COMBINATION AGREEMENT
Between
ULTIMA ENERGY TRUST
- and -
ULTIMA VENTURES CORP.
- and -
PETROFUND ENERGY TRUST
- and -
PETROFUND CORP.
TABLE OF CONTENTS
Page
Article I INTERPRETATION.......................................................2
1.1 Definitions..................................................2
1.2 Interpretation Not Affected by Headings......................9
1.3 Currency.....................................................9
1.4 Numbers and Gender...........................................9
1.5 Date For Any Action.........................................10
1.6 Entire Agreement............................................10
1.7 Canadian GAAP...............................................10
1.8 Knowledge...................................................10
1.9 Interpretation Not Affected by Party Drafting...............10
1.10 Trust Power and Capacity....................................10
1.11 Schedules...................................................10
Article II THE ACQUISITION AND REDEMPTION TRANSACTION.........................11
2.1 General.....................................................11
2.2 Purchase of Ultima Assets...................................11
2.3 Consideration...............................................12
2.4 Deposit of Payment Units and Fractional Trust Units.........12
2.5 Distributions With Respect to Unsurrendered Certificates....13
2.6 Lost Certificates...........................................13
2.7 Extinction of Rights........................................13
2.8 Withholding Rights..........................................13
2.9 Rollover Election...........................................14
2.10 Ultima Special Distribution.................................14
2.11 Special Distribution, Acquisition and Redemption
Documentation and Ultima Special Meeting....................14
2.12 Petrofund Special Meeting...................................15
2.13 U.S. Filings................................................15
2.14 Joint Acquisition and Redemption Documentation..............15
2.15 Circular Contents...........................................16
2.16 Compilation of Proxies......................................16
2.17 Fairness Opinions...........................................16
2.18 Sequence of Special Distribution, Acquisition and
Redemption and Related Transactions.........................16
2.19 Ultima Rights...............................................17
2.20 Employees...................................................17
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TABLE OF CONTENTS
(continued) Page
2.21 Board Composition...........................................17
2.22 Ultima Approval.............................................18
2.23 Petrofund Approval..........................................18
2.24 Support Agreements..........................................19
2.25 Acknowledgment by Ultima....................................19
2.26 Subscription for Petrofund Ultima Unit......................19
Article III IMPLEMENTATION OF THE ACQUISITION AND REDEMPTION..................19
3.1 Obligations of the Ultima Parties...........................19
3.2 Obligations of the Petrofund Parties........................20
3.3 Unitholder Communications and Disclosure....................21
3.4 Dealer Managers.............................................21
3.5 Petrofund Rights Plan.......................................21
Article IV REPRESENTATIONS AND WARRANTIES OF ULTIMA AND ULTIMA CO.............22
4.1 Representations and Warranties..............................22
4.2 Investigation...............................................22
4.3 Survival....................................................22
Article V REPRESENTATIONS AND WARRANTIES OF PETROFUND AND PETROFUND CO........22
5.1 Representations and Warranties..............................22
5.2 Investigation...............................................22
5.3 Survival....................................................22
Article VI COVENANTS..........................................................23
6.1 Ultima Conduct of Business..................................23
6.2 Petrofund Conduct of Business...............................26
6.3 Access to Information.......................................28
6.4 No Solicitation.............................................28
6.5 Right to Match..............................................30
6.6 Further Action..............................................30
6.7 Approvals...................................................30
6.8 Insurance...................................................30
6.9 Ultima Tax Returns..........................................31
Article VII CONDITIONS........................................................31
7.1 General Conditions..........................................31
7.2 Ultima Party Conditions.....................................32
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TABLE OF CONTENTS
(continued) Page
7.3 Petrofund Party Conditions..................................33
7.4 Notice Requirements.........................................34
7.5 Merger of Conditions........................................34
Article VIII CLOSING MATTERS, TERMINATION FEE, TERMINATION AND EXPENSES.......34
8.1 Closing Matters.............................................34
8.2 Agreement as to Termination Fee.............................34
8.3 Liquidated Damages..........................................36
8.4 Termination.................................................37
8.5 Expenses....................................................37
Article IX NOTICES............................................................38
9.1 Address For Notice..........................................38
9.2 Receipt and Deemed Receipt of Notice........................39
9.3 Change of Address...........................................39
Article X GENERAL.............................................................39
10.1 Amendment...................................................39
10.2 Waiver......................................................39
10.3 Assignment..................................................40
10.4 Amendment...................................................40
10.5 Time of the Essence.........................................40
10.6 Counterparts................................................40
10.7 Governing Law...............................................40
10.8 Severability................................................40
10.9 Binding Effect..............................................40
10.10 Employment Agreements.......................................40
10.11 Third Party Beneficiaries...................................41
10.12 Confidentiality Agreement...................................41
10.13 Acknowledgement.............................................41
10.14 Public Statements...........................................42
SCHEDULE "A" - Ultima Assets
SCHEDULE "B-1" - Assumption Agreement
SCHEDULE "B-2" - Unitholder Indemnity Agreement
SCHEDULE "C" - Representations of the Ultima Parties
SCHEDULE "D" - Representations of the Petrofund Parties
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COMBINATION AGREEMENT
THIS AGREEMENT made the 29th day of March, 2004
BETWEEN:
ULTIMA ENERGY TRUST, a trust created under the Laws of the
Province of Alberta, (hereinafter referred to as "Ultima")
- and -
ULTIMA VENTURES CORP., a corporation subsisting under the
Laws of the Province of Alberta, (hereinafter referred to
as "Ultima Co")
- and -
PETROFUND ENERGY TRUST, a trust created under the Laws of
the Province of Ontario, (hereinafter referred to as
"Petrofund")
- and -
PETROFUND CORP., a corporation subsisting under the Laws of
the Province of Alberta, (hereinafter referred to as
"Petrofund Co")
WHEREAS the boards of directors of each of Ultima Co, on behalf of Ultima,
and Petrofund Co, on behalf of Petrofund, have unanimously determined that it is
in the best interests of Ultima and Petrofund and their respective unitholders
for Ultima and Petrofund to enter into the Acquisition and Redemption
Transaction;
AND WHEREAS the Parties propose that Petrofund will acquire the Ultima
Assets in exchange for Petrofund Units pursuant to the provisions hereof;
AND WHEREAS upon the receipt of the Petrofund Units by Ultima, Ultima
Unitholders will receive 0.442 Petrofund Units for each Ultima Unit held;
AND WHEREAS Ultima Unitholders will receive the Special Distribution prior
to the Closing Date, the payment of which is contingent upon approval by the
Ultima Unitholders;
AND WHEREAS this Agreement will be considered at the Ultima Special
Meeting;
NOW THEREFORE THIS AGREEMENT WITNESSES THAT in consideration of the
respective covenants, agreements, representations and warranties of the Parties
hereinafter contained and other good and valuable consideration (the receipt and
sufficiency of which is hereby acknowledged), the Parties agree as follows:
Article I
INTERPRETATION
1.1 Definitions.
In this Agreement, and the recitals hereto, unless there is something in
the subject matter or context inconsistent therewith, the following terms shall
have the following meanings, respectively:
"Acquisition and Redemption Transaction" means the transaction which would
provide for, inter alia, the transfer of all the Ultima Assets to Petrofund in
consideration of the Payment Units and the assumption of the Assumed Liabilities
by Petrofund and the distribution of all Payment Units to the Ultima Unitholders
as of the Time of Closing upon, and as consideration for, the acquisition and
cancellation of all of the Ultima Units (other than the Petrofund Ultima Unit),
all as contemplated in Section 132.2 of the Tax Act and as described in Article
II hereof;
"Acquisition Proposal" means any take-over bid, tender offer or exchange offer,
merger, amalgamation, plan of arrangement, reorganization, consolidation,
business combination, reverse take-over, sale of material assets, issuance or
sale of securities without the consent of the Other Party (other than, in the
case of Ultima, pursuant to the exercise of Ultima Rights and, in the case of
Petrofund, pursuant to the exercise of Petrofund Rights, pursuant to the terms
of the Petrofund Support Voting and Exchange Agreement, pursuant to the terms of
the Petrofund DRIP, and the grant of awards pursuant to the Petrofund Incentive
Plans), re-capitalization, liquidation, dissolution, winding-up or similar
transaction, other than the Acquisition and Redemption Transaction and the other
transactions contemplated by this Agreement;
"Affiliate Restrictions" means the restrictions imposed under applicable U.S.
Securities Laws upon offers and sales of securities by "affiliates" (as defined
in Rule 144 under the U.S. Securities Act);
"Agreement", "this Agreement", "hereby", "herein" and similar expressions refer
to this Combination Agreement taken as a whole including the Schedule to this
Agreement and not to any particular Section, subsection or paragraph and include
any agreement or instrument in writing which amends or is supplementary to this
Agreement and any restatement of this Agreement;
"Alberta Act" means the Securities Act (Alberta), as amended;
"AMEX" means the American Stock Exchange;
"Applicable Canadian Securities Laws" means, collectively, and as the context
may require, the Alberta Act, the provincial securities legislation of the other
Reporting Provinces, and the rules, regulations and policies published and/or
promulgated thereunder (including Rule 61-501 of the Ontario Securities
Commission and analogous rules and policies of other Securities Authorities), as
such may be amended from time to time prior to the Closing Date;
"Assumed Liabilities" means the liabilities and obligations of Ultima, whether
or not reflected on the books of Ultima;
"Assumption Agreement" means the form of assumption agreement annexed to this
Agreement as Schedule "A";
"Business Day" means any day, other than a Saturday, a Sunday or a statutory
holiday, in the Province of Alberta;
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"Closing Date" means June 9, 2004, provided that, in the event any of the
conditions of closing contained in this agreement in favour of Ultima or
Petrofund have not been fulfilled or waived by such date, the Closing Date shall
be extended to a date mutually agreed by Ultima and Petrofund, provided (i) the
Acquisition and Redemption Transaction shall become effective on a date which
follows a record date for the payment of a regular monthly cash distribution by
Ultima to the Ultima Unitholders and which precedes the next following record
date for the payment of a regular monthly cash distribution by Petrofund to the
Petrofund Unitholders and (ii) the date is no later than the Outside Date;
"Commissioner" means the Commissioner of Competition appointed pursuant to the
provisions of the Competition Act;
"Competition Act" means the Competition Act (Canada), as amended;
"Confidentiality Agreement" means the confidentiality agreement dated February
13, 2004 between Ultima and Petrofund;
"Control Person Restrictions" means the restrictions imposed under Applicable
Canadian Securities Laws upon trades by Control Persons;
"Control Persons" means holders of Petrofund Units who would fall within the
class of holders described in the definition of "control person" contained in
subsection 1(l) of the Alberta Act (and its equivalent under Applicable Canadian
Securities Laws of the remaining Reporting Provinces) after giving effect to the
consummation of the transactions contemplated hereby;
"Designated Officers" means, in respect of Ultima, S. Brian Gieni, Ken G. Pinsky
and Michael P. Wihak and in respect of Petrofund, Jeffery E. Errico and Jeff D.
Newcommon;
"Environmental Laws" means, with respect to any Person or its business,
activities, property, assets or undertaking, all federal, municipal or local
Laws, statutes, regulations, ordinances, rules, guidelines, orders, directives
and other requirements of any Governmental Entity or of any court, tribunal or
other similar body, relating to environmental or health matters in the
jurisdictions applicable to such person or its business, activities, property,
assets or undertaking, including legislation governing the use and storage of
Hazardous Substances;
"Exchange Act" means the United States Securities Exchange Act of 1934, as
amended;
"Exchange Ratio" means the ratio of 0.442 Petrofund Units for each Ultima Unit;
"Excluded Employees" means S. Brian Gieni, Ken G. Pinsky, Michael P. Wihak, Dale
Kuzyk, Ross Andreachuk, Dave Reid, David Bernatchez and Scott Durocher;
"Governmental Entity" means any (a) multinational, federal, provincial, state,
regional, municipal, local or other government or any governmental or public
department, court, tribunal, arbitral body, commission, board, bureau or agency,
(b) any subdivision, agent, commission, board or authority of any of the
foregoing, or (c) any quasi-governmental or private body exercising any
regulatory, expropriation or taxing authority under or for the account of any of
the foregoing;
"Hazardous Substances" means any pollutant, contaminant, waste of any nature,
hazardous substance, hazardous material, toxic substance, dangerous substance or
dangerous good as defined, judicially interpreted or identified in any
Environmental Laws;
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"including" means "including without limitation" and "includes" means "includes
without limitation";
"Indemnified Persons" has the meaning ascribed thereto in Section 2.2;
"Investment Canada Act" means the Investment Canada Act (Canada), as amended;
"Joint Circular" has the meaning ascribed thereto in Section 2.14;
"Laws" means all laws, statutes, regulations, by-laws, statutory rules, orders,
ordinances, protocols, codes, guidelines, notices, directions (including all
Applicable Canadian Securities Laws), and terms and conditions of any grant of
approval, permission, authority or license of any court, Governmental Entity,
statutory body or self-regulatory authority (including the TSX and the AMEX),
and the term "applicable" with respect to such Laws and in the context that
refers to one or more persons, means that such Laws apply to such Person or
Persons or its or their business, undertaking, property or securities and
emanate from a person having jurisdiction over the Person or Persons or its or
their business, undertaking, property or securities;
"Material Adverse Change" or "Material Adverse Effect" means, with respect to
any Person, any matter or action that has an effect or change that is, or would
reasonably be expected to be, material and adverse to the business, operations,
assets, capitalization, financial condition or prospects of such Person and its
Subsidiaries, taken as a whole, other than any matter, action, effect or change
relating to or resulting from: (i) general economic, financial, currency
exchange, securities or commodity prices in Canada or elsewhere, (ii) conditions
affecting the oil and gas exploration, exploitation, development and production
industry as a whole, and not specifically relating to any Person and/or its
Subsidiaries or (iii) any decline in crude oil or natural gas prices on a
current or forward basis;
"Material Subsidiaries" means, with respect to Ultima, Ultima Co and Ultima
Energy Inc. and, with respect to Petrofund, Petrofund Co;
"Non-Completing Party" has the meaning ascribed thereto in Section 8.2(a);
"Offered Employees" has the meaning ascribed thereto in Section 2.20;
"Other Party" means with respect to Ultima, Ultima Co or the Ultima Parties, the
Petrofund Parties and, with respect to Petrofund, Petrofund Co or the Petrofund
Parties, the Ultima Parties, as applicable;
"Outside Date" means July 16, 2004;
"Parties" means, collectively, the Parties to this Agreement, and "Party" means
any one of them, or where implied by the context, means the Ultima Parties or
the Petrofund Parties, as the case may be;
"Payment Units" has the meaning ascribed thereto in Section 2.3;
"Person" includes any individual, firm, partnership, joint venture, venture
capital fund, association, trust, trustee, executor, administrator, legal
personal representative, estate group, body corporate, corporation,
unincorporated association or organization, Governmental Entity, syndicate or
other entity, whether or not having legal status;
"Petrofund Balance Sheet" has the meaning ascribed thereto in subparagraph
(q)(i) of Schedule "D" hereto;
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"Petrofund Board of Directors" means the board of directors of Petrofund Co as
it may be comprised from time to time;
"Petrofund Disclosure Letter" means the letter of even date from Petrofund
delivered to Ultima;
"Petrofund DRIP" means the amended and restated dividend reinvestment unit
purchase plan of Petrofund;
"Petrofund Fairness Opinion" has the meaning ascribed thereto in Section
2.23(b);
"Petrofund Financial Statements" has the meaning ascribed thereto in paragraph
(p) of Schedule "D" hereto;
"Petrofund Incentive Plans" means, collectively, the unit incentive plan of
Petrofund and the right incentive plan of Petrofund and, once they have been
approved by Petrofund Unitholders at the 2004 Annual and Special Meeting of
Petrofund Unitholders, the restricted unit plan of Petrofund and the long term
incentive plan of Petrofund;
"Petrofund Parties" means Petrofund, Petrofund Co, 1518274 Ontario Limited, NCE
Petrofund Management Corp. and NCE Management Services Inc. and "Petrofund
Party" means any of them unless the context otherwise requires;
"Petrofund Rights" means the rights to acquire Petrofund Units granted under the
Petrofund Incentive Plans;
"Petrofund Rights Plan" means the Unitholder Protection Rights Plan of
Petrofund;
"Petrofund Royalty" means the royalty granted by Petrofund Co to Petrofund
pursuant to the terms of the amended and restated royalty agreement dated as of
April 16, 2003 between Petrofund Co and Petrofund;
"Petrofund Special Meeting" has the meaning ascribed thereto in Section 2.9;
"Petrofund Support Voting and Exchange Agreement" means the agreement dated
April 29, 2003 between Petrofund, Petrofund Co, 1518274 Ontario Limited and
Petro Assets Inc.;
"Petrofund Trustee" means Computershare Trust Company of Canada, in its capacity
as the trustee under the Petrofund Trust Indenture;
"Petrofund Trust Indenture" means Petrofund's amended and restated trust
indenture dated as of April 16, 2003 between the Petrofund Trustee and Petrofund
Co;
"Petrofund Ultima Unit" means one Ultima Unit issued to Petrofund immediately
prior to the Time of Closing;
"Petrofund Unit" means a trust unit issued by Petrofund;
"Petrofund Unitholders" means, at the relevant time, the holders of Petrofund
Units;
"Proposed Agreement" has the meaning ascribed thereto in Section 6.5;
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"Public Record" means all information filed by or on behalf of Ultima or
Petrofund, as the case may be, with a securities commission or similar
regulatory authority in compliance, or intended compliance, with any Applicable
Canadian Securities Laws;
"Reporting Provinces" means all the provinces of Canada;
"Required Regulatory Approvals" means those sanctions, rulings, consents,
orders, exemptions, permits and other approvals (including the lapse, without
objection, of a prescribed time under a statute or regulation that states that a
transaction may be implemented if a prescribed time lapses following the giving
of notice without objection being made) of Governmental Entities, regulatory
agencies and self-regulatory organizations (including the TSX and AMEX), as are
necessary for the consummation of the Special Distribution and the Acquisition
