of Default shall have occurred and be continuing and the Holder shall have determined to enforce the security hereof, the Corporation shall be permitted, in the same manner and to the same extent as if this Debenture had not been executed, but subject to the express terms hereof, to possess, operate, manage, use and enjoy the Mortgaged Premises (except for the Specifically Assigned Property that has been assigned to the Holder pursuant to subclause 4(b) hereof), to exercise discretion with respect to the drilling of or participation in wells relating to the petroleum and natural gas rights, to produce and sa'/e the hydrocarbons comprised therein and freely to control its business. 7. The Corporation represents and warrants to the Holder as follows: (a) The Corporation is a corporation duly organized, legally existing and in good standing under the laws of the Province of Alberta and is duly authorized to do business in each other jurisdiction where a failure so to qualify would have a materially adverse effect on the business or operations of the Corporation. (b) The Corporation is duly authorized and empowered to execute, deliver and perform its obligations under this Debenture and all corporate action on the part , of the Corporation for the due execution, delivery and performance by the Corporation of this Debenture has been duly and effectively taken. (c) The Corporation has all rights purported to be vested in it or any of its predecessors in title under each and every one of the documents and instruments under which it derives and holds its petroleum and natural gas rights in the said lands and its rights to the production and revenues in respect thereof and that are subject to the security hereof and all of such documents and instruments are in full force and effect in accordance with their terms. (d) This Debenture constitutes the valid and binding obligation of the Corporation, enforceable in accordance with its terms (except that such enforcement may be subject to any applicable bankruptcy, insolvency or similar laws generally affecting the enforcement of creditors' rights and that specific performance of equitable remedies is subject to the discretion of the courts before which such remedies are sought). (e) This Debenture does not and will not violate any provisions of the articles or certificate of incorporation or continuance, as the case may be, or the by-laws of the Corporation, or any contract, agreement, instrument or Governmental Requirement to which the Corporation is subject or result in the creation or 196 imposition of any lien upon the Mortgaged Premises, other than the lien of this Debenture and any lien created by the permitted encumbrances. (f) No registration or filing with, or approval by, or consent of, any Person is required to be made or obtained by the Corporation in connection with the execution, delivery or performance of this Debenture, except as may be necessary to perfect the lien hereof. (g) The Corporation has good and marketable title to the Mortgaged Property that is subject to the lien hereof, free from any lien, charge, encumbrance, claim, or notice, except for permitted encumbrances and the lien of this Debenture. (h) The Corporation : (i) is not in violation of any Governmental Requirement; and (ii) has not failed to obtain any licence, permit, franchise or other governmental authorization necessary to its ownership of the Mortgaged Premises or the conduct of its business, which violation or failure would have (in the event such violation or failure were asserted by any Person through appropriate action) a material adverse effect upon the business or operations of the Corporation. 8. The Corporation covenants and agrees with the Holder: (a ) to warrant and forever defend all and singular the Mortgaged Premises unto the Holder against every person whosoever lawfully claiming or attempting to claim the same or any part thereof, . (b) to pay the principal sum, interest and other monies hereby secured, together with other appurtenant charges thereon, in accordance with the terms of this Debenture; (c) to carry on and continuously conduct its business in respect of the Mortgaged Premises in a lawful, efficient, diligent and businesslike manner and in accordance with good oilfield practice; (d) to keep and maintain proper books of account and records accurately covering all aspects of the business and affairs of the Corporation relating to the Mortgaged Premises and to permit authorized officers, employees or agents of the Holder to inspect the same during regular business hours; (e) to advise the Holder in writing of the particulars of any acquisition by the Corporation of an interest in land located within the Secured Property Area, such particulars to be sufficiently detailed to the Holder's satisfaction; (f) to fully pay and discharge as and when the same become due and payable all taxes (including local improvement rates), rates, duties and assessments that may be levied, rated, charged or assessed against the Corporation, or the Mortgaged Premises, or any part thereof, and if the Corporation fails to pay any of such taxes, rates, duties or assessments and if it is not in good faith contesting the same, the Holder may pay, but shall not be obligated to pay, the same and any amounts so paid by the Holder shall become and form part of the principal sum secured hereby and shall bear interest at the rate aforesaid until paid; and 197 (g) to give notice to the Holder promptly of any Event of Default or of any event which with notice or lapse of time, or both, would constitute an Event of Default hereunder. 9. The Corporation further covenants and agrees with the Holder as follows: (a) The Corporation will keep and maintain in good standing all petroleum and natural gas rights that are subject to the lien hereof and will observe and perform all of its covenants and obligations under the instruments evidencing the same to the extent necessary to preserve the value of the Mortgaged Premises and in particular will to the extent necessary as aforesaid, in timely fashion pay all rentals, delay rentals, royalties and other charges accruing and payable from time to time thereunder. (b) The Corporation will conduct all drilling and production operations on the said lands in such a manner as to comply with the respective covenants and obligations contained in the various instruments under which it derives and holds its interest .in the said lands. (c) The Corporation will not, without the prior written consent of the Holder, surrender, quit claim or permit to lapse any document or instrument assigned and pledged under subclause 4(a) hereof if, as a result thereof, the value of the Specifically Mortgaged Property would be diminished. (d) The Corporation will maintain in good standing and will observe and perform all of its covenants and obligations under any agreement or instrument forming part of the Specifically Mortgaged Property now in existence or hereafter entered into by the Corporation and that is subject to the lien hereof. (e) The Corporation will keep in good standing all rights-of-way, rights-of-access, surface leases and other surface rights upon and across the said lands that are necessary or required in connection with the operations being carried on by or for the account of the Corporation thereon for the production, treating, storing or transporting of hydrocarbons and the Corporation will not abandon or dispose of the same, if they are necessary or desirable for the proper and efficient operation of the Specifically Mortgaged Property. (f) The Corporation will keep and maintain in good repair and condition all of the operating equipment reasonably necessary for the production, treating, transporting and storage of hydrocarbons produced from or allocated to the said lands and will not abandon or dispose of the same if they are necessary or useful in the proper and efficient operation of the Specifically Mortgaged Property, except upon substitution therefore other equipment adequate for those purposes. (g) The Corporation will maintain and protect from diminution the productive capacity of each producing well on the said lands, but shall not be