EXHIBIT 2.1
PRE-OFFER AGREEMENT
BETWEEN
APF ENERGY INC.
AND
CANSCOT RESOURCES LTD.
AUGUST 5, 2003
TABLE OF CONTENTS
ARTICLE 1 INTERPRETATION....................................................................................... 1
1.1 Definitions........................................................................................... 1
1.2 Singular, Plural, etc................................................................................. 5
1.3 Currency.............................................................................................. 5
1.4 Headings, etc......................................................................................... 5
1.5 Date for any Action................................................................................... 5
1.6 Governing Law......................................................................................... 5
1.7 Attornment............................................................................................ 5
1.8 Incorporation of Schedules............................................................................ 6
ARTICLE 2 THE OFFER............................................................................................ 6
2.1 The Offer............................................................................................. 6
2.2 CanScot Directors' Circular........................................................................... 9
2.3 Offer Documents....................................................................................... 10
2.4 Outstanding Stock Options............................................................................. 11
ARTICLE 3 PUBLICITY AND SOLICITATION........................................................................... 12
3.1 Publicity............................................................................................. 12
3.2 Solicitation.......................................................................................... 12
ARTICLE 4 ARRANGEMENTS RESPECTING FEES......................................................................... 12
4.1 Non-completion Fee.................................................................................... 12
ARTICLE 5 NO SOLICITATION...................................................................................... 13
5.1 Cessation of Existing Discussions..................................................................... 13
5.2 No Solicitation....................................................................................... 14
5.3 Superior Take-Over Proposal........................................................................... 15
5.4 Third Parties to be Made Aware........................................................................ 15
ARTICLE 6 TRANSACTIONS FOLLOWING COMPLETION OF THE OFFER....................................................... 15
6.1 Second Stage Transaction.............................................................................. 15
6.2 CanScot Board of Directors............................................................................ 16
ARTICLE 7 REPRESENTATIONS AND WARRANTIES OF APF................................................................ 16
7.1 Organization and Qualification........................................................................ 16
7.2 Authority Relative to this Agreement.................................................................. 17
7.3 No Violations......................................................................................... 17
7.4 Reporting Issuer Status............................................................................... 18
7.5 Capitalization........................................................................................ 18
7.6 No Material Adverse Change............................................................................ 18
7.7 Information........................................................................................... 18
7.8 Financial Statements.................................................................................. 18
7.9 No Undisclosed Material Liabilities................................................................... 18
7.10 Impairment............................................................................................ 19
7.11 Reports............................................................................................... 19
7.12 U.S. Securities Law Matters........................................................................... 20
7.13 Subsidiaries.......................................................................................... 20
7.14 Books and Records..................................................................................... 20
7.15 Litigation, etc....................................................................................... 20
7.16 Environmental......................................................................................... 21
7.17 Notice of Environmental Policies or Laws.............................................................. 21
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7.18 Insurance............................................................................................. 21
7.19 Title................................................................................................. 22
7.20 Source of Funds....................................................................................... 22
ARTICLE 8 REPRESENTATIONS AND WARRANTIES OF CANSCOT............................................................ 22
8.1 Organization and Qualification........................................................................ 22
8.2 Authority Relative to this Agreement.................................................................. 22
8.3 No Violations......................................................................................... 23
8.4 Capitalization........................................................................................ 24
8.5 No Material Adverse Change............................................................................ 24
8.6 Information........................................................................................... 24
8.7 No Undisclosed Material Liabilities................................................................... 24
8.8 Impairment............................................................................................ 25
8.9 Employee/Lease Obligations............................................................................ 25
8.10 Working Capital....................................................................................... 25
8.11 Transaction Costs..................................................................................... 25
8.12 Conduct of Business................................................................................... 25
8.13 Reports............................................................................................... 25
8.14 U.S. Securities Law Matters........................................................................... 26
8.15 Subsidiaries.......................................................................................... 27
8.16 Books and Records..................................................................................... 27
8.17 Litigation, etc....................................................................................... 27
8.18 Environmental......................................................................................... 27
8.19 Notice of Environmental Policies or Laws.............................................................. 28
8.20 Insurance............................................................................................. 28
8.21 Tax Matters........................................................................................... 28
8.22 Employee Benefit Plans................................................................................ 30
8.23 Employment Agreements................................................................................. 30
8.24 Reporting Issuer Status............................................................................... 30
8.25 Shareholder Rights Plan............................................................................... 30
8.26 Title................................................................................................. 31
8.27 Related Party Transaction............................................................................. 31
8.28 AMI and Other Agreements.............................................................................. 31
8.29 Restriction on Business............................................................................... 31
8.30 Confidentiality Agreements............................................................................ 32
8.31 Tax Pools............................................................................................. 32
8.32 Issuances of Securities............................................................................... 32
8.33 XxXxxxxx Report....................................................................................... 32
8.34 Obligations to Incur Expenses......................................................................... 33
8.35 Production............................................................................................ 33
8.36 Site Restoration...................................................................................... 33
8.37 Rights of First Refusal ("ROFRs")..................................................................... 33
8.38 Financial Statements.................................................................................. 33
8.39 Sales Contracts....................................................................................... 33
ARTICLE 9 CONDUCT OF BUSINESS.................................................................................. 33
9.1 Conduct of Business by CanScot........................................................................ 33
ARTICLE 10 COVENANTS OF CANSCOT................................................................................ 37
10.1 Access to Information................................................................................. 37
10.2 Structure of Transaction.............................................................................. 37
iii
10.3 Settlement of Shareholder Actions..................................................................... 37
10.4 General Releases...................................................................................... 37
10.5 Financial Information................................................................................. 37
ARTICLE 11 COVENANTS OF APF.................................................................................... 38
11.1 Indemnities........................................................................................... 38
11.2 Third Party Beneficiaries............................................................................. 38
ARTICLE 12 MUTUAL COVENANTS.................................................................................... 38
12.1 Notice of Material Change............................................................................. 38
12.2 Other Filings......................................................................................... 38
12.3 Additional Agreements................................................................................. 39
ARTICLE 13 TERMINATION, AMENDMENT AND WAIVER................................................................... 39
13.1 Termination........................................................................................... 39
13.2 Effect of Termination................................................................................. 40
13.3 Amendment............................................................................................. 41
13.4 Waiver................................................................................................ 41
ARTICLE 14 GENERAL PROVISIONS.................................................................................. 41
14.1 Notices............................................................................................... 41
14.2 Miscellaneous......................................................................................... 42
14.3 Assignment............................................................................................ 42
14.4 Expenses.............................................................................................. 43
14.5 Severability.......................................................................................... 43
14.6 Confidentiality Agreement............................................................................. 43
14.7 Counterpart Execution................................................................................. 43
14.8 Consent Regarding Depositary.......................................................................... 44
PRE-OFFER AGREEMENT
THIS AGREEMENT made the 5th day of August, 2003.
BETWEEN:
APF ENERGY INC., an Alberta Corporation (hereinafter referred
to as "APF")
-and-
CANSCOT RESOURCES LTD., an Alberta corporation (hereinafter
referred to as "CANSCOT")
RECITALS
WHEREAS:
1. APF is prepared to make an offer for all of the CanScot shares, subject
to the terms and conditions of this Agreement;
2. the board of directors of CanScot (with the exception of Xxxxxx Xxxxx,
who has abstained) has unanimously determined that it would be in the
best interests of CanScot and its shareholders to recommend acceptance
of the APF offer to the shareholders of CanScot and to cooperate with
APF with respect to, and take all reasonable action to support, the APF
offer; and
3. the board of directors of CanScot (with the exception of Xxxxxx Xxxxx,
who has abstained) has unanimously determined that it would be in the
best interests of CanScot and its shareholders for CanScot to enter
into this Agreement.
NOW THEREFORE IN CONSIDERATION OF the mutual covenants hereinafter contained and
other good and valuable consideration (the receipt and adequacy whereof is
hereby acknowledged), the Parties agree as follows:
ARTICLE 1
INTERPRETATION
1.1 DEFINITIONS
In this Agreement (including the recitals hereto), unless
there is something in the subject matter or context inconsistent therewith:
"ACT" means the Business Corporations Act (Alberta), as the same has been and
may hereafter,
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from time to time, be amended;
"AGREEMENT", "THIS AGREEMENT", "HEREIN", "HERETO", and "HEREOF and similar
expressions refer to this agreement (and not to any particular Article or
Section hereof), as the same may be amended or supplemented from time to time
and, where applicable, to the appropriate Schedules hereto;
"APF GOVERNING DOCUMENTS" means the certificates and articles of amalgamation
and by-laws of APF, as amended from time to time;
"APF TRUST" means APF Energy Trust;
"BUSINESS DAY" means any day excepting a Saturday, Sunday or statutory or civic
holiday in Calgary, Alberta;
"CANSCOT GOVERNING DOCUMENTS" means the certificate and articles of amalgamation
and by-laws of CanScot, as amended from time to time;
"CANSCOT OPTIONS" means the outstanding options to acquire CanScot Shares under
the Stock Option Plan and any other options, rights or warrants to acquire
CanScot Shares;
"CANSCOT SHAREHOLDERS" means the registered holders of CanScot Shares from time
to time;
"CANSCOT SHARES" means common shares in the capital of CanScot;
"CONDITIONAL OPTION EXERCISE" has the meaning given to such phrase in Section
2.4 hereof;
"CONFIDENTIALITY AGREEMENT" means that certain confidentiality agreement between
APF and CanScot dated July 19, 2003;
"DILUTED BASIS" means, with respect to the number of outstanding CanScot Shares
at any time, such number of outstanding CanScot Shares calculated assuming that
all outstanding CanScot Options and all other rights to purchase CanScot Shares
are exercised;
"EFFECTIVE TIME" means the time that APF shall have acquired ownership of and
paid for CanScot Shares such that the Minimum Condition is satisfied pursuant to
the terms of the Offer;
"EMPLOYEE OBLIGATIONS" means any obligations or liabilities of CanScot or its
subsidiaries to pay any amount to or on behalf of its officers, directors, or
employees, other than for salary, bonuses under their existing bonus
arrangements and directors' fees in the ordinary course, in each case in amounts
consistent with historic practices and, without limiting the generality of the
foregoing, Employee Obligations shall include the obligations of CanScot or its
subsidiaries to officers or employees (i) for severance or termination payments
on the change of control of CanScot pursuant to any executive involuntary
severance and termination agreements in the case of officers and pursuant to
CanScot's severance policy in the case of employees and (ii) for retention bonus
payments pursuant to any retention bonus program, employment or consulting
agreement, or as provided in writing by CanScot prior to the execution hereof;
"EXPIRY TIME" means the Initial Expiry Time unless the Offer has been extended,
in which case
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it means the expiry time of the Offer as extended from time to time;
"GAAP" means generally accepted accounting principles in Canada consistently
applied;
"INCOME TAX ACT" means the Income Tax Act (Canada), R.S.C. 1985, c.l (5th
Supp.), as amended, including the regulations promulgated thereunder;
"IN WRITING" means written information including documents, files, records,
books and other materials made available, delivered or produced by or on behalf
of a Party to the other Party or its agents, advisors or representatives in the
course of a Party conducting its due diligence review in respect of the other
Party between July 19, 2003, being the date of the Confidentiality Agreement,
and the date of this Agreement;
"INITIAL EXPIRY TIME" means 2:00 p.m. (Calgary time) on the first Business Day
following the 35th calendar day after the day on which the Offer Documents are
mailed to the shareholders of CanScot;
"LOCK-UP AGREEMENT" means an agreement, in a form satisfactory to APF, between
APF and a CanScot Shareholder pursuant to which the CanScot Shareholder agrees
to tender and deposit the CanScot Shares specified therein to the Offer;
"MAILING DATE" means the date the Offer is sent to all or substantially all of
the persons to whom the Offer is made;
"MATERIAL ADVERSE CHANGE" means any change (or any condition, event or
development involving a prospective change) in the business, operations, results
of operations, assets, capitalization, financial condition, licenses, permits,
concessions, rights, liabilities, prospects or privileges, whether contractual
or otherwise, of a Party which is materially adverse to the business, operations
or financial condition of that Party, or (b) with respect to CanScot, a
previously undisclosed encumbrance of material significance on CanScot's assets;
but "Material Adverse Change" shall not include a change resulting from (i) a
matter that has been publicly disclosed or of which the other Party has been
advised in writing as of the date of this Agreement, (ii) a change directly
resulting from an action taken by one Party to which the other Party hereto
consented to in writing, (iii) conditions affecting the oil and gas industry in
the jurisdictions in which APF or CanScot holds their respective assets, taken
as a whole including, without limitation, changes in commodity prices or taxes,
or (iv) resulting from general economic, financial, currency exchange,
securities or commodity market conditions in Canada or elsewhere;
"MATERIAL ADVERSE EFFECT" means any effect that is, or would reasonably be
expected to be, material and adverse to the business, operations, assets,
prospects or financial condition or affairs of APF or CanScot, as the case may
be, on a consolidated basis, other than a change (or any condition, event or
development involving a prospective change) (i) which arises out of a matter
that has been publicly disclosed or otherwise disclosed in writing to the other
Party prior to the date hereof, (ii) resulting from conditions affecting the oil
and gas industry in the jurisdiction in which APF or CanScot, as the case may
be, holds their respective assets, taken as a whole including, without
limitation, changes in commodity prices or taxes, or (iii) resulting from
general economic, financial, currency exchange, securities or commodity market
conditions in
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Canada or elsewhere;
"XXXXXXXX" means XxXxxxxx & Associates Consultants Ltd.;
"XXXXXXXX REPORT" means the evaluation of the petroleum and natural gas reserves
of CanScot and the future net production revenues therefrom effective January 1,
2003;
"MINIMUM CONDITION" means the condition set forth in paragraph (a) of Schedule
A;
"OFFER" has the meaning set forth in Section 2.1 (a);
"OFFER DOCUMENTS" has the meaning set forth in Section 2.3(a);
"PARTY" means CanScot or APF, as applicable, and "Parties" means both CanScot
and APF together;
"PURCHASE CONSIDERATION" means $2.60 per CanScot Share payable, at the option of
the CanScot Shareholder, in either:
(i) $2.60 cash for each CanScot Share;
(ii) 0.226 Trust Units for each CanScot Share; or
(iii) any combination thereof;
"RELATED PARTY" means any officer, director, employee or consultant of CanScot,
and any associate or affiliate of any of the foregoing persons;
"SECOND STAGE TRANSACTION" has the meaning set forth in Section 6.1;
"SECURITIES AUTHORITIES" means the TSX Venture Exchange or the Toronto Stock
Exchange, as applicable, and the securities commissions or similar regulatory
authorities in Canada and each of the provinces and territories thereof;
"SECURITIES LAWS" has the meaning set forth in Section 2.3(a);
"STOCK OPTION PLAN" means the stock option plan of CanScot; "subsidiary" has the
meaning set forth in the Act;
"SUPERIOR TAKE-OVER PROPOSAL" means any bona fide written Take-over Proposal
which, in the opinion of CanScot's board of directors, acting reasonably and in
good faith and after consultation with its financial advisors, constitutes a
commercially feasible transaction for which adequate financial arrangements have
been made and which could be carried out within a time frame that is reasonable
in the circumstances and, if consummated, would likely be superior to the Offer
from a financial point of view to CanScot and to CanScot Shareholders;
"TAKE-OVER PROPOSAL" means, in respect of CanScot or its assets, any proposal or
offer by an entity other than APF regarding any take-over bid (as defined by
Securities Laws), merger, consolidation, amalgamation, arrangement,
recapitalization, restructuring, liquidation, dissolution, reorganization, sale
of a material amount of assets, sale of an amount of treasury
5
shares (other than pursuant to the exercise of CanScot Options) such that a
purchaser would thereafter beneficially own 15% of the issued and outstanding
CanScot Shares, or other business combination or similar transaction involving
CanScot other than the Offer;
"TAKE-UP DATE" means the date that APF first takes up CanScot Shares pursuant to
the Offer;
"TAX POOLS" means undepreciated capital cost of any particular class of
depreciable property, cumulative Canadian exploration expense, cumulative
Canadian development expense, cumulative Canadian oil and gas property expense,
foreign exploration and development expense, capital losses, non-capital losses
and cumulative eligible capital, all as defined in the Income Tax Act; and
"TRUST UNITS" means trust units of APF Trust.