and Redemption Transaction including:
(a) any rulings required under the Alberta Act and under Applicable
Canadian Securities Laws of the remaining Reporting Provinces to
permit the issuance of the Payment Units on a prospectus and
registration exempt basis to residents of the Reporting Provinces and
to permit such Payment Units to be issued as freely tradable subject
to applicable Control Person Restrictions;
(b) the Commissioner or any person authorized to exercise the powers and
perform the duties of the Commissioner shall have issued an advance
ruling certificate under Section 102 of the Competition Act to the
effect that he is satisfied that he would not have sufficient grounds
on which to apply to the Competition Tribunal under Section 92 of the
Competition Act in respect of the Acquisition and Redemption
Transaction, or the appropriate time period specified in Section 123
of the Competition Act shall have expired and neither the
Commissioner, nor the Competition Tribunal as authorized under the
Competition Act shall have taken, or have indicated their intention to
take, any action under the Competition Act, whether before or after
the completion of the Acquisition and Redemption Transaction, which
could have a materially adverse effect on the Acquisition and
Redemption Transaction;
(c) the Minister under the Investment Canada Act is satisfied or deemed to
be satisfied that the consummation of the transactions contemplated
hereunder are likely to be of net benefit to Canada;
(d) an exemption for the offer and sale of the Payment Units from the
provisions of Section 5 of the U.S. Securities Act;
(e) the Petrofund Units issuable pursuant to the Acquisition and
Redemption Transaction shall have been conditionally approved for
listing on the TSX and the AMEX, subject to the filing of required
documentation; and
(f) such other sanctions, rulings, consents, orders, exemptions, permits
and other approvals as may be necessary for the Acquisition and
Redemption Transaction and the other transactions contemplated by this
agreement to be effected in compliance with applicable Laws;
"Required Third Party Approvals" means all third party approvals necessary for
payment of the Special Distribution and for the consummation of the Acquisition
and Redemption Transaction and the other transactions contemplated by this
Agreement, other than those approvals which if not obtained would not have, or
reasonably be expected to have, a Material Adverse Effect with respect to either
Ultima or
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Petrofund, as the case may be, which "Required Third Party Approvals"
may include those approvals set forth in the Ultima Disclosure Letter and the
Petrofund Disclosure Letter and which will include the lenders to each of Ultima
Co and Petrofund Co consenting to the Special Distribution and the Acquisition
and Redemption Transaction, or continuing to make financing available to Ultima
Co and Petrofund Co subsequent to the Special Distribution and the Acquisition
and Redemption Transaction on conditions acceptable to Ultima Co and Petrofund
Co, acting reasonably;
"SEC" means the United States Securities and Exchange Commission;
"Securities Authorities" means the securities commissions or similar securities
regulatory authorities in each of the Reporting Provinces;
"Securities Laws" means the Alberta Act, the provincial securities legislation
of the other Reporting Provinces, and the rules, regulations and policies
published and or promulgated thereunder (including Rule 61-501 of the Ontario
Securities Commission and analogous rules and policies of other Securities
Authorities);
"Special Distribution" has the meaning ascribed thereto in Section 2.10;
"Subject Trust" or "Trust" means, as the context requires, Petrofund or Ultima;
"Subsidiary" means, with respect to any Person, a subsidiary (as that term is
defined in the Alberta Act (for such purposes, if such person is not a
corporation, as if such person were a corporation)) of such Person and includes
any limited partnership, joint venture, trust, limited liability company,
unlimited liability company or other entity, whether or not having legal status,
that would constitute a subsidiary (as described above) if such entity were a
corporation;
"Superior Proposal" has the meaning ascribed thereto in Section 6.4(a);
"Take-Over Proposal" means a bid, proposal or offer, whether or not subject to
conditions, to acquire in any manner, directly or indirectly, beneficial
ownership or control or direction over 20% or more of the outstanding Ultima
Units or Petrofund Units, as the case may be, whether by way of an arrangement,
amalgamation, merger, consolidation, recapitalization, liquidation, dissolution,
reorganization or similar transaction or other business combination involving
Ultima or Petrofund or any of their respective Subsidiaries, as the case may be
(and whether in a single or multi-step transaction or a series of related
transactions) or any proposal, offer or agreement to acquire 20% or more of the
assets of Ultima or its Subsidiaries (taken as a whole) or Petrofund or its
Subsidiaries (taken as a whole) as the case may be;
"Tax" and "Taxes" means, with respect to any person, all income taxes (including
any tax on or based upon net income, gross income as specifically defined,
distributable income, profits or selected items of income, distributable income
or profits), and all capital taxes, gross receipts taxes, sales taxes, use
taxes, value added taxes, transfer taxes, franchise taxes, license taxes,
withholding taxes, payroll taxes, employment taxes, Canada pension plan
premiums, excise taxes, social security premiums, workers' compensation
premiums, employment insurance or compensation premiums, stamp taxes, occupation
taxes, premium taxes, property taxes, windfall profits taxes, registered
investment taxes, foreign property taxes, alternative or add-on minimum taxes,
goods and services tax, ad valorem taxes, customs, duties or other taxes of any
kind whatsoever, together with any interest and any penalties or additional
amounts imposed by any taxing authority (domestic or foreign) on such entity,
and any interest, penalties, additional taxes and additions to tax imposed with
respect to the foregoing;
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"Tax Act" means the Income Tax Act (Canada) and the Income Tax Regulations all
as amended from time to time;
"Tax Return" means all returns, declaration, reports, information returns, tax
slips and statements required to be filed with any taxing authority relating to
Taxes;
"Termination Fee" has the meaning ascribed thereto in Section 8.2(a);
"Third Party Beneficiaries" has the meaning ascribed thereto in Section 10.11;
"Time of Closing" means 10:00 a.m. (Calgary time) on the Closing Date or such
other time as the parties hereto may agree;
"Transfer Agent" means Computershare Trust Company of Canada, which shall act as
depository in respect of the Acquisition and Redemption Transaction;
"TSX" means the Toronto Stock Exchange;
"Ultima Assets" means all the property, assets and undertaking of Ultima of
whatsoever nature or kind, present and future, and wheresoever located,
including the shares, units, royalties, notes or other interests in the capital
of or granted by Ultima's direct Subsidiaries (as set out in Schedule "A"
hereto) and any rights to purchase assets, properties or undertakings of third
parties under agreements to purchase that have not yet closed, if any, and
whether or not reflected on the books of Ultima (other than $10.00);
"Ultima Balance Sheet" has the meaning ascribed thereto in subparagraph (p)(i)
of Schedule "C" hereto;
"Ultima Board of Directors" means the board of directors of Ultima Co as it may
be comprised from time to time;
"Ultima Circular" has the meaning ascribed thereto in Section 2.11;
"Ultima Disclosure Letter" means the letter of even date from Ultima delivered
to Petrofund;
"Ultima Employment Agreements" means the employment agreements, as amended,
between Ultima, Ultima Management Inc. and each of the Ultima Designated
Officers;
"Ultima Fairness Opinion" has the meaning ascribed thereto in Section 2.22(b);
"Ultima Financial Statements" has the meaning ascribed thereto in paragraph (o)
of Schedule "C" hereto;
"Ultima Plans" has the meaning ascribed thereto in paragraph (w) of Schedule "C"
hereto;
"Ultima Parties" means Ultima, Ultima Co, Ultima Ventures Trust, Ultima Energy
Inc., Ultima Acquisitions Corp. and Ultima Management Inc. and "Ultima Party"
means any of them unless the context otherwise requires;
"Ultima Rights" means the rights to acquire Ultima Units granted under the
Ultima TURIP and pursuant to the Ultima Employment Agreements;
"Ultima Royalties" means the royalty granted by Ultima Ventures Trust to Ultima
pursuant to the terms of the amended and restated royalty agreement dated June
23, 1999, between Ultima Co and The Trust
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Company of Bank of Montreal in its capacity as trustee of Ultima, as amended,
and the royalty granted by Ultima Energy Inc. to Ultima pursuant to the terms of
the royalty agreement dated June 26, 2003, between Ultima Energy Inc. and Ultima
Co on behalf of Ultima;
"Ultima Special Meeting" has the meaning ascribed thereto in Section 2.11;
"Ultima Trustee" means Computershare Trust Company of Canada, in its capacity as
the trustee under the Ultima Trust Indenture;
"Ultima Trust Indenture" means Ultima's amended and restated trust indenture
dated as of August 31, 1997, between Ultima Co, Ultima Acquisitions Corp., The
Trust Company of Bank of Montreal, Maximum Energy Corp. and Glenn C.
Proudfoot, as amended;
"Ultima Unit" means a trust unit issued by Ultima;
"Ultima TURIP" means Ultima's Trust Unit Rights Incentive Plan;
"Ultima Unitholder Approval" means approval of the Special Distribution and the
Acquisition and Redemption Transaction and related matters at a meeting,
convened and held in accordance with the Ultima Trust Indenture, by the
affirmative vote of the holders of not less than 66?% of the Ultima Units
represented and voted thereon at such meeting;
"Ultima Unitholders" means, at the relevant time, the holders of Ultima Units
other than Petrofund;
"Unitholder Indemnity Agreement" has the meaning ascribed thereto in Section
2.10;
"U.S. Code" means the United States Internal Revenue Code of 1986, as amended;
"U.S. Securities Act" means the United States Securities Act of 1933, as
amended; and
"U.S. Securities Laws" means the federal and state securities legislation of the
United States and all rules, regulations and orders promulgated thereunder, as
amended from time to time.
1.2 Interpretation Not Affected by Headings.
The division of this agreement into Articles, Sections and other portions
and the insertion of headings are for convenience of reference only and shall
not affect the construction or interpretation of this Agreement.
1.3 Currency.
Except if otherwise specifically stated, all sums of money referred to in
this agreement are expressed in lawful money of Canada.
1.4 Numbers and Gender.
Unless the context otherwise requires, words importing the singular shall
include the plural and vice versa and words importing any gender shall include
all genders.
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1.5 Date For Any Action.
In the event that the date on which any action is required to be taken
hereunder by any of the parties hereto 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 Entire Agreement.
This Agreement (including the Schedules to this Agreement) and the
Confidentiality Agreement constitute the entire agreements between the parties
hereto pertaining to the terms of the Agreement and supersede all other prior
agreements, understandings, negotiations and discussions, whether verbal or
written, between the Parties with respect to the terms of the Agreement.
1.7 Canadian GAAP.
All references to "GAAP" means generally accepted accounting principles as
set forth in the Handbook of the Canadian Institute of Chartered Accountants, as
amended from time to time, or, where such Handbook is silent, as set out in
other recognized accounting literature in Canada.
1.8 Knowledge.
Where in this Agreement a representation or warranty is made on the basis
of the knowledge or awareness of a Party, such knowledge or awareness consists
only of the actual knowledge or awareness, after due enquiry, as of the date of
this Agreement, of the Designated Officers of such Party, but does not include
the knowledge or awareness of any other individual or any constructive, implied
or imputed knowledge.
1.9 Interpretation Not Affected by Party Drafting.
The Parties hereto acknowledge that their respective legal counsel have
reviewed and participated in settling the terms of this Agreement, and the
Parties hereby agree that any rule of construction to the effect that any
ambiguity is to be resolved against the drafting party will not be applicable in
the interpretation of this Agreement.
1.10 Trust Power and Capacity.
In this Agreement references to the power and capacity of Ultima and
Petrofund, as the case may be, are deemed to be references to that of the
trustee of Ultima and the trustee of Petrofund, or their respective duly
authorized delegates or agents, pursuant to the power and capacity of trustees
generally, with respect to Ultima, under the laws of the Province of Alberta
and, with respect to Petrofund, under the laws of the Province of Ontario, and
pursuant to the powers of the trustees specified in the Ultima Trust Indenture
and Petrofund Trust Indenture, respectively.
1.11 Schedules.
The following schedules are incorporated in and form an integral part of
this agreement:
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Schedule A - Ultima Assets
Schedule B-1 - Assumption Agreement
Schedule B-2 - Unitholder Indemnity Agreement
Schedule C - Representations of the Ultima Parties
Schedule D - Representations of the Petrofund Parties
Article II
THE ACQUISITION AND REDEMPTION TRANSACTION
2.1 General.
As soon as practicable following the date hereof, Ultima and Petrofund
shall proceed towards a combination of their businesses, on the terms and
subject to the conditions contained herein. At the Time of Closing, each Ultima
Unitholder will, subject to the terms and conditions hereof, as a result of the
Acquisition and Redemption Transaction, receive 0.442 Petrofund Units for each
Ultima Unit held immediately prior to the Time of Closing.
2.2 Purchase of Ultima Assets.
Upon and subject to the terms and conditions set forth in this Agreement,
at the Time of Closing the following shall occur and shall be deemed to occur
immediately (in such order as may be determined to be necessary to give effect
to the Acquisition and Redemption Transaction):
(a) the Ultima Trust Indenture will be amended to the extent necessary to
facilitate the Special Distribution and Acquisition and Redemption
Transaction;
(b) Ultima shall sell, transfer, convey, assign and deliver to Petrofund,
and Petrofund shall purchase and accept from Ultima, all the Ultima
Assets, as the same shall exist at the Time of Closing;
(c) Petrofund shall assume and become liable to pay, satisfy, discharge,
observe, perform and fulfill the Assumed Liabilities in accordance
with their terms;
(d) Petrofund shall issue the Payment Units to Ultima; and
(e) the Ultima Units (other than the Petrofund Ultima Unit) will be
redeemed in exchange for the Payment Units which shall be distributed
to the Ultima Unitholders, on a pro rata basis of their holdings of
Ultima Units, in accordance with the Exchange Ratio.
In accordance with, and in connection with, the assumption of liabilities
described in subparagraph (c) above, Petrofund shall:
(y) indemnify and save Ultima's and its Subsidiaries' trustees, directors,
officers, employees and agents (together, the "Indemnified Persons")
harmless from all and any costs, damages or expenses that may be paid
or incurred following any claim, suit or action taken by any other
party because of the failure of Petrofund to discharge and perform all
or any of the obligations, covenants, agreements and obligations
forming part of the Assumed Liabilities; and
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(z) if any suit or action is commenced against any of the Indemnified
Persons in connection with any of the Assumed Liabilities or in
respect of any covenant, condition, agreement or obligation assumed as
contemplated herein, assume the conduct of such case and provide to
the Indemnified Persons such further indemnification from all costs,
damages or expenses as they may reasonably require.
2.3 Consideration.
In consideration of the sale and transfer of the Ultima Assets as provided
in Section 2.2 hereof, at the Time of Closing, Petrofund shall execute and
deliver the Assumption Agreement, providing for the assumption by Petrofund of
the Assumed Liabilities, and shall issue to Ultima an aggregate number of
Petrofund Units equal in number to the product of the number of Ultima Units
(other than the Petrofund Ultima Unit) outstanding as of the close of business
on the day immediately prior to the Closing Date multiplied by the Exchange
Ratio (such Petrofund Units being referred to herein as the "Payment Units"). It
is agreed that the amount of Assumed Liabilities allocated as consideration to
any Ultima Asset shall not exceed the cost amount, for purposes of the Tax Act,
of that Ultima Asset or such other amounts that Ultima and Petrofund consider
reasonable in the circumstances.
2.4 Deposit of Payment Units and Fractional Trust Units.
A form of letter of transmittal containing instructions with respect to the
surrender of certificates representing the Ultima Units will be forwarded with
the Ultima Circular or Joint Circular, as the case may be, to the Ultima
Unitholders for use in exchanging their certificates. Upon surrender of properly
completed letters of transmittal together with certificates representing the
Ultima Units to the Transfer Agent, certificates for the appropriate number of
Petrofund Units will be issued. No fractional Petrofund Units shall be issued to
former Ultima Unitholders pursuant to the Acquisition and Redemption Transaction
and no distribution, dividend or other change in the structure of Petrofund
shall relate to any such fractional security and such fractional interest shall
not entitle the owner thereof to exercise any rights as a securityholder of
Petrofund. In the event that the Acquisition and Redemption Transaction would
otherwise result in an Ultima Unitholder being entitled to a fractional
Petrofund Unit, an adjustment will be made to the nearest whole number of
Petrofund Units and a certificate representing the resulting whole number of
Petrofund Units will be issued. In calculating such fractional interests, all
Ultima Units held by a registered holder of Ultima Units immediately prior to
the Time of Closing shall be aggregated. At or prior to the Time of Closing,
Petrofund shall deposit with the Transfer Agent, for the benefit of the holders
of Ultima Units who will receive the Payment Units, certificates representing
the Petrofund Units issued pursuant to Section 2.3. Upon surrender to the
Transfer Agent for cancellation of a certificate which immediately prior to the
Time of Closing represented one or more Ultima Units that were exchanged for one
or more Petrofund Units under the Acquisition and Redemption Transaction,
together with a Letter of Transmittal and such other documents and instruments
as would have been required to effect the transfer of the Ultima Units formerly
represented by such certificate, and such additional documents and instruments
as the Transfer Agent may reasonably require, the holder of such surrendered
certificates shall be entitled to receive in exchange therefor, and the Transfer
Agent shall deliver to such holder, a certificate representing that number
(rounded to the nearest whole number) of Petrofund Units which such holder has a
right to receive and the certificate so surrendered shall forthwith be
cancelled. In the event of a transfer of ownership of Ultima Units that is not
registered in the transfer records of Ultima, a certificate representing the
proper number of Petrofund Units may be issued to the transferee if the
certificate representing such Ultima Units is presented to the Transfer Agent,
accompanied by a Letter of Transmittal and all documents required to evidence
and effect such transfer. Until surrendered as contemplated by this Section 2.4,
each certificate which immediately prior to the Time of Closing represented
Ultima Units shall be deemed at all times after the Time of Closing to represent
only the right to receive upon such surrender the certificate representing
Petrofund Units as
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contemplated by this Section, and in the case of the Petrofund Units to receive
immediately after the Time of Closing, without any further action to be taken by
any Ultima Unitholder, any distributions or dividends with a record date after
the Time of Closing theretofore paid or payable with respect to Petrofund Units
as contemplated by Section 2.5
2.5 Distributions With Respect to Unsurrendered Certificates.
All distributions or other payments declared or made after the Time of
Closing with respect to Petrofund Units with a record date after the Time of
Closing shall be paid to the holder of any unsurrendered certificate which
immediately prior to the Time of Closing represented outstanding Ultima Units
and which are either a Petrofund Unitholder of record or immediately prior to
the Time of Closing was an Ultima Unitholder of record.