prevented from shutting in or abandoning a well that is not economic to produce. (h) The Corporation will cause to be afforded to one or more authorized representatives of the Holder, the opportunity at any reasonable time during business hours to make such inspection as such representative or representatives shall deem proper of any 198 of the Mortgaged Premises to the extent that the Corporation itself is entitled to inspect the Mortgaged Premises. (i) The Corporation will not, without the prior written consent of the Holder, make or permit to be made any material amendment to or modification of any document or instrument that would have the effect of diminishing the value of the Specifically Mortgaged Property or of impairing the security of this Debenture. (j) The Corporation will duly perform and observe all duties, covenants, agreements and obligations on its part to be performed or observed under all documents and instruments affecting, relating to or comprising a part of the Mortgaged Premises and, unless otherwise approved of in writing by the Holder, the Corporation will maintain or cause to be maintained all such documents and instruments, insofar as and to the extent that they relate to the Mortgaged Premises, in full force and effect in accordance with their terms. (k) The Corporation will punctually take all measures reasonably necessary in the circumstances to enforce promptly the performance and observance of the obligations of all other Persons under each of the leases, agreements, contracts, documents and other instruments constituting part of the Specifically Mortgaged Premises or pertaining or relating to the Specifically Mortgaged Premises. (l) The Corporation will from time to time and at any time, at the request of the Holder, furnish the Holder with any detailed information requested concerning the Mortgaged Premises as may be available to the Corporation. (m) In the event of any damage or loss, from any cause whatsoever, to any property, any interest in which is now or hereafter included in the Specifically Mortgaged Property, the Corporation will forthwith repair such damage and replace such loss unless the repair of such damage or the replacement of loss is unnecessary or uneconomic for the production of hydrocarbons from within, upon or under the said lands. (n) The Corporation will proceed with due diligence to correct any defect in title to the Specifically Mortgaged Property should any such defect exist or be found to exist after the execution and delivery of this Debenture and will give immediate written notice of any such defect to the Holder upon becoming aware of such defect. (o) The Corporation will ensure that all the duties, agreements and obligations performable by it under each contract constituting a part of, or applicable to, the Specifically Mortgaged Property are duly performed and will maintain each such contract in full force and effect, except with the prior written approval of the Holder. (p) The Corporation will punctually take all measures reasonably necessary or desirable in the circumstances to enforce or cause to be enforced promptly the performance by the purchaser and other contracting parties under each contract constituting a part of, or applicable to, the Specifically rvlortgaged Property, of all of the obligations of the purchaser and other contracting parties under such contract. 199 (q) Where, under the provision of any contract included or applicable to the Specifically Mortgaged Property, the contracting party, other than the Corporation, may perform some act only with the permission of the Corporation, the Corporation will ensure that such approval or consent is not given unless the consent of the Holder is first obtained, if the doing of such act by that contracting party may have a material adverse effect on the security of this Debenture. 10. (a) The Corporation covenants that at all times during the continuation of this security, it will keep such of the Mortgaged Premises that are of an insurable nature and are of a character usually insured by companies owning or operating similar premises insured with responsible insurers, against loss or damage by fire and other causes customarily insured against by similar companies owning or operating the same or similar premises in Canada and within limits of coverage acceptable to the Holder. Unless otherwise agreed to in writing by the Holder, the losses under all such insurance shall be payable firstly to the Holder as its interest may appear. (b) The Corporation agrees that so long as it remains indebted to the Holder, it will, unless otherwise requested in writing by the Holder, maintain with reputable insurers third party public liability and property damage insurance covering all operations of the Corporation within limits of coverage usually carried by owners owning or operating the same or a similar type and size of business as that being conducted by the Corporation. (c) The Corporation will, upon the request of the Holder, deliver to the Holder certified copies of all policies or contracts of insurance being carried by the Corporation pursuant to the terms hereof, together with such certificates of insurance as the Holder may reasonably require and evidence that the premiums on all such insurance have been paid. (d) If the Corporation should fail to take out or maintain all or any of the insurance required to be carried by the Corporation pursuant to the terms of this Debenture, the Holder may, but shall not be obliged to, take out some or all of such insurance and all sums expended by the Holder in effecting such insurance shall forthwith become due and be payable by the Corporation to the Holder and until paid shall form part of the principal sum secured hereby and shall bear interest at the aforesaid rate to the fixed and specific lien and charge hereof or as the Holder or its legal counsel deems necessary or advisable for the perfection and protection of the mortgages, liens, charges, assignments and all other security interests created or intended to be created hereby and the rights conferred or intended to be conferred upon the Holder under this Debenture. The Corporation, at its cost and expense, will cause this Debenture and all such supplementary and corrective instruments and other documents and assurances to be promptly filed and refiled, registered and reregistered and deposited and redeposited, in such manner, in such offices and places and at such times and as often as may be required by law or as may be necessary or desirable to perfect and preserve the mortgages, liens, charges, assignments and all other security interests created or intended to be created hereby and the rights conferred or intended to be conferred upon the Holder under this Debenture, and will cause to be furnished promptly to the Holder evidence satisfactory to the Holder of such filing, registering and depositing, all at the cost and expense of the Corporation. 200 14. If the Corporation shall fail to perform any act that it is required to perform hereunder, or to pay any money that the Corporation is required to pay under the terms of this Debenture, including any expenses, payments and outlays incurred by the Holder hereunder, the Holder may perform or cause to be performed such act at the Corporation's expense, and may pay such money at the Corporation's expense, and thereupon, without prejudice to the rights of the Holder to damages and other remedies available at law or in equity hereunder or otherwise, the Corporation will immediately repay to the Holder all expenses so incurred and all amounts so paid by the Holder together with interest thereon, at a rate per annum set forth in clause 1 hereof, from and after the date of incurring such expenses or the making of such payments. The amount of all such expenses and payments together with interest thereon shall be added to the principal sum hereby secured and shall form a part of the same and shall be secured by this Debenture and, to the extent the Holder may be entitled to the same by way of subrogation, the rights against the Corporation of the Person who has received payment thereof from the Holder. 