1.2 SINGULAR, PLURAL, ETC.
Words importing the singular number include the plural and
vice versa and words importing gender include the masculine, feminine and neuter
genders.
1.3 CURRENCY
All dollar references herein are to Canadian dollars.
1.4 HEADINGS, ETC.
The division of this Agreement into Articles and Sections, and
the insertion of recitals and headings are for convenience of reference only and
shall not affect the construction or interpretation of this Agreement and,
unless otherwise stated, all references in this Agreement or in the Schedules to
Articles, Sections and Schedules refer to Articles, Sections and Schedules of
and to this Agreement or of the Schedules in which such reference is made.
1.5 DATE FOR ANY ACTION
In the event that any date on which any action is required to
be taken hereunder by any of the Parties is not a Business Day, such action
shall be required to be taken on the next succeeding day which is a Business
Day.
1.6 GOVERNING LAW
This Agreement shall be governed by and interpreted in accordance with the laws
of Alberta and the laws of Canada applicable therein.
1.7 ATTORNMENT
The Parties hereby irrevocably and unconditionally consent to
and submit to the courts of the Province of Alberta for any actions, suits or
proceedings arising out of or relating to this Agreement or the matters
contemplated hereby (and agree not to commence any action, suit or proceeding
relating thereto except in such courts) and further agree that service of any
process, summons, notice or document by delivery in the manner set forth in
Section 14.1 shall
6
be effective service of process for any action, suit or proceeding brought
against either Party in such court. The Parties hereby irrevocably and
unconditionally waive any objection to the laying of venue of any action, suit
or proceeding arising out of this Agreement or the matters contemplated hereby
in the courts of the Province of Alberta and hereby further irrevocably and
unconditionally waive and agree not to plead or claim in any such court that any
such action, suit or proceeding so brought has been brought in an inconvenient
forum.
1.8 INCORPORATION OF SCHEDULES
Schedules A to C attached hereto and described below shall,
for all purposes hereof, form an integral part of this Agreement.
SCHEDULE A Conditions to the Offer
SCHEDULE B Form of Press Release
SCHEDULE C Conditions in Favour of CanScot
ARTICLE 2
THE OFFER
2.1 THE OFFER
(a) Subject to the terms and conditions hereof, APF shall mail, as
soon as practicable and, in any event, before 11:59 p.m.
(Calgary time) on August 18, 2003, an offer to purchase all of
the outstanding CanScot Shares, which includes all CanScot
Shares which may become outstanding after the date of the
Offer on exercise of CanScot Options or any other existing
rights to acquire CanScot Shares, for the Purchase
Consideration for each CanScot Share, which offer shall be
made in accordance with Securities Laws and be subject only to
the conditions set forth in Schedule A hereto (the "Offer",
which term shall include any one or more amendments or
variations to, or extensions of, such Offer, including,
without limitation, increasing the consideration, removing or
waiving any condition or extending the date by which CanScot
Shares may be tendered, all in accordance with this
Agreement). The Offer shall provide that no fractional Trust
Units shall be issued pursuant to the Offer. In lieu of
fractional Trust Units each CanScot Shareholder accepting the
Offer that would otherwise receive a fraction of a Trust Unit
will receive cash for such fractional interest computed on the
basis of $11.50 per Trust Unit. The Offer Documents shall be
prepared in accordance with Securities Laws and other
applicable laws. APF shall provide CanScot with a draft copy
of the Offer Documents prior to mailing and shall provide
CanScot with a reasonable opportunity to review and provide
any comments thereon.
(b) APF may make the Offer itself or through one or more direct or
indirect wholly-owned subsidiaries of APF or APF Trust, or any
combination thereof (which, for purposes hereof, may include a
partnership, all of the partners of which are direct or
indirect subsidiaries of APF or APF Trust, or any combination
thereof). In the event that any of those entities makes or
participates in the making of the Offer,
7
the term "APF" as used herein shall include all of those
entities, other than in Article 7 where the term APF shall not
include such entities, but APF shall continue to be liable to
CanScot for any default by any such entity in the performance
of any of APF's obligations hereunder.
(c) The Offer shall expire on the Initial Expiry Time, except that
the Offer may be extended in accordance with the provisions of
Section 2.l (f) if the conditions thereto set forth in
Schedule A are not satisfied on or by the date and time at
which the Offer would otherwise expire and if APF determines,
acting reasonably, that there is a reasonable prospect that
those conditions of the Offer may be satisfied within 40 days
after the Initial Expiry Date.
(d) Subject to the satisfaction or waiver of the conditions set
forth in Schedule A, APF shall, as soon as is practicable in
the circumstances and in any event within three Business Days
of the Expiry Time, take-up and pay for all CanScot Shares
validly tendered (and not properly withdrawn) pursuant to the
Offer. APF shall use all commercially reasonable efforts to
consummate the Offer, subject to the terms and conditions
thereof.
(e) Notwithstanding the foregoing, if the condition set out in
paragraph (b) of Schedule A has not been satisfied or waived
by the Initial Expiry Time, and each of the other conditions
set out in Schedule A has been satisfied, APF agrees that it
will extend the Offer for such period or periods, not to
exceed 40 days in the aggregate following the Initial Expiry
Time, as is necessary to satisfy or fulfill such conditions,
but only if APF has made a bona fide determination, acting
reasonably, that there is a reasonable prospect that such
conditions may be satisfied within such 40 day period.
(f) It is agreed that APF may, in its sole discretion:
(i) waive any term or condition of the Offer for its
benefit; and
(ii) vary any term or condition of the Offer, provided
that APF shall not without the prior written consent
of CanScot, acting reasonably, (A) change the number
of CanScot Shares for which the Offer is made, (B)
decrease or change the form of the consideration to
be paid for each CanScot Share or (C) amend the Offer
or modify the conditions to the Offer in a manner
that in either case is, in the opinion of CanScot,
acting reasonably, adverse to the CanScot
Shareholders (and for which purpose an extension of
the Offer or waiver of a condition will not be
considered materially adverse).
APF agrees to provide CanScot with not less than two days'
prior written notice of any waiver or amendment of any
material term or condition of the Offer.
(g) APF will instruct the depositary under the Offer to advise
CanScot from time to time at its request until the day
immediately prior to the day on which the Expiry Time shall
occur and thereafter on an hourly basis, if requested by
CanScot and in such manner as CanScot may reasonably request,
as to the number of CanScot
8
Shares that have been tendered (and not withdrawn) under the
Offer. CanScot agrees to keep such advice confidential and not
to use it in any manner that is in any way detrimental to the
performance of this Agreement or the successful completion of
the Offer.
(h) The obligation of APF to make the Offer shall be conditional
upon the following:
(i) no Material Adverse Change in respect of CanScot
shall have occurred, no person shall have brought or
threatened to bring a bona fide action for injunctive
relief against the performance of this Agreement or
the completion of the Offer and no other event shall
have occurred or circumstance shall exist which, in
the opinion of APF, would make it impossible or
impracticable to satisfy one or more of the
conditions of the Offer described in Schedule A
except if as a direct result of any act or omission
of APF;
(ii) as at the date that the Offer is to be made, no
material representation or warranty by CanScot
contained in this Agreement shall have been
determined by APF, acting reasonably, to be
materially inaccurate and no material breach by
CanScot of, or material non-compliance by CanScot
with, any material covenant or obligation contained
in this Agreement shall have occurred;
(iii) APF shall have obtained such orders or exemptive
relief from the Securities Authorities or other
regulatory authorities in Canada, the United States
and, as applicable, elsewhere as it deems necessary
or appropriate, acting reasonably, in connection with
the making of the Offer;
(iv) the board of directors of CanScot shall not have
withdrawn, modified or changed any of its
recommendations, approvals, resolutions, or
determinations referred to in Sections 2.2 or 2.4;
and
(v) all of the directors and officers of CanScot (and
entities controlled by them) shall have entered into
Lock-up Agreements within five days of the execution
hereof by CanScot whereby such holders agree to
tender their CanScot Shares (including those issuable
pursuant to CanScot Options or any other convertible
securities held by them or through entities of which
they are an officer) under the Offer representing not
less than 23% of the CanScot Shares on a diluted
basis. Further, management will undertake to use its
best efforts to obtain Lock-Up Agreements respecting
60% of the outstanding CanScot Shares and, for such
purpose, to contact those CanScot Shareholders owning
at least 100,000 CanScot Shares individually
(excluding CDS & Co.) and request that such holders
agree to tender their CanScot Shares (including those
issuable pursuant to CanScot Options or any other
convertible securities held by them) under the Offer.
The foregoing conditions set forth in this Section 2.1(h) are for the exclusive
benefit of APF and may be waived by APF, in whole or in part, in its sole
discretion, at any time and from time to
9
time. As of the time of execution of this Agreement, APF has no knowledge that a
representation or warranty of CanScot herein is materially inaccurate or of the
material non-performance by CanScot of any representation, warranty or covenant
contained in this Agreement. If prior to the making of the Offer, APF has
knowledge that any representation or warranty of CanScot herein is materially
inaccurate or any covenant or obligation of CanScot herein has been breached or
has not been complied with, APF shall forthwith so notify CanScot, giving
reasonable detail of the inaccuracy, breach or non-compliance. If the
inaccuracy, breach or non-compliance, as the case may be, is capable of being
cured, CanScot shall have three Business Days to effect a cure. If CanScot
effects a cure within such time period, the time period under Section 2.1 (a)
for the making of the Offer shall be extended by three Business Days. If the
inaccuracy, breach or non-compliance is not capable of being cured, or if
CanScot is unable to effect a cure within three Business Days of notice of the
inaccuracy, breach or non-compliance, APF shall be entitled to refuse to make
the Offer due to the failure to satisfy the conditions set out in Section
2.1(h).
2.2 CANSCOT DIRECTORS' CIRCULAR
(a) CanScot hereby consents to the Offer and confirms that its
board of directors (with the exception of Xxxxxx Xxxxx, who
has abstained) has unanimously approved the Offer and this
Agreement, and has determined that the Offer is fair, from a
financial point of view, to the holders of CanScot Shares, and
has resolved to unanimously recommend acceptance of the Offer
by holders of CanScot Shares. Subject to the provisions
contained herein, CanScot covenants to cooperate with APF and
to take all reasonable action to support the Offer.
(b) CanScot shall mail and file a directors' circular in
accordance with Securities Laws. The directors' circular will
set forth (among other things) the unanimous recommendation of
the board of directors of CanScot as described above. CanScot
shall provide APF with a draft copy of the directors' circular
prior to mailing and shall provide APF with a reasonable
opportunity to review and provide any comments thereon.
CanScot shall use its reasonable commercial efforts to mail
the directors' circular concurrently and in the same envelope
that APF mails a take-over bid circular respecting the Offer
to the CanScot Shareholders.
(c) CanScot and APF shall cooperate with a view to issuing a joint
press release substantially in the form attached hereto as
Schedule B as soon as practicable after the signing of this
Agreement. CanScot shall file or cause to be filed, where
required, a copy of that press release, a material change
report and this Agreement with the Securities Authorities
having jurisdiction over CanScot as soon as possible after the
issuance of that press release (and in any event within the
time periods set out in applicable Securities Laws).
(d) CanScot represents that each of its directors and officers
(and entities controlled by them) and some shareholders
holding in the aggregate (either directly or indirectly
through entities of which they are an officer or otherwise) in
excess of 23% of the CanScot Shares on a diluted basis have
advised that he intends to tender his CanScot Shares,
(including all CanScot Shares he shall acquire between the
date hereof and the Expiry Time, whether pursuant to the
exercise of CanScot
10
Options or otherwise) under the Offer. The directors' circular
shall reflect the intention of the directors and officers to
tender their respective CanScot Shares pursuant to the Offer.
(e) The board of directors of CanScot may only withdraw, modify or
change any recommendation with respect to the Offer:
(i) as permitted under Section 5.3;
(ii) in the event the Agreement is terminated prior to
such withdrawal, modification or change; or
(iii) in the event that the conditions set forth in
Schedule C hereto are not satisfied or waived at the
Expiry Time by CanScot in its discretion, acting
reasonably.
2.3 OFFER DOCUMENTS
(a) Within the time periods required by law, APF shall file or
cause to be filed with the appropriate Securities Authorities
an offer to purchase and take-over bid circular and the
related letter of transmittal and notice of guaranteed
delivery pursuant to which the Offer will be made
(collectively, the "Offer Documents"). The Offer Documents,
when filed with Securities Authorities and when mailed to
CanScot Shareholders, shall contain (or shall be amended in a
timely manner to contain) all information which is required to
be included therein in accordance with the Act and any
applicable Canadian provincial securities laws, and any other
applicable laws (collectively, the "Securities Laws").
(b) CanScot agrees to provide such reasonable assistance as APF or
its agents may reasonably request in connection with
communicating the Offer Documents and any amendments and
supplements thereto to the CanScot Shareholders and to such
other persons as are entitled to receive the Offer Documents
under Securities Laws, including providing or causing to be
provided lists of CanScot Shareholders (including "NOBO"
lists, depositary participant break-out lists) and of the
holders of CanScot Options and other securities convertible
into or exchangeable for, or other rights to acquire, CanScot
Shares (to the extent known by CanScot) including names,
addresses and numbers of CanScot Shares or such other
securities, together with mailing labels with respect to all
such holders, as soon as possible after the date of this
Agreement but in any event no later than the close of business
in Calgary two Business Days prior to the Mailing Date, and
updates or supplements thereto from time to time as may be
requested by APF (as contemplated in subsection 23(6) of the
Act). CanScot shall provide APF with mailing labels with
respect to all holders of securities within 3 Business Days of
any such request by APF. CanScot shall also make such of its
executive officers available for meetings with CanScot
Shareholders as APF may reasonably request.
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2.4 OUTSTANDING STOCK OPTIONS
(a) Subject to the receipt of any necessary regulatory approvals,
all persons holding options to purchase CanScot Shares, who
may do so under Securities Laws and in accordance with the
terms of the CanScot Options held by them, shall be entitled
to exercise all of their options and tender all CanScot Shares
issued in connection therewith under the Offer. The CanScot
board of directors shall not, prior to completion of the
Offer, grant additional options to purchase CanScot Shares. It
is agreed by APF that all CanScot Options that are tendered to
CanScot for exercise, conditional on APF taking up CanScot
Shares under the Offer ("Conditional Option Exercise"), shall
be deemed to have been exercised concurrently with the take-up
of CanScot Shares by APF. Furthermore, APF shall accept as
validly tendered under the Offer as of the Take-up Date, all
CanScot Shares that are to be issued pursuant to the
Conditional Option Exercise, provided that the holders of such
options indicate that such shares are tendered pursuant to the
Offer and provide a duly executed letter of transmittal and
further provided that such holders agree to surrender any of
their remaining unexercised options to CanScot for
cancellation for no consideration effective immediately after
the Take-up Date.