2.6 Lost Certificates.
In the event any certificate which immediately prior to the Time of Closing
represented one or more outstanding Ultima Units shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the Person claiming
such certificate to be lost, stolen or destroyed, the Transfer Agent will issue
in exchange for such lost, stolen or destroyed certificate, one or more
certificates representing one or more Petrofund Units (and any distributions or
other payments with respect thereto) deliverable in accordance with such
holder's Letter of Transmittal. When authorizing such issuance in exchange for
any lost, stolen or destroyed certificate, the Person to whom certificates
representing Petrofund Units are to be issued shall, as a condition precedent to
the issuance thereof, give a bond satisfactory to Petrofund and its transfer
agents in such sum as Petrofund may direct or otherwise indemnify Petrofund in a
manner satisfactory to Petrofund against any claim that may be made against
Petrofund with respect to the certificate alleged to have been lost, stolen or
destroyed.
2.7 Extinction of Rights.
Any certificate which immediately prior to the Time of Closing represented
outstanding Ultima Units (or securities of any predecessor of Ultima) that were
not deposited, with all other instruments required by Section 2.4, on or prior
to the sixth anniversary of the Closing Date, shall cease to represent a claim
or interest of any kind or nature as a holder of Petrofund Units (including,
without limitation any dividends, distributions, payments or interest in respect
thereof). On such date, the Petrofund Units to which the former registered
holder of the certificate referred to in the preceding sentence was ultimately
entitled shall be deemed to have been surrendered to Petrofund, together with
all entitlements to dividends, distributions, payments and interest thereon held
for such former registered holder.
2.8 Withholding Rights.
Petrofund and the Transfer Agent shall be entitled to deduct and withhold
from any distribution or consideration otherwise payable to any former holder of
Ultima Units, such amounts as Petrofund or the Transfer Agent is required to
deduct and withhold with respect to such payment under the Tax Act, the U.S.
Code or any provision of provincial, state, local or foreign tax law, in each
case as amended. To the extent that amounts are so withheld, such withheld
amounts shall be treated for all purposes hereof as having been paid to the
holder of the trust units in respect of which such deduction and withholding was
made, provided that such withheld amounts are actually remitted to the
appropriate taxing authority. To the extent that the amount so required or
permitted to be deducted or withheld from any payment to a holder exceeds the
value of the Petrofund Units otherwise issuable to the holder, Petrofund and the
Transfer Agent are hereby authorized to sell or otherwise dispose of such
portion of the Petrofund Units otherwise issuable as is necessary to provide
sufficient funds to Petrofund or the Transfer Agent, as the
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case may be, to enable it to comply with such deduction or withholding
requirement and Petrofund or the Transfer Agent shall notify the holder thereof
and remit any unapplied balance of the net proceeds of such sale.
2.9 Rollover Election.
Within the prescribed time period and in the prescribed form provided for
in section 132.2 of the Tax Act, Petrofund and Ultima shall jointly elect to
have section 132.2 of the Tax Act apply with respect to the Acquisition and
Redemption Transaction. The elected amounts for the Ultima Assets will be
mutually agreed upon but shall be such amounts as shall result in no additional
income to Ultima and shall, to the extent possible without resulting in
additional income to Ultima, transfer the maximum tax attributes to Petrofund.
Petrofund and Ultima shall file an election under subsection 20(24) of the Tax
Act in respect of prepaid revenues (if any) received by Ultima and shall file
all other elections (or make such other filings) that are necessary or desirable
to minimize Taxes becoming payable by Ultima or Petrofund or subsidiaries of
either of them or unitholders as a result of the transactions comprising the
Acquisition and Redemption Transaction and its related transactions.
2.10 Ultima Special Distribution.
Immediately prior to the time the Special Distribution is payable to Ultima
Unitholders, Ultima and Petrofund shall execute the Unitholder Indemnity
Agreement. The Parties agree that subject to any required approval of the Ultima
Unitholders and the satisfaction of all conditions to the completion of the
Acquisition and Redemption Transaction, Ultima shall declare a special
distribution (the "Special Distribution") payable to Ultima Unitholders of
record on the Business Day immediately preceding the Closing Date, payable on
the Business Day immediately preceding the Closing Date. The amount payable to
each Ultima Unitholder shall be equal to such unitholder's pro rata share, on
the basis of their holdings of Ultima Units, of $10,000,000 and all rights
Ultima Unitholders are entitled to under the Unitholder Indemnity Agreement as
set out in Schedule "B-2".
2.11 Special Distribution, Acquisition and Redemption Documentation and Ultima
Special Meeting.
Subject to Section 2.12 and Section 2.14 below, Ultima shall duly convene
and hold, in accordance with the requirements of all applicable Laws and in
accordance with the Ultima Trust Indenture, a special meeting of Ultima
Unitholders (such meeting defined herein as the "Ultima Special Meeting") to
consider and, if thought fit, to approve the Special Distribution and the
Acquisition and Redemption Transaction. The meeting shall be held on a date
mutually agreed upon by the Parties, but in any event not later than July 2,
2004. Ultima shall prepare, for delivery to Ultima Unitholders in connection
with the Ultima Special Meeting, a management information circular (the "Ultima
Circular") in compliance, in all material respects, with Applicable Canadian
Securities Laws and in compliance with the Ultima Trust Indenture. Petrofund and
its advisors shall be given an opportunity to review and comment upon drafts of
the Ultima Circular prior to its being mailed to Ultima Unitholders and filed
with the Securities Authorities. Ultima shall file the Ultima Circular on a
timely basis with such Securities Authorities. Such Ultima Circular, when filed
with the Securities Authorities and mailed to Ultima Unitholders, shall in all
material respects comply with the requirements of applicable Laws. The Petrofund
Parties shall use their reasonable commercial efforts to obtain and furnish to
the Ultima Parties such information regarding the Petrofund Parties reasonably
required to be included in the Ultima Circular on or before April 19, 2004. On
both the date the Ultima Circular is first mailed to the Ultima Unitholders and
the date of the Ultima Special Meeting, the information provided by the
Petrofund Parties for use in the preparation of the Ultima Circular shall,
except as publicly disclosed after the date such information is provided, be
complete and correct in all material respects, shall not contain any untrue
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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 in which they are made, not misleading and shall comply in all
material respects with all applicable Laws.
2.12 Petrofund Special Meeting.
In the event that either the TSX or the AMEX requires or if the Petrofund
Trust Indenture requires Petrofund Unitholders to approve the Acquisition and
Redemption Transaction, Petrofund shall, after consultation with Ultima, duly
convene and hold, in accordance with the requirements of all applicable Laws and
in accordance with the Petrofund Trust Indenture, a special meeting of Petrofund
Unitholders (such meeting defined herein as the "Petrofund Special Meeting") to
consider and, if thought fit, to approve the Acquisition and Redemption
Transaction. The meeting shall be held on a date mutually agreed upon by the
Parties, but in any event not later than July 2, 2004. Petrofund agrees to use
its reasonable commercial efforts to determine whether any Petrofund Special
Meeting will be required on or prior to April 9, 2004. The Parties will use
their reasonable commercial efforts to hold the Ultima Special Meeting and, if
necessary, the Petrofund Special Meeting on the same date.
2.13 U.S. Filings.
In the event that a Petrofund Special Meeting is required, Petrofund shall
(a) furnish any informational document disseminated to Ultima Unitholders in
connection with the Special Distribution and the Acquisition and Redemption
Transaction, including any amendments thereto, (each an "Informational
Document") to the SEC on the form prescribed by Rule 802 ("Rule 802") under the
U.S. Securities Act by the first business day after publication or dissemination
of an Informational Document, (b) file a Form F-X with the SEC to appoint an
agent for service in the United States at the same time as its initial
submission pursuant to clause (a), and (c) disseminate any Informational
Document to U.S. holders of Ultima Units in a manner consistent with, and with
the legends required by, Rule 802. Alternatively, Petrofund shall do such things
as are necessary to exempt the offer and sale of the Payment Units from the
provisions of Section 5 of the U.S. Securities Act pursuant to another exemption
provided therein or in the rules and regulations promulgated thereunder. Each of
the Ultima Parties and Petrofund Parties shall cooperate in respect of this
Section 2.13 and in otherwise ensuring that the offer and sale of the Payment
Units will be exempt from the provisions of Section 5 of the U.S. Securities
Act.
2.14 Joint Acquisition and Redemption Documentation.
In the event that a Petrofund Special Meeting is required, Ultima and
Petrofund will use their reasonable commercial efforts to cooperatively prepare,
for delivery to Ultima Unitholders in connection with the Ultima Special Meeting
and Petrofund Unitholders in connection with the Petrofund Special Meeting, a
joint management information circular (the "Joint Circular") in compliance, in
all material respects, with Applicable Canadian Securities Laws and in
compliance, in the case of Ultima, with the Ultima Trust Indenture and, in the
case of Petrofund, with the Petrofund Trust Indenture. Ultima and Petrofund
shall both file the Joint Circular on a timely basis with the Securities
Authorities. The Joint Circular, when filed with the Securities Authorities and
mailed to the Ultima Unitholders and the Petrofund Unitholders, shall, in all
material respects, comply with the requirements of applicable Laws. The Ultima
Parties shall use their reasonable commercial efforts to obtain and furnish to
the Petrofund Parties such information regarding the Ultima Parties reasonably
required to be included in the Joint Circular on or before April 19, 2004. The
Petrofund Parties shall use their reasonable commercial efforts to obtain and
furnish to the Ultima Parties such information regarding the Petrofund Parties
reasonably required to be included in the Joint Circular on or before April 19,
2004. On both the date the Joint Circular is first mailed to the Ultima
Unitholders and the Petrofund Unitholders and the date of the Ultima Special
Meeting and the Petrofund Special Meeting, the information provided by the
Ultima Parties and
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the Petrofund Parties for use in the preparation of the Joint Circular shall,
except as publicly disclosed after the date such information is provided, be
complete and correct in all material respects, shall 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 in which they are made, not misleading and shall comply in all
material respects with all applicable Laws.
2.15 Circular Contents.
It is acknowledged and agreed that the Ultima Circular or the Joint
Circular, as the case may be, shall be required to include certain pro forma
financial information as contemplated by and in accordance with applicable Laws.
The Parties further acknowledge and agree that pro forma financial information
that meets the disclosure requirements under applicable Laws will be prepared by
management of Ultima and Petrofund and that Deloitte & Touche LLP will provide a
compilation report in accordance with the applicable guidelines of the Canadian
Institute of Chartered Accountants thereon, at the joint expense of Petrofund
and Ultima. Each of the Parties consents to the inclusion of such pro forma
financial information in the Ultima Circular or the Joint Circular, as the case
may be, as contemplated hereby in connection with the transactions provided for
herein.
2.16 Compilation of Proxies.
(a) Ultima and Ultima Co. will instruct the Ultima Trustee to advise
Petrofund from time to time, no less frequently than every three
Business Days until the day immediately prior to the date of the
Ultima Special Meeting and thereafter as often as requested, if
requested by Petrofund and in such manner as Petrofund may reasonably
request, as to the number Ultima Units voted for or against the
Special Distribution and Acquisition and Redemption Transaction.
(b) In the event that an Petrofund Special Meeting is required, Petrofund
and Petrofund Co. will instruct the Petrofund Trustee to advise Ultima
from time to time, no less frequently than every three Business Days
until the day immediately prior to the date of the Petrofund Special
Meeting and thereafter as often as requested, if requested by Ultima
and in such manner as Ultima may reasonably request, as to the number
Petrofund Units voted for or against the Acquisition and Redemption
Transaction.
2.17 Fairness Opinions.
The Parties agree that the Ultima Fairness Opinion shall be included in any
Ultima Circular. The Parties also agree that the Ultima Fairness Opinion and the
Petrofund Fairness Opinion shall be included in any Joint Circular.
2.18 Sequence of Special Distribution, Acquisition and Redemption and Related
Transactions.
The Parties acknowledge and agree that the Special Distribution and
Acquisition and Redemption Transaction shall be structured so that the following
shall occur in the following sequence:
(a) Ultima Unitholder Approval and Petrofund Unitholder Approval, to the
extent required;
(b) payment by Ultima of the Special Distribution;
(c) acquisition of the Ultima Assets, assumption of the Assumed
Liabilities and issuance of the Payment Units;
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(d) Petrofund shall subscribe for the Petrofund Ultima Unit and Ultima
shall issue the Petrofund Ultima Unit to Petrofund; and
(e) the Ultima Units (other than the Petrofund Ultima Unit) will be
redeemed in exchange for the Payment Units which shall be distributed
to the Ultima Unitholders, on a pro rata basis of their holdings of
Ultima Units, in accordance with the Exchange Ratio.
2.19 Ultima Rights.
Ultima and Ultima Co agree and represent that the Ultima Board of Directors
has determined unanimously to use its reasonable commercial efforts to encourage
and facilitate all persons holding Ultima Rights to exercise their rights prior
to the Time of Closing. Ultima further agrees and represents that the Ultima
Board of Directors will authorize and direct Ultima to cause the accelerated
vesting of all Ultima Rights prior to the Time of Closing. Subject to the rights
of the Designated Officers as set forth in the Ultima Employment Agreements,
Ultima also agrees to use its reasonable commercial efforts to ensure that any
Ultima Rights that will not be exercised on or prior to the Time of Closing are
terminated or surrendered without the payment of any consideration therefor
unless consented to by Petrofund, acting reasonably. In order to facilitate the
exercise of Ultima Rights prior to the Time of Closing, the Parties agree to
implement such policies and procedures (including the lending of sufficient
funds for an agreed upon limited period to the holders of Ultima Rights to allow
for the exercise of the Ultima Rights by such holders prior to the Time of
Closing provided the Person providing for the funds required to exercise such
Ultima Rights are granted sufficient security in exchange therefor) to allow for
the due exercise of Ultima Rights on or prior to the record date of the Special
Distribution on terms and conditions satisfactory to Petrofund acting
reasonably.
2.20 Employees.
All employees (other than the Excluded Employees) of Ultima or any of its
subsidiaries (the "Offered Employees") will be offered employment by Petrofund
or one of its subsidiaries, with such employment to be effective immediately
following the closing of the Acquisition and Redemption Transaction. The Offered
Employees shall be offered employment on the terms and conditions comparable, in
the aggregate, to the terms and conditions on which they are currently employed
including recognizing past service with Ultima. The Offered Employees shall also
be paid an additional two months base salary (less required withholdings) on the
Closing Date as a retention bonus for employment up to the Closing Date. If any
Offered Employee accepts employment from Petrofund or one of its Subsidiaries
and is terminated without cause within nine months after the Closing Date,
Petrofund shall or shall cause its subsidiaries to pay to such employee a
further amount (which can be comprised of severance) equal to not less than four
months of that employee's base salary (less required withholdings) at the time
immediately prior to the Closing Date. If any Offered Employee does not accept
employment from Petrofund or one of its Subsidiaries, such employee shall be
entitled on the Closing Date to a severance payment not to exceed statutory
termination pay. Ultima shall be entitled to disclose the content of this
provision to the Offered Employees.
2.21 Board Composition.
Petrofund agrees to use its reasonable commercial efforts such that,
effective as at the Time of Closing, the Petrofund Board of Directors shall be
varied to be comprised of two members mutually agreed to by Ultima and
Petrofund, acting reasonably, from among the individuals presently serving on
the Ultima Board of Directors.
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2.22 Ultima Approval.
Ultima and Ultima Co represent and warrant to the Petrofund Parties that
the Ultima Board of Directors:
(a) has unanimously determined that:
(i) the Special Distribution and Acquisition and Redemption
Transaction are in the best interests of Ultima and the Ultima
Unitholders; and
(ii) it will recommend that the Ultima Unitholders vote in favour of
the Special Distribution and the Acquisition and Redemption
Transaction;
(b) has received advice (which shall subsequently be in the form of a
written opinion (the "Ultima Fairness Opinion")) from CIBC World
Markets Inc., financial advisors to the Ultima Board of Directors,
that the consideration to be received by Ultima Unitholders in
connection with the Special Distribution and Acquisition and
Redemption Transaction is fair, from a financial point of view, to the
Ultima Unitholders; and
(c) has advised that each of its members intends to vote the Ultima Units
beneficially owned by them, or over which they exercise control or
direction, in favour of the Special Distribution and the Acquisition
and Redemption Transaction,
and will so represent in any Ultima Circular or the Joint Circular, as the case
may be, and in any press release or any other form of public dissemination
issued by Ultima relating to the Special Distribution and/or Acquisition and
Redemption Transaction (including any joint press release) where such press
release and other public dissemination disclosure is appropriate, in the mutual
judgement of Ultima and Petrofund, acting reasonably.