15. If any one or more of the following Events of Default occurs, the Holder may, at its sole option, exercise and on all of the remedies available to it in this Debenture and the Agreement of Purchase and Sale and any other remedies available to it at law or in equity. 16. The Holder may waive any breach by the Corporation of any of the provisions contained in this Debenture or any default by the Corporation in the observance or performance of any covenant, agreement or condition required to be kept, observed or performed by the Corporation under the terms of this Debenture; provided always that no act or omission of the Holder in the premises shall extend to or be taken in any manner whatsoever to affect any subsequent breach or default or to affect the rights of the Holder resulting therefrom. 17. Nothing done by the Holder in possession of the Mortgaged Premises shall render the Holder a mortgagee in possession or responsible as such, or in any way limit or curtail the remedies of the Holder as a mortgagee or creditor under any applicable law or statute. 18. If the security hereby constituted shall become enforceable, the Holder may, either before or after any entry, sell and dispose of all or any part of the Mortgaged Premises either as a whole or in several portions thereof, at public auction or by public tender or by private sale at such time or times and on or subject to such terms and conditions as the Holder may determine, and it shall be lawful for the Holder to make such sale, either for cash or upon credit or partly for cash and partly upon credit, and with or without advertisement, and upon such reasonable conditions as to upset, reserve bid or price and as to terms of payment as the Holder may deem proper, and the Holder may also rescind or vary any contract of sale that may have been entered into and resell with or under any of the powers conferred hereunder and adjourn any such sale from time to time and may execute and deliver to the purchaser or purchasers of the Mortgaged Premises or any part thereof good and sufficient title to the same, the Holder being hereby constituted irrevocably the attorney of the Corporation for the purpose of making such sale and for executing all deeds and documents appertaining thereto and any such sale made as aforesaid shall be a perpetual bar both at law and in equity against the Corporation and all other persons claiming the said property or any part thereof, by, from, through or under the Corporation. 201 19. Upon payment by the Corporation to the Holder of the principal sum, interest and all other monies secured by this Debenture and provided the security hereby constituted shall not have become enforceable, the Holder shall, upon written request of the Corporation, deliver up this Debenture to the Corporation and shall, at the expense of the Corporation, release and discharge the security hereby constituted and execute and deliver to the Corporation such deeds or other documents as shall be requisite to release and discharge this Debenture and the security afforded hereby, . provided, however, that this Debenture may be assigned, pledged, hypothecated or deposited by the Corporation as security for advances or loans to or for indebtedness or other obligations or liabilities (contingent or otherwise) of the Corporation and in such event this Debenture shall not be deemed to have been discharged or redeemed by reason of the account of the Corporation having ceased to be in debit balance while this Debenture remains so assigned, pledged, hypothecated or deposited. 20. No postponement or partial release or discharge of the mortgage, lien and charge created under and secured by this Debenture in respect of all or any part of the Mortgaged Premises shall in any way operate or be construed so as to release and discharge the security hereby constituted in respect of the Mortgaged Premises except as therein specifically provided, or so as to release or discharge the Corporation from its liability to the Holder to fully pay and satisfy the principal sum, interest and all other monies due or remaining unpaid by the Corporation to the Holder. 21. This Debenture is to be treated as a negotiable instrument and all persons are invited by the Corporation to act accordingly. 22. The principal sum, interest and other monies hereby secured will be paid and shall be assignable free from any right of set-off or counterclaim or equity between the Corporation and the Holder. 23. The security hereby constituted is in addition to, and not in substitution for, any other security now or hereafter held by the Holder and no payment to the Holder shall constitute payment on account of the principal sum, interest or other monies from time to time owing hereunder unless specifically so appropriated in writing by the Holder. The taking of any action or proceedings or refraining from so doing, or any other dealing with any other security for the monies secured hereby shall not release or affect the charge of this Debenture and the taking of the security hereby granted or any proceedings hereunder for the realization of the security hereby granted shall not release or affect any other security held by the Holder for the monies hereby secured. 24. Any notice that may be given by the Holder in accordance with this Debenture shall be in writing and may be given at any time either by delivering or by mailing the same addressed to the Corporation at #810, 1122- 4 Street S.vV. , Calgary, Alberta T2M 1 M1. Any notice delivered to the Corporation shall be deemed to have been given on the business day during which the same was so delivered to the Corporation and any notice mailed to the Corporation shall be conclusively deemed to have been received by the Corporation on the third business day following that on which it was so mailed. 25. This Debenture and all its provisions shall enure to the benefit of the Holder, its successors and assigns and shall be binding upon the Corporation, its successors and assigns. 202 26. Wherever the singular or masculine or neuter is used in this Debenture, the same shall be construed as meaning the plural or feminine or body corporate and vice versa, where the context or the parties so require. IN WITNESS WHEREOF the Corporation caused its corporate sea! to be hereunto affixed and these presents to be signed by its proper officers duly authorized in that behalf as of the 19th day of March, 1999. PROMAX Per: /S/ Robert Card ---------------------------- Per: /S/ J.R. MacMillan ---------------------------- 203
- ------------------------------------------------------------------------------------ Zones Vendor's P&NG Included Lease Working Operator Location Lease in Exiry Interest of (W4M) Number Lease Date (%) Lease Encumbrances - ------------------------------------------------------------------------------------ 13-24-10 0493040044 Base Mann 4-1-99 74.56 Vendor Crown Lessor Royalty - ------------------------------------------------------------------------------------ 14-24-10 12286 Base Crown Lessor Viking Indefinite 74.56 Royalty 12286 Viking 4-29-99 74.56 Crown Lessor 0495010055 Below Royalty Viking 1-5-00 37.28 Crown Lessor Royalty - ------------------------------------------------------------------------------------ 25-24-10 0496070046 All 7-11-01 74.56 Vendor Crown Lessor Royalty - ------------------------------------------------------------------------------------ 7-25-8 0499020043 All 2-3-04 74.56 Vendor Crown Lessor Royalty - ------------------------------------------------------------------------------------ 9-25-8 0498040318 All 4-30-03 74.56 Vendor Crown Lessor Royalty - ------------------------------------------------------------------------------------ 15-25-8 0492010234 Base Mann Indefinite 45.31 Vendor Crown Lessor Royalty - ------------------------------------------------------------------------------------ 16-25-8 0498040322 All 4-30-03 45.31 Vendor Crown Lessor Royalty - ------------------------------------------------------------------------------------ 17-25-8 0498040323 All 4-30-03 74.56 Vendor Crown Lessor Royalty - ------------------------------------------------------------------------------------ 18-25-8 0499020044 All 2-3-04 50.56 Vendor Crown Lessor