(b) CanScot and APF agree that, to the extent holders of CanScot
Options do not exercise their CanScot Options, CanScot may
agree with such holders that, in lieu of such persons
exercising their CanScot Options, CanScot will pay to such
persons in cash in a tax effective manner, immediately after
the Expiry Time of the Offer, the difference between: (i) the
aggregate exercise price of their "in the money" CanScot
Options; and (ii) the per share cash purchase price offered
for CanScot Shares under the Offer, multiplied by the number
of CanScot Shares that may be acquired upon the exercise of
such CanScot Options, in exchange for the termination of their
CanScot Options and provided that such holders agree to
surrender their remaining unexercised options, if any, to
CanScot for cancellation for no consideration effective
immediately after the Take-up Date.
(c) CanScot agrees to use its reasonable commercial efforts and
represents that its directors have:
(i) determined to cause CanScot to use reasonable
commercial efforts to encourage and facilitate all
persons holding CanScot Options to either: (A)
exercise those options and tender all CanScot Shares
issued in connection therewith to the Offer; or (B)
agree with CanScot to the payment described in
Section 2.4(b); or (C) terminate their rights to
exercise any of those CanScot Options; as set forth
above in this Section 2.4; and
(ii) authorized and directed CanScot to cause the vesting
of option entitlements under applicable agreements to
accelerate prior to or concurrently with the
completion of the Offer, such that all outstanding
CanScot Options shall be exercisable and fully vested
prior to the Expiry Time of the Offer.
12
(d) CanScot shall promptly notify APF in writing of any exercise
of options pursuant to Section 2.4(a) or payment pursuant to
Section 2.4(b). Such notice shall include full particulars of
the exercise or payment, as the case may be, and in the case
of Section 2.4(b) shall be delivered at least two Business
Days prior to payment being made.
ARTICLE 3
PUBLICITY AND SOLICITATION
3.1 PUBLICITY
Each of APF and CanScot shall receive the prior consent, not
to be unreasonably withheld, of the other Party prior to issuing, or permitting
any of its affiliates (if applicable), directors, officers, employees or agents
to issue, any press release or other written statement to the press with respect
to this Agreement or the transactions contemplated hereby. Other than the press
releases provided for in Section 2.2(c), APF and CanScot may issue a press
release or other written statement prior to such consent on the advice of
counsel that such action is required by applicable law or by obligations
pursuant to any listing agreement with a stock exchange, but only after using
its best efforts to consult the other Party taking into account the time
constraints to which it is subject as a result of such law or obligation.
3.2 SOLICITATION
APF may appoint a financial advisor to act as dealer manager
(the "Dealer Manager") in connection with the Offer and solicit acceptances of
the Offer. The Dealer Manager will, if appointed, form a soliciting dealer group
comprised of members of the Investment Dealers Association of Canada and of the
stock exchanges in Canada to solicit acceptances of the Offer in accordance with
Securities Laws.
ARTICLE 4
ARRANGEMENTS RESPECTING FEES
4.1 NON-COMPLETION FEE
Provided that the board of directors of CanScot have not
exercised their rights in accordance with Schedule C of the Agreement, if at any
time after the date of this Agreement:
(a) the board of directors of CanScot: (i) fails to unanimously
recommend (with the exception of Xxxxxx Xxxxx, if he has
abstained) that shareholders of CanScot accept the Offer; or
(ii) shall have withdrawn, modified or changed any of its
recommendations, approvals, resolutions or determinations
referred to in Section 2.2 in a manner adverse to APF or the
Offer, or shall have resolved to do so (except as contemplated
in Section 2.2(e)), or (iii) fails to publicly reaffirm any of
its recommendations, approvals, resolutions or determinations
referred to in Section 2.2 within two days of a request by APF
to do so, or upon a Take-Over Proposal being publicly
announced or proposed, offered or made to CanScot or
13
the CanScot Shareholders (such affirmation to be made by press
release within two days of such request being made or such
Take-Over Proposal being publicly announced, proposed, offered
or made, whichever occurs first) (except as contemplated in
Section 2.2(e));
(b) the board of directors of CanScot shall have recommended that
CanScot Shareholders deposit their CanScot Shares under, vote
in favour of or otherwise accept a Take-over Proposal;
(c) CanScot shall have entered into an agreement (other than a
confidentiality agreement referred to in Section 5.2(b)) with
any person with respect to a Take-Over Proposal prior to the
Expiry Time;
(d) a Take-Over Proposal is made to the CanScot Shareholders for a
consideration which is in the aggregate greater than the
aggregate consideration provided for under the Offer, and at
the Expiry Time the Minimum Condition has not been satisfied
and such Take-Over Proposal has not expired or been withdrawn
or there is another Take-Over Proposal then outstanding, and
such Take-Over Proposal is completed within six months of the
Expiry Time; or
(e) this Agreement has been terminated by APF pursuant to Section
13.1 (d),
then CanScot shall, within one Business Day after the first to occur of the
events described above, pay to APF the amount of $1.5 million. Such payment
shall be made in immediately available funds to an account designated by APF. On
the date of the earliest event described above, CanScot shall be deemed to hold
such sum in trust for APF.
ARTICLE 5
NO SOLICITATION
5.1 CESSATION OF EXISTING DISCUSSIONS
CanScot shall immediately cease and cause to be terminated all
existing discussions and negotiations, if any, with any parties (other than APF)
conducted on or before the date of this Agreement with respect to any actual or
potential Take-over Proposal. CanScot shall immediately following the mailing of
the Offer send a letter to all parties who have had such discussions or
negotiations or who have entered into confidentiality agreements with CanScot
pertaining to the sale of CanScot Shares or a substantial portion of its assets
and shall use appropriate diligence to have all materials provided to such
parties by CanScot or prepared by such parties in respect of CanScot destroyed
or returned to CanScot or its agents or advisors. CanScot shall immediately
advise APF verbally and in writing of any response or action (actual,
anticipated, contemplated or threatened) by any recipient of such letter which
could hinder, prevent or delay or otherwise adversely affect the completion of
the Offer. CanScot agrees not to release any third party from any
confidentiality or standstill obligation set forth in any agreement to which
CanScot and such third party are parties except for the standstill obligation in
14
connection with a Superior Take-over Proposal by such third party.
5.2 No SOLICITATION
None of CanScot or any of its directors, officers, employees,
agents, financial advisors, counsel or other representatives shall, directly or
indirectly:
(a) solicit, initiate or encourage (including, without limitation,
by way of furnishing information or entering into any form of
agreement, arrangement or understanding) the initiation or
continuation of any inquiries, discussions, negotiations,
proposals or offers from any corporation, person or other
entity or group (other than APF and its subsidiaries and their
respective directors, officers, employees, agents, financial
advisors, counsel or other representatives) in respect of any
matter or thing which is inconsistent with the successful
completion of the Offer and the merger of the operations of
APF and CanScot, including any Take-over Proposal; or
(b) participate in any discussions or negotiations regarding, or
furnish to any person any information with respect to, the
business, properties, operations, prospects or conditions
(financial or otherwise) of CanScot or otherwise cooperate in
any manner with, or assist or participate in, or facilitate or
encourage, an effort or attempt by any other person to do
anything mentioned in Section 5.2(a), or waive, or otherwise
forbear in the enforcement of, or enter into or participate in
any discussions, negotiations or agreements to waive or
otherwise forebear in respect of, any rights or other benefits
of CanScot under confidentiality agreements, including, any
"standstill" provisions thereunder; provided however, that the
foregoing in no way restricts or limits the board of directors
of CanScot from responding or acting in any manner or from
making any disclosure or providing any information, either
directly or through its officers, employees, agents or other
representatives, to another party who makes a bona fide
written offer to CanScot to enter into a Take-over Proposal
(i) if the board of directors, acting reasonably and after
receiving the advice of its financial advisors, believes the
offer would, if successful, result in a Superior Take-over
Proposal, and (ii) in any other circumstances if a failure to
respond or act would, in the opinion of the board of directors
of CanScot (acting reasonably and after receiving advice of
outside counsel), be inconsistent with the performance by the
directors of CanScot of their fiduciary duties under
Securities Laws. CanScot or its board of directors shall not
make any disclosure or provide any information in accordance
with this proviso unless CanScot shall have notified APF of
that occurrence, required the party making the Take-Over
Proposal to execute a confidentiality agreement in favour of
CanScot on terms and conditions no more favourable to such
other party than those contained in the Confidentiality
Agreement and unless CanScot shall have concurrently provided
copies of the same information or made the same disclosure to
APF. Additionally, CanScot agrees to notify APF, verbally and
in writing, immediately of the receipt of any communication
from any person that is related, directly or indirectly, to
any proposed Take-over Proposal.
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5.3 SUPERIOR TAKE-OVER PROPOSAL
Notwithstanding Sections 2.2(a) and 2.2(b), in the event that,
prior to the expiry of the Offer, a Superior Take-over Proposal is offered or
made to the CanScot Shareholders or CanScot, the board of directors of CanScot
may withdraw, modify or change any recommendation regarding the Offer if, in the
opinion of the board of directors acting in good faith after written advice from
outside counsel (confirmation of which shall be immediately delivered to APF),
the failure to so withdraw, modify or change any recommendation regarding the
Offer would be inconsistent with the performance by the directors of CanScot of
their fiduciary duties under Securities Laws. CanScot shall as soon as possible
but in any event prior to 10:00 a.m. (Calgary time) on the day following receipt
of any Take-over Proposal, advise APF verbally and in writing that a Take-over
Proposal has been offered or made to the board of directors of CanScot or to
CanScot (which notice in writing must identify the party proposing such
Take-over Proposal and the terms and conditions thereof, which must include a
copy of the terms and conditions of any written form of Take-over Proposal and
which must provide an undertaking to provide to APF any further documents
relating to the terms or conditions thereof delivered to the board of directors
of CanScot or to CanScot by the offeror).
If the board of directors of CanScot believes that the
Take-over Proposal constitutes a Superior Take-over Proposal, CanScot shall give
APF at least 72 hours advance notice of any action to be taken by the board of
directors of CanScot to withdraw, modify or change any recommendation regarding
the Offer or enter into an agreement to implement the Superior Take-over
Proposal. Such notice shall provide to APF the right during such 72 hours to
advise the board of directors of CanScot that APF will immediately announce and
as soon as possible in the circumstances amend its Offer to provide that the
CanScot Shareholders shall receive a value per CanScot Share equal to or greater
than the value per CanScot Share provided in the Superior Take-over Proposal. If
APF so advises the board of directors of CanScot prior to the expiry of such 72
hour period, the board of directors of CanScot shall not withdraw, modify or
change any recommendation with respect to the Offer, as so amended, take any
action to approve or implement the Superior Take-over Proposal or release the
party making the Superior Take-over Proposal from any standstill or
confidentiality obligation.
5.4 THIRD PARTIES TO BE MADE AWARE
CanScot shall ensure that the officers, directors and
employees of CanScot and any investment bankers or other advisers or
representatives retained by CanScot are aware of the provisions of this Article
5, and CanScot shall be responsible for any breach of this Article 5 by such
investment bankers, advisers or representatives.
ARTICLE 6
TRANSACTIONS FOLLOWING COMPLETION OF THE OFFER
6.1 SECOND STAGE TRANSACTION
If APF takes up and pays for CanScot Shares pursuant to the
terms of the Offer,
16
APF agrees to use all reasonable commercial efforts to acquire, and CanScot
agrees to use all reasonable commercial efforts to assist APF in acquiring, the
balance of the CanScot Shares as soon as practicable and in any event within a
period of six months following the Take-up Date by way of a statutory
arrangement, amalgamation, merger, reorganization, consolidation,
recapitalization or other type of acquisition transaction or transactions
("Second Stage Transaction") carried out for a consideration per CanScot Share
that consists of the same consideration paid pursuant to the Offer and is not
less than the Purchase Consideration paid pursuant to the Offer. Nothing herein
shall be construed to prevent APF from acquiring, directly or indirectly,
additional CanScot Shares in the open market or in privately negotiated
transactions or otherwise, in accordance with Securities Laws (including by way
of compulsory acquisition) following completion of the Offer.
6.2 CANSCOT BOARD OF DIRECTORS
The board of directors of CanScot, immediately following the
acquisition by APF of the number of CanScot Shares required to satisfy the
Minimum Condition, shall be reconstituted through resignations of all existing
CanScot directors designated by APF and the appointment of APF nominees in their
stead. CanScot shall, in accordance with the foregoing and subject to the
provisions of the Act, use its reasonable commercial efforts to secure the
resignations of all CanScot directors (who shall be provided releases from APF
and CanScot and who shall provide releases to APF and CanScot for all claims
against APF and CanScot other than claims for lawful indemnification and
reimbursement of expenses properly incurred) to be effective at such time as may
be required by APF and to use its best efforts to cause the appointment of the
APF nominees to fill the vacancies so created in order to effect the foregoing
without the necessity of a shareholder meeting. CanScot shall also cooperate
with APF to provide an orderly transition of control and management.
ARTICLE 7
REPRESENTATIONS AND WARRANTIES OF APF
APF hereby represents and warrants (and, as applicable,
covenants) to CanScot as follows and acknowledges that CanScot is relying upon
these representations, warranties and covenants in connection with the entering
into of this Agreement:
7.1 ORGANIZATION AND QUALIFICATION
APF is a corporation duly formed and organized and valid and
subsisting under the laws of the Province of Alberta and has the requisite
corporate power and authority to own its properties and conduct its business as
now owned and conducted. APF is duly registered to do business and is in good
standing in each jurisdiction in which the character of its properties, owned or
leased, or the nature of its activities make such registration necessary, except
where the failure to be so registered or in good standing would not have a
Material Adverse Effect on APF and its subsidiaries taken as a whole.
17
7.2 AUTHORITY RELATIVE TO THIS AGREEMENT
APF has the requisite authority to enter into this Agreement
and to carry out its obligations hereunder. The execution and delivery of this
Agreement and the consummation by APF of the transactions contemplated hereby
have been duly authorized by the board of directors of APF and no other
proceedings on its or their part are or will be necessary to authorize this
Agreement and the transactions contemplated hereby. This Agreement has been duly
executed and delivered by APF and constitutes the legal, valid and binding
obligation of APF enforceable against it in accordance with its terms, subject
to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
other laws relating to or affecting creditors' rights generally, and to general
principles of equity.