2.23 Petrofund Approval.
Petrofund and Petrofund Co represent and warrant to the Ultima Parties that
the Petrofund Board of Directors:
(a) has unanimously determined that:
(i) after giving effect to the Special Distribution, the Acquisition
and Redemption Transaction is in the best interests of Petrofund;
and
(ii) in the event that an Petrofund Special Meeting is required, it
will recommend that the Petrofund Unitholders vote in favour of
the Acquisition and Redemption Transaction;
(b) has received advice (which shall subsequently be in the form of a
written opinion (the "Petrofund Fairness Opinion")) from Scotia
Capital Inc., financial advisor to the Petrofund Board of Directors,
that the consideration to be paid by Petrofund to the Ultima
Unitholders in connection with the Acquisition and Redemption
Transaction, taking into account the Special Distribution, is fair,
from a financial point of view, to the Petrofund Unitholders; and
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(c) has advised that, in the event that an Petrofund Special Meeting is
required, each of its members intends to vote the Petrofund Units
beneficially owned by them, or over which they exercise control or
direction, in favour of the Acquisition and Redemption Transaction,
and will so represent in the Joint Circular and in any press release or any
other form of public dissemination issued by Petrofund relating to the
Acquisition and Redemption Transaction (including any joint press release) where
such press release and other public dissemination disclosure is appropriate, in
the mutual judgement of Ultima and Petrofund, acting reasonably.
2.24 Support Agreements.
Ultima shall use its reasonable commercial efforts to obtain agreements, on
terms and conditions satisfactory to Petrofund, within 72 hours of the execution
of this Agreement, from all directors and officers of Ultima Co to vote all of
their Ultima Units held at the date of the Ultima Special Meeting in favour of
the Special Distribution and Acquisition and Redemption Transaction. In the
event that either the TSX or the AMEX requires or if the Petrofund Trust
Indenture requires Petrofund Unitholders to approve the Acquisition and
Redemption Transaction, Petrofund shall use its reasonable commercial efforts to
obtain agreements, on terms and conditions satisfactory to Ultima, within 72
hours of the time of determination that a Petrofund Special Meeting is required,
from all directors and officers of Petrofund Co to vote all of their Petrofund
Units held on the date of the Petrofund Special Meeting in favour of the
Acquisition and Redemption Transaction.
2.25 Acknowledgment by Ultima.
Ultima acknowledges that Payment Units may be "restricted securities"
(within the meaning of Rule 144(a)(3) under the U.S. Securities Act) to the same
extent and proportion that the Ultima Units that are redeemed in the Acquisition
and Redemption Transaction were also "restricted securities."
2.26 Subscription for Petrofund Ultima Unit.
Immediately prior to the Time of Closing, Petrofund agrees to subscribe for
the Petrofund Ultima Unit for $10.00. Ultima agrees to issue the Petrofund
Ultima Unit to Petrofund immediately prior to the Time of Closing for $10.00.
Article III
IMPLEMENTATION OF THE ACQUISITION AND REDEMPTION
3.1 Obligations of the Ultima Parties.
In order to facilitate the Special Distribution and Acquisition and
Redemption Transaction, Ultima and Ultima Co shall take all reasonable action
necessary in accordance with all applicable Laws, including Applicable Canadian
Securities Laws and U.S. Securities Laws, to:
(a) cause the Payment Units which are to be issued to Ultima and then to
be received by Ultima Unitholders in exchange for the Ultima Units
pursuant to the Acquisition and Redemption Transaction not to be
subject to any trading restrictions under Applicable Canadian
Securities Laws or U.S. Securities Laws (other than Control Person
Restrictions and Affiliate Restrictions) and to be listed and posted
for trading on the TSX and the AMEX (subject to notice of issuance) by
the Closing Date; provided, however,
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that (i) certain Petrofund Units may be "restricted securities"
(within the meaning of Rule 144(a)(3) under the U.S. Securities Act)
to the same extent and proportion that the Ultima Units that are
redeemed in the Acquisition and Redemption Transaction were also
"restricted securities" and (ii) to the extent any such Petrofund
Units are "restricted securities", such securities will bear a legend
indicating the applicable restrictions on their transfer and Petrofund
may, and may instruct the transfer agent in respect thereof to,
restrict the transfer of such securities unless evidence satisfactory
to Petrofund and, if applicable, the transfer agent, acting
reasonably, is provided by the transferor thereof (and, if applicable,
the transferee thereof);
(b) duly call, give notice of, convene and hold the Ultima Special Meeting
as promptly as practicable and submit the resolutions to approve the
Special Distribution and Acquisition and Redemption Transaction and
any other matters as may be properly brought before such meeting to
the Ultima Unitholders for consideration;
(c) solicit proxies in favour of the Special Distribution and the
Acquisition and Redemption Transaction; and
(d) subject to the terms and conditions hereof, do all things reasonably
necessary or desirable to give effect to the Special Distribution and
Acquisition and Redemption Transaction.
3.2 Obligations of the Petrofund Parties.
In order to facilitate the Acquisition and Redemption Transaction,
Petrofund and Petrofund Co shall take all reasonable action necessary in
accordance with all applicable Laws, including Applicable Canadian Securities
Laws and U.S. Securities Laws, to:
(a) cause the Payment Units which are to be issued to Ultima and then to
be received by Ultima Unitholders in exchange for the Ultima Units
pursuant to the Acquisition and Redemption Transaction not to be
subject to any trading restrictions under Applicable Canadian
Securities Laws or U.S. Securities Laws (other than Control Person
Restrictions and Affiliate Restrictions) and to be listed and posted
for trading on the TSX and the AMEX (subject to notice of issuance) by
the Closing Date; provided, however, that (i) certain Petrofund Units
may be "restricted securities" (within the meaning of Rule 144(a)(3)
under the U.S. Securities Act) to the same extent and proportion that
the Ultima Units that are redeemed in the Acquisition and Redemption
Transaction were also "restricted securities" and (ii) to the extent
any such Petrofund Units are "restricted securities", such securities
will bear a legend indicating the applicable restrictions on their
transfer and Petrofund may, and may instruct the transfer agent in
respect thereof to, restrict the transfer of such securities unless
evidence satisfactory to Petrofund and, if applicable, the transfer
agent, acting reasonably, is provided by the transferor thereof (and,
if applicable, the transferee thereof);
(b) until the earlier of (i) two years from the date of the issuance of
the Payment Units and (ii) the date as of which none of the
outstanding Payment Units are "restricted securities" within the
meaning of Rule 144(a)(3) under the U.S. Securities Act, make
available adequate current public information with respect to
Petrofund as required by Rule 144 adopted by the SEC under the U.S.
Securities Act;
(c) prior to the Closing Date, allot for issuance a sufficient number of
Petrofund Units to issue to Ultima pursuant to the Acquisition and
Redemption Transaction. Petrofund shall
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issue the Payment Units pursuant to the Acquisition and Redemption
Transaction at the Time of Closing;
(d) to the extent that either the TSX or the AMEX requires or if the
Petrofund Trust Indenture requires Petrofund Unitholders to approve
the Acquisition and Redemption Transaction, after consultation with
Ultima, duly call, give notice of, convene and hold the Petrofund
Special Meeting as promptly as practicable and submit the resolutions
to approve the issuance of the Petrofund Units in exchange for the
Ultima Assets and any other matters as may be properly brought before
such meeting to the Petrofund Unitholders for consideration;
(e) to the extent that an Petrofund Special Meeting is required, solicit
proxies in favour of the Acquisition and Redemption Transaction; and
(f) subject to the terms and conditions hereof, do all things necessary or
desirable to give effect to the Acquisition and Redemption
Transaction.
3.3 Unitholder Communications and Disclosure.
The Ultima Parties and the Petrofund Parties agree to use their reasonable
commercial efforts to participate in presentations to investors regarding the
Special Distribution and the Acquisition and Redemption Transaction and to
consult and co-operate prior to the making of such presentations and to promptly
advise, consult and co-operate with each other in issuing any press releases or
otherwise making public statements with respect to this Agreement or the Special
Distribution and the Acquisition and Redemption Transaction and in making any
filing with any Governmental Entity. Each Party shall use all reasonable
commercial efforts to enable the Other Party to review and comment on all such
press releases and other public disclosure prior to the release thereof and
shall enable the Other Party to review and comment on such filings prior to the
release or filing thereof; provided, however, that the foregoing shall be
subject to each Party's overriding obligation to make disclosure in accordance
with applicable Laws, and if such disclosure is required by a Party and the
Other Party have not reviewed or commented on the disclosure, the Party making
such disclosure shall use reasonable commercial efforts to give prior oral or
written notice thereof to the Other Party and an opportunity to comment thereon,
and, if such prior notice is not possible, to give such notice immediately
following the making of such disclosure or filing. The Parties agree to issue
jointly a press release with respect to this Agreement as soon as practicable
after its due execution in a mutually agreed upon form.
3.4 Dealer Managers.
If Ultima determines to retain a dealer manager in connection with the
solicitation of votes in favour of the Special Distribution and the Acquisition
and Redemption Transaction at the Ultima Special Meeting, Ultima agrees to
consult with Petrofund prior to the retention of such dealer manager and any
fees payable in respect of such retention shall be subject to prior approval by
Petrofund, such approval not to be unreasonably withheld. In the event a
Petrofund Special Meeting is held to consider the Acquisition and Redemption
Transaction and if Petrofund determines to retain a dealer manager in connection
with the solicitation of votes in favour of the Acquisition and Redemption
Transaction at the Petrofund Special Meeting, Petrofund agrees to consult with
Ultima prior to the retention of such dealer manager.
3.5 Petrofund Rights Plan.
Petrofund and Petrofund Co represent to Ultima that the Board of Directors
of NCE Petrofund Management Corp. has irrevocably resolved to waive the
application of the Petrofund Rights Plan to the
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Acquisition and Redemption Transaction prior to the Time of Closing and to any
other actions taken by Ultima or Ultima Co in furtherance of the Acquisition and
Redemption Transaction and covenant to Ultima to take all action necessary
pursuant to the Petrofund Rights Plan to effect such waiver and to ensure that
the Separation Time (as defined in the Petrofund Rights Plan) does not occur.
Article IV
REPRESENTATIONS AND WARRANTIES OF ULTIMA AND ULTIMA CO
4.1 Representations and Warranties.
Ultima and Ultima Co hereby make to Petrofund and Petrofund Co the
representations and warranties set forth in Schedule "C" hereto, and acknowledge
that Petrofund and Petrofund Co are relying upon such representations and
warranties in connection with the entering into of this Agreement and the
carrying out of the Acquisition and Redemption Transaction.
4.2 Investigation.
Any investigation by Petrofund and Petrofund Co and their advisors shall
not mitigate, diminish or affect the representations and warranties of Ultima
and Ultima Co pursuant to this Agreement.
4.3 Survival.
The representations and warranties of Ultima and Ultima Co contained in
this Agreement shall not survive the completion of the Acquisition and
Redemption Transaction and shall expire and be terminated on the earlier of the
Closing Date and the date on which this Agreement is terminated.
Article V
REPRESENTATIONS AND WARRANTIES OF PETROFUND AND PETROFUND CO
5.1 Representations and Warranties.
Petrofund and Petrofund Co hereby make to Ultima and Ultima Co the
representations and warranties set forth in Schedule "D" hereto, and acknowledge
that Ultima and Ultima Co are relying upon such representations and warranties
in connection with the entering into of this Agreement and the carrying out of
Special Distribution and the Acquisition and Redemption Transaction.
5.2 Investigation.
Any investigation by Ultima and Ultima Co and their advisors shall not
mitigate, diminish or affect the representations and warranties of Petrofund and
Petrofund Co pursuant to this Agreement.
5.3 Survival.
The representations and warranties of Petrofund and Petrofund Co contained
in this Agreement shall not survive the completion of the Acquisition and
Redemption Transaction and shall expire and be terminated on the earlier of the
Closing Date and the date on which this Agreement is terminated.
-21-
Article VI
COVENANTS
6.1 Ultima Conduct of Business.
Ultima covenants and agrees that, prior to the first to occur of the
Closing Date and the termination of this Agreement, unless Petrofund shall
otherwise agree in writing (not to be unreasonably withheld) or unless otherwise
expressly contemplated or permitted by this Agreement:
(a) it will, and will cause each of its Subsidiaries to, conduct its
undertaking and businesses only in, and not take any action except in,
the usual, ordinary and regular course of business and consistent with
past practice except to the extent necessary to comply with applicable
Laws and to complete the transactions contemplated hereby or any
transactions entered into prior to the date hereof (all of which have
been in the ordinary course of business);
(b) it will not, and will not permit any of Subsidiaries to, directly or
indirectly:
(i) issue, sell, pledge, lease, dispose of, encumber or agree to
issue, sell, pledge, lease, dispose of or encumber:
(A) any Ultima Units or shares of any Subsidiary or any options,
warrants, calls, conversion privileges or rights of any kind
to acquire any such shares or trust units other than Ultima
Units pursuant to the exercise of Ultima Rights or pursuant
to the Ultima Employment Agreements; or
(B) other than oil and natural gas production in the ordinary
course of business, any assets of Ultima or its Subsidiaries
in excess of $500,000 individually or $1,500,000 in the
aggregate;
(ii) except as contemplated hereby, amend or propose to amend their
respective trust declaration, articles, by-laws, unanimous
shareholder agreements, management agreements or other constating
documents, including without limitation, the Ultima Trust
Indenture and the Ultima Royalties;
(iii) split, combine or reclassify any outstanding Ultima Units, or
declare, set aside or pay any dividends or other distributions
payable in cash, stock, property or otherwise with respect to the
Ultima Units, other than the Special Distribution and regular
monthly cash distributions made by Ultima, of an amount equal to
$0.085 per Ultima Unit paid on a single specified date to Ultima
Unitholders of record as of a single specified date;
(iv) redeem, purchase, offer to purchase or otherwise acquire any
Ultima Units or other securities of Ultima or any of its
Subsidiaries including under any normal course issuer bid;
(v) reorganize, amalgamate, merge or otherwise continue Ultima or any
of its Subsidiaries with, or acquire or agree to acquire (by
merger, amalgamation, consolidation, acquisition of stock or
assets or otherwise), any person, corporation, trust, partnership
or other business organization whatsoever (including any
division) or acquire or agree to acquire any assets having a
value
-24-
of $500,000 or greater on an individual basis of $2,000,000 or
greater in aggregate;
(vi) except in the usual, ordinary and regular course of business and
consistent with past practice, satisfy any claims or liabilities
except such as have been reserved against in the Ultima Financial
Statements or relinquish any material contractual rights which
exceed $500,000 on an individual basis or $1,500,000 or greater
in aggregate (except as disclosed in the Ultima Disclosure
Letter);
(vii)except as disclosed in the Ultima Disclosure Letter or as
required to make the Special Distribution, initiate any capital
expenditures which exceed $500,000 on an individual basis or
$1,500,000 or greater in aggregate, or incur, except in the
ordinary course of business consistent with past practice, any
indebtedness for borrowed money or any other 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 course of business
consistent with past practice and except for refinancing of
existing debt on substantially the same or more favourable terms;
(viii) enter into any employment or consulting contract, operating
agreement or similar agreement that cannot be terminated on sixty
(60) days or less notice without penalty;
(ix) enter into rate swap transactions, basis swaps, forward rate
transactions, commodity swaps, commodity options, equity or
equity index swaps, equity or equity index options, bond options,
interest rate options, foreign exchange transactions, cap
transactions, floor transactions, collar transactions, currency
swap transactions, cross-currency rate swap transactions,
currency options, production sales transactions having terms
greater than 120 days or any other similar transactions
(including any option with respect to any of such transactions)
or any combination of such transactions; or
(x) authorize or propose any of the foregoing, or enter into or
modify any contract, agreement, commitment, or arrangement to do
any of the foregoing;
(c) neither it nor any of its Subsidiaries shall (otherwise than as may be
contemplated herein) enter into or modify any employment, severance or
similar agreements, policies or arrangements with, or grant any
bonuses, salary increases, retention, severance or termination pay to
or make any loans to, any of its employees, officers or directors
other than pursuant to written agreements in effect (without
amendment) on the date hereof, other than indemnity agreements entered
into in the normal course of business in accordance with the Business
Corporations Act (Alberta), as applicable;
(d) other than the acceleration of vesting Ultima Rights, neither it nor
any of its Subsidiaries shall adopt or amend, or make any contribution
to any bonus, profit sharing, option, pension, retirement, deferred
compensation, insurance incentive compensation, other compensation or
similar plan, agreement, trust, fund or arrangements for the benefit
of employees, except as is necessary to comply with law or with
respect to existing provisions of any such plans, programs,
arrangements or agreements that have been disclosed in writing prior
to the date hereof to Petrofund;
-25-
(e) it will, and will cause each of its Subsidiaries to, use reasonable
commercial efforts to cause its current insurance (or re-insurance)
policies 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;
(f) it will, and will cause each of its Subsidiaries to:
(i) use reasonable commercial efforts to preserve intact their
respective business organizations and goodwill and to maintain
satisfactory relationships with suppliers, agents, distributors,
customers and others having business relationships with it;
(ii) 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 at any time prior
to the completion of the transactions contemplated in this
Agreement;
(iii)co-operate and use reasonable commercial efforts to comply with
all reasonable requests by Petrofund and its Subsidiaries to make
joint investor presentations or other forms of information
available in order to support the transactions contemplated by
this Agreement;
(iv) confer on a regular basis with Petrofund with respect to
operational and financial matters and promptly notify Petrofund
Co orally and in writing of any Material Adverse Change in
respect of Ultima and of any material Governmental Entity or
third party complaints, investigations or hearings (or
communications indicating that the same may be contemplated);
(v) at the Time of Closing and upon receipt of mutual releases
satisfactory to the Parties, Ultima and Ultima Co shall use its
reasonable best efforts to cause the resignation of such
directors and officers of each of the Ultima and its Subsidiaries
as Petrofund may specify and to fill the resulting vacancies with
designees of Petrofund and Ultima and Ultima Co shall cooperate
with Petrofund to provide an orderly transition of control and
management;
(vi) not waive, release, grant or transfer any rights of value or
modify or change any existing material license, lease, contract
or other document, other than in the ordinary course of business
consistent with past practice; and
(vii)not settle or compromise any claim brought by any present,
former or purported holder of any securities of Ultima or its
Subsidiaries in connection with the transactions contemplated by
this Agreement without the prior written consent of Ultima Co;
and
(g) it will fix a record date within ten business days of the Ultima
Special Meeting for the Special Distribution provided the resolution
to approve the Special Distribution and Acquisition and Redemption
Transaction is approved by Ultima Unitholders at the Ultima Special
Meeting.