Royalty - ------------------------------------------------------------------------------------ 20-25-8 0492010235 Base Mann Indefinite 74.56 Vendor Crown Lessor Royalty - ------------------------------------------------------------------------------------ 21-25-8 0492010236 Base Mann Indefinite 74.56 Vendor Crown Lessor Royalty - ------------------------------------------------------------------------------------ 28-25-8 0492010237 Base Mann Indefinite 74.56 Vendor Crown Lessor Royalty - ------------------------------------------------------------------------------------ 1-25-9 0497100603 All 10-30-02 74.56 Vendor Crown Lessor Royalty - ------------------------------------------------------------------------------------ 4-25-9 38435 Base Mann Indefinite 74.56 Vendor Crown Lessor Royalty - ------------------------------------------------------------------------------------ 5-25-9 12276 Base Mann Indefinite 74.56 Vendor Crown Lessor Royalty - ------------------------------------------------------------------------------------ 9-25-9 38435 Base Mann Indefinite 74.56 Vendor Crown Lessor Royalty - ------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------ 11-25-9** 0491070294 Base Vendor Crown Lessor Viking Indefinite 74.56 Royalty 0498040324 Below Vendor Crown Lessor Viking 04-30-03 74.56 Royalty - ------------------------------------------------------------------------------------ 12-25-9** 0491030315 Base Vendor Crown Lessor Viking Indefinite 74.56 Royalty 0498040325 Below Crown Lessor Viking 04-30-03 74.56 Royalty - ------------------------------------------------------------------------------------
All the above leases are subject to a 5% GORR The leases marked with an ** are subject to an additional 6% GORR 204 EX-3 9 0009.txt ADDENDUM TO AGREEMENT EXHIBIT 3.02 -------------- ADDENDUM TO AGREEMENT OF MARCH 19, 1999 DATED MARCH 19, 1999 205 ADDENDUM TO AGREEMENT DATED MARCH 19, 1999 Dated this 19th day of March, 1999 Between: Promax Energy Inc. (the "Purchaser") -and- Starrock Resources Ltd. (the "Vendor") WHEREAS: 1. The Purchaser is relying on an updated Engineering Report being prepared by Citadel Engineering Ltd. of Calgary, Alberta to establish the value of the Assets to be acquired pursuant to the Agreement of Purchase and Sale dated March 19, 1999 between Vendor and Purchaser ("Purchase Agreement"); and 2. The Purchase Agreement anticipates a value of the Assets to be in excess of Seven Million, Six Hundred Four Thousand, Two Hundred Fifty- Nine Dollars ($7,604,259.00), calculated on a constant pricing basis discounted at fifteen percent (15%). NOW THEREFORE IN CONSIDERATION OF GOOD AND VALUABLE CONSIDERATION, THE RECEIPT AND SUFFICIENCY OF WHICH IS HEREBY ACKNOWLEDGED, the Purchaser and Vendor agree that if the Engineering Report, when completed, calculates a value of less than $7,604,259.00 for the Assets, the Option Price will be adjusted accordingly. Capitalized terms used herein shall have the meanings given to them in the Purchase Agreement. PROMAX ENERGY INC. STARROCK RESOURCES LTD. Signiture Signiture 206 EX-3 10 0010.txt ADDENDUM TO AGREEMENT EXHIBIT 3.03 -------------- ADDENDUM TO AGREEMENT OF MARCH 19, 1999 DATED MAY 11, 1999 207 ADDENDUM TO AGREEMENT DATED MARCH 19, 1999. --------------------------------------------- Dated this 11th day of May, 1999. BETWEEN: PROMAX ENERGY INC. (the "Purchaser") -and- STARROCK RESOURCES LTD. (the "Vendor") The above agreement is hereby amended to read that the effective date of the transfer of the Tangibles is May 1, 1999. STARROCK RESOURCES LTD. ____________________________ PROMAX ENERGY INC. _____________________________ _____________________________ 208 EX-3 11 0011.txt AMENDING AGREEMENT EXHIBIT 3.04 -------------- AMENDING AGREEMENT DATED MAY 31, 1999 209 AMENDING AGREEMENT ---------------------- Dated this 31st day of May, 1999 Between: STARROCK RESOURCES L TD., a body corporate having an office in the City of Calgary, in the Province of Alberta (hereinafter called "Vendor") - and - PROMAX ENERGY INC., a body corporate having an office in the City of Calgary, in the Province of Alberta (hereinafter called" Purchaser" ) WHEREAS. A. Vendor and Purchaser entered into an Agreement of Purchase and Sale dated March 19, 1999 (the "Agreement"); B. Pursuant to clause 2.05 of the Agreement, Vendor granted to Purchaser five (5) options to acquire additional interests in the Assets by paying an Annual Option Interest Purchase Price; C. The Parties have agreed to amend clause 2.05 to allow Purchaser to exercise the first and second annual options by issuing common shares in Purchaser or by paying a portion of the Annual Option Interest Purchase Price and issuing the balance of the Annual Option Interest Purchase Price in the common shares of Purchaser. NOW THEREFORE in consideration of the sum of Ten ($10.00) Dollars and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Parties agree as follows: 1. All capitalized terms shall have the meaning given to them in the Agreement. 2. The Parties agree to add the following as clause 2.05(b) to the Agreement, namely: "2.05 (b) When exercising the first or second option granted pursuant to clause 2.05(a) hereof, the Purchaser, rather than paying the Annual Option Interest Purchase Price may exercise such option by electing to: 210 (i) issue common shares to the Vendor at the Regulatory Approved Price equal to the Annual Option Interest Purchase Price; or (ii) pay a portion of the Annual Option Interest Purchase Price and issue common shares to the Vendor at the Regulatory Approved Price for the balance of the Annual Option Interest Purchase Plan. For the purposes of this clause, " Regulatory Approved Price" in respect of a common share of Vendor shall mean the established market price as per regulatory guideline less any discounts allowed by the Vancouver Stock Exchange (or any other Canadian or United States stock exchange on which the shares shall then be listed if the shares shall not then be listed on the Vancouver Stock Exchange)." 3. If the shares are not listed upon a stock exchange in Canada or the United States the election described in Item 2 above will not be available to the Purchaser. 4. All other terms and conditions in the Agreement are hereby ratified and confirmed. IN WITNESS WHEREOF the Parties have executed this Agreement as of the date first above written. STARROCK RESOURECS LTD. PROMAX ENERGY INC. Per. /S/ Al Langard Per: /S/ Barclay Hambrook - ----------------------- --------------------------- Per: /S/ Robert Card --------------------------- 211 EX-3 12 0012.txt REVISED AGREEMENT EXHIBIT 3.05 -------------- REVISED AGREEMENT OF PURCHASE AND SALE, DATED AUGUST 27, 1999 212 REVISED AGREEMENT OF PURCHASE AND SALE CESSFORD AREA. ALBERTA ----------------------- THIS AGREEMENT MADE THIS 31st DAY OF AUGUST, 1999. BETWEEN: STARROCK RESOURCES LTD., a body corporate having an office in the City of Calgary, in the Province of Alberta (hereinafter called the "Vendor") -and- PROMAX ENERGY INC., a body corporate having an office in the City of Calgary, in the Province of Alberta (hereinafter called the"Purchaser") WHEREAS the Vendor and Purchaser have executed the following documents, copies of which are attached hereto as Schedule " A " and hereinafter referred to as the "Cessford Initial Sale Documents". a. General Conveyance -4 pages including table of contents dated March 19, 1999. b. Agreement of Purchase and Sale - 44 pages including schedules, copies of checks, and receipts dated March 19, 1999. c. Addendum to Agreement dated March 19, 1999- I page dated May 11, 1999. d. Negative Pledge and Undertaking- 1 page dated March 19, 1999. e. Purchasers Officers Certificate - 1 page dated March 19, 1999. f. Vendors Officers Certificate - 1 page dated March 19, I 999. g. Vendors Officers Certificate - 1 page dated March 19, 1999. h. Addendum to Agreement dated March 19, 1999- 1 page dated March 19, 1999. i. Amending Agreement - 2 pages dated May 31, 1999. j. Letter from Vendor to Purchaser- 1page dated May 1, 1999. k. Fixed and Floating Charge Debenture - 18 pages dated March 19, 1999. WHEREAS Yorkton Securities Inc. ("Yorkton") have entered into a letter agreement comprising of 4 pages dated August 31, 1999 attached hereto as Schedule "8" and hereinafter referred to as the "Yorkton Agent Letter".WHEREAS in order for Yorkton to proceed, as per the terms of the Yorkton Agent Letter, the Purchase and Sale, as per the Cessford Initial Sale Documents, must be restructured. WHEREAS the Vendor has agreed to sell the Assets to the Purchaser and the Purchaser has agreed to purchase the Assets from the Vendor 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: 1.00 CESSFORD INITIAL SALE DOCUMENTS - ------------------------------------ 1.01 The Cessford Initial Sale Documents, as described above under headings a-k above and attached hereto as Schedule " A ", are hereby cancel led in their entirety subject to item 3.02 and item 4.00 herein. 