7.3 No VIOLATIONS
(a) Neither the execution and delivery of this Agreement by APF,
the consummation of the transactions contemplated hereby nor
compliance by APF with any of the provisions hereof will: (i)
violate, conflict with, or result in breach of any provision
of, require any consent, approval or notice under, or
constitute a default (or an event which, with notice or lapse
of time or both, would constitute a default) or result in a
right of termination or acceleration under, or result in a
creation of any lien, security interest, charge or encumbrance
upon any of the properties or assets of APF or any of its
subsidiaries under, any of the terms, conditions or provisions
of (x) the APF Governing Documents or (y) any note, bond,
mortgage, indenture, loan agreement, deed of trust, agreement,
lien, contract or other material instrument or obligation to
which APF or any of its subsidiaries is a party or to which
any of them, or any of their respective properties or assets,
may be subject or by which APF or any of its subsidiaries is
bound; (ii) subject to compliance with the statutes and
regulations referred to in Section 7.3(b), violate any
judgement, ruling, order, writ, injunction, determination,
award, decree, statute, ordinance, rule or regulation
applicable to APF or any of its subsidiaries (except, in the
case of each of clauses (i) and (ii) above, for such
violations, conflicts, breaches, defaults, terminations which,
or any consents, approvals or notices which if not given or
received, would not have any Material Adverse Effect on the
business, operations or financial condition of APF and its
subsidiaries taken as a whole or on the ability of APF to
consummate the transactions contemplated hereby); or (iii)
cause the suspension or revocation of any authorization,
consent, approval or license currently in effect which would
have a Material Adverse Effect on the business, operations or
financial condition of APF and its subsidiaries taken as a
whole.
(b) Other than in connection with or in compliance with the
provisions of Securities Laws, the rules of the Toronto Stock
Exchange, the United States Securities Exchange Act of 1934,
as amended, (the "Exchange Act") state securities or "blue-
sky" laws of the states of the United States, as amended, and
any pre-merger notification statutes, (i) there is no legal
impediment to APF's consummation of the transactions
contemplated by this Agreement and (ii) no filing or
registration with, or authorization, consent or approval of,
any domestic or foreign public body or authority is necessary
by APF in connection with the making or the
18
consummation of the Offer, except for such filings or
registrations which, if not made, or for such authorizations,
consents or approvals, which, if not received, would not have
a Material Adverse Effect on APF or on the ability of APF to
consummate the transactions contemplated hereby.
7.4 REPORTING ISSUER STATUS
APF Trust is a "reporting issuer" in all provinces of Canada
and is in material compliance with all Securities Laws and the Trust Units are
listed, and only listed, on the Toronto Stock Exchange.
7.5 CAPITALIZATION
As of the date hereof, the authorized capital of APF Trust
consists of 500,000,000 Trust Units and Special Voting Units. As of the date
hereof, 32,394,357 Trust Units are issued and outstanding. All outstanding Trust
Units have been duly authorized and validly issued, are fully paid and
non-assessable, and all Trust Units to be issued in connection with the Offer
will be duly authorized and validly issued, fully paid and non-assessable.
7.6 NO MATERIAL ADVERSE CHANGE
Since March 31, 2003, there has not been any Material Adverse
Change with respect to APF or APF Trust, except as has been publicly disclosed.
7.7 INFORMATION
To the best of the knowledge of APF, all material data and
information provided by APF to CanScot and its agents and representatives is
complete and true and correct in all material respects as at the respective
dates thereof and did not and does not omit any material data or information
necessary to make any data or information, to the extent requested by CanScot,
not misleading as at the respective dates thereof.
7.8 FINANCIAL STATEMENTS
The audited financial statements of APF Trust as at and for
the period ended December 31, 2002 previously delivered to CanScot were prepared
in accordance with GAAP and fairly present, in accordance with GAAP, the
consolidated financial condition of APF at December 31, 2002 and the results of
operations for the period then ended.
7.9 NO UNDISCLOSED MATERIAL LIABILITIES
Except (a) as disclosed or reflected in the audited financial
statements of APF Trust as at December 31, 2002 and the unaudited financial
statements of APF as at March 31, 2003 previously delivered to CanScot, and (b)
for liabilities and obligations (i) incurred in the ordinary course of business
and consistent with past practice, (ii) pursuant to the terms of this Agreement,
or (iii) as disclosed in writing to CanScot prior to the date of this Agreement,
neither APF nor APF Trust has incurred any material liabilities of any nature,
whether accrued, contingent or otherwise or which would be required by GAAP to
be reflected on a consolidated balance sheet of APF Trust as of the date hereof.
19
7.10 IMPAIRMENT
The making of the Offer will not result in a Material Adverse
Change in respect of APF or APF Trust.
7.11 REPORTS
(a) APF has heretofore delivered to CanScot (or they are available
on SEDAR) true and complete copies of (i) APF Trust's
Information Circular relating to APF Trust's 2003 annual and
special meeting of unitholders and 2002 Annual Report to
unitholders, (ii) all prospectuses or other offering documents
used by APF Trust in the offering of its securities or filed
with Securities Authorities since December 31, 2002, (iii) the
audited financial statements of APF Trust dated December 31,
2002, and (iv) the unaudited financial statements of APF Trust
dated March 31, 2003. As of their respective dates, such form,
circular, statements, prospectuses and other offering
documents (including all exhibits and schedules thereto and
documents incorporated by reference therein) (i) did not
contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or
necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, and
(ii) complied in all material respects with all applicable
requirements of law including Securities Laws. The audited
financial statements and unaudited interim financial
statements of APF Trust publicly issued by APF Trust or
included or incorporated by reference in such form, circular,
statements, prospectuses and other offering documents were
prepared in accordance with GAAP (except (i) as otherwise
indicated in such financial statements and the notes thereto
or, in the case of audited statements, in the related report
of APF's independent accountants, or (ii) in the case of
unaudited interim financial statements, to the extent they may
not include footnotes or may be condensed or summary
statements), and fairly present, in accordance with GAAP the
financial position, results of operations and changes in
financial position of APF and APF Trust as of the dates
thereof and for the periods indicated therein and reflect all
material assets, liabilities or obligations of APF and APF
Trust as at the dates thereof (subject, in the case of any
unaudited interim financial statements, to normal year-end
audit adjustments). APF will during the term of this Agreement
deliver to CanScot as soon as they become available true and
complete copies of any report or statement filed by APF Trust
with Securities Authorities subsequent to the date hereof. As
of their respective dates, such reports and statements
(excluding any information therein provided by CanScot, as to
which APF makes no representation) (i) will not contain any
untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances
under which they are made, not misleading, and (ii) will
comply in all material respects with all applicable
requirements of law including Securities Laws. The financial
statements of APF Trust issued by APF Trust or to be included
in such reports and statements (excluding any information
therein provided by CanScot, as to which APF makes no
representation) will be prepared in accordance with GAAP
(except (i) as otherwise indicated in such financial
statements and the notes thereto or, in the case of audited
statements, in the
20
related report of APF's independent accounts, or (ii) in the
case of unaudited interim financial statements, to the extent
they may not include footnotes or may be condensed or summary
statements) and will present fairly, in accordance with GAAP,
the financial position, results of operations and changes in
financial position of APF and APF Trust as of the dates
thereof and for the periods indicated therein and reflect all
material assets, liabilities or obligations of APF and APF
Trust as at the dates thereof (subject, in the case of any
unaudited interim financial statements, to normal year-end
audit adjustments).
7.12 U.S. SECURITIES LAW MATTERS
APF Trust is a foreign private issuer, as that term is used in
Rule 3b-4 promulgated under the Exchange Act, and is not an investment company
registered or required to be registered under the United States Investment
Company Act of 1940. The Trust Units are not registered under Section 12 of the
Exchange Act.
7.13 SUBSIDIARIES
Neither APF nor APF Trust (i) has any material subsidiaries
except APF Acquisition Trust, in the case of APF Trust, (ii) has any interest in
any partnership (except indirectly, APF Energy Limited Partnership), and (iii)
is a party to any agreement of any nature to acquire any subsidiary or to
acquire or lease any other business operations out of the ordinary course.
7.14 BOOKS AND RECORDS
The corporate records and minute books, books of account and
other records of APF, APF Trust and their material subsidiaries (whether of a
financial or accounting nature or otherwise) have been maintained in accordance
with all applicable statutory requirements and prudent business practice and are
complete and accurate in all material respects, except for minutes of meetings
of the directors of APF and committees thereof with respect to the Offer and
which have not yet been prepared.
7.15 LITIGATION, ETC.
Except as set forth herein, there is no claim, action,
proceeding or investigation outstanding or, to the knowledge of APF, pending,
threatened against or relating to APF, APF Trust, APF Energy Limited Partnership
or APF Acquisition Trust or any of their subsidiaries or affecting any of their
respective properties or assets before any court or governmental or regulatory
authority or body that, if adversely determined, is likely to have a Material
Adverse Effect on APF and APF Trust and their subsidiaries taken as a whole or
prevent or materially delay consummation of the transactions contemplated by
this Agreement or the Offer, nor is APF aware of any basis for any such claim,
action, proceeding or investigation. APF, APF Trust, APF Energy Limited
Partnership, APF Acquisition Trust and their subsidiaries are not subject to any
outstanding order, writ, injunction or decree that has had or is reasonably
likely to have a Material Adverse Effect on APF and APF Trust and their
subsidiaries taken as a whole or prevent or materially delay consummation of the
transactions contemplated by this Agreement or the Offer.
21
7.16 ENVIRONMENTAL
Except as has been disclosed to CanScot in writing prior to
the date hereof, to the best knowledge and belief of APF:
(a) neither APF, APF Energy Limited Partnership nor any of their
subsidiaries is in material violation of any applicable
federal, provincial, municipal or local laws, regulations,
orders, government decrees or ordinances with respect to
environmental, health or safety matters (collectively,
"Environmental Laws");
(b) APF and APF Energy Limited Partnership have operated their
respective businesses at all times and have received, handled,
used, stored, treated, shipped and disposed of all
contaminants without material violation of Environmental Laws;
(c) there have been no material spills, releases, deposits or
discharges of hazardous or toxic substances, contaminants or
wastes which have not been rectified or are in the process of
being rectified on any of the real property owned or leased by
APF or APF Energy Limited Partnership during the period of
their ownership or tenure or under their control during the
period in which they have had control;
(d) there have been no releases, deposits or discharges, in
material violation of Environmental Laws, of any hazardous or
toxic substances, contaminants or wastes into the earth, air
or into any body of water or any municipal or other sewer or
drain water systems by APF or APF Energy Limited Partnership;
(e) no material orders, directions or notices have been issued and
remain outstanding pursuant to any Environmental Laws relating
to the business or assets of APF or APF Energy Limited
Partnership other than abandonment and similar notices issued
in connection with APF's or APF Energy Limited Partnership's
normal course of business; and
(f) APF and APF Energy Limited Partnership hold all material
licences, permits and approvals required under any
Environmental Laws in connection with the operation of their
respective businesses and the ownership and use of their
assets and all such licences, permits and approvals are in
full force and effect.
7.17 NOTICE OF ENVIRONMENTAL POLICIES OR LAWS
Neither APF nor APF Energy Limited Partnership has received
notice of any proposed environmental policies or laws which either of such
entities reasonably believes would have a Material Adverse Effect on the oil
and/or gas exploration, development or production operations of such entities,
other than those that apply to the industry generally.
7.18 INSURANCE
Policies of insurance in force as of the date hereof naming
APF as an insured adequately cover all risks reasonably and prudently
foreseeable in the operation and conduct of the business of APF, APF Trust and
APF Energy Limited Partnership, taken as a whole. All such
22
policies of insurance shall remain in force and effect and shall not be
cancelled or otherwise terminated as a result of the transactions contemplated
hereby or by the Offer.
7.19 TITLE
Although it does not warrant title, APF does not have reason
to believe that APF does not have title to or the irrevocable right to produce
and sell its petroleum, natural gas and related hydrocarbons (for the purposes
of this clause, the foregoing are referred to as the "INTERESTS") and does
represent and warrant that the Interests are free and clear of adverse claims
created by, through or under APF, except for those arising in the ordinary
course of business, which are not material in the aggregate, and, to the
knowledge of APF after due inquiry, APF holds its Interests under valid and
subsisting leases, licenses, permits, concessions, concession agreements,
contracts, subleases, reservations or other agreements.
7.20 SOURCE OF FUNDS
The aggregate cash consideration payable pursuant to the Offer
is available to APF such that APF is in a position, subject to the terms of this
Agreement, to pay for all CanScot Shares tendered pursuant to the Offer in
accordance with the terms of the Offer and to pay all related fees and expenses.
ARTICLE 8
REPRESENTATIONS AND WARRANTIES OF CANSCOT
CanScot hereby represents and warrants (and, as applicable,
covenants) to APF as follows and acknowledges that APF is relying upon these
representations, warranties and covenants in connection with the entering into
of this Agreement:
8.1 ORGANIZATION AND QUALIFICATION
Each of CanScot and its subsidiaries is a corporation duly
incorporated and organized and valid and subsisting under the laws of its
jurisdiction of incorporation and has the requisite corporate power and
authority to own its properties and conduct its business as now owned and
conducted. Each of CanScot and its subsidiaries is duly registered to do
business and is in good standing in each jurisdiction in which the character of
its properties, owned or leased, or the nature of its activities make such
registration necessary, except where the failure to be so registered or in good
standing would not have a Material Adverse Effect on CanScot and its
subsidiaries taken as a whole.
8.2 AUTHORITY RELATIVE TO THIS AGREEMENT
CanScot has the requisite corporate authority to enter into
this Agreement and to carry out its obligations hereunder. The execution and
delivery of this Agreement and the consummation of the transactions contemplated
hereby have been duly authorized by CanScot's board of directors, and no other
corporate proceedings on the part of CanScot are necessary to authorize this
Agreement (except for obtaining shareholder approval in respect of any Second
Stage Transaction) and the transactions contemplated hereby. This Agreement has
been duly
23
executed and delivered by CanScot and constitutes the legal, valid and binding
obligation of CanScot enforceable against CanScot in accordance with its terms,
subject to bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and other laws relating to or affecting creditors' rights generally,
and to general principles of equity.
8.3 No VIOLATIONS
(a) Neither the execution and delivery of this Agreement by
CanScot, the consummation of the transactions contemplated
hereby nor compliance by CanScot with any of the provisions
hereof will: (i) violate, conflict with, or result in breach
of any provision of, require any consent, approval or notice
under, or constitute a default (or an event which, with notice
or lapse of time or both, would constitute a default) or
result in a right of termination or acceleration under, or
result in a creation of any lien, security interest, charge or
encumbrance upon any of the properties or assets of CanScot or
any of its subsidiaries under, any of the terms, conditions or
provisions of (x) the CanScot Governing Documents or (y) any
note, bond, mortgage, indenture, loan agreement (other than a
credit facility with Alberta Treasury Branches for which
CanScot will attempt to obtain a waiver in a form and
substance satisfactory to APF prior to the Mailing Date), deed
of trust, agreement (other than agreements respecting CanScot
Options and employment or consulting agreements comprising the
Employment Obligations), lien, contract or other material
instrument or obligation to which CanScot or any of its
subsidiaries is a party or to which any of them, or any of
their respective properties or assets, may be subject or by
which CanScot or any of its subsidiaries is bound; (ii)
subject to compliance with the statutes and regulations
referred to in Section 8.3(b), violate any judgement, ruling,
order, writ, injunction, determination, award, decree,
statute, ordinance, rule or regulation applicable to CanScot
or any of its subsidiaries (except, in the case of each of
clauses (i) and (ii) above, for such violations, conflicts,
breaches, defaults, terminations which, or any consents,
approvals or notices which if not given or received, would not
have any Material Adverse Effect on the business, operations
or financial condition of CanScot and its subsidiaries taken
as a whole or on the ability of CanScot to consummate the
transactions contemplated hereby); or (iii) cause the
suspension or revocation of any authorization, consent,
approval or license currently in effect which would have a
Material Adverse Effect on the business, operations or
financial condition of CanScot and its subsidiaries taken as a
whole.