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6.2 Petrofund Conduct of Business.
Petrofund covenants and agrees that, prior to the first to occur of the
Closing Date and the termination of this Agreement, unless Ultima shall
otherwise agree in writing (not to be unreasonably withheld) or unless otherwise
expressly contemplated or permitted by this Agreement:
(a) it will, and will cause each of its Subsidiaries to, conduct its
undertaking and businesses only in, and not take any action except in,
the usual, ordinary and regular course of business and consistent with
past practice except to the extent necessary to comply with applicable
Laws and to complete the transactions contemplated hereby or any
transactions entered into prior to the date hereof (all of which have
been in the ordinary course of business);
(b) it will not, and will not permit any of Subsidiaries to, directly or
indirectly:
(i) issue, sell, pledge, lease, dispose of, encumber or agree to
issue, sell, pledge, lease, dispose of or encumber:
(A) any Petrofund Units or shares of any Subsidiary or any
options, warrants, calls, conversion privileges or rights of
any kind to acquire any such shares or trust units other
than the issue of Petrofund Units pursuant to the terms of
this Agreement, pursuant to the exercise of Petrofund
Rights, pursuant to the terms of the Petrofund Support
Voting and Exchange Agreement, pursuant to the terms of the
Petrofund Rights Plan, pursuant to the terms of the
Petrofund DRIP and the grant of awards pursuant to the
Petrofund Incentive Plans; or
(B) other than oil and natural gas production in the ordinary
course of business, any assets of Petrofund or its
Subsidiaries in excess of $1,000,000 individually or
$3,000,000 in the aggregate;
(ii) other than as disclosed in the meeting materials prepared for
Petrofund's 2004 Annual and Special Meeting of Unitholders and
except as contemplated hereby, amend or propose to amend their
respective trust declaration, articles, by-laws, unanimous
shareholder agreements, management agreements or other constating
documents, including without limitation, the Petrofund Trust
Indenture and the Petrofund Royalty;
(iii)split, combine or reclassify any outstanding Petrofund Units, or
declare, set aside or pay any dividends or other distributions
payable in cash, stock, property or otherwise with respect to the
Petrofund Units, other than the regular monthly cash
distributions made by Petrofund, of an amount equal to $0.16 per
Petrofund Unit paid on a single specified date to Petrofund
Unitholders of record as of a single specified date;
(iv) redeem, purchase, offer to purchase or otherwise acquire any
Petrofund Units or other securities of Petrofund or any of its
Subsidiaries including under any normal course issuer bid or
pursuant to Petrofund's odd lot program;
(v) reorganize, amalgamate, merge or otherwise continue Petrofund or
any of its Subsidiaries with, or acquire or agree to acquire (by
merger, amalgamation,
-27-
consolidation, acquisition of stock or assets or otherwise), any
person, corporation, trust, partnership or other business
organization whatsoever (including any division) or acquire or
agree to acquire any assets having a value of $5,000,000 or
greater on an individual basis or $15,000,000 or greater in
aggregate;
(vi) delist, or make any announcements of the intention to delist, the
Petrofund Units from trading on either the TSX or the AMEX; or
(vii)authorize or propose any of the foregoing, or enter into or
modify any contract, agreement, commitment, or arrangement to do
any of the foregoing;
(c) it will, and will cause each of its Subsidiaries to, use reasonable
commercial efforts to cause its current insurance (or re-insurance)
policies 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; and
(d) it will, and will cause each of its Subsidiaries to:
(i) use reasonable commercial efforts to preserve intact their
respective business organizations and goodwill and to maintain
satisfactory relationships with suppliers, agents, distributors,
customers and others having business relationships with it;
(ii) 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 at any time prior
to the completion of the transactions contemplated in this
Agreement;
(iii)co-operate and use reasonable commercial efforts to comply with
all reasonable requests by Ultima and its Subsidiaries to make
joint investor presentations or other forms of information
available in order to support the transactions contemplated by
this Agreement;
(iv) promptly notify Ultima Co orally and in writing of any Material
Adverse Change in respect of Petrofund and of any material
Governmental Entity or third party complaints, investigations or
hearings (or communications indicating that the same may be
contemplated);
(v) not waive, release, grant or transfer any rights of value or
modify or change any existing material license, lease, contract
or other document, other than in the ordinary course of business
consistent with past practice and other than amendments to the
Petrofund Trust Indenture disclosed in the meeting materials
prepared for Petrofund's 2004 Annual and Special Meeting of
Unitholders; and
(vi) not settle or compromise any claim brought by any present, former
or purported holder of any securities of Petrofund or its
Subsidiaries in connection with the
-28-
transactions contemplated by this Agreement without the prior
written consent of Ultima Co.
6.3 Access to Information.
Subject to the terms of the Confidentiality Agreement, each of the Parties
shall, and shall cause its Subsidiaries, officers, employees, trustees and
directors to, and request its auditors and legal counsel to, afford the
officers, employees, auditors and other agents of the Other Party reasonable
access at reasonable times to its offices and facilities, and to its books and
records, and shall furnish to the Other Party and such other persons with such
financial, operating and other data and information as the second mentioned
party, through its officers, employees or agents, may from time to time
reasonably request. Without limiting the generality of the foregoing, Ultima
shall permit Petrofund and its representatives reasonable access to interview
employees of Ultima and its Subsidiaries for purposes of determining which
employees shall be retained after the Closing Date and shall provide Petrofund
all such information as may reasonably be required to enable Petrofund
efficiently integrate the business and affairs of Ultima and its Subsidiaries
with Petrofund at the Time of Closing.
6.4 No Solicitation.
(a) Ultima and Ultima Co and Petrofund and Petrofund Co shall not directly
or indirectly, through any trustee, officer, director, employee,
financial advisor or other representative or agent of the Ultima
Parties or the Petrofund Parties, as the case may be, (i) solicit,
initiate or encourage (including by way of furnishing information or
entering into any form of agreement, arrangement or understanding) any
inquiries or proposals regarding any Acquisition Proposal involving it
or its Subsidiaries or unitholders or participate in or take any other
action to facilitate any inquiries or the making of any proposal which
constitutes or may reasonably be expected to lead to such an
Acquisition Proposal, or (ii) provide any confidential information to,
participate in any discussions or negotiations relating to any such
transactions with, or otherwise cooperate with or assist or
participate in any effort to take such action by, any Person; provided
that, nothing contained in this Section 6.4(a) or any other provision
of this Agreement shall prevent the Ultima Board of Directors or the
Petrofund Board of Directors, as the case may be, from responding or
acting in any manner (including considering, negotiating, approving
and recommending to their respective unitholders (provided that prior
to furnishing information or entering into negotiations with any
Person, Ultima and Ultima Co or Petrofund and Petrofund Co, as
applicable, shall have complied with Section 6.4(c) hereof, prior to
providing any non-public information to any such Person, Ultima and
Ultima Co or Petrofund and Petrofund Co, as applicable, shall have
complied with Section 6.4(d) hereof and prior to entering into any
Proposed Agreement, Ultima and Ultima Co. shall have complied with
Section 6.5 hereof)) to an unsolicited bona fide written Acquisition
Proposal (i) in respect of which any funds or other consideration
necessary for such Acquisition Proposal has been demonstrated to the
satisfaction of the Ultima Board of Directors or the Petrofund Board
of Directors, as the case may be, to be reasonably likely to be
obtained, and (ii) in respect of which the Ultima Board of Directors
or the Petrofund Board of Directors, as the case may be, determines in
good faith would, if consummated in accordance with its terms, result
in a transaction financially more favourable to Ultima or the Ultima
Unitholders or a transaction financially more favourable to Petrofund
or the Petrofund Unitholders, as the case may be, than the
transactions contemplated by this Agreement (any such Acquisition
Proposal being referred to herein as a ("Superior Proposal"). Any good
faith determination under this Section 6.4(a) shall only be made by
duly passed resolution of the Ultima Board of Directors or the
Petrofund Board of Directors, as the case may be,
-29-
after consultation with its financial advisors and receipt by such
Board of advice of counsel reflected in the minutes of its board of
directors to the effect that entertaining or negotiating such
Acquisition Proposal or the furnishing of information concerning the
Ultima Parties or the Petrofund Parties, as applicable, is necessary
for such board to satisfy its fiduciary duties under applicable Laws.
(b) Subject to Section 6.4(a), each of Ultima and Ultima Co and Petrofund
and Petrofund Co severally agrees that it shall, and shall direct and
use reasonable efforts to cause their respective trustees, directors,
officers, employees, representatives and agents to immediately cease
and cause to be terminated any discussions or negotiations with any
Person, other than the Ultima Parties and the Petrofund Parties, as
the case may be, with respect to any actual, future or potential
Acquisition Proposal. Subject to Sections 6.4(a) and 6.4(d), the
Ultima Parties and the Petrofund Parties shall immediately close any
data rooms and the Parties agree not to release any third party from
or forebear in the enforcement of any confidentiality or standstill
agreement to which the Ultima Parties or the Petrofund Parties and any
such third party is a party.
(c) Prior to furnishing any information to or entering into any
negotiations with any Person in respect of an Acquisition Proposal,
each of Ultima and Ultima Co and Petrofund and Petrofund Co, as the
case may be, shall notify the Other Party of any Acquisition Proposal
received by it or any request received by it following the date hereof
for non-public information relating to the Ultima Parties or the
Petrofund Parties in connection with an Acquisition Proposal or for
access to the properties, books or records of the Ultima Parties or
the Petrofund Parties by any Person that informs the Ultima Parties or
the Petrofund Parties that it is considering making, or has made, an
Acquisition Proposal. Such notice shall be made, from time to time,
orally and in writing and shall indicate such details of the proposal,
inquiry or contact known to the Ultima Parties or the Petrofund
Parties as the Other Party may reasonably request, having regard to
the fiduciary obligations of the Ultima Board of Directors or the
Petrofund Board of Directors, as the case may be, and the identity of
the Person making such proposal, inquiry or contact.
(d) Subject to Section 6.4(a), if any of the Ultima Parties or the
Petrofund Parties receives a request for material non-public
information from a Person who proposes to the Ultima Parties or the
Petrofund Parties a bona fide Acquisition Proposal and the Ultima
Board of Directors or the Petrofund Board of Directors, as the case
may be, determines that such proposal is a Superior Proposal pursuant
to Section 6.4(a), the Ultima Party or the Petrofund Party, as the
case may be, may, subject to the execution of a confidentiality
agreement containing customary terms, conditions and restrictions
substantially similar to the Confidentiality Agreement, provide such
Person with access to information regarding the Ultima Party or the
Petrofund Party, as the case may be. To the extent not previously
done, the Party receiving the request shall provide to the Other Party
a copy of all information provided to such Person forthwith after the
information is provided to such Person.
(e) Each of Ultima and Ultima Co and Petrofund and Petrofund Co shall
ensure that the Ultima Trustee or Petrofund Trustee, as the case may
be, and its officers, directors and employees and any investment
banker or other advisors or representatives retained by it is aware of
the provisions of this Section 6.4, and each of Ultima and Ultima Co
and Petrofund and Petrofund Co shall be responsible for any breach of
this Section 6.4 by such trustee, bankers, advisors or representatives
as are retained by it.
-30-
6.5 Right to Match.
Ultima and Ultima Co shall not enter into any agreement (other than any
confidentiality agreement contemplated by Section 6.4(d)) to propose, pursue,
support or recommend any Acquisition Proposal (a "Proposed Agreement") or change
their recommendation of the transactions contemplated by this Agreement except
in compliance with Section 6.4 and only after providing Petrofund with an
opportunity to amend this Agreement to provide for at least equivalent financial
terms to those included in the Proposed Agreement as determined by the Ultima
Board of Directors, acting reasonably and in good faith and in accordance with
its fiduciary duties, after consultation with Ultima's financial advisors and
Ultima and Ultima Co agree to negotiate in good faith with Petrofund in respect
of any such amendment. In particular, in such circumstance Ultima Co shall
provide Petrofund Co with a copy of any Proposed Agreement as executed or
submitted by the party making such Acquisition Proposal, not less than two
Business Days prior to its proposed execution. In the event that Petrofund and
Petrofund Co agree to amend this Agreement as provided above and within the two
Business Day period, neither Ultima nor Ultima Co shall enter into the Proposed
Agreement.
6.6 Further Action.
Upon the terms and subject to the conditions hereof, each of the Parties
hereto shall use its reasonable best efforts to take, or cause to be taken, all
appropriate action, and to do or cause to be done all things necessary, proper
or advisable under applicable Laws and regulations to consummate and make effect
of the transactions contemplated by this Agreement, including:
(a) co-operation in the preparation and filing of the documentation giving
effect to the transactions contemplated hereby (including the Ultima
Circular or the Joint Circular, as the case may be) and any regulatory
and governmental filings or submissions in connection with all
Required Regulatory Approvals, including under the Competition Act and
under the Investment Canada Act and any amendments to any such
filings; and
(b) to diligently make all required regulatory filings and applications
and to obtain all licenses, permits, consents, approvals,
authorizations, qualifications and orders (i) in connection with all
Required Regulatory Approvals, and (ii) in connection with all
Required Third Party Approvals.
6.7 Approvals.
The parties shall diligently take all steps as are necessary to satisfy the
conditions contemplated by Section 7.1 hereof and to file all notices in
connection therewith as soon as is reasonably practicable following the date
hereof. The parties shall pursue any and all Required Regulatory Approvals and
Required Third Party Approvals or other filings and approvals required on their
respective parts with respect to the transactions contemplated hereby.
6.8 Insurance.
If the Acquisition and Redemption Transaction is completed, Petrofund shall
arrange for and/or maintain directors' and officers' insurance coverage for the
directors and officers of Ultima's Subsidiaries substantially equivalent in
scope and coverage as the directors' and officers' coverage in place for the
benefit of the directors and officers of Petrofund's Subsidiaries on a
"trailing" or "run-off" basis (whether such insurance is maintained
independently of or included under Petrofund's insurance coverage) covering
claims made prior to or within five years from the Closing Date.
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6.9 Ultima Tax Returns
Petrofund agrees to prepare and file all Tax Returns for Ultima and pay all
Taxes that are required on the deemed year-end of Ultima resulting from the
Acquisition and Redemption Transaction. Petrofund also agrees to prepare Tax
Returns and pay all Taxes for each Ultima Party that has a deemed year-end
resulting from the Acquisition and Redemption Transaction. From and after the
Acquisition and Redemption Transaction, Petrofund shall be solely responsible
for preparing and filing Tax Returns and paying all applicable Taxes of Ultima
and the Ultima Parties.