213 1.02 The terms used in item 2.00 below will have the same meaning assigned to them as per section 1.00 of the Agreement of Purchase and Sale dated March 19, 1999 described above under heading (b) and attached hereto as a part of Schedule " A'. This Agreement will hereinafter be referred to as the "March 19 Agreement". 2.00 PURCHASE AND SALE - ---------------------- 2.01 Agreement of Purchase and Sale The Purchaser agrees to purchase the Assets from the Vendor and the Vendor agrees to sell the Assets to the Purchaser on the terms and conditions set forth herein. 2.02 Allocation of Purchase Price The Purchase Price payable by the Purchaser to the Vendor for the Assets, subject to item 2.04 herein, is $2, 677,018.70 and shall be allocated among the Assets as follows: a. To Petroleum and Natural Gas Rights $ 2,281,277.70 b. To Tangibles $ 395,740.00 c. To Miscellaneous Interests $ 1.00 -------------- $ 2,677,018.70 In determining the Purchase Price, the Parties have taken into account the Purchasers assumption of responsibility for the future abandonment and reclamation costs associated with the Assets, and the is released of responsibility therefor. 2.03 Payment of Purchase Price The Vendor acknowledges that the Purchaser has paid the Purchase Price of$2,677,018.70 and GST in the amount of$27, 701.80, which represents 7% of the Tangibles. 2.04 Net Profits Interest a. "Net Profits Interest" is defined as Gross Production Revenue less; Crown Royalties, other Royalties disclosed in the March 19 Agreement; and Field Operating Costs. b. "Additional Rights" is defined as any Petroleum and Natural Gas Rights acquired by the Purchaser, not included in the "Petroleum and Natural Gas Rights" and located in Townships 24 and 25- Ranges 8,9, and 10- W4M, "Cessford Area", prior to December 31, 1999. c. The Vendor retains a fifteen percent (15%) Net Profits Interest in the Petroleum and Natural Gas Rights, but forfeits any payments that may become due prior to January 1, 2001 to the Purchaser. d. The Vendor is granted a fifteen percent (15%) Net Profits Interest on the Additional Rights for one dollar and other good and valuable consideration, which has been paid, but forfeits any payments that may become due prior to January I, 2001 to the Purchaser. e. The definition of "Permitted Encumbrances" shall include the Net Profits Interest. 2.05 Drilling Commitment ------------------- The Purchaser agrees to drill a minimum of 15,000 meters, allocated to its working interest in which the Net Profits Interest described in Item 2.04 is applicable, over the next three years as follows: 214 5000 meters prior to August 31, 2000 an additional 5000 meters prior to August 31, 2001 an additional 5000 meters prior to August 31, 2002 This drilling commitment is equivalent to drilling 20- 1000 meter wells in which the Purchaser owns a 75% working interest on lands that the Net Profits Interest is applicable. 3.00 DEFAULT BY PURCHASER - -------------------------- 3.01 Default by Purchaser means anyone of the following: a. the purchaser commits any act of bankruptcy or insolvency; or files a Proposal or Notice of Intention to Make a Proposal under the bankruptcy and Insolvency Act (Canada); or the Purchaser assigns or is petitioned into bankruptcy; or the Purchaser takes advantage of or is otherwise involved as a debtor in any legislation governing the relationship of debtors and their creditors; b. the Purchaser resolves or is ordered by a court to wind-up, dissolve or liquidate; c. any of the Purchasers assets or undertaking are seized or otherwise encumbered by virtue of any writ, judgement or order filed, entered or made against the Purchaser; d. the Purchaser does not file its Prospectus with the appropriate regulatory bodies, with respect to the financing contemplated in the Yorkton Agent Letter, prior to September 30, 1999; e. the Purchaser does not close its Initial Prospectus Offering, as defined in the Yorkton Agent Letter, prior to January 31, 2000; f. the Purchaser fails to meet the drilling commitment as per Item 2.05 herein. 3.02 In the event of a default by the Purchaser, as defined in Item 3.01 herein, the Vendor has the option to cancel this Agreement in its entirety and reinstate the terms and conditions oft he Cessford Initial Sale Documents, except for the letter from vendor to purchaser dated May 1, 1999 (item "j" above) which will remain canceled, by providing written notice to the Purchaser within 30 days of the Vendor being made aware of the default by the Purchaser or acquiring knowledge of the default from other sources. Uponreceiving said notice the Purchaser would have 90 days to pay any Option Payments, as per item 2.05 of the March 19 Agreement, that were due or overdue. 3.03 If the Vendor cancelled this Agreement, as per its option in 3.02 above, the Purchaser would always retain that working interest that it had paid for in attempting to meet the Drilling Commitment per Item 2.05 above. The Net Profits Interest would also apply to this working interest. 4.00 GENERAL - ------------ The general terms of Items 2.07D to 16.00 of the March 19 Agreement remain in effect for the purposes of this Agreement, subject to the closing date being revised to August 31, 1999. If there are any conflicts between Items 2.07D to 16.00 and the terms of this Agreement, this Agreement will rule. IN WITNESS WHEREOF the Parties have duly executed this Agreement. STARROCK RESOURCES LTD. PROMAX ENERGY INC. /S/ AL LANGARD /S/ BARCLAY HAMBROOK /S/ RICHARD MELLIS 215 Schedule "A" Attached to an Agreement dated August 31, 1999 between Starrock Resources Ltd. and Promax Energy, Inc. GENERAL CONVEYANCE Cessford Area, Alberta ---------------------- This Conveyance made this 19th day of March, 1999. BETWEEN: STARROCK RESOURCES LTD. having an office in the City of Calgary, in the Province of Alberta (hereinafter called the "Vendor") -and- PROMAX ENERGY INC., a body corporate, having an office in the City of Calgary, in the Province of Alberta, (hereinafter called the "Purchaser") WHEREAS the Vendor has agreed to sell and convey the Vendor's entire right, title, estate and interest in the Assets to the Purchaser and the Purchaser has agreed to purchase and accept all of the Vendor's right, title, estate and interest in and to the Assets; THE PARTIES AGREE AS FOLLOWS; 1. Definitions ----------- In this conveyance, including the recitals, "Agreement" means the Agreement of Purchase and Sale dated the 19th day of March 1999, between the Vendor and the Purchaser. In addition, the definitions provided for in the Agreement are adopted in this Conveyance. 2. Conveyance ---------- The Vendor, for the consideration provided for in this Agreement, the receipt and sufficiency of which is acknowledged by the Vendor, sells, assigns, transfers, and conveys the Initial Interest by the Purchaser, and the Purchaser purchases and accepts such interest from the Vendor, TO HAVE AND HOLD the same absolutely, subject to the terms of the Agreement, the Permitted Encumbrances and compliance with the terms of the Lease. 3. Effective Time -------------- This Conveyance is effective as of the Closing Date. 4. Subordinate Document -------------------- This Conveyance is executed and delivered by the Parties pursuant to the Agreement for the purposes of the provisions of the Agreement, and the terms hereof shall be read in conjunction with the terms of the Agreement. The Agreement shall prevail if there is a conflict between the provisions of the Agreement and this Conveyance. 