(b) Other than in connection with or in compliance with the
provisions of Securities Laws, the rules of the TSX Venture
Exchange, the United States Securities Exchange Act of 1934,
as amended, state securities or "blue-sky" laws of the states
of the United States, as amended, and any pre-merger
notification statutes, (i) there is no legal impediment to
CanScot's consummation of the transactions contemplated by
this Agreement and (ii) no filing or registration with, or
authorization, consent or approval of, any domestic or foreign
public body or authority is necessary by CanScot in connection
with the making or the consummation of the Offer, except for
such filings or registrations which, if not made, or for such
authorizations, consents or approvals, which, if not received,
24
would not have a Material Adverse Effect on CanScot or the
ability of CanScot to consummate the transactions contemplated
hereby.
8.4 CAPITALIZATION
As of the date hereof, the authorized share capital of CanScot
consists of an unlimited number of CanScot Shares and an unlimited number of
first preferred shares. As of the date hereof, only 13,419,742 CanScot Shares
and no others are issued and outstanding. As of the date hereof, 1,306,000
CanScot Shares are issuable pursuant to the exercise of outstanding CanScot
Options. Except as set forth in the immediately preceding sentence, there are no
options, warrants or other rights, agreements or commitments of any character
whatsoever requiring the issuance, sale or transfer by CanScot or any of its
subsidiaries of any shares of CanScot (including CanScot Shares) or any of its
subsidiaries or any securities convertible into, or exchangeable or exercisable
for, or otherwise evidencing a right to acquire, any shares of CanScot
(including CanScot Shares) or any of its subsidiaries, nor are there any
outstanding stock appreciation rights, phantom equity or similar rights,
agreements, arrangements or commitments based upon the book value, income or
other attribute of CanScot or any of its subsidiaries. All outstanding CanScot
Shares have been duly authorized and validly issued, are fully paid and
non-assessable and are not subject to, nor were they issued in violation of, any
pre-emptive rights, and all CanScot Shares issuable upon exercise of outstanding
CanScot Options in accordance with their respective terms will be duly
authorized and validly issued, fully paid and non-assessable and will not be
subject to any pre-emptive rights.
8.5 No MATERIAL ADVERSE CHANGE
Since March 31, 2003, there has not been any Material Adverse
Change with respect to CanScot or any of its subsidiaries, except as has been
publicly disclosed.
8.6 INFORMATION
To the best of the knowledge of CanScot, all data and
information in respect of CanScot and its subsidiaries and their assets,
reserves, liabilities, business and operations provided by CanScot or its
advisors to APF and its agents and representatives is complete and true and
correct in all material respects as at the respective dates thereof and did not
and does not omit any material data or information necessary to make any data or
information provided not misleading as at the respective dates thereof.
8.7 NO UNDISCLOSED MATERIAL LIABILITIES
Except (a) as disclosed or reflected in the audited financial
statements of CanScot as at December 31, 2002 previously delivered to APF, and
(b) for liabilities and obligations (i) incurred in the ordinary course of
business and consistent with past practice, (ii) pursuant to the terms of this
Agreement including the Employee Obligations, or (iii) as disclosed in writing
to APF prior to the date of this Agreement, neither CanScot nor any of its
subsidiaries has incurred any material liabilities of any nature, whether
accrued, contingent or otherwise or which would be required by generally
accepted accounting principles applicable in Canada to be reflected on a
consolidated balance sheet of CanScot as of the date hereof.
25
8.8 IMPAIRMENT
The making of the Offer will not result in a Material Adverse
Change in respect of CanScot or any of its subsidiaries.
8.9 EMPLOYEE/LEASE OBLIGATIONS
The Employee Obligations (except with respect to Messrs. Xxxxx
and Xxxxxxxxxx) and costs on termination of capital and office leases do not
exceed $250,000 and $650,000, respectively.
8.10 WORKING CAPITAL
CanScot will have, at the Effective Time, net working capital
and bank debt of no more than $2.1 million (excluding current tax accruals or
expenses related to the Offer), subject to any capital expenditure program
described in Section 9.1(c)(ix).
8.11 TRANSACTION COSTS
CanScot has not retained nor will it retain any financial
advisor, broker, agent or finder or paid or agreed to pay any financial advisor,
broker, agent or finder on account of this Agreement, any transaction
contemplated hereby or any transaction presently ongoing or contemplated, except
that Burnet Xxxxxxxxx & Xxxxxx LLP has been retained as legal advisers and CIBC
World Markets Inc. has been retained as CanScot's financial advisors in
connection with certain matters including the transactions contemplated hereby.
The aggregate fees payable to all legal, financial and accounting advisors with
respect to the Offer shall not exceed $100,000, not including the fee payable to
CanScot's financial advisors, which fees shall not exceed $125,000.
8.12 CONDUCT OF BUSINESS
Since December 31, 2002 and except as disclosed in the public
documents of CanScot filed pursuant to Securities Laws or contemplated herein,
CanScot has not taken any action that would be in violation of Section 9.1 if
such provision had been in effect since such date, other than violations which
would not have any Material Adverse Effect on the business, operations or
financial condition of CanScot and would not materially affect CanScot's ability
to consummate the transactions contemplated hereby.
8.13 REPORTS
(a) CanScot has heretofore delivered to APF (or they are available
on SEDAR) true and complete copies of (i) CanScot's
Information Circular relating to CanScot's 2003 annual meeting
of shareholders and 2002 Annual Report to shareholders, (ii)
all prospectuses or other offering documents used by CanScot
in the offering of its securities or filed with Securities
Authorities since December 31, 2001 and (iii) the audited
financial statements of CanScot dated December 31, 2002. As of
their respective dates, such form, circular, statements,
prospectuses and other offering documents (including all
exhibits and schedules thereto and documents incorporated by
reference therein) (i) did not contain any untrue statement of
a
26
material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not
misleading, and (ii) complied in all material respects with
all applicable requirements of law including Securities Laws.
The audited financial statements and unaudited interim
financial statements of CanScot publicly issued by CanScot and
the audited financial statements of CanScot as at December 31,
2002, previously delivered to APF, or included or incorporated
by reference in such form, circular, statements, prospectuses
and other offering documents were prepared in accordance with
generally accepted accounting principles in Canada (except (i)
as otherwise indicated in such financial statements and the
notes thereto or, in the case of audited statements, in the
related report of CanScot's independent accountants, or (ii)
in the case of unaudited interim financial statements, to the
extent they may not include footnotes or may be condensed or
summary statements), and fairly present the financial
position, results of operations and changes in financial
position of CanScot as of the dates thereof and for the
periods indicated therein and reflect all material assets,
liabilities or obligations of CanScot as at the dates thereof
(subject, in the case of any unaudited interim financial
statements, to normal year-end audit adjustments).
(b) CanScot will during the term of this Agreement deliver to APF
as soon as they become available true and complete copies of
any report or statement filed by it with Securities
Authorities subsequent to the date hereof. As of their
respective dates, such reports and statements (excluding any
information therein provided by APF, as to which CanScot makes
no representation) (i) will not contain any untrue statement
of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they are
made, not misleading, and (ii) will comply in all material
respects with all applicable requirements of law including
Securities Laws. The financial statements of CanScot issued by
CanScot or to be included in such reports and statements
(excluding any information therein provided by APF, as to
which CanScot makes no representation) will be prepared in
accordance with GAAP (except (i) as otherwise indicated in
such financial statements and the notes thereto or, in the
case of audited statements, in the related report of CanScot's
independent accounts, or (ii) in the case of unaudited interim
financial statements, to the extent they may not include
footnotes or may be condensed or summary statements) and will
present fairly, in accordance with GAAP the financial
position, results of operations and changes in financial
position of CanScot as of the dates thereof and for the
periods indicated therein and reflect all material assets,
liabilities or obligations of CanScot as at the dates thereof
(subject, in the case of any unaudited interim financial
statements, to normal year-end audit adjustments).
8.14 U.S. SECURITIES LAW MATTERS
CanScot is a foreign private issuer, as that term is used in
Rule 3b-4 promulgated under the Exchange Act. The CanScot Shares are not
registered under Section 12 of the
27
Exchange Act. To CanScot's knowledge, less than 10% of the CanScot Shares are
held by U.S. holders.
8.15 SUBSIDIARIES
CanScot (i) does not have any material subsidiaries other than
Jubilee Resources Inc., and Tika Energy Inc., (ii) does not have any interest in
any partnership, and (iii) is not a party to any agreement of any nature to
acquire any subsidiary or to acquire or lease any other business operations out
of the ordinary course.
8.16 BOOKS AND RECORDS
The corporate records and minute books, books of account and
other records of CanScot and its subsidiaries (whether of a financial or
accounting nature or otherwise) have been maintained in accordance with all
applicable statutory requirements and prudent business practice and are complete
and accurate in all material respects, except for minutes of meetings of the
directors of CanScot and committees thereof with respect to the Offer and which
have not yet been prepared.
8.17 LITIGATION, ETC.
There is no claim, action, proceeding or investigation
outstanding or, to .the knowledge of CanScot, pending, threatened against or
relating to CanScot or any of its subsidiaries or affecting any of their
respective properties or assets before any court or governmental or regulatory
authority or body that, if adversely determined, is likely to have a Material
Adverse Effect on CanScot and its subsidiaries taken as a whole or prevent or
materially delay consummation of the transactions contemplated by this Agreement
or the Offer, nor is CanScot or any of its subsidiaries aware of any basis for
any such claim, action, proceeding or investigation. CanScot and its
subsidiaries are not subject to any outstanding order, writ, injunction or
decree that has had or is reasonably likely to have a Material Adverse Effect on
CanScot and it subsidiaries taken as a whole or prevent or materially delay
consummation of the transactions contemplated by this Agreement or the Offer.
8.18 ENVIRONMENTAL
Except as has been disclosed to APF in writing prior to the
date hereof, to the best knowledge and belief of CanScot:
(a) Neither CanScot nor any its subsidiaries is in material
violation of any Environmental Laws;
(b) CanScot and its subsidiaries have operated their respective
businesses at all times and have received, handled, used,
stored, treated, shipped and disposed of all contaminants
without material violation of Environmental Laws;
(c) there have been no material spills, releases, deposits or
discharges of hazardous or toxic substances, contaminants or
wastes which have not been rectified or are in the process of
being rectified on any of the real property owned or leased by
28
CanScot and its subsidiaries during the period of its
ownership or tenure or under their control during the period
in which they have had control;
(d) there have been no releases, deposits or discharges, in
material violation of Environmental Laws, of any hazardous or
toxic substances, contaminants or wastes into the earth, air
or into any body of water or any municipal or other sewer or
drain water systems by CanScot or any of its subsidiaries;
(e) no material orders, directions or notices have been issued and
remain outstanding pursuant to any Environmental Laws relating
to the business or assets of CanScot or any of its
subsidiaries other than abandonment and similar notices issued
in connection with CanScot's and its subsidiaries' normal
course of business; and
(f) CanScot and each of its subsidiaries hold all material
licences, permits and approvals required under any
Environmental Laws in connection with the operation of their
respective business and the ownership and use of their
respective assets, all such licences, permits and approvals
are in full force and effect.
8.19 NOTICE OF ENVIRONMENTAL POLICIES OR LAWS
CanScot and, its subsidiaries have not received notice of any
proposed environmental policies or laws which CanScot or its subsidiaries
reasonably believes would have a Material Adverse Effect on any oil and/or gas
exploration, development or production operations of CanScot and its
subsidiaries taken as a whole, other than those that apply to the industry
generally.
8.20 INSURANCE
Policies of insurance in force as of the date hereof naming
CanScot as an insured adequately cover all risks reasonably and prudently
foreseeable in the operation and conduct of the business of CanScot and its
subsidiaries, taken as a whole. All such policies of insurance shall remain in
force and effect and shall not be cancelled or otherwise terminated as a result
of the transactions contemplated hereby or by the Offer.
If prior to the Expiry Time, CanScot secures directors' and
officers' liability insurance for CanScot's current and former directors and
officers, covering claims made prior to or within two years after the Take-up
Date which has a scope and coverage substantially equivalent in scope and
coverage to that provided to CanScot's current directors' and officers'
insurance policy, at a total cost not in excess of $30,000, APF agrees to not
take any action, or cause CanScot to take any action, to terminate such
directors' and officers' insurance. In addition, any Lock-Up Agreements may
provide an agreement to the foregoing effect.
8.21 TAX MATTERS
(a) TAX DEFINITIONS. For purposes of this Agreement, the following
definitions shall apply:
29
(i) The term "TAXES" shall mean all taxes, however
denominated, including any interest, penalties or
other additions that may become payable in respect
thereof, imposed by federal, territorial, state,
local or foreign government or any agency or
political subdivision of any such government, which
taxes shall include, without limiting the generality
of the foregoing, all income or profits taxes
(including, but not limited to, federal income taxes
and provincial income taxes), payroll and employee
withholding taxes, ad valorem taxes, excise taxes,
franchise taxes, gross receipts taxes, business
license taxes, occupation taxes, real and personal
property taxes, stamp taxes, environmental taxes,
transfer taxes, workers' compensation and other
governmental charges, and other obligations of the
same or of a similar nature to any of the foregoing,
which CanScot is required to pay, withhold or
collect.
(ii) The term "RETURNS" shall mean all reports, estimates,
declarations of estimated tax, information statements
and returns relating to, or required to be filed in
connection with, any such Taxes.
(b) RETURNS FILED AND TAXES PAID. All Returns required to be filed
by or on behalf of CanScot and its subsidiaries have been duly
filed on a timely basis and such Returns are true, complete
and correct in all material respects. All Taxes shown to be
payable on the Returns or on subsequent assessments with
respect thereto have been paid in full on a timely basis or
have been accrued for on CanScot's financial statements, and
no other Taxes are payable by CanScot or its subsidiaries with
respect to items or periods covered by such Returns.
(c) TAX RESERVES. CanScot and its subsidiaries have paid or
provided adequate accruals in its audited financial statements
for the year ended December 31, 2002 for Taxes, including
income taxes and related deferred taxes, in conformity with
generally accepted accounting principles applicable in Canada.
(d) RETURNS FURNISHED. For all periods ending on and after
December 31, 1997, APF has been furnished by CanScot or will
be furnished, on request, by CanScot with true and complete
copies of (i) relevant portions of income tax audit reports,
statements of deficiencies, closing or other agreements
received by CanScot or its subsidiaries or on behalf of
CanScot or its subsidiaries relating to Taxes, and (ii) all
pro-forma separate federal and provincial income or franchise
tax returns for CanScot and its subsidiaries.
(e) TAX DEFICIENCIES, AUDITS, STATUTES OF LIMITATIONS. Except as
disclosed in writing to APF, no material deficiencies exist or
have been asserted with respect to Taxes of CanScot or any of
its subsidiaries. CanScot or any of its subsidiaries are not
parties to any action or proceeding for assessment or
collection of taxes, nor has such event been asserted or
threatened against CanScot or any of its subsidiaries or any
of their respective assets. No waiver or extension of any
statute of limitations is in effect with respect to Taxes or
Returns of CanScot or any of its subsidiaries. Except as has
been disclosed in writing to APF prior to the date hereof, the
Returns of CanScot and its subsidiaries have never been
audited
30
by a government or taxing authority, nor is any such audit in
process, pending or threatened.