Article VII
CONDITIONS
7.1 General Conditions.
The respective obligations of Ultima and Petrofund to complete the
Acquisition and Redemption Transaction and the other transactions contemplated
by this Agreement and to perform, fulfill and satisfy their other respective
obligations hereunder, are subject to the fulfillment, or the waiver by each of
Ultima and Petrofund, on or before the Outside Date, of the following
conditions, each of which are inserted for the benefit of each of Ultima and
Petrofund and may be waived, in whole or in part, only by mutual consent of such
parties, each acting in its sole discretion:
(a) the Ultima Unitholders shall have approved the resolutions to approve
the Special Distribution and Acquisition and Redemption Transaction by
an affirmative vote of at least two-thirds of the votes cast at the
Ultima Special Meeting;
(b) if an Petrofund Special Meeting is required as contemplated by Section
2.11, the Petrofund Unitholders shall have approved the resolution to
approve the issuance of the Petrofund Units in exchange for the Ultima
Assets by an affirmative vote of at least a majority of the votes cast
at the Petrofund Special Meeting;
(c) the documents by which the Special Distribution and Acquisition and
Redemption Transaction is to be effected shall be in form and
substance satisfactory to the Ultima Parties and the Petrofund
Parties, acting reasonably, including without limitation, documents
providing for amendments to the Ultima Trust Indenture to effect the
Special Distribution and the Acquisition and Redemption Transaction;
(d) each of Petrofund and Ultima shall have determined, each acting
reasonably, that all Required Regulatory Approvals and Required Third
Party Approvals have been obtained on terms satisfactory to each of
Petrofund and Ultima in their reasonable judgment and any applicable
Governmental Entity waiting period shall have expired or been
terminated;
(e) each of Petrofund and Ultima shall have received from and delivered to
the other a certificate confirming that each qualifies, and has
qualified at all material times, as a "mutual fund trust" (as defined
in the Tax Act);
(f) each of Petrofund and Ultima, each acting reasonably, shall have
determined that:
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(i) no act, action, suit, or proceeding has been threatened or taken
before or by any domestic or foreign court or tribunal or
Governmental Entity or person in Canada or elsewhere, whether or
not having the force of Law; and
(ii) no Law has been proposed, enacted, promulgated or applied,
in the case of either (i) or (ii);
(iii)to cease trade the Ultima Units or the Petrofund Units or
enjoin, prohibit or impose material limitations or conditions on
the Special Distribution and Acquisition and Redemption
Transaction; or
(iv) which would have a Material Adverse Effect with respect to
Petrofund, taken as a whole, or Ultima, taken as a whole; and
(g) there shall not exist any prohibition at Law against Ultima making the
Special Distribution or against Petrofund and Ultima completing the
Acquisition and Redemption Transaction.
7.2 Ultima Party Conditions.
The obligations of Ultima and Ultima Co to complete the Special
Distribution and Acquisition and Redemption Transaction and the other
transactions contemplated by this Agreement and to perform, fulfill and satisfy
their obligations hereunder, are subject to the fulfillment or the waiver by
Ultima and Ultima Co, on or before the Outside Date, of the following
conditions, each of which are inserted for the benefit of Ultima and Ultima Co
and which may be waived, in whole or in part, only by the consent of Ultima and
Ultima Co, acting in their sole discretion:
(a) the representations and warranties made by Petrofund and Petrofund Co
in this Agreement shall be true and correct in all material respects
as of the Time of Closing as if made on and as of such date (except to
the extent such representations and warranties speak as of an earlier
date or except as affected by transactions contemplated or permitted
by this Agreement or the Acquisition and Redemption Transaction), and
Petrofund and Petrofund Co shall have provided to Ultima and Ultima Co
a certificate of two Designated Officers certifying such accuracy at
the Time of Closing;
(b) Petrofund and Petrofund Co shall have complied in all material
respects with their respective covenants herein and Petrofund and
Petrofund Co shall have provided to Ultima and Ultima Co a certificate
of two Designated Officers certifying compliance with its covenants
herein;
(c) the Ultima Board of Directors shall have received the written Ultima
Fairness Opinion;
(d) Ultima and Ultima Co shall have received an opinion of counsel to
Petrofund and Petrofund Co, in form and substance satisfactory to
Ultima and Ultima Co, as to such matters as Ultima and Ultima Co,
acting reasonably, may require, including with respect to the status
of Petrofund as a "mutual fund trust" under Section 132 of the Tax
Act, the application of the federal budget of March 23, 2004 to such
status as a mutual fund trust and that the Petrofund Units to be
distributed to Ultima Unitholders pursuant to the Acquisition and
Redemption Transaction will not constitute "foreign property" for the
purposes of Part XI of the Tax Act;
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(e) Petrofund shall have entered into an indemnity agreement with the
Ultima Trustee in form and substance satisfactory to the Ultima
Trustee indemnifying such party from any liabilities which may arise
pursuant to subsection 159(3) of the Tax Act by virtue of the fact
that such party may have acted in the capacity of a legal
representative of Ultima;
(f) all other documents and information that may be reasonably requested
by Ultima and Ultima Co or their respective counsel shall have been
provided or delivered to Ultima or Ultima Co by Petrofund or Petrofund
Co, as applicable; and
(g) there shall not have occurred or arisen after the date of this
Agreement (or, if there has previously occurred, there shall not have
been omitted to be disclosed in writing, generally or to Ultima by
Petrofund prior to the date of this Agreement) any change (or any
condition, event or development involving a prospective change) which,
in the reasonable judgment of Ultima involves a Material Adverse
Effect with respect to Petrofund.
7.3 Petrofund Party Conditions.
The obligations of Petrofund and Petrofund Co to complete the Acquisition
and Redemption Transaction and the other transactions contemplated by this
Agreement and to perform, fulfill and satisfy their obligations hereunder, are
subject to the fulfillment or the waiver by Petrofund and Petrofund Co, on or
before the Outside Date, of the following conditions, each of which are inserted
for the benefit of Petrofund and Petrofund Co and which may be waived in whole
or in part, only by the consent of Petrofund and Petrofund Co, acting in their
sole discretion:
(a) the representations and warranties made by Ultima and Ultima Co in
this Agreement shall be true and correct in all material respects as
of the Time of Closing as if made on and as of such date (except to
the extent such representations and warranties speak as of an earlier
date or except as affected by transactions contemplated or permitted
by this Agreement or the Acquisition and Redemption Transaction), and
Ultima and Ultima Co shall have provided to Petrofund and Petrofund Co
a certificate of two Designated Officers certifying such accuracy at
the Time of Closing;
(b) Ultima and Ultima Co shall have complied in all material respects with
their respective covenants herein and Ultima and Ultima Co shall have
provided to Petrofund and Petrofund Co a certificate of two Designated
Officers certifying compliance with its covenants herein;
(c) the Petrofund Board of Directors shall have received the written
Petrofund Fairness Opinion;
(d) the number of Ultima Units at the Time of Closing shall not exceed
59,732,745.442 (excluding Ultima Units issuable pursuant to the Ultima
Employment Agreements);
(e) Petrofund and Petrofund Co shall have received an opinion of counsel
to Ultima and Ultima Co, in form and substance satisfactory to
Petrofund and Petrofund Co, as to such matters as Petrofund and
Petrofund Co, acting reasonably, may require;
(f) all outstanding Ultima Rights shall have been exercised, terminated or
surrendered for cancellation on terms and conditions set forth herein
or Petrofund shall be satisfied in respect thereof;
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(g) all other documents and information that may be reasonably requested
by Petrofund and Petrofund Co or their respective counsel shall have
been provided or delivered to Petrofund or Petrofund Co by Ultima or
Ultima Co, as applicable; and
(h) there shall not have occurred or arisen after the date of this
Agreement (or, if there has previously occurred, there shall not have
been omitted to be disclosed in writing, generally or to Petrofund by
Ultima prior to the date of this Agreement) any change (or any
condition, event or development involving a prospective change) which,
in the reasonable judgment of Petrofund involves a Material Adverse
Effect with respect to Ultima.
7.4 Notice Requirements.
Each Party will give prompt notice to the Other Party of the occurrence, or
failure to occur, at any time from the date hereof until the Time of Closing, of
any event or state of facts which occurrence or failure would, or would be
likely to:
(a) cause any of the representations and warranties of such Party
contained herein to be untrue or inaccurate in any material respect on
the date hereof or at the Time of Closing;
(b) result in the failure to comply with or satisfy any covenant,
condition or agreement to be complied with or satisfied by such Party
prior to the Time of Closing;
(c) cause any Material Adverse Change in respect of such Party or its
Subsidiaries; or
(d) results in a misrepresentation being contained in the Ultima Circular
or the Joint Circular.
Each Party shall in good faith discuss with the Other Party any change in
circumstances (actual, anticipated, contemplated or, to its knowledge,
threatened, financial or otherwise) which is of such a nature that it may
reasonably request as to whether notice need to be given to the Other Party
pursuant to this Section 7.4.
7.5 Merger of Conditions.
The conditions set out in Sections 7.1, 7.2 and 7.3 shall be conclusively
deemed to have been satisfied, waived or released upon completion of the
Acquisition and Redemption Transaction.
Article VIII
CLOSING MATTERS, TERMINATION FEE, TERMINATION AND EXPENSES
8.1 Closing Matters.
Each Subject Trust shall deliver, at the Time of Closing, such customary
certificates, resolutions and other closing documents, including instruments of
conveyancing and transfer, as may be required by the other Subject Trust, acting
reasonably.
8.2 Agreement as to Termination Fee.
(a) If at any time after the execution of this Agreement and prior to the
termination hereof:
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(i) the Ultima Board of Directors or the Petrofund Board of Directors
(in such case the Ultima Parties or the Petrofund Parties,
respectively, being the "Non-Completing Party" in this Section
8.2(a)(i)) has withdrawn, changed or modified in a manner adverse
to the Other Party, or failed to reaffirm upon request (other
than as a result of and in direct response to a material breach
by the Other Party of their obligations under this Agreement that
would or reasonably could result in the non-satisfaction of the
conditions precedent to the closing of the transactions
contemplated hereby or a material misrepresentation by the Other
Party or a Material Adverse Change to the Other Party) any of:
(A) the recommendations or determinations referred to in Section
2.22 in respect of the Ultima Board of Directors or in
Section 2.23 in respect of the Petrofund Board of Directors;
(B) the authorization to complete the Acquisition and Redemption
Transaction as contemplated by the representations in
paragraph (b) in Schedule "C" in respect of the Ultima
Parties and paragraph (b) in Schedule "D" in respect of the
Petrofund Parties,
or resolved to take any of the foregoing actions prior to the
completion of the Acquisition and Redemption Transaction; or
(ii) the Ultima Board of Directors or the Petrofund Board of Directors
(in such case the Ultima Parties or the Petrofund Parties,
respectively, being the "Non-Completing Party" in this Section
8.2(a)(ii)) has recommended that, in the case of the Ultima Board
of Directors, the Ultima Unitholders deposit their Ultima Units
under, vote in favour of, or otherwise accept a Take-Over
Proposal and, in the case of the Petrofund Board of Directors,
the Petrofund Unitholders deposit their Petrofund Units under,
vote in favour of, or otherwise accept a Take-Over Proposal; or
(iii)prior to date of the Ultima Special Meeting or Petrofund Special
Meeting, as the case may be, a bona fide Take-Over Proposal is
publicly announced, proposed, offered or made to any of the
Ultima Parties or the Petrofund Parties (in such case the Ultima
Parties or the Petrofund Parties, respectively, being the
"Non-Completing Party" in this Section 8.2(a)(iii)) or their
unitholders, the Acquisition and Redemption Transaction is not
completed and the transactions contemplated by any Take-Over
Proposal is completed within 180 days of the Outside Date; or
(iv) any of the Ultima Parties enters into a Proposed Agreement or any
of the Petrofund Parties enters into any agreement to propose,
pursue, support or recommend any Take-Over Proposal (other than a
confidentiality agreement contemplated by Section 6.4(d)) (in
such case the Ultima Parties or the Petrofund Parties,
respectively being the "Non-Completing Party" in this Section
8.2(a)(iv)); or
(v) any of the Ultima Parties or the Petrofund Parties (in such case
the Ultima Parties or the Petrofund Parties, respectively, being
the "Non-Completing Party" in this Section 8.2(a)(v)) breaches
any of its representations or warranties or covenants contained
in this Agreement which breach individually or in the aggregate
would
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or would reasonably be expected to have a Material Adverse Effect
upon the Non-Completing Party, or would materially impede
completion of the transactions contemplated hereby, and which the
Non-Completing Party fails to cure within five Business Days
after receipt of written notice thereof from the Other Party
(except that no cure period shall be provided for a breach by a
Non-Completing Party which by its nature cannot be cured and in
no event shall any cure period extend beyond the Time of
Closing),
then, subject to Section 8.2(b) and (c), if the Ultima Parties are the
Non-Completing Party, Ultima shall pay to Petrofund, or if the
Petrofund Parties are the Non-Completing Party, Petrofund shall pay to
Ultima, within three Business Days, an aggregate of $10 million (the
"Termination Fee") as liquidated damages in immediately available
funds to an account designated by the Other Party within one Business
Day after the first to occur of the events described above. Only one
payment pursuant to this paragraph shall be required to be made.
(b) In the event that a Take-Over Proposal is publicly announced,
proposed, offered or made as contemplated by Section 8.2(a)(iii), the
Non-Completing Party agrees to deliver to the Other Party prior to the
earlier of the date of the applicable meeting and two Business Days
prior to the scheduled expiry or closing of the Take-Over Proposal, an
irrevocable letter of credit, in form satisfactory to the Other Party,
acting reasonably, drawable within one Business Day after the Other
Party (not being the Non-Completing Party) shall have delivered to the
Non-Completing Party a written certificate confirming the completion
of the transactions contemplated by any Take-Over Proposal specified
in Section 8.2(a)(iii).
(c) In the event that there is a breach in a representation or warranty or
covenant as contemplated by Section 8.2(a)(v) and whether or not the
Termination Fee is also payable pursuant to any other provision of
Section 8.2(a), the Party (not being the Non-Completing Party) shall
have the right at its sole option (the "Election") to either (A) be
paid within three Business Days of giving notice of the Election to
the Non-Completing Party the Termination Fee or (B) be paid within
three Business Days of giving notice of the Election to the
Non-Completing Party, an aggregate of $1 million in immediately
available funds to an account designated by such party.
8.3 Liquidated Damages.
(a) Except as provided in Section 8.3(b), each Party acknowledges that all
of the payment amounts set out in Section 8.2 (other than Section
8.2(c)(B)) are payments of liquidated damages which are a genuine
pre-estimate of the damages which the Party entitled to such damages
will suffer or incur as a result of the event giving rise to such
damages and resultant termination of this Agreement and are not
penalties. Subject to Section 8.3(b), each Party irrevocably waives
any right it may have to raise as a defence that any such liquidated
damages are excessive or punitive. For greater certainty, the Parties
agree that, subject to Section 8.3(b), payment of the amount pursuant
to this Article is the sole monetary remedy of the Party receiving
such payment.
(b) Any payment pursuant to Section 8.2(c)(B) shall be without prejudice
to the rights or remedies available as a result of any breach of any
provision of this Agreement. Any payment pursuant to Section 8.2 shall
be without prejudice to the rights or remedies available to a Party by
the Other Party acting in bad faith intended and designed to result in
the conditions precedent to this Agreement not being satisfied.
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(c) Notwithstanding Sections 8.3(a) and (b), nothing herein shall prevent
any party from seeking specific performance, injunctive or other
equitable relief in order to enforce or cause the enforcement of or
compliance with, any provision of this Agreement.
8.4 Termination.
This Agreement shall terminate at the Time of Closing and may be earlier
terminated at any time prior thereto:
(a) by mutual written consent of the Parties;
(b) by either Ultima and Ultima Co or Petrofund and Petrofund Co, giving
notice in writing to Petrofund and Petrofund Co or Ultima and Ultima
Co, as applicable, if the Closing Date shall have not occurred on or
before the Outside Date;
(c) by either Ultima and Ultima Co or Petrofund and Petrofund Co giving
notice in writing to Petrofund and Petrofund Co or Ultima and Ultima
Co, as applicable, if any of the conditions contained in Section 7.1
are not satisfied or waived on or before the date required for the
performance thereof unless the failure of any such condition shall be
due to the failure of the party seeking to terminate this Agreement to
perform the obligations required to be performed by it under this
Agreement;
(d) by Ultima and Ultima Co giving notice in writing to Petrofund and
Petrofund Co if any of the conditions contained in Section 7.2 are not
satisfied or waived on or before the date required for the performance
thereof;
(e) by Petrofund and Petrofund Co giving notice in writing to Ultima and
Ultima Co if any of the conditions contained in Section 7.3 are not
satisfied or waived on or before the date required for the performance
thereof; or
(f) by any of Ultima and Ultima Co or Petrofund or Petrofund Co, as the
case may be, if any of Petrofund and Petrofund Co or Ultima and Ultima
Co, as the case may be, becomes a Non-Completing Party (as defined in
Section 8.2(a)).
In the event of the termination of this Agreement as provided in this
Section 8.4, this Agreement shall forthwith terminate and neither Party shall
have any liability or further obligation to the Other Party hereunder except
with respect to the obligations set forth in Section 8.2 (provided that the
right of payment (in the case of Section 8.2(a)(iii)), being the public
announcement or commencement of such Take-Over Proposal) arose prior to
termination of this Agreement), Section 8.3 and Section 8.5 and this Section 8.4
will not relieve or have the effect of resulting in relieving any Party in any
way from liability for damages incurred or suffered by a Party as a result of
breach of this Agreement by a Party prior to the termination of this Agreement
except as otherwise provided herein. Any termination of this Agreement shall not
affect the obligations of the parties under the Confidentiality Agreement.
8.5 Expenses.
Subject to Section 2.11, each of the Parties will bear the costs of its own
board of directors (including the cost of its financial and legal advisors)
incurred in connection with the transactions contemplated hereby, and all other
expenses incurred in connection with such transactions (including the costs of
seeking Required Regulatory Approvals and Required Third Party Approvals, the
fees and costs
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associated with obtaining fairness opinions and all costs and expenses
(including professional fees) ancillary thereto) shall be borne by the party or
Subsidiary that incurred each expense.
Article IX
NOTICES
9.1 Address For Notice.
Any notice or other communication required or permitted to be given
hereunder shall be in writing and shall be delivered in person, transmitted by
telecopy or similar means of recorded electronic communication, addressed as
follows:
(a) in the case of Ultima or Ultima Co, to:
Ultima Energy Trust
c/o Ultima Ventures Corp.
1000, 350 - 7th Avenue S.W.