216 5. Enurement ---------- This Conveyance enures to the benefit of and is binding upon the Parties and their respective successors and permitted assigns. 6. Further Assurances ------------------ Each Party shall, after the date of this Conveyance, at the request of the other Party and without further consideration, do all further acts and execute and deliver all further documents which are reasonably required to perform and carry out the terms of this Conveyance. IN WITNESS WHEREOF the parties have duly executed this Conveyance. STARROCK RESOURCES, LTD. /S/ AL LANGARD -------------------------- PROMAX ENERGY INC. /S/ BARCLAY HAMBROOK -------------------------- 217 EX-3 13 0013.txt AMENDING AGREEMENT EXHIBIT 3.06 -------------- AMENDING AGREEMENT TO PURCHASE AND SELL DATED SEPTEMBER 30, 1999 218 AMENDING AGREEMENT TO AGREEMENT OF PURCHASE AND SALE CESSFORD AREA - ALBERTA THIS AMENDING AGREEMENT is made effective the 30th day of September, 1999. BETWEEN: STARROCK RESOURCES LTD., a body corporate having an office at Calgary, Alberta (herein the "Vendor") - and - PROMAX ENERGY INC., a body corporate having an office at Calgary, Alberta (herein the "Purchaser") WHEREAS the Vendor and Purchaser entered into an Agreement of Purchase and Sale dated March 19, 1999 (the "Original Agreement") whereby the Vendor agreed to sell Assets, completing the sale of the Initial Interest and granting the Purchaser the right to acquire the Option Interest in five successive annual options pursuant to Article 2.05 of the Original Agreement, (the terms "Assets," "Initial" and "Option Interest" having the meaning as defined in the Original Agreement); AND WHEREAS the Vendor and Purchaser amended the Original Agreement by a Revised Agreement of Purchase and Sale dated August 31, 1999 (the "Amended Agreement"), which Amended Agreement has been cancelled in its entirety by the Vendor pursuant to Article 3.02 thereof as a result of a default of the Purchase pursuant to Article 3.01 (e) thereof; AND WHEREAS the Vendor and Purchaser continue to be bound by the terms of the Original Agreement, the Vendor remains the beneficial owner of the Option Interest and the Purchaser has not yet elected to exercise any of the annual options granted pursuant to Article 2.05 of the Original Agreement; AND WHEREAS the Parties intend that the sale of the Property, hereinafter defined shall take place pursuant to and in accordance with the provisions of Section 85 of the Income Tax Act (Canada) (the "Act"); 219 NOW THEREFORE in consideration of the mutual covenants herein contained and set forth, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged by each Party, each Party hereby agrees as follows: ARTICLE 1 DEFINITIONS ----------- 1.01 For the purpose of this Agreement: (a) "Agreement", "herein", "hereto", "hereof' and similar expressions refer to thisAmending Agreement, including the recitals to this agreement, and not to anyparticular article, section, subsection or other subdivision of this agreement, and includes every agreement varying, modifying, amending or supplementing this agreement; (b) "Effective Time" shall be noon on the date first above written; (c) "Elected Amount" shall mean the total sum of $ 1 .00 elected by the Vendor and thePurchaser pursuant to Section 4.0 I hereof; (d) "Closing Date" shall mean noon on December 3 1, 1999, or such other time and date as may be agreed to by the Parties; (e) "Exchange Shares" shall mean 11 ,828,847 Common Shares in the capital stock of the Purchaser at a price of $0.45 per share to be issued by the Purchaser to the Vendor as full payment and satisfaction of the Purchase Price; (f) "Fair Market Value of the Property" shall mean the purchase price of $5,322,981 .30 which the Parties bona fide agree represents the fair market value of the Property; (g) "Party" shall mean either of Starrock Resources Ltd. or Promax Energy Inc., and"Parties" shall mean both of such corporations; and (h) "Property" shall be an undivided 70% interest in the Petroleum and Natural Gas Rights and shall have the same meaning as the term "Option Interest" as defined in Article 1.01 of the Original Agreement. 1.02 The headings of articles and clauses herein are inserted for convenience of reference only and shall not affect or be considered in the construction or interpretation of the provisions hereof. 220 1.03 In this Agreement, words importing the singular number only shall include the plural and vice versa, and words importing any gender shall include all genders.1.04 Unless the context otherwise requires, where capitalized terms defined in the Original Agreement are used here without definition, the definitions set out therein shall apply to this Agreement. ARTICLE II SALE OF PROPERTY ----------------- 2.01 The Vendor hereby sells to the Purchaser, and the Purchaser hereby accepts the Vendor, all of the Vendor's right and interest in and to the Property for the 2.02 The Purchaser shall satisfy the Purchase Price in full by issuing and delivering to theVendor the Exchange Shares which shall be registered in the name of the Vendor, such that theVendor shall own the legal and beneficial interest in the Exchange Shares upon such delivery. ARTICLE III FURTHER ASSURANCES -------------------- 3.01 This Agreement is intended to and shall operate as an actual conveyance, assignmentand transfer of the Property from the Vendor to the Purchaser, and the Purchaser shall own the legal and beneficial right, title and interest in and to the Property as of the Effective Time. The Vendor shall execute all documents and shall do all such other acts and things which are convenient or necessary and which counsel may advise to fully effect the intention of this Agreement and to fully vest the legal and beneficial right, title and interest in and to the Property in the Purchaser. ARTICLE IV S. 85(1) ELECTION ------------------- 4.01 In order to carry out the intention of the sale herein, the Vendor and the Purchaser agree to jointly elect, and the Vendor shall file in the prescribed form and within the prescribed time under Subsection 85(6) of the Act and under the corresponding sections of any applicable provincial statute, an agreed amount in respect of the transfer of the Property equal to the Elected Amount as set out in Schedule " A " hereto, which Elected Amount shall be, pursuant to Subsection 85( I ) of the Act, the Vendor's proceeds of disposition and the Purchaser's cost of the Property. 221 ARTICLE V CONDITION PRECEDENT ---------------------- 5.01 The Vendor is aware that the Purchaser must obtain regulatory approval to issue the exchange Shares on or before the Closing Date. The Vendor is prepared to accept a one year holdperiod if this is a regulatory condition of the issuance of the Exchange Shares. If a greater holdperiod is contemplated or if regulatory approval to issue the Exchange Shares is not obtained prior to the Closing Date, the Vendor shall be entitled to rescind this Agreement by notice to the Purchaser in which case this Agreement shall be null and void and of no further force and effect. In this event, the Parties shall remain subject to, and entitled to the benefit of the terms and conditions of the Original Agreement. ARTICLE VI CLOSING PROCEDURE ------------------- 6.0l As soon as is reasonably practical before or on the Closing Date: (a) the Purchaser shall issue the Exchange Shares in the name of the Vendor. and (b) the Vendor and the Purchaser shall jointly complete the election form as required bySubsection 85( 1 ) of the Act and the Vendor shall file the election form with Revenue Canada within the time prescribed by the Act. 6.02 Each Party shall have no entitlement to and shall not assign any interest in this Agreement. 6.03 This Agreement shall enure to the benefit of and shall be binding on and enforceable by each Party and it's respective successors and assigns. 6.04 No amendment or waiver of any provision of this Agreement shall be binding on any Party unless consented to in writing by such Party. No waiver of any provision of this Agreement shall constitute a waiver of any other provision, nor shall any waiver constitute a continuing waiver unless otherwise expressly provided. 