8.22 EMPLOYEE BENEFIT PLANS
Other than as disclosed in writing to APF prior to the date
hereof, CanScot or any of its subsidiaries:
(a) except for its existing health plan have no defined benefit
plans or other employee benefit plans, and have not made any
agreements or promises with respect to increased benefits
under such plans;
(b) have provided adequate accruals in their respective audited
financial statements for the year ended December 31, 2002 (or
such amounts are fully funded) for all pension or other
employee benefit obligations of CanScot and its subsidiaries
arising under or relating to each of the pension or retirement
income plans or other employee benefit plans or agreements or
policies maintained by or binding on CanScot and its
subsidiaries as well as for any other payment required to be
made by CanScot and its subsidiaries in connection with the
termination of employment or retirement of any employee of
CanScot and its subsidiaries in respect of the fiscal period
ended December 31, 2002; and
(c) have no stock option plans or arrangements other than the
Stock Option Plan and, except as otherwise disclosed herein,
they are not otherwise parties to any agreement to provide any
CanScot Shares or other CanScot securities (including any
securities convertible into or exchangeable or exercisable
for, or otherwise evidencing a right to acquire CanScot
Shares) or to provide any options to acquire CanScot Shares or
any other CanScot securities convertible into or exchangeable
or exercisable for, or otherwise evidencing a right to
acquire, CanScot Shares to any person other than pursuant to
the Stock Option Plan.
8.23 EMPLOYMENT AGREEMENTS
Except as disclosed in writing to APF prior to the date
hereof, CanScot and its subsidiaries are not parties to any employment agreement
or to any written or oral policy, agreement, obligation or understanding or any
amendment thereto which contains any specific agreement as to notice of
termination or severance pay in lieu thereof or which cannot be terminated
without cause on giving reasonable notice as may be implied by law.
8.24 REPORTING ISSUER STATUS
CanScot is a "reporting issuer" in British Columbia, Alberta,
Ontario and Quebec, and is in material compliance with all Securities Laws and
the rules and policies of the TSX Venture Exchange, and the CanScot Shares are
listed on the TSX Venture Exchange.
8.25 SHAREHOLDER RIGHTS PLAN
There is not in effect with respect to CanScot, and prior to
the Expiry Time CanScot will not implement, a shareholder rights plan or any
other form of plan, agreement,
31
contract or instrument that will trigger any rights to acquire CanScot Shares or
other securities of CanScot or rights, entitlements or privileges in favour of
any person upon the entering into of this Agreement or the making of the Offer.
8.26 TITLE
Although it does not warrant title, CanScot does not have
reason to believe that CanScot and its subsidiaries do not have title to or the
irrevocable right to produce and sell their petroleum, natural gas and related
hydrocarbons (for the purposes of this clause, the foregoing are referred to as
the "INTERESTS") and does represent and warrant that the Interests are free and
clear of adverse claims created by, through or under CanScot or its
subsidiaries, except for those arising in the ordinary course of business, which
are not material in the aggregate, and, to the knowledge of CanScot after due
inquiry, CanScot and its subsidiaries hold their Interests under valid and
subsisting leases, licenses, permits, concessions, concession agreements,
contracts, subleases, reservations or other agreements.
8.27 RELATED PARTY TRANSACTION
Except as disclosed in writing to APF prior to the date
hereof, CanScot and its subsidiaries have not made any payment or loan to, or
borrowed monies from or is otherwise indebted to, any Related Party except for
usual employee reimbursements and compensation paid in the ordinary and normal
course of the business consistent with historical practices. Except for
contracts of employment as disclosed in writing to APF prior to the date hereof,
CanScot and its subsidiaries are not a party to any contract, agreement or other
commitment, written or oral, with any Related Party and no Related Party owns,
directly or indirectly, any interest in or is an officer, director, employee or
consultant of any person which is, or is engaged in business as, a lessor,
lessee, client or supplier of CanScot or its subsidiaries, or owns, directly or
indirectly, in whole or in part, any property that is used in the operation of
the business of CanScot or its subsidiaries, or has any cause of action or other
claim whatsoever against or owes any amount to, CanScot or its subsidiaries.
8.28 AMI AND OTHER AGREEMENTS
Except as disclosed in writing to APF prior to the date
hereof, there is no noncompetition, exclusivity, area of mutual interest or
other similar agreement, commitment or understanding in place, whether written
or oral, to which CanScot or its subsidiaries or, to the knowledge of CanScot,
any director, officer, employee or consultant or any affiliate of such persons
is a party or is otherwise bound that would now or hereafter, in any way limit
the business or operations of CanScot or its subsidiaries (i) in a particular
manner or to a particular locality or geographic region, or (ii) for a limited
period of time.
8.29 RESTRICTION ON BUSINESS
The execution, delivery and performance of this Agreement does
not and will not result in the restriction of CanScot or its subsidiaries from
engaging in their respective businesses or from competing with any person or in
any geographical area and do not and will not result in a Material Adverse
Effect on their respective businesses or trigger or cause to arise any rights of
any person under any contract or arrangement to restrict any of the foregoing
from engaging in
32
the business currently carried on by CanScot or its subsidiaries.
8.30 CONFIDENTIALITY AGREEMENTS
CanScot has provided to APF a copy of the one confidentiality
agreement entered into with a person other than APF regarding the
confidentiality of information provided to such person or reviewed by such
person in the data room and no other agreements have been entered into. CanScot
has not negotiated any Take-over Proposal with any person who has not entered
into such a confidentiality agreement. CanScot has not waived the applicability
of any "standstill" or other provision of any confidentiality agreements entered
into by CanScot which have not automatically expired by their terms.
8.31 TAX POOLS
CanScot had, as of May 31, 2003 and including the accounts of
its wholly owned subsidiary Jubilee Resources Inc., Canadian tax pools totaling
approximately $8.4 million consisting of the following approximate balances:
COGPE $4.63 million
CDE $0.37 million
CEE $0.90 million
UCC $2.39 million
CEC & other $0.12 million
In addition, CanScot has U.S. intangible drilling costs, other depletable and
depreciable costs and net operating losses in its wholly owned subsidiary Tika
Energy Inc. totaling approximately $2.6 million (Cdn).
The Canadian tax pools are net of $1.2 million renounced under flow through
agreements entered into in December, 2002. There remained, as of May 31, 2003,
an obligation under the flow through agreements to incur an additional amount of
approximately $460,000 of qualifying expenditures.
8.32 ISSUANCES OF SECURITIES
All offers and sales of securities in the capital of CanScot
from treasury or by CanScot including, without limitation, the CanScot Shares
and the CanScot Options have been made in compliance with all applicable
Securities Laws.
8.33 XXXXXXXX REPORT
CanScot has made available to XxXxxxxx, prior to the issuance
of the XxXxxxxx Report, for the purposes of preparing the XxXxxxxx Report, all
information requested by XxXxxxxx, which information did not contain any
misrepresentation at the date thereof. Except as otherwise disclosed in writing
to APF, CanScot has no knowledge of a Material Adverse Change in any information
provided to XxXxxxxx since the date that such information was so provided.
33
8.34 OBLIGATIONS TO INCUR EXPENSES
Neither CanScot nor any of its subsidiaries has any obligation
to incur any Canadian exploration expense as a result of any agreements with any
persons respecting the issuance of shares on a flow-through basis except as
specifically provided herein.
8.35 PRODUCTION
The aggregate current production of CanScot is approximately
800 barrels of oil equivalent per day, comprised of 3,900 thousand cubic feet of
gas and 150 barrels of crude oil and natural gas liquids, with gas converted on
a 6:1 basis.
8.36 SITE RESTORATION
The site restoration liability relating to the petroleum and
natural gas assets of CanScot and its subsidiaries is, in aggregate, not more
than $750,000, after taking into account the salvage value for tangible assets.
8.37 RIGHTS OF FIRST REFUSAL ("ROFRS")
Any ROFRs encumbering the petroleum and natural gas assets of
CanScot are subject to the Canadian Association of Petroleum Landmen 1990
Operating Procedure corporate exception, which will result in no ROFR notices
having to be issued in respect of the petroleum and natural gas assets of
CanScot and its subsidiaries on account of the Offer, based on the understanding
of CanScot that APF will acquire all of the CanScot Shares and amalgamate with
CanScot thereafter.
8.38 FINANCIAL STATEMENTS
The audited financial statements of CanScot as at and for the
period ended December 31, 2002 previously delivered to APF were prepared in
accordance with GAAP and fairly present, in accordance with GAAP, the
consolidated financial condition of CanScot at December 31, 2002 and the results
of operations for the period then ended.
8.39 SALES CONTRACTS
Except as otherwise disclosed in writing to APF, CanScot does
not have any future material commitment to buy, sell, exchange or transport
petroleum or natural gas or any physical or financial contracts relating to the
delivery of petroleum or natural gas, that are not terminable on thirty days'
notice.
ARTICLE 9
CONDUCT OF BUSINESS
9.1 CONDUCT OF BUSINESS BY CANSCOT
CanScot covenants and agrees that, during the period from the
date of this Agreement until the earlier of: (i) the Effective Time; or (ii) the
date that this Agreement is
34
terminated in accordance with its terms, unless APF shall otherwise agree in
writing, except as required by law or as otherwise expressly permitted or
specifically contemplated by this Agreement:
(a) the business of CanScot and other entities controlled by
CanScot, including any joint ventures, directly or indirectly
controlled by CanScot, shall be conducted only in, and CanScot
shall not take any action except in, the usual and ordinary
course of business and consistent with past practice, and
CanScot shall use all reasonable commercial efforts to
maintain and preserve its business organization, assets,
employees and advantageous business relationships. CanScot
shall, subject to compliance with the terms of any third party
agreements, consult with APF in respect of the ongoing
business and affairs of CanScot and keep APF apprised of all
material developments relating thereto;
(b) CanScot shall not directly or indirectly do or permit to occur
any of the following: (i) amend the CanScot Governing
Documents; (ii) declare, set aside or pay any dividend or
other distribution or payment (whether in cash, shares or
property) in respect of its shares owned by any person; (iii)
issue, grant, sell or pledge or agree to issue, grant, sell or
pledge any shares of CanScot or any of its subsidiaries, or
securities convertible into or exchangeable or exercisable
for, or otherwise evidencing a right to acquire, shares of
CanScot, other than CanScot Shares issuable pursuant to the
terms of the CanScot Options; (iv) redeem, purchase or
otherwise acquire any of its outstanding shares or other
securities, including, without limitation, under any normal
course issuer bid, except pursuant to Section 2.4; (v) split,
combine or reclassify any of its shares; (vi) adopt a plan of
liquidation or resolutions providing for the liquidation,
dissolution, merger, consolidation or reorganization of
CanScot; or (vii) enter into or modify any contract,
agreement, commitment or arrangement with respect to any of
the foregoing, except as permitted above;
(c) other than (w) expenditures arising from responses to events
involving safety or emergency issues; (x) reasonable expenses
relating to the transactions contemplated by this Agreement;
or (y) pursuant to commitments entered into by CanScot prior
to the date of this Agreement, CanScot shall not directly or
indirectly do any of the following or permit any of its
subsidiaries to do any of the following: (i) sell, pledge,
dispose of or encumber any assets, except in the ordinary
course of business for a consideration in excess of $25,000
individually or $100,000 in aggregate; (ii) acquire (by
merger, amalgamation, consolidation or acquisition of shares
or assets) any corporation, partnership or other business
organization or division thereof, or, except for investments
in securities for hedging purposes made in the ordinary course
of business, make any investment either by purchase of shares
or securities, contributions of capital, property transfer,
or, except in the ordinary course of business, purchase of any
property or assets of any other individual or entity in each
case having a value in excess of $25,000; (iii) incur any
indebtedness for borrowed money or any other material
liability or obligation or issue any debt securities or
assume, guarantee, endorse or otherwise as an accommodation
become responsible for, the obligations of any other
individual or entity, or make any loans or advances, except in
the ordinary
35
course of business and in any event CanScot shall not incur
any such obligation of any kind in excess of $25,000
individually or $100,000 in the aggregate; (iv) except for
Employee Obligations and the payment for CanScot Options
payable on the Take-up Date, pay, discharge or satisfy any
material claims, liabilities or obligations other than the
payment, discharge or satisfaction in the ordinary course of
business, consistent with past practice, of liabilities
reflected or reserved against in its financial statements or
incurred in the ordinary course of business consistent with
past practice, provided that no payment on account of Employee
Obligations shall be made to Messrs. Xxxxx and Xxxxxxxxxx; (v)
authorize, recommend or propose any release or relinquishment
of any material contract right other than in the ordinary
course of business, consistent with past practice; (vi) waive,
release, grant or transfer any rights of material value or
modify or change in any material respect any existing material
license, lease, contract, production sharing agreement,
government land concession or other document, other than in
the ordinary course of business, consistent with past
practice; (vii) enter into any interest rate swaps, currency
swaps or any other rate fixing agreement for a financial
transaction or enter into any call arrangement of any sort or
any forward sale agreement for commodities; or (viii)
authorize or propose any of the foregoing, or enter into or
modify any contract, agreement, commitment or arrangement to
do any of the foregoing; (ix) except for expenditures made in
the ordinary course, expend or commit to expend more than
$25,000 individually or $100,000 in the aggregate with respect
to any capital or operating expense or expenses (other than
proposed expenditures having an aggregate cost of $1.4 million
(base case) and $1.7 million (discretionary case) (net to
CanScot), details of which have been provided in writing to
APF, provided that CanScot shall discontinue any such
operations on receipt of written notice to do so delivered by
APF); (x) reorganize, amalgamate, merge or otherwise continue
CanScot with any other person, corporation, partnership or
other business organization whatsoever; or (xi) enter into any
agreements for the sale of production having a term of more
than 30 days.
(d) CanScot shall use its reasonable commercial efforts to cause
its current insurance (or re-insurance) policies and those of
its subsidiaries not to be cancelled or terminated or any of
the coverage thereunder to lapse, unless simultaneously with
such termination, cancellation or lapse, replacement policies
underwritten by insurance and re-insurance companies of
nationally recognized standing providing coverage equal to or
greater than the coverage under the cancelled, terminated or
lapsed policies for substantially similar premiums are in full
force and effect;
(e) CanScot shall:
(i) not take any action that would render, or that
reasonably may be expected to render, any
representation or warranty made by it in this
Agreement untrue in any material respect;
(ii) confer, prior to taking action (other than in
emergency situations) with APF with respect to all
material operational matters involved in its
business; and
36
(iii) work to familiarize APF personnel with the nature and
workings of all of its operational, accounting and
land systems, such that APF personnel shall be able
to continue the operation of all such systems
following completion of the transactions contemplated
herein.