Calgary, Alberta
T2P 3N9
Attention: S. Brian Gieni, President and Chief Executive Officer
Facsimile: (403) 264-6103
with a copy to:
Bennett Jones LLP
4500 Bankers Hall East
855 - 2nd Street S.W.
Calgary, Alberta
T2P 4K7
Attention: John H. Kousinioris
Facsimile: (403) 265-7219
(b) in the case of Petrofund or Petrofund Co, to:
Petrofund Energy Trust
c/o Petrofund Corp.
600, 444 - 7th Avenue S.W.
Calgary, Alberta
T2P 0X8
Attention: Jeffery E. Errico, President and Chief Executive Officer
Facsimile: (403) 264-6165
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with a copy to:
Burnet, Duckworth & Palmer LLP
1400, 350 - 7th Avenue S.W.
Calgary, Alberta
T2P 3N9
Attention: Keith A. Greenfield
Facsimile: (403) 260-0330
9.2 Receipt and Deemed Receipt of Notice.
Any such notice or other communication shall be deemed to have been given
and received on the day on which it was delivered or transmitted (or, if not
delivered or transmitted during usual business hours or if such day is not a
Business Day at the place of receipt, on the next following Business Day).
9.3 Change of Address.
Either Party may change its address for service from time to time by giving
notice to the Other Party in accordance with the foregoing.
Article X
GENERAL
10.1 Amendment.
This Agreement may, at any time and from time to time before the Time of
Closing, be amended by mutual written agreement of the Parties hereto, and any
such amendment may, without limitation:
(a) change the time for performance of any of the obligations or acts of
the Parties;
(b) waive any inaccuracies or modify any representation contained herein
or in any document delivered pursuant hereto;
(c) waive compliance with or modify any of the covenants herein contained
and waive or modify performance of any of the obligations of the
Parties; and
(d) waive compliance with or modify any conditions precedent herein
contained.
10.2 Waiver.
At any time prior to the Time of Closing, any Party hereto may:
(a) extend the time for the performance of any of the obligations or other
acts of the Other Party;
(b) waive any inaccuracies in the representations and warranties contained
herein or in any document delivered pursuant hereto that are for the
benefit of such Parties; and
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(c) waive compliance with any of the agreements or conditions contained
herein that are for the benefit of such Party. Any such extension or
waiver shall be valid if set forth in an instrument in writing signed
by the Party to be bound thereby;
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. A
waiver of any provision of this Agreement shall not constitute a waiver of
any other provision, nor shall any waiver constitute a continuing waiver
unless otherwise provided.
10.3 Assignment.
Neither Party may assign any of its rights or obligations under this
Agreement without the prior written consent of the Other Party.
10.4 Amendment.
No amendment of any provision of this Agreement shall be binding on any
Party unless consented to in writing by that Party.
10.5 Time of the Essence.
Time shall be of the essence of this agreement.
10.6 Counterparts.
This Agreement may be executed in any number of counterparts, each of which
shall constitute an original and all of which taken together shall constitute
one and the same instrument.
10.7 Governing Law.
This Agreement shall be construed, interpreted and enforced in accordance
with, and the respective rights and obligations of the Parties shall be governed
by the Laws of the Province of Alberta. Each Party hereby unconditionally and
irrevocably submits to the non-exclusive jurisdiction of the courts of the
Province of Alberta.
10.8 Severability.
In the event that any provision of this Agreement is determined by a court
of competent jurisdiction to be unenforceable, in whole or in part, such
determination shall not affect or impair the enforceability of any other
provision and each provision is hereby declared to be separate, severable and
distinct.
10.9 Binding Effect.
This Agreement shall enure to the benefit of and shall be binding on and
enforceable by the Parties and, where the context so permits, their respective
heirs, administrators, legal personal representatives, successors and permitted
assigns.
10.10 Employment Agreements.
Petrofund and Petrofund Co covenant and agree to, and after the Time of
Closing Petrofund and Petrofund Co will cause the Ultima Parties and any
successor to the Ultima Parties, to honour and comply
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with the terms of those existing employment agreements, termination, severance
and retention plans or policies of the Ultima Parties which Ultima Co has
disclosed to Petrofund Co in writing prior to the date hereof.
10.11 Third Party Beneficiaries.
The provisions of Section 6.8 and Section 10.10 are (i) intended for the
benefit of the employees of Ultima and its Subsidiaries and all present and
former trustees, directors and officers of Ultima and its Subsidiaries, as and
to the extent applicable in accordance with their terms, and shall be
enforceable by each of such persons and his or her heirs, executors
administrators and other legal representatives (collectively, the "Third Party
Beneficiaries") and Ultima Co shall hold the rights and benefits of Section 6.8
and Section 10.10 in trust for and on behalf of the Third Party Beneficiaries
and Ultima Co hereby accepts such trust and agrees to hold the benefit of and
enforce performance of such covenants on behalf of the Third Party
Beneficiaries, and (ii) are in addition to, and not in substitution for, any
other rights that the Third Party Beneficiaries may have by contract or
otherwise.
10.12 Confidentiality Agreement.
With respect to the Acquisition and Redemption Transaction, Ultima and
Ultima Co hereby consent to the Acquisition and Redemption Transaction and each
of Petrofund and Petrofund Co are hereby released from any of the restrictions
set forth in Section 11 of the Confidentiality Agreement with respect to the
Acquisition and Redemption Transaction.
10.13 Acknowledgement.
(a) The Parties hereto acknowledge that, with respect to Ultima being a
party to this Agreement, Ultima Co is entering into this Agreement
solely in its capacity as agent on behalf of Ultima and the
obligations of Ultima hereunder shall not be personally binding upon
the Ultima Trustee, Ultima Co or any of the Ultima Unitholders or any
annuitant under a plan of which a unitholder is a trustee or carrier
(an "annuitant") and that any recourse against Ultima, Ultima Trustee,
Ultima Co or any unitholder or annuitant in any manner in respect of
any indebtedness, obligation or liability of Ultima arising hereunder
or arising in connection herewith or from the matters to which this
Agreement relates, if any, including without limitation claims based
on negligence, tortious behaviour or otherwise, shall be limited to,
and satisfied only out of, the Trust Fund as defined in the Ultima
Trust Indenture.
(b) The obligations or liabilities, if any, of the Petrofund Trustee or
Petrofund hereunder shall not be binding upon, nor shall resort be had
to the property of, any of the unitholders or annuitants of Petrofund
and such obligations and liabilities shall not be binding upon such
unitholders or annuitants. The obligations or liabilities, if any, of
the Petrofund Trustee or Petrofund hereunder shall be satisfied only
out of the property of Petrofund and no resort may be had to the
property of any trustee, manager, officer or employee of Petrofund or
any director, officer or employee of any manager or trustee of
Petrofund. The obligations and liabilities hereunder, if any, of any
trustee, manager, officer or employee of Petrofund or any director,
officer or employee of any manager or trustee of Petrofund shall bind
such obligor only to the extent that such obligor is entitled to be
indemnified by Petrofund. The provisions of this paragraph shall enure
to the benefit of the heirs, successors, assigns and personal
representatives of the trustee, manager, officer or employee of
Petrofund, of any director, officer or employee of any manager or
trustee of Petrofund, of the unitholders and annuitants of Petrofund
and, to
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the extent necessary to provide effective enforcement of such
provisions, the Petrofund Trustee is hereby acknowledged to be acting,
and shall be entitled to act as, trustee for the unitholders and
annuitants of Petrofund.
10.14 Public Statements.
Neither of the Parties nor their respective trustees, directors, officers,
employees or representatives shall make any public statement or announcement
with respect to the transactions contemplated hereby which is inconsistent with
the terms and conditions of this Agreement. Subject to the provisions hereof,
all public disclosure with respect to the transactions contemplated hereby shall
require the approval of the Parties, each acting reasonably, unless otherwise
required by Law.
IN WITNESS WHEREOF the Parties have executed this Agreement as of the date
first written above.
ULTIMA ENERGY TRUST, by Ultima PETROFUND ENERGY TRUST, by
Ventures Corp. Petrofund Corp.
Per: Per:
----------------------------- ---------------------------------
Name: Name:
Title: Title:
Per: Per:
----------------------------- ---------------------------------
Name: Name:
Title: Title:
ULTIMA VENTURES CORP. PETROFUND CORP.
Per: Per:
----------------------------- ---------------------------------
Name: Name:
Title: Title:
Per: Per:
----------------------------- ---------------------------------
Name: Name:
Title: Title:
Schedule "A"
Ultima Assets
1. 12,000,001 Class A Common Shares in the capital of Ultima Ventures Corp.
2. 12,000,001 trust units in the capital of Ultima Ventures Trust.
3. 100 Common Shares in the capital of Ultima Energy Inc.
4. 12,000,001 Class A Common Shares in the capital of Ultima Acquisitions
Corp.
5. 100 Class A Common Shares in the capital of Ultima Management Inc.
6. The Ultima Royalties
7. Promissory Note granted by Ultima Management Inc. to Ultima in respect of
indebtedness of Ultima Management Inc. to Ultima of $1,105,488.82, as at
December 31, 2003
8. Promissory Note granted by Ultima Ventures Trust to Ultima in respect of
indebtedness of Ultima Ventures Trust to Ultima of $132,122,753.14, as at
December 31, 2003
Schedule "B-1"
Assumption Agreement
THIS AGREEMENT made the o day of o , 2004
BETWEEN:
ULTIMA ENERGY TRUST, a trust created under the laws of the
Province of Alberta, (hereinafter referred to as "Ultima")
-and-
PETROFUND ENERGY TRUST, a trust created under the laws of
the Province of Ontario, (hereinafter referred to as
"Petrofund")
WHEREAS the parties hereto entered into a combination agreement (the
"Combination Agreement") dated March 29, 2004 pursuant to which, among other
things, Petrofund is to assume all the liabilities and obligations of Ultima
whether or not reflected on the books of Ultima (the "Assumed Liabilities").
NOW THEREFORE THIS AGREEMENT WITNESSES THAT in consideration of the
completion of the transactions contemplated in the Combination Agreement and the
respective covenants, agreements, representations and warranties of the parties
hereinafter contained, the parties agree as follows:
1. (a) Assumption of Liabilities - Petrofund hereby assumes and becomes
liable for, and shall pay, satisfy, assume, discharge, observe, perform
and fulfill, all the Assumed Liabilities in accordance with their terms.
(b) Indemnified Persons - In connection therewith, Petrofund shall:
(i) indemnify and save Ultima's and its Subsidiaries' trustees,
directors, officers, employees and agents (together, the
"Indemnified Persons") harmless from all and any costs, damages
or expenses that may be paid or incurred following any claim,
suit or action taken by any other party because of the failure of
Petrofund to discharge and perform all or any of the obligations,
covenants, agreements and obligations forming part of the
liabilities assumed hereunder (for purposes hereof, "Subsidiary"
has the meaning ascribed thereto in the Combination Agreement);
and
(ii) if any suit or action is commenced against any of the Indemnified
Persons in connection with any of the assumed liabilities or in
respect of any covenant, condition, agreement or obligation
assumed hereby, assume the conduct of such case and provide to
the Indemnified Persons such further indemnification from all
costs, damages or expenses as they may reasonably require.
-B-2-
2. Further Assurances - Petrofund will, from time to time, and at all times
hereafter upon the reasonable request of the Indemnified Persons and at the
cost of Petrofund, do and execute or cause or procure to be made, done and
executed all such further acts, deeds and assurances for more effectually
and completely assuming and becoming liable for the liabilities assumed in
accordance with this agreement.
3. Governing Law - This agreement shall be construed, interpreted and enforced
in accordance with, and the respective rights and obligations of the
parties shall be governed by, the laws of the Province of Alberta. Each
party hereby unconditionally and irrevocably submits to the non-exclusive
jurisdiction of the courts of the Province of Alberta.
4. Binding Effect - This agreement shall enure to the benefit of and shall be
binding on and enforceable by the parties, including the Indemnified
Persons, and, where the context so permits, their respective heirs,
administrators, legal personal representatives, successors and permitted
assigns. Notwithstanding the foregoing:
(a) the Parties hereto acknowledge that, with respect to Ultima being a
party to this Agreement, Ultima Co is entering into this Agreement
solely in its capacity as agent on behalf of Ultima and the
obligations of Ultima hereunder shall not be personally binding upon
the Ultima Trustee, Ultima Co or any of the Ultima Unitholders or any
annuitant under a plan of which a unitholder is a trustee or carrier
(an "annuitant") and that any recourse against Ultima, Ultima Trustee,
Ultima Co or any unitholder or annuitant in any manner in respect of
any indebtedness, obligation or liability of Ultima arising hereunder
or arising in connection herewith or from the matters to which this
Agreement relates, if any, including without limitation claims based
on negligence, tortious behaviour or otherwise, shall be limited to,
and satisfied only out of, the Trust Fund as defined in the Ultima
Trust Indenture; and
(b) the obligations or liabilities, if any, of the Petrofund Trustee or
Petrofund hereunder shall not be binding upon, nor shall resort be had
to the property of, any of the unitholders or annuitants of Petrofund
and such obligations and liabilities shall not be binding upon such
unitholders or annuitants. The obligations or liabilities, if any, of
the Petrofund Trustee or Petrofund hereunder shall be satisfied only
out of the property of Petrofund and no resort may be had to the
property of any trustee, manager, officer or employee of Petrofund or
any director, officer or employee of any manager or trustee of
Petrofund. The obligations and liabilities hereunder, if any, of any
trustee, manager, officer or employee of Petrofund or any director,
officer or employee of any manager or trustee of Petrofund shall bind
such obligor only to the extent that such obligor is entitled to be
indemnified by Petrofund. The provisions of this paragraph shall enure
to the benefit of the heirs, successors, assigns and personal
representatives of the trustee, manager, officer or employee of
Petrofund, of any director, officer or employee of any manager or
trustee of Petrofund, of the unitholders and annuitants of Petrofund
and, to the extent necessary to provide effective enforcement of such
provisions, the Petrofund Trustee is hereby acknowledged to be acting,
and shall be entitled to act as, trustee for the unitholders and
annuitants of Petrofund.
-B-3-
IN WITNESS WHEREOF the parties have executed this agreement as of the date
first written above.
ULTIMA ENERGY TRUST, by Ultima
Ventures Corp.
By:
------------------------------
Name:
Title:
PETROFUND ENERGY TRUST, by
Petrofund Corp.
By:
------------------------------
Name:
Title:
Schedule "B-2"
Unitholder Indemnity Agreement
THIS AGREEMENT made the o day of o , 2004
BETWEEN:
ULTIMA ENERGY TRUST, a trust created under the laws of the
Province of Alberta, (hereinafter referred to as "Ultima")
-and-
PETROFUND ENERGY TRUST, a trust created under the laws of
the Province of Ontario, (hereinafter referred to as
"Petrofund")
WHEREAS the parties hereto entered into a combination agreement (the
"Combination Agreement") dated March 29, 2004;
AND WHEREAS pursuant to the terms of the Combination Agreement, Petrofund
has agreed to enter into an agreement (the "Assumption Agreement") pursuant to
which, among other things, Petrofund shall assume all the liabilities and
obligations of Ultima whether or not reflected on the books of Ultima (the
"Assumed Liabilities");
NOW THEREFORE THIS AGREEMENT WITNESSES THAT in consideration of the
completion of the transactions contemplated in the Combination Agreement and the
respective covenants, agreements, representations and warranties of the parties
hereinafter contained, the parties agree as follows:
1. Indemnified Persons - Petrofund shall:
(a) indemnify and save Ultima's unitholders and annuitants under a plan of
which a unitholder acts as a trustee or carrier (together, the
"Indemnified Persons") harmless from all and any costs, damages or
expenses that may be paid or incurred following any claim, suit or
action taken by any other party because of the failure of Petrofund to
discharge and perform all or any of the obligations, covenants,
agreements and obligations forming part of the liabilities assumed
under the Assumption Agreement; and
(b) if any suit or action is commenced against any of the Indemnified
Persons in connection with any of the Assumed Liabilities or in
respect of any covenant, condition, agreement or obligation assumed
under the Assumption Agreement, assume the conduct of such case and
provide to the Indemnified Persons such further indemnification from
all costs, damages or expenses as they may reasonably require.
-B-2-
2. Further Assurances - Petrofund will, from time to time, and at all times
hereafter upon the reasonable request of the Indemnified Persons and at the
cost of Petrofund, do and execute or cause or procure to be made, done and
executed all such further acts, deeds and assurances for more effectually
and completely assuming and becoming liable for the liabilities assumed in
accordance with the Assumption Agreement.
3. Governing Law - This agreement shall be construed, interpreted and enforced
in accordance with, and the respective rights and obligations of the
parties shall be governed by, the laws of the Province of Alberta. Each
party hereby unconditionally and irrevocably submits to the non-exclusive
jurisdiction of the courts of the Province of Alberta.