222 6.05 Except as amended by this Agreement, in all other respects the parties confirm the terms and conditions of the Original Agreement. IN WITNESS WHEREOF each Party has executed this Agreement as of Nov. 3/99. STARROCK RESOURCES LTD. Per: ------------------------------- PROMAX ENERGY INC. Per: ------------------------------- 223 EX-3 14 0014.txt PIPELINE CONSTRUCTION AGREEMENT EXHIBIT 3.07 -------------- PIPELINE CONSTRUCTION AND LIMITED RECOURSE FINANCING AGREEMENT 224 PIPELINE CONSTRUCTION AND LIMITED RECOURSE FINANCING AGREEMENT --------------------------------------------------------------- This Agreement is made this 27th day of March, 2000. BETWEEN: PROMAX ENERGY INC., an Alberta corporation having an office in the city of Calgary, Alberta (hereinafter called Promax) -and- BIGSTONE PROJECTS LTD., an Alberta corporation having an office in the city of Calgary, Alberta (hereinafter called Bigstone) WHEREAS Promax is the owner of the lands attached hereto as Exhibit "A". WHEREAS Promax and Bigstone entered into Pipeline Construction and Limited Recourse Financing Agreement dated February 14, 2000 (the "February 14 Agreement") attached hereto as Exhibit "B". WHEREAS Promax wishes Bigstone to construct, and will purchase from Bigstone as per the terms of this Agreement, a high pressure natural gas pipeline from 6-4-25-9-W4M to 6-21-25-8-W4M, hereinafter referred to as the "Phase 1 Pipeline". WHEREAS Promax wishes Bigstone to construct, and will purchase from Bigstone as per the terms of this Agreement, a high pressure natural gas pipeline from 10-17-24-9-W4M to 9-18-24-8-W4M, and from 9-18-24-8-W4M to 9- 19-23-8-W4M, hereinafter referred to as the "Phase 2 Pipeline". WHEREAS Promax wishes Bigstone to construct, and will purchase from Bigstone as per the terms of this Agreement, a high pressure natural gas pipeline from 9-18-24-8-W4M to 9-13-24-8-W4M, hereinafter referred to as the "Phase 3 Pipeline". NOW THEREFORE THE PARTIES HERETO AGREE AS FOLLOWS: FEBRUARY 14 AGREEMENT The February 14 Agreement is hereby cancelled and replaced with the terms of this Agreement. Bigstone upon return the One Hundred Thousand Dollar ($100,000) advance made by Promax, as per the terms of the February 14 Agreement, on or before March 31, 2000. 225 DEFINITIONS 1. AMI Area of Mutual Interest is all the lands included on townships 23,24 25 and 26 and ranges 7,8,9,10 and 11 all W4M comprising of 20 townships or 460,800 acres. 2. Bigstone Pipelines All pipelines constructed and owned by Bigstone as per the terms of this Agreement including those portions of the Phase 1 Pipeline, Phase 2 Pipeline, and Phase 3 Pipeline constructed. 3. Gas Price The average gas price received by Promax for its gas and the gas of others at the plant gate outlet during any particular month in Dollars per Mscf. 4. Monthly Gas Volume The number of Mscf that is delivered at the Plant Gate Outlet from the Pipeline System, by Promax and others transporting natural gas through the Pipeline System, during any particular month. 5. Mscf One thousand standard cubic feet of natural gas measured at 60 degrees F and 14.65 Psia. 6. Payout When Promax has paid for the Bigstone Pipelines as per the terms of this Agreement. 7. Pipeline System The Bigstone Pipelines and all other pipelines operated or used by Promax in the AMI. Plant Gate Outlet That location, or locations, that Promax or others transporting natural gas through the Pipeline System delivers natural gas for sale after processing. 8. Promax Monthly Installments Thirty Percent (30%) of the Gas Price multiplied by the Monthly Gas Volume. PHASE 1 PIPELINE Bigstone will construct the Phase 1 Pipeline as follows: 1. A 6 5/8 inch OD, .156 inch wall, yellow jacketed X-42 steel pipeline from 6-4-25-9-W4M to 6-20-25-8-W4M, a distance of approximately 7 miles, subject to minor modifications that may be required as a result of the survey and right of way acquisition. The actual length of this section of the Phase 1 Pipeline will be determined by final survey and be hereinafter referred to as the "Phase 1-6 length" in miles. 2. A 4 1/2 inch OD, .125 inch wall, yellow jacketed X-42 steel pipeline from 6-20-25-8-W5M to 6-21-25-8-W4M, a distance of approximately 1 mile, subject to minor modifications that may be required as a result of the survey and right of way acquisition. The actual length of this section of the Phase 1 Pipeline will be determined by final survey and be hereinafter referred to as the "Phase 1-4 length" in miles. 3. The Phase 1 Pipeline will be constructed as per the general specifications attached hereto as Exhibit "C", with the exception of certain items that may conflict with general industry practices for the construction of natural gas pipelines in the area and item (3) under General. 4. Bigstone will use its best efforts to have the Phase 1 Pipeline completed by June 30, 2000. PHASE 2 PIPELINE Bigstone will construct the Phase 2 Pipeline as follows: 1. A 6 5/8 inch OD, .156 wall, yellow jacketed X-42 steel pipeline from 10-17-24-9-W4M to 9-18-24-8-W4M, a distance of approximately 6 miles, subject to minor modifications that may be required as a result of the survey and right of way acquisition. The actual length of this section of the Phase 2 Pipeline will be determined by final survey and be hereinafter referred to as the "Phase 2-6 length" in miles. 226 2. A 4 1/2 inch OD, .125 inch wall, yellow jacketed X-42 steel pipeline from 9-18-24-8-W4M to 9-19-23-8-W4M, a distance of approximately 5 1/2 miles, subject to minor modifications that may be required as a result of the survey and right of way acquisition. The actual length of this section of the Phase 2 Pipeline will be determined by final survey and be hereinafter referred to as the "Phase 2-4 length" in miles. 3. The Phase 2 Pipeline will be constructed as per the general specifications attached hereto as Exhibit "C", with the exception of certain items that may conflict with general industry practices for the construction of natural gas pipelines in the area and item (3) under General. 4. Bigstone will use its best efforts to have the Phase 2 Pipeline completed by July 31, 2000. PHASE 3 PIPELINE Bigstone will construct the Phase 3 Pipeline, subject to cancellation by Bigstone or Promax described herein, as follows: 1. A 6 5/8 inch OD, .156 inch wall, yellow jacketed X-42 steel pipeline from 9-18-24-8 to 9-13-24-8-W4M, a distance of approximately 5 1/2 miles, subject to minor modifications that may be required as a result of the survey and right of way acquisition. The actual length of the Phase 3 Pipeline will be determined by final survey and be hereinafter referred to as the "Phase 3-6 length" in miles. 2. The Phase 3 Pipeline will be constructed as per the general specifications attached hereto as Exhibit "C", with the exception of certain items that may conflict with general industry practices for the construction of natural gas pipelines in the area and item(3) under General. 3. Bigstone will use its best efforts to have the Phase 3 Pipeline completed by October 31, 2000, subject to item (1) under the heading Options. OWNERSHIP AND CONTROL 1. Title to the Bigstone Pipelines will be held by Bigstone before Payout. However once construction is completed on the different phases of the pipelines, and those phases have been successfully tested and accepted by Promax in writing, all future costs pertaining to the completed and tested phase will be for the account of Promax. Cleanup and restoration costs on the Pipeline Right of Way will remain the responsibility of Bigstone. 2. Once a Phase of the Bigstone Pipelines has been successfully tested and accepted by Promax in writing, Promax will have control of that phase of the Bigstone Pipelines and may use it to transport its natural gas and natural gas of others. This use will continue as long as the Promax Monthly Installments are current. PIPELINE SYSTEM PURCHASE 1. Promax will purchase the Pipeline System from Bigstone for a total price, the "Total Price", to be calculated as per the following formula: Total Price = $ 128,000("Phase 1-6 length" + "Phase 2-6 length" + "Phase 3-6 length")+ $ 104,000("Phase 1-4 length" + "Phase 2-4 length") + GST 227 By inserting the approximate lengths given above and assuming that all Phases of the Pipeline are constructed the Total Price would be Three million, Forty Four Thousand Dollars ($ 3,044,000) plus GST. It is acknowledged that actual survey values will be used for the calculation of the Total Price. 