(f) CanScot shall not create any new Employee Obligations other
than as contemplated herein, CanScot shall not grant to any
officer or director an increase in compensation in any form,
grant any general salary increase other than in accordance
with the requirements of any existing collective bargaining or
union contracts, grant to any other employee any increase in
compensation in any form other than routine increases in the
ordinary course of business consistent with past practices,
make any loan to any officer, director or any other party not
at arm's length, or take any action with respect to the grant
of any severance or termination pay (other than as
contemplated herein or as agreed to by APF, acting reasonably)
arising from the Offer or a change of control of CanScot or
the entering into of any employment agreement with, any
person, or with respect to any increase of benefits payable
under its current severance or termination pay policies;
(g) CanScot shall not adopt or amend or make any contribution to
any bonus, profit sharing, option, pension, retirement,
deferred compensation, insurance, incentive compensation,
other compensation or other similar plan, agreement, trust,
fund or arrangements for the benefit of employees, except as
is necessary to comply with the law or with respect to
existing provisions of any such plans, programs, arrangements
or agreements;
(h) CanScot shall not enter into or modify any contract,
agreement, commitment or arrangement with respect to any of
the matters set forth in this Section 9.1, except as
specifically permitted in this Section 9.1, without the prior
consent of APF;
(i) CanScot will not take any action or omit to take any action
which results in a reduction of the Tax Pools of CanScot
except for actions permitted under this Agreement;
(j) CanScot will conduct its business such that its net debt,
including working capital deficiency at the Effective Time,
shall not be more than $2.1 million, exclusive of the costs of
the transaction contemplated in Sections 8.9 and 8.11 of this
Agreement and the costs of proposed expenditures described in
Section 9.1; and
(k) CanScot will, on the written direction of APF, sell forward up
to 35% of its gas production for a period not to exceed 12
months, on terms satisfactory to APF (being the amount of
production currently being sold forward).
37
ARTICLE 10
COVENANTS OF CANSCOT
10.1 ACCESS TO INFORMATION
Subject to the existing Confidentiality Agreement, upon
reasonable notice, CanScot shall afford APF's officers, employees, counsel,
accountants and other authorized representatives and advisers reasonable access,
during normal business hours and at such other time or times as APF may
reasonably request from the date hereof and until the expiration of this
Agreement, to its properties, books, contracts and records as well as to its
management personnel, and, during such period, CanScot shall furnish promptly to
APF all information concerning its business, properties and personnel as APF may
reasonably request and shall review with APF personnel such of the records,
systems and processes as would be necessary to allow APF personnel to assume the
continuing operations of CanScot upon the acquisition by APF of the number of
CanScot Shares required to satisfy the Minimum Condition. CanScot will conduct
itself so as to keep APF fully informed as to its business and affairs and as to
the decisions required with respect to the most advantageous methods of
exploring, operating and producing from its assets and shall cooperate with APF
in respect thereof.
10.2 STRUCTURE OF TRANSACTION
CanScot shall cooperate with APF in structuring the
acquisition by APF of CanScot in a tax efficient manner, provided that no such
cooperation shall be required where such structuring shall have a Material
Adverse Effect on the business, operations or financial condition of CanScot or
its shareholders or cause any breach of or default under this Agreement by
CanScot which APF has not agreed to waive in writing.
10.3 SETTLEMENT OF SHAREHOLDER ACTIONS
CanScot shall not settle or compromise any claim brought by
any present, former or purported holder of any securities of CanScot in
connection with the transactions contemplated by this Agreement or the Offer
without the prior written consent of APF.
10.4 GENERAL RELEASES
CanScot shall, on or before the Take-up Date, cause its
employees, officers and directors to execute in favour of CanScot, in
consideration for the payment on the aggregate of the Employee Obligations and
for cancellation or termination of CanScot Options, general releases of all
claims that such persons may have against CanScot, its directors, officers and
employees.
10.5 FINANCIAL INFORMATION
CanScot shall, on or before the Take-up Date, provide APF with
financial information concerning its cash holdings and loan position as at a
date which is not before three days prior to the Take-up Date.
38
ARTICLE 11
COVENANTS OF APF
11.1 INDEMNITIES
APF agrees that if it acquires the CanScot Shares under the
Offer it shall cause CanScot to fulfill its obligations pursuant to indemnities
provided or available to past and present officers and directors of CanScot
pursuant to the provisions of the CanScot Governing Documents, the Act, and the
written indemnity agreements shown to APF prior to the date hereof which have
been entered into between CanScot and its current officers and directors.
11.2 THIRD PARTY BENEFICIARIES
APF acknowledges that CanScot shall hold the benefits of
Section 11.1 in trust for the benefit of the employees, officers and directors
referred to therein.
ARTICLE 12
MUTUAL COVENANTS
12.1 NOTICE OF MATERIAL CHANGE
From the date hereof until the termination of this Agreement,
each Party shall promptly notify the other Party in writing of:
(a) any material change (actual, anticipated, contemplated or, to
the knowledge of that Party, threatened, financial or
otherwise) in the business, affairs, operations, assets,
liabilities (contingent or otherwise) or capital of that Party
or its subsidiaries; or
(b) any change in any representation or warranty given in this
Agreement by the Party or in the underlying basis thereof
which change is or may be of such a nature as to render any
such representation or warranty misleading or untrue in a
material respect.
Each Party shall in good faith discuss with the other Party any change in
circumstances (actual, anticipated, contemplated or, to the knowledge of the
Party, threatened, financial or otherwise) which is of such a nature that there
may be a reasonable question as to whether notice need to be given to the other
Party pursuant to this section.
12.2 OTHER FILINGS
APF and CanScot shall, as promptly as practicable hereafter,
prepare and file any filings required under any Securities Law, the rules of the
Toronto Stock Exchange and TSX Venture Exchange, as applicable, the Exchange
Act, state securities or "blue-sky" laws of the states of the United States, as
amended, or any other applicable law relating to the transactions
39
contemplated herein.
12.3 ADDITIONAL AGREEMENTS
Subject to the terms and conditions herein provided and to
fiduciary obligations under Securities Laws, each of the Parties agrees to use
all reasonable commercial efforts to take, or cause to be taken, all action and
to do, or cause to be done, all things necessary, proper or advisable to
consummate and make effective as promptly as practicable the transactions
contemplated by this Agreement and to cooperate with each other in connection
with the foregoing, including using reasonable commercial efforts to:
(a) obtain all necessary waivers, consents and approvals from
other parties to material agreements, leases and other
contracts or agreements (including, without limitation, the
agreement of any persons as may be required pursuant to any
agreement, arrangement or understanding relating to CanScot's
operations);
(b) obtain all necessary waivers, consents, approvals and
authorizations as are required to be obtained under any
federal, provincial or foreign law or regulations;
(c) defend all lawsuits or other legal proceedings challenging
this Agreement or the consummation of the transactions
contemplated hereby;
(d) cause to be lifted or rescinded any injunction or restraining
order or other order adversely affecting the ability of the
Parties to consummate the transactions contemplated hereby;
(e) effect all necessary registrations and other filings and
submissions of information requested by governmental
authorities; and
(f) fulfil all conditions and satisfy all provisions of this
Agreement and the Offer.
For purposes of the foregoing, the obligation to use "reasonable commercial
efforts" to obtain waivers, consents and approvals to loan agreements, leases
and other contracts shall not include any obligation to agree to a materially
adverse modification of the terms of such documents or to prepay or incur
additional material obligations to such other parties.
ARTICLE 13
TERMINATION, AMENDMENT AND WAIVER
13.1 TERMINATION
This Agreement may be terminated by written notice given to
the other Party hereto, at any time prior to the time APF first takes-up and
pays for CanScot Shares:
(a) by mutual written consent of CanScot and APF;
40
(b) by either APF or CanScot if APF shall not have taken up and
paid for the number of CanScot Shares required to satisfy the
Minimum Condition under the Offer on or before the times
required by this Agreement, unless the absence of such
occurrence shall be due to the failure of the Party seeking to
terminate this Agreement to perform the obligations under this
Agreement required to be performed by it;
(c) by either APF or CanScot if a court of competent jurisdiction
or a governmental, regulatory or administrative agency or
commission shall have issued an order, decree or ruling or
taken any other action permanently restraining, enjoining or
otherwise prohibiting any of the transactions contemplated by
this Agreement and such order, decree, ruling or other action
shall have become final and non-appealable, provided that the
Party seeking to terminate this Agreement pursuant to this
Section 13.1(c) shall have used all reasonable commercial
efforts to remove such order, decree, ruling or injunction;
(d) by either APF or CanScot if there has been a material
misrepresentation, breach or non-performance by the other
Party of any material representation, warranty, covenant or
obligation contained in this Agreement in any case which has,
or is reasonably expected to have, a Material Adverse Effect
on the non-breaching Party, provided that, in cases only where
such misrepresentation, breach or non-performance is capable
of being cured, the breaching Party has been given notice of
and three Business Days to cure any such misrepresentation,
breach or non-performance;
(e) by APF if APF has the right pursuant to Section 2.1(h) to
refuse to make the Offer due to the failure, under
circumstances other than those set forth in Section 13.1(d),
of the conditions set out in Section 2.1(h);
(f) by APF or CanScot upon a fee as provided in Article 4 becoming
payable;
(g) by CanScot if APF has not mailed the Offer Documents by the
date set forth in Section 2.1(a) hereof;
(h) by CanScot if the Take-up Date has not occurred within 60 days
following the Initial Expiry Time; or
(i) by CanScot if the condition set forth in paragraph (c) of
Schedule C is not satisfied as of the Expiry Time.
13.2 EFFECT OF TERMINATION
In the event of the termination of this Agreement as provided
in Section 13.1, this Agreement shall forthwith have no further force or effect
and there shall be no obligation on the part of APF or CanScot hereunder except
as set forth in Article 4, this Section 13.2 and Section 14.4, which provisions
shall survive the termination of this Agreement. Nothing herein shall relieve
any Party from liability for any breach of this Agreement provided that if
CanScot became obligated to and has paid the fees provided for in Article 4,
CanScot shall have no further liability under this Agreement.
41
In the event of termination of this Agreement, each of the
Parties shall, subject to the terms of the Confidentiality Agreement, forthwith
return to the other all confidential and other information relating to such
other Party.
13.3 AMENDMENT
This Agreement may be amended by mutual agreement between the
Parties. This Agreement may not be amended except by an instrument in writing
signed by the appropriate officers on behalf of each of the Parties.
13.4 WAIVER
Each of APF, on the one hand, and CanScot, on the other hand,
may:
(a) extend the time for the performance of any of the obligations
or other acts of the other;
(b) waive compliance with any of the other's agreements or the
fulfillment of any conditions to its own obligations contained
herein; or
(c) waive inaccuracies in any of the other's representations or
warranties contained herein or in any document delivered by
the other Party hereto,
provided, however, that any such extension or waiver shall be valid only if set
forth in an instrument in writing signed on behalf of such Party.
ARTICLE 14
GENERAL PROVISIONS
14.1 NOTICES
All notices required or permitted under this Agreement shall
be in writing and may be given by delivering or faxing same during normal
business hours to the address set forth below. Any such notice or communication
shall, if delivered, be deemed to have been given or made and received on the
date delivered, and if faxed (with confirmation received), shall be deemed to
have been given or made and received on the day on which it was so faxed. The
Parties may give, from time to time, written notice of change of address in the
manner aforesaid.
(a) If to APF:
APF Energy Inc.
0000, 000-0xx Xxxxxx XX
Xxxxxxx, Xxxxxxx X0X 0X0
Attention: Xxxxxx Xxxxxx
Chief Executive Officer
Telecopy No.: (000) 000-0000
42
with a copy to:
Xxxxxx XxXxxx LLP
0000, 000-0 Xxxxxx XX
Xxxxxxx, Xxxxxxx X0X 0X0
Attention: Xxxxx X. Xxxxxx
Telecopy No.: (000) 000-0000
(b) If to CanScot:
CanScot Resources Ltd.
0000, 000-0xx Xxxxxx X.X.
Xxxxxxx, Xxxxxxx X0X 0X0
Attention: Xxxxxx X. Xxxxx
Telecopy No.: (000) 000-0000
with a copy to:
Burnet Xxxxxxxxx & Xxxxxx LLP
0000, 000-0xx Xxxxxx X.X.
Xxxxxxx, Xxxxxxx X0X 0X0
Attention: Xxxxxxx X. Xxxxxx
Telecopy No.: (000) 000-0000
14.2 MISCELLANEOUS
This Agreement (i) except for the Confidentiality Agreement,
constitutes the entire agreement and supersedes all other prior agreements and
understandings, both written and oral, between the Parties, with respect to the
subject matter hereof, and (ii) shall be binding upon and enure to the benefit
of the Parties and their respective successors and permitted assigns. The
Parties shall be entitled to rely upon delivery of an executed facsimile copy of
this Agreement, and such facsimile copy shall be legally effective to create a
valid and binding agreement among the Parties. The Parties agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the Parties shall be entitled
to an injunction or injunctions to prevent breaches of this Agreement and to
enforce specifically the terms and provisions hereof in any court of Alberta
having jurisdiction, this being in addition to any other remedy to which they
are entitled at law or in equity.
14.3 ASSIGNMENT
Except as expressly permitted by the terms hereof, neither
this Agreement nor any of the rights, interests or obligations hereunder shall
be assigned by any of the Parties without the prior written consent of the other
Parties. Notwithstanding the foregoing, APF may assign all or any part of its
rights or obligations under this Agreement to one or more subsidiaries and
provided further that if such assignment takes place, APF shall continue to be
liable to CanScot for any default in performance by the assignee.
43
14.4 EXPENSES
Except as provided in Article 4, all fees, costs and expenses
incurred in connection with this Agreement and the transactions contemplated
hereby shall be paid in Canadian funds by the Party incurring such cost or
expense, whether or not the Offer is consummated.
14.5 SEVERABILITY
Whenever possible, each provision of this Agreement shall be
interpreted in such manner as to be effective and valid under Securities Laws.
Any provision of this Agreement that is invalid or unenforceable in any
jurisdiction shall be ineffective to the extent of such invalidity or
unenforceability without invalidating or rendering unenforceable the remaining
provisions hereof, and any such invalidity or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
14.6 CONFIDENTIALITY AGREEMENT
APF is hereby released from the standstill and related
provisions of the Confidentiality Agreement in respect of the transactions
contemplated by the Offer on the terms set out in this Agreement.
14.7 COUNTERPART EXECUTION
This Agreement may be executed in any number of counterparts
and each such counterpart shall be deemed to be an original instrument but all
such counterparts together shall constitute one agreement.
44
14.8 CONSENT REGARDING DEPOSITARY
CanScot consents to APF using Computershare Trust Company of
Canada as APF's depositary with regard to the Offer.
IN WITNESS WHEREOF, APF and CanScot have caused this Agreement
to be executed as of the date first written above by their respective officers
thereunto duly authorized.
APF ENERGY INC.
Per: (signed) "Xxxxxx Xxxxxx"
Chief Executive Officer
Per: (signed) "Xxxx XxxXxxxxx"
Vice President, Finance
CANSCOT RESOURCES LTD.
Per: (signed) "Xxxxxx X. Xxxxx"
President and Chief Executive Officer
Per: (signed) "Xxxxx Xxxxxxxx"
Director
SCHEDULE A
CONDITIONS TO THE OFFER
Capitalized terms used in this Schedule A but which are not
defined herein shall have the meanings set forth in the attached Pre-Offer
Agreement dated August 5, 2003 (the "Agreement") between APF and CanScot.