4. Binding Effect - This agreement shall only become effective upon the
completion of the Acquisition and Redemption Transaction (as defined in the
Combination Agreement), and thereafter shall enure to the benefit of and
shall be binding on and enforceable by the parties, including the
Indemnified Persons, and, where the context so permits, their respective
heirs, administrators, legal personal representatives, successors and
permitted assigns. Notwithstanding the foregoing:
(a) the Parties hereto acknowledge that, with respect to Ultima being a
party to this Agreement, Ultima Co is entering into this Agreement
solely in its capacity as agent on behalf of Ultima and the
obligations of Ultima hereunder shall not be personally binding upon
the Ultima Trustee, Ultima Co or any of the Ultima Unitholders or any
annuitant under a plan of which a unitholder is a trustee or carrier
(an "annuitant") and that any recourse against Ultima, Ultima Trustee,
Ultima Co or any unitholder or annuitant in any manner in respect of
any indebtedness, obligation or liability of Ultima arising hereunder
or arising in connection herewith or from the matters to which this
Agreement relates, if any, including without limitation claims based
on negligence, tortious behaviour or otherwise, shall be limited to,
and satisfied only out of, the Trust Fund as defined in the Ultima
Trust Indenture; and
(b) the obligations or liabilities, if any, of the Petrofund Trustee or
Petrofund hereunder shall not be binding upon, nor shall resort be had
to the property of, any of the unitholders or annuitants of Petrofund
and such obligations and liabilities shall not be binding upon such
unitholders or annuitants. The obligations or liabilities, if any, of
the Petrofund Trustee or Petrofund hereunder shall be satisfied only
out of the property of Petrofund and no resort may be had to the
property of any trustee, manager, officer or employee of Petrofund or
any director, officer or employee of any manager or trustee of
Petrofund. The obligations and liabilities hereunder, if any, of any
trustee, manager, officer or employee of Petrofund or any director,
officer or employee of any manager or trustee of Petrofund shall bind
such obligor only to the extent that such obligor is entitled to be
indemnified by Petrofund. The provisions of this paragraph shall enure
to the benefit of the heirs, successors, assigns and personal
representatives of the trustee, manager, officer or employee of
Petrofund, of any director, officer or employee of any manager or
trustee of Petrofund, of the unitholders and annuitants of Petrofund
and, to the extent necessary to provide effective enforcement of such
provisions, the Petrofund Trustee is hereby acknowledged to be acting,
and shall be entitled to act as, trustee for the unitholders and
annuitants of Petrofund.
-B-3-
IN WITNESS WHEREOF the parties have executed this agreement as of the
date first written above.
ULTIMA ENERGY TRUST, by Ultima
Ventures Corp.
By:
------------------------------
Name:
Title:
PETROFUND ENERGY TRUST, by
Petrofund Corp.
By:
------------------------------
Name:
Title:
Schedule "C"
Representations of the Ultima Parties
Ultima and Ultima Co hereby jointly and severally represent and warrant to
Petrofund and Petrofund Co as follows:
(a) Organization and Qualification. Each of Ultima and Ultima Ventures Trust
is a trust duly created and validly existing under the laws of the Province of
Alberta and has the requisite power and authority to own its assets and to carry
on its business as now conducted and as proposed to be conducted. Each of the
Ultima Parties (other than Ultima and Ultima Ventures Trust) is a corporation
duly incorporated or amalgamated and validly existing under the laws of its
jurisdiction of incorporation and has the requisite corporate power and
authority to own its assets as now owned and to carry on its business as now
conducted and as presently proposed to be conducted. Each of the Ultima Parties
(other than Ultima and Ultima Ventures Trust) is duly registered to do business
in each jurisdiction in which the character of its assets, owned or leased, or
the nature of its activities makes such registration necessary, except where the
failure to be so registered would not have a Material Adverse Effect on the
Ultima Parties. Copies of the constating documents of the Ultima Parties
provided to Petrofund Co, together with all amendments to date, are accurate and
complete as of the date hereof and have not been amended or superseded. Ultima
is a "mutual fund trust" for the purpose of Section 132 of the Tax Act.
(b) Authority Relative to this Agreement. Each of Ultima and Ultima Co 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 Ultima and Ultima Co of the Acquisition and Redemption
Transaction have been duly authorized by the Ultima Co Board and, subject to the
requisite approval of the Ultima Unitholders, no other proceedings on the part
of Ultima or Ultima Co are necessary to authorize this Agreement or the
Acquisition and Redemption Transaction. This Agreement has been duly executed
and delivered by each of Ultima and Ultima Co and constitutes a legal, valid and
binding obligation of each of Ultima and Ultima Co enforceable against them in
accordance with its terms, subject to the qualification that such enforceability
may be limited by bankruptcy, insolvency, reorganization or other laws of
general application relating to or affecting rights of creditors and that
equitable remedies, including specific performance, are discretionary and may
not be ordered.
(c) Subsidiaries. Ultima has no subsidiaries (other than the Material
Subsidiaries) which are material to its business, operation or financial
condition.
(d) No Violations. Except as disclosed in the Ultima Disclosure Letter or
contemplated by this Agreement:
(i) neither the execution and delivery of this Agreement by Ultima and
Ultima Co nor the consummation of the Special Distribution or the
Acquisition and Redemption Transaction nor compliance by the Ultima
Parties with any of the provisions hereof will: (A) violate, conflict
with, or result in a 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
the creation of any Encumbrance upon any of the Ultima Assets or cause
any indebtedness to come due before its stated maturity or cause any
credit to cease to be available, under any of the terms, conditions or
provisions of (1) the Ultima Trust Indenture or the articles, by-laws,
shareholder agreements or governing documents of the Material
Subsidiaries, or (2) any material note, bond, mortgage, indenture,
loan agreement, deed of trust, agreement, lien, contract or other
instrument or obligation to
-C-2-
which an Ultima Party is a party or to which any of them, or any of
their respective properties or assets, may be subject or by which an
Ultima Party is bound; or (B) subject to compliance with applicable
statutes and regulations, violate any judgment, ruling, order, writ,
injunction, determination, award, decree, statute, ordinance, rule or
regulation applicable to the Ultima Parties or any of their respective
properties or assets (except, in the case of each of clauses (A) and
(B) above, for such violations, conflicts, breaches, defaults,
terminations, accelerations or creations of Encumbrances which, or any
consents, approvals or notices which if not given or received, would
not have any Material Adverse Effect on the Ultima Parties, or
significantly impede the ability of the Ultima Parties to consummate
the Special Distribution or the Acquisition and Redemption
Transaction); or (C) cause the suspension or revocation of any
authorization, consent, approval or license currently in effect which
would have a Material Adverse Effect on the Ultima Parties; and
(ii) other than in connection with or in compliance with the provisions of
applicable Laws, and except for the requisite approval of Ultima
Unitholders, (A) there is no legal impediment to the Ultima Parties'
consummation of the Special Distribution or the Acquisition and
Redemption Transaction, and (B) no filing or registration with, or
authorization, consent or approval of, any domestic or foreign public
body or authority is required of the Ultima Parties in connection with
the consummation of the Special Distribution or the Acquisition and
Redemption Transaction, 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
the Ultima Parties, or significantly impede the ability of the Ultima
Parties to consummate the Special Distribution or the Acquisition and
Redemption Transaction.
(e) Litigation. Except as disclosed in the Ultima Disclosure Letter, there are
no actions, suits or proceedings pending or, to the knowledge of Ultima and
Ultima Co, threatened affecting the Ultima Parties or affecting the Ultima
Assets or assets at law or equity or before or by any court or Governmental
Entity which action, suit or proceeding involves a possibility of any judgment
against or liability of the Ultima Parties which, if successful, would have a
Material Adverse Effect on the Ultima Parties, or would significantly impede the
ability of the Ultima Parties to consummate the Acquisition and Redemption
Transaction.
(f) Taxes, etc. Except as disclosed in the Ultima Disclosure Letter:
(i) all Tax Returns required to be filed by or on behalf of any Ultima
Parties have been duly filed on a timely basis and such tax returns
are correct in all material respects. All Taxes shown to be payable on
the Tax Returns or on subsequent assessments with respect thereto have
been paid in full on a timely basis, and no other Taxes are payable by
any Ultima Parties with respect to items or periods covered by such
Tax Returns;
(ii) Ultima has paid or provided adequate accruals in its consolidated
financial statements for the period from inception to December 31,
2003 for Taxes, including income taxes and related future taxes, if
applicable, for such periods, in conformity with GAAP and written
advice from Ultima's independent auditors;
(iii)for all periods ended on and after December 31, 2002, Petrofund has
been furnished by Ultima true and complete copies of: (A) material
portions of income tax audit reports, statement of deficiencies,
closing or other agreements received by any Ultima Party or on
-C-3-
behalf of any Ultima Party relating to the Taxes; and (B) any material
federal, provincial, state, local or foreign income or franchise tax
returns for each Ultima Party;
(iv) no material deficiencies exist or have been asserted with respect to
Taxes of Ultima or any of its Subsidiaries;
(v) none of Ultima or its Material Subsidiaries is a party to any action
or proceeding for assessment or collection of Taxes, nor, to the
knowledge of Ultima and Ultima Co, has such event been asserted or
threatened against Ultima or its Material Subsidiaries or any of their
respective assets which would have a Material Adverse Effect on the
Ultima Parties. No waiver or extension of any statute of limitations
is in effect with respect to Taxes or Tax Returns of Ultima or its
Material Subsidiaries. No audit by tax authorities of Ultima or its
Material Subsidiaries is in process or pending or, to the knowledge of
Ultima and Ultima Co, threatened; and
(vi) Ultima has provided adequate accruals in its consolidated financial
statements for the year ended December 31, 2003 (or such amounts are
fully funded) for all employee benefit obligations of Ultima 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 Ultima or its Subsidiaries.
(g) Reporting Issuer Status. Ultima is a reporting issuer (where such concept
exists) in all provinces of Canada and is in material compliance with all
applicable securities Laws therein and the Ultima Units are listed and posted
for trading on the TSX.
(h) Capitalization. As of the date hereof, the authorized capital of Ultima
consists of an unlimited number of Ultima Units. As of the date hereof there are
issued and outstanding 57,772,971 Ultima Units and 1,959,673 Ultima Units
issuable pursuant to the Ultima TURIP and Ultima Units having a value of
$500,000 pursuant to the Ultima Employment Agreements. Other than Ultima Units
issuable pursuant to the Ultima TURIP and the Ultima Employment Agreements,
there are no options, warrants or other rights, agreements or commitments of any
character whatsoever requiring the issuance, sale or transfer by Ultima of any
securities of Ultima (including Ultima Units) or any securities convertible
into, or exchangeable or exercisable for, or otherwise evidencing a right to
acquire, any securities of Ultima (including Ultima Units). All outstanding
Ultima Units 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 Ultima Units issuable upon exercise of Ultima Rights
pursuant to the Ultima TURIP in accordance with their respective terms will be
duly authorized and validly issued as fully paid and non-assessable and will not
be subject to any pre-emptive rights.
(i) Ownership of Subsidiaries. As of the date hereof, Ultima is the owner of
all of the outstanding shares and trust units, as applicable, of the Ultima
Parties (other than Ultima) with good title thereto free and clear of any and
all Encumbrances except as noted in the Ultima Disclosure Letter. There are no
options, warrants or other rights, shareholder rights plans, agreements or
commitments of any character whatsoever requiring the issuance, sale or transfer
by any of the Ultima Parties (other than Ultima) of any securities of the Ultima
Parties (other than Ultima) or any securities convertible into, or exchangeable
or exercisable for, or otherwise evidencing a right to acquire, any securities
of any of the Ultima Parties (other than Ultima). All outstanding securities of
the Ultima Parties (other than Ultima) 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.
-C-4-
(j) No Orders. No order, ruling or determination having the effect of
suspending the sale of, or ceasing the trading of, the Ultima Units or any other
securities of Ultima has been issued by any regulatory authority and is
continuing in effect and no proceedings for that purpose have been instituted,
are pending or, to the knowledge of Ultima and Ultima Co, are contemplated or
threatened under any applicable Laws or by any other regulatory authority.
(k) Material Agreements. There are no agreements material to the conduct of
Ultima Parties' businesses except for those agreements, other than those
disclosed in the Ultima Disclosure Letter or those entered into in the ordinary
course of business and all such material agreements are valid and subsisting and
the Ultima Party that is a party thereto is not in material default under any
such agreements. Without limitation, the Ultima Disclosure Letter contains a
complete list of all contracts and commitments with any director, officer or
employee of any Ultima Party or any associates or affiliates.
(l) Filings. Ultima has filed all documents required to be filed by it with all
applicable Governmental Entities and all such documents were, as of their
respective dates, in compliance in all material respects with all applicable
Laws and at the time filed 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. Ultima Co will deliver to Petrofund Co, as soon as
they become available, true and complete copies of any material reports or
statements required to be filed by Ultima with any Governmental Entity
subsequent to the date hereof. As of their respective dates, such reports and
statements (excluding any information therein provided by the Petrofund Parties,
as to which Ultima and Ultima Co make no representation) 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 in which they are made, not misleading and will comply in all
material respects with all applicable Laws.
(m) No Material Adverse Change. Since January 1, 2004, other than as publicly
disclosed, (i) the Ultima Parties have conducted their respective businesses
only in the ordinary and normal course, (ii) no liability or obligation of any
nature (whether absolute, accrued, contingent or otherwise) material to Ultima,
taken as a whole, has been incurred other than in the ordinary course of
business, and (iii) there has not been any Material Adverse Change in respect of
the Ultima Parties.
(n) Books and Records. The records and minute books of the Ultima Parties have
been maintained substantially in accordance with all applicable Laws and are
complete and accurate in all material respects.
(o) Reports. As of their respective dates, (i) Ultima's consolidated audited
financial statements as at and for the fiscal year ended December 31, 2003 (the
"Ultima Financial Statements"), (ii) Ultima's Renewal Annual Information Form
dated May 7, 2003 (including all documents incorporated by reference therein),
(iii) Ultima's Proxy Statement and Information Circular dated April 24, 2003,
(iv) all Ultima press releases and material change reports or similar documents
filed with the Canadian Securities Administrators since January 1, 2003, and (v)
all prospectuses or other offering documents used by Ultima in the offering of
its securities or filed with the Canadian Securities Administrators since
January 1, 2003, 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 in which they were made, not
misleading and complied in all material respects with all applicable Laws. The
Ultima Financial Statements and other financial statements of Ultima included or
incorporated by reference in such forms, statements, prospectuses and other
offering documents were prepared in accordance with GAAP (except (x) as
otherwise indicated in such financial statements and the notes thereto or, in
the case of audited statements, in the related report of Ultima's independent
auditors or (y) in the case of unaudited interim statements, to the extent they
may not include footnotes, are subject to normal year end
-C-5-
adjustments or may be condensed or summary statements), and fairly in accordance
with GAAP present the consolidated financial position, results of operations and
changes in financial position of Ultima as of the dates thereof and for the
periods indicated therein (subject, in the case of any unaudited interim
financial statements, to normal year-end audit adjustments) and reflect
appropriate and adequate reserves in respect of contingent liabilities, if any,
of Ultima on a consolidated basis. There has been no change in Ultima accounting
policies, except as described in the notes to the Ultima Financial Statements,
since January 1, 2004.
(p) Absence of Undisclosed Liabilities. The Ultima Parties have no material
obligations or liabilities of any nature (matured or unmatured, fixed or
contingent), other than:
(i) those set forth or adequately provided for in the balance sheet and
associated notes thereto included in the Ultima Financial Statements
(the "Ultima Balance Sheet");
(ii) those incurred in the ordinary course of business and not required to
be set forth in the Ultima Balance Sheet under GAAP;
(iii)those incurred in the ordinary course of business since the date of
the Ultima Balance Sheet and consistent with past practice;
(iv) those incurred in connection with the execution of this Agreement; and
(v) those disclosed in the Ultima Disclosure Letter.
(q) Environmental. All operations of the Ultima Parties have been and are now
being conducted in compliance with all applicable Environmental Laws, except
where the failure to be in compliance would not have a Material Adverse Effect
on the Ultima Parties, taken as a whole. The Ultima Parties are not subject to
nor are Ultima or Ultima Co aware of:
(i) any proceeding, application, order or directive which relates to
environmental, health or safety matters, and which may require any
material work, repairs, construction, or expenditures; or
(ii) other than as set out in the Ultima Disclosure Letter, any demand or
notice with respect to the breach of any Environmental Laws applicable
to the Ultima Parties, including, without limitation, any regulations
respecting the use, storage, treatment, transportation, or disposition
of any Hazardous Substances which would have a Material Adverse Effect
on the Ultima Parties.
(r) Property. The Ultima Parties have good and sufficient title to their real
property interests including, without limitation, fee simple estate of and in
real property, leases, easements, rights of way, permits, leases or licences
from landowners or authorities permitting the use of land and the extraction of
hydrocarbons therefrom by the Ultima Parties, necessary to permit the operation
of its businesses, as presently owned and conducted, except for such failure of
title as would not have a Material Adverse Effect on the Ultima Parties.
-C-6-
(s) Licences. Except as disclosed publicly, each of the Ultima Parties has
obtained and is in compliance with all licences, permits, certificates,
consents, orders, grants and other authorizations of or from any Governmental
Entity necessary to conduct its businesses as they are now being or are proposed
to be conducted, other than such permissions the absence of which would not have
a Material Adverse Effect on the Ultima Parties.
(t) Compliance with Laws. Each of the Ultima Parties has complied with and is
in compliance with all Laws applicable to the operation of its business, except
where such non-compliance would not have a Material Adverse Effect on the
business, affairs, operations, assets, prospects or financial condition of the
Ultima Parties or on the ability of the Ultima Parties to consummate the Special
Distribution and the Acquisition and Redemption Transaction.
(u) Long Term and Derivative Transactions. Except as disclosed in the Ultima
Disclosure Letter and except as permitted by Section 6.1, none of the Ultima
Parties have any obligations or liabilities, direct or indirect, vested or
contingent in respect of any rate swap transactions, basis swaps, forward rate
transactions, commodity swaps, commodity options, equity or equity index swaps,
equity or equity index options, bond options, interest rate options, foreign
exchange transactions, cap transactions, floor transactions, collar
transactions, currency swap transactions, cross-currency rate swap transactions,
currency options