2. Promax agrees to pay the Total Price to Bigstone by way of the Promax Monthly Installments and Bigstone agrees to accept payment of the Total Price from Promax by way of the Promax Monthly Installments. 3. The Promax Monthly Installments will commence upon Phase 1 of the Bigstone Pipelines being completed, tested, accepted by Promax, and put into service. 4. Upon the sum of the Promax Monthly Installments, equaling the Total Price, title to the Bigstone Pipelines would be transferred to Promax. 5. The Promax Monthly Installments, are due within three (3) days of Promax receiving its monthly payment for sale of its portion of the Monthly Gas Volume. 6. If the Total Price is not paid in full within five (5) years of this Agreement the balance owed, being the Total Price less the sum of the Promax Monthly Installments made, becomes due and payable in full. WELL TIE-INS AND WELLHEAD EQUIPMENT 1. The Pipeline System consists of pipelines only without connections or tie-ins thereto. Promax is responsible for all tie-ins to the Pipeline System and all wellhead equipment required for production. Bigstone will make all the required tie-ins to the Pipeline System and install all the wellhead equipment required, as directed and designed by Promax, at the rate of cost plus 15%. Equipment rates will be mutually agreed upon and will be equivalent to acceptable industry standards. Bigstone will also do the work required, if requested and directed by Promax , to reinstate the existing pipeline at the rate of cost plus 15%. 2. Promax agrees to pay Bigstone for the work described in #1 above, and any additional work requested and performed, within 30 days of invoice. BIGSTONE ROYALTY, CONSTRUCTION, AND PARTICIPATION 1. Subsequent to Promax obtaining title to the Pipeline System, as per the terms of this Agreement, Bigstone will be paid a transportation royalty, the "Royalty". The Royalty will be paid by multiplying two (2) cents per Mscf by the Monthly Gas Volume and will be due and payable within three (3) days of Promax receiving its monthly payment for sale of its portion of the Monthly Gas Volume. 2. Bigstone is hereby granted the right to construct any additional pipelines for Promax, that Promax wishes to construct in the future, in the "AMI", at the rate of cost plus 15%. For this right to continue Bigstone must be competitive with other pipeline contractors in the area. 3. In consideration of these arrangements, the risk associated with financing, and upon completion of the Phase 1 Pipeline Bigstone is hereby granted a four decimal eight (4.8%) working interest in the 228 lands attached hereto as Exhibit "A", including the other associated assets that are part of the Amex Joint Venture, and the right to participate with Promax to the extent of four decimal eight percent(4.8%) in all other lands and deals acquired by Promax in the AMI that are not listed on Exhibit "A". The terms of this participation will be identical to that of the Amex Joint Venture Agreement and associated agreements that Promax had with Albreda Resources Ltd. These Amex Joint Venture and associated documents will be prepared and executed by Promax and Bigstone forthwith. OPTIONS 1. Both Promax and Bigstone have the right to cancel the Phase 3 Pipeline prior to August 31, 2000 by notice in writing to the other party. 2. Promax has the right to purchase the Bigstone Pipelines within one year of this Agreement by paying Bigstone an amount calculated by the following formula: = 0.85(Total Price Sum of Promax Monthly Installments paid). 3. Promax has the right to purchase the Bigstone Pipelines within two years of this Agreement by paying Bigstone an amount calculated by the following formula: =0.90(Total Price Sum of Promax Monthly Installments paid). Promax has the right to purchase the Royalty from Bigstone at any time for the greater of a mutually agreed projection of three (3) years of royalty cash flow or Four Hundred Thousand Dollars ($400,000). GENERAL 1. This agreement enures to the benefit of and is binding upon the Parties and their respective successors and permitted assigns. 2. This agreement shall be governed by and construed in accordance with the laws of the Province of Alberta. 3. The general specifications attached in Exhibit "C" were not specifically written for the construction of the Bigstone Pipelines and are attached hereto as a guide to the construction thereof. The general specifications do not override any portion of this Agreement. 4. Bigstone shall obtain and continuously carry during the work the following insurance: a) Workman's Compensation Insurance covering all employees engaged in the work within the statutory requirements of the Province having jurisdiction over such employees; b) Employees Liability Insurance with limits of not less than $1,000,000 for each accidental injury, to or death of Bigstone's employees engaged in the work, if Workman's Compensation does not exist. c) Automobile and Aircraft liability Insurance covering all motor vehicles and aircraft owned, operated or leased by Bigstone. Limits of liability if not less than $1,000,000 favour accidental injury to or death of one or more persons or damage to or destruction of property as result of the accident. d) General and Comprehensive Liability Insurance providing for a combined single limit of $2,000,000 for each occurrence or 229 accident coverage for damage due to bodily injury including death sustained by any person or persons caused by occurrence or accident arising out of contractual liability, products completed liability, coverage for non-owned motor vehicles or aircraft and coverage for sub-contractors. e) Builder's Risk Course of Construction Insurance to the full value of the worth of the work to include loss on damage to the machinery, materials, and supplies at the site, or in transit thereto. 5. Operations shall be conducted by Bigstone in full compliance with: a) Applicable Workmen's Compensation & Occupation Heath and Safety Legislation. b) Indemnification of Promax from any and all claims, liabilities, actions or causes of action including damages to livestock, fences, gates, irrigation canals, ditches, wrongful acts or omissions of Bigstone employees or sub-contractors, bridges, roads, highways, negligent or defective work. c) Applicable Federal, Provincial, and Local safety laws. d) Permits and licenses require to be issued in Bigstone's name including qualifying for and performing the work to all applicable Federal, Provincial and Local Governments. e) Performance of the work in a safe, efficient, workmanlike, and careful manner by qualified, skilled competent, careful, and efficient workmen. f) Adequate and competent supervisors including a competent Construction Superintendent. g) Inspected by Promax at all reasonable times and notified in time for specific tests. h) Acceptance by Promax in writing, written certification by Provincial Authorities with jurisdiction and evidence of proper payment of all labour and sub-contractors. 6. Arbitration - when and if a dispute arises, the parties shall seek equitable settlements between them, failing this, each party will elect an arbitrator who will together elect a third. The discussions of this group, by majority will settle all outstanding disputes. 7. All notices, requests, demands, or other communications shall be delivered by registered mail as follows: PROMAX ENERGY INC. Suite 200, 707 - 7th Avenue SW Calgary, Alberta T2P OZ2 Telephone - 261 8880 Fax - 261 8818 230 BIGSTONE PROJECTS LTD. Box 19, Site 10, RR4 Calgary, Alberta T2M 4L4 Telephone - 547-4377 Fax - 547-3453 231 Signed at the City of Calgary, in the Province of Alberta on the 27th day of March, 2000. _____________________________ _____________________________ __________________________ PROMAX ENERGY INC. BIGSTONE PROJECTS LTD. 232 -----END PRIVACY-ENHANCED MESSAGE-----