Notwithstanding any other provision of the Offer, but subject
to the provisions of this Agreement, APF reserves the right to withdraw or
terminate the Offer and not take up and pay for, or to extend the period of time
during which the Offer is open and postpone taking up and paying for, any
CanScot Shares deposited under the Offer unless all of the conditions included
in the Offer, substantially on the terms described below, are satisfied, or
waived by APF:
(a) at the Expiry Time, and at the time APF first takes up and
pays for CanScot Shares under the Offer, there shall have been
validly deposited under the Offer and not withdrawn at least
90% of the outstanding CanScot Shares (calculated on a diluted
basis) (the "Minimum Condition");
(b) all requisite regulatory approvals, orders, rulings,
exemptions and consents (including, without limitation, those
of any stock exchanges and other Securities Authorities) shall
have been obtained on terms and conditions satisfactory to APF
in its sole discretion, acting reasonably, and all applicable
statutory or regulatory waiting periods shall have expired or
been terminated and no objection or opposition shall have been
filed, initiated or made by any governmental agency or
regulatory authority during any applicable statutory or
regulatory period which shall not have been withdrawn,
defeated or overcome which has or will likely have a Material
Adverse Effect on APF's ability to take up and pay for all of
the CanScot Shares tendered to the Offer or complete a
compulsory acquisition or any subsequent acquisition
transaction or which, in the sole discretion of APF, acting
reasonably, is or would be materially adverse to the business
of CanScot or to the value of the CanScot Shares to APF;
(c) no act, action, suit, proceeding, objection or opposition
shall have been threatened or taken before or by any domestic
or foreign court or tribunal or governmental agency or other
regulatory authority or administrative agency or commission by
any elected or appointed public official or by any private
person in Canada or elsewhere, whether or not having the force
of law, and (ii) no law, regulation or policy (including
applicable tax laws and regulations in those jurisdictions in
which CanScot carries on business) shall have been proposed,
enacted, promulgated, amended or applied, which in either
case, in the sole judgement of APF, acting reasonably:
(A) has the effect or may have the effect of
cease trading the CanScot Shares, or
enjoining, prohibiting or imposing material
limitations, damages or conditions on the
making of the Offer, or the purchase by, or
the sale to, APF of the CanScot Shares or
the right of APF to own or exercise full
rights of ownership of the CanScot Shares;
(B) has had or, if the Offer was consummated,
would result in, a Material Adverse Change
in respect of CanScot or, in the case of
(ii) above, would have a Material Adverse
Effect on CanScot or APF;or
(C) has a Material Adverse Effect on the
completion of any compulsory acquisition or
any Second Stage Transaction;
(d) APF shall have determined in its sole judgement, acting
reasonably, that there does not exist any prohibition at law
against APF making the Offer or taking up and paying for all
of the CanScot Shares under the Offer or completing any
compulsory acquisition or Second Stage Transaction in respect
of any CanScot Shares not acquired under the Offer;
(e) CanScot shall not have breached, or failed to comply with, in
any material respect, any of its material covenants,
representations, warranties or other obligations under the
Agreement, and all representations and warranties of CanScot
contained in the Agreement shall have been true and correct in
all material respects as of the date of the Agreement and
shall not have ceased to be true and correct in any material
respect thereafter; provided that CanScot has been given
notice of and three Business Days to cure any such breach,
failure to comply or misrepresentation;
(f) the Agreement shall not have been terminated and no material
provision of the Agreement shall have been held by a court,
securities commission or other regulatory authority to be
invalid or unenforceable in accordance with its terms;
(g) there shall have been no Material Adverse Change in respect of
CanScot since the date of the Agreement; and
(h) APF shall have entered into employment agreements satisfactory
to APF with Messrs. Xxxxx and Xxxxxxxxxx.
SCHEDULE B
FORM OF PRESS RELEASE
[APF ENERGY TRUST LOGO]
NEWS RELEASE
TSX: AY.UN; AY.DB
APF ENERGY INC. AGREES TO ACQUIRE CANSCOT RESOURCES LTD. FOR $39.5 MILLION
ACQUISITION OF GAS-LEVERED PRODUCER STRENGTHENS TRUST'S POSITION IN CONVENTIONAL
ALBERTA PRODUCTION AND ADDS COAL BED METHANE OPPORTUNITIES
AUGUST 6, 2003 - APF Energy Inc. ("APF") and CanScot Resources Ltd. ("Canscot")
(TSXV:CAG) announce that they have entered into an agreement to have APF acquire
Canscot for $34.9 million in cash or units of APF Energy Trust (at the option of
Canscot Shareholders), plus the assumption of approximately $4.6 million of
debt. It is expected that the transaction will close in mid September 2003.
Funding for the cash portion of the acquisition will come from APF's available
bank lines of $150 million, of which only $65 million is currently drawn.
SUMMARY HIGHLIGHTS ON CANSCOT
The Canscot acquisition has the following attributes:
- Current daily production of approximately 800 boe, consisting of 3.9
mmcf/d of gas (81%) and 150 bbl of oil and natural gas liquids (19%)
with the potential to increase to 1,000 boe daily, with the tie in of
recently drilled xxxxx and other development initiatives.
- High working interests in a focused group of long-life conventional
and coal bed methane ("CBM") properties in Alberta and Wyoming.
- Established reserve life index of 18.7 years. APF's RLI will be
approximately 10 years following the completion of the acquisition.
- Approximately 45,800 net undeveloped acres of land.
- Experienced team to further develop CBM properties.
2
OVERVIEW OF TRANSACTION
APF has agreed to purchase the shares of Canscot, a public corporation trading
on the TSX Venture Exchange, for $2.60 per share in cash, or APF Trust Units,
and the assumption of approximately $4.6 million of debt. With 13.42 million
shares and 1.3 million options outstanding, the transaction has a total value of
$39.5 million. CIBC World Markets is acting as financial advisor to Canscot in
connection with this transaction.
Xxxxxx Xxxxxx, CEO of APF stated, "This acquisition continues our strategy of
acquiring assets that provide APF with the opportunity to replace reserves and
production with low risk, low cost development. The Canscot conventional and CBM
properties add to our growing base of developable properties."
Xxx Xxxxx, President & CEO of Canscot states "This is an exceptional opportunity
for our shareholders. The financial strength of APF Energy, combined with their
commitment to aggressively develop our large coal bed methane reserves in both
Canada and the United States should contribute significantly to their
exceptional growth. I am excited that our shareholders have the option to accept
either cash or Trust Units, thereby continuing to participate in the development
of these assets. The potential for CBM development in Canada may be significant.
CBM production in the United States is a very significant energy source,
accounting for close to 10% of their natural gas production. I believe that
Canada is at the very early stages of its CBM development."
EXPERIENCED CBM DEVELOPMENT TEAM
In order to ensure continuity in the development of Canscot's CBM and
conventional assets, Xxx Xxxxx has accepted the position of Vice President, CBM
Division at APF Energy. Xx. Xxxxx and several other members of the management
team from Canscot will be responsible for the development of CBM in Canada and
the United States for APF Energy.
CBM POTENTIAL
Canscot currently has two active and five prospective CBM areas in west central
Alberta, targeting the Cretaceous Upper Mannville coals. At Xxxxxxx Creek in
central Alberta, Canscot has a 41.6 % working interest in an initial pilot
project where 4 producing CBM xxxxx are undergoing de-pressuring. An additional
well has recently been drilled and five other locations should be completed in
the fall of 2003. A total of 68 locations have been identified for development
in this project. Canscot estimates recoverable reserves of approximately 4 BCF
per section. Total net recoverable reserves to Canscot are estimated to be 28
BCF. Recent record land sale purchases in the Xxxxxxx Creek area have
highlighted the value being assigned by the industry to CBM in this area.
3
At Xxxxx, Canscot has recently drilled and cased its first CBM well. Coal
de-sorption is currently underway with very encouraging preliminary results. The
potential exists for up to 31 additional locations. Canscot estimates potential
recoverable reserves of over 6 BCF net to its interest for this project area.
Canscot is actively evaluating the CBM potential in 5 other project areas prior
to undertaking initial pilot projects.
In the Powder River Basin of Wyoming, Canscot has filed permits for the drilling
of an initial 8 well pilot project at its Big Bend CBM project. Canscot has
assembled over 8,600 gross acres on this project, is the operator, and has
recently increased its working interest in this project to 69.7%. Drilling
should commence by mid September. Canscot estimates that over 21 BCF of
recoverable gas, net to Canscot, is present on these lands. Several major CBM
development projects are currently underway in close proximity to the Big Bend
area.
Canscot continues to actively develop its other CBM projects in Wyoming. Pilot
projects at Xxxx and North Xxxxxx are anticipated to commence in the third
quarter of 2003. Coal Gulch South is expected to commence drilling in early
2004. APF expects to accelerate activity in this area upon completion of the
transaction.
CONVENTIONAL PROPERTIES
In conventional exploration and development, Canscot has recently participated
in the drilling of two natural gas discoveries. Production tests and log
analysis suggest that approximately 100 boe per day of new production could be
tied in from these xxxxx early in the fourth quarter. In addition, development
drilling at Willesden Green and Xxxxxxx is expected to commence within 60 days.
These xxxxx are direct offsets to existing production and if successful, will
have the potential to add 100 boe per day to Canscot in the fourth quarter of
2003.
The purchase of Canscot will further enhance APF's exposure to natural gas. At
closing, APF's production will be split as to 51% natural gas and 49% oil and
liquids. Development of Canscot's CBM and conventional properties will gradually
increase APF's production further toward a gas weighting.
Canscot is currently producing approximately 800 boe per day with over 90% of
this production being natural gas and natural gas liquids. This volume is
expected to increase significantly over the next twelve months.
Canscot has hedged approximately 35% of its production to October 31, 2003.
Canscot has approximately 45,800 net acres of undeveloped land in Alberta and
Wyoming. In aggregate, the combined APF-Canscot capital expenditure program for
the next twelve months is expected to reach approximately $37 million. Further
details will be provided once the transaction is completed and APF has an
opportunity to integrate Canscot's drilling inventory with its own.
4
RESERVES
XxXxxxxx & Associates evaluated Canscot's oil and gas assets in a report
effective January 1, 2003 except for certain minor properties, which were
evaluated by Matsalla Consulting. A summation of these reports is set out below:
--------------------------------------------------------------------
PROVED TOTAL PROVED + PROVED + 1/2
PRODUCING PROVED PROBABLE PROBABLE
--------------------------------------------------------------------
OIL & NGL 172 200 380 290
(mbbl)
--------------------------------------------------------------------
GAS (mmcf) 5,838 8,525 35,916 22,221
--------------------------------------------------------------------
TOTAL (mboe) 1,145 1,620 6,366 3,993
--------------------------------------------------------------------
Notes regarding the table: Gas converted at 6 mcf = 1 boe. NGL converted at 1
bbl = 1 boe. "Established Reserves" are 100% of proved reserves plus 50% of
probable reserves. Reserves are gross company interest reserves before deduction
of royalties. Columns may not add due to rounding.
Canscot recently acquired an additional 45.0% interest in its Big Bend property,
adding 8,848 mmcf of established reserves to bring the total established
reserves to 5,468 mboe.
BOARDS APPROVE TRANSACTION
The boards of directors of APF and Canscot have approved the transaction, and
the board of directors of Canscot has resolved to recommend to its shareholders
that they accept the APF offer. The transaction will be completed by way of a
takeover bid and APF anticipates mailing its circular to Canscot shareholders in
mid-August. Closing is subject to the tendering of at least 90% of the
outstanding shares of Canscot, regulatory approval and other standard
conditions. APF expects to take up and pay for the Canscot shares in
mid-September.
The officers and directors of Canscot, their associates and affiliates, and
certain other Canscot shareholders, have agreed to execute lock-up agreements
representing at least 23% of the fully-diluted outstanding shares of Canscot
under which they will agree to deposit and not withdraw their shares under the
offer, except in specified circumstances. The board of directors of Canscot has
also agreed that it will not solicit or initiate discussions or negotiations
with any third party for any business combination involving Canscot. Under
certain circumstances, Canscot has agreed to pay APF a non-completion fee of
$1.5 million and APF has a right of first refusal in certain circumstances to
match any unsolicited competing bid.
APF Energy Trust is a Calgary-based conventional oil and gas royalty trust that
acquires, develops, produces and sells crude oil, natural gas, and natural gas
liquids and distributes the resulting cash flow to unitholders. Trust units of
APF are traded on the Toronto Stock Exchange under the symbol "AY.UN".
5
Certain statements in this material may be "forward-looking statements"
including outlook on oil and gas prices, estimates of future production,
estimated completion dates of acquisitions and construction and development
projects, business plans for drilling and exploration, estimated amounts and
timing of capital expenditures and anticipated future debt levels and royalty
rates. Information concerning reserves contained in this material may also be
deemed to be forward-looking statements as such estimates involve the implied
assessment that the resources described can be profitably produced in the
future. These statements are based on current expectations, estimates and
projections that involve a number of risks and uncertainties, which could cause
actual results to differ from those anticipated by APF. Not for distribution to
U.S. newswire services or for distribution in the U.S.
NEITHER THE TORONTO STOCK EXCHANGE NOR THE TSX VENTURE EXCHANGE HAVE APPROVED
NOR DISAPPROVED OF THE CONTENTS OF THIS NEWS RELEASE.
FOR FURTHER INFORMATION, PLEASE CONTACT:
APF ENERGY INC. CANSCOT RESOURCES LTD.
Xxxxxx Xxxxxx, Chief Executive Officer Xxx Xxxxx, President & CEO
Xxxx XxxXxxxxx, Vice President, Finance Telephone (000) 000-0000
Telephone (000) 000-0000 E-mail: xxxxxx@xxxxxxx.xxx
Toll Free (000) 000-0000 Internet: xxx.xxxxxxx.xxx
E-mail: xxxxxx@xxxxxxxxx.xxx
Internet: xxx.xxxxxxxxx.xxx
SCHEDULE C
CONDITIONS IN FAVOUR OF CANSCOT
Capitalized terms used in this Schedule C but which are not
defined herein shall have the meanings set forth in the attached Pre-Offer
Agreement dated August 5, 2003 (the "Agreement") between APF and CanScot.
Notwithstanding any other provision of the Agreement, the
board of directors of CanScot reserves the right to withdraw, modify or amend
its recommendation with respect to the Offer unless all of the following
conditions are satisfied or waived by CanScot prior to the Expiry Time:
(a) all requisite regulatory approvals and consents (including,
without limitation, those of any stock exchanges and other
Securities Authorities) shall have been obtained and all
applicable statutory or regulatory waiting periods shall have
expired or been terminated and no objection or opposition
shall have been filed, initiated or made by any governmental
agency or regulatory authority during any applicable statutory
or regulatory period which shall have not been withdrawn,
defeated or overcome;
(b) no act, action, suit, proceeding, objection or opposition
shall have been threatened or taken before or by any domestic
or foreign court or tribunal or governmental agency or other
regulatory authority or administrative agency or commission by
any elected or appointed public official or by any private
person in Canada or elsewhere, whether or not having the force
of law, and (ii) no law, regulation or policy (including
applicable tax laws and regulations in those jurisdictions in
which CanScot carries on business) shall have been proposed,
enacted, promulgated, amended or applied, which in either
case, in the sole judgement of CanScot, acting reasonably has
the effect or may have the effect of cease trading the CanScot
Shares, or enjoining, prohibiting or imposing material
limitations, damages or conditions on the making of the Offer,
or the purchase by, or the sale to, APF of the CanScot Shares
or the right of APF to own or exercise full rights of
ownership of the CanScot Shares; or
(c) there shall have been no Material Adverse Change in respect of
APF since the date of the Agreement; and
(d) APF shall not have breached, or failed to comply with, in any
material respect, any of its material covenants,
representations, warranties or other obligations under the
Agreement, and all representations and warranties of APF
contained in the Agreement shall have been true and correct in
all material respects as of the date of the Agreement and
shall not have ceased to be true and correct in any material
respect thereafter; provided that APF has been given notice of
and three Business Days to cure any such breach, failure to
comply or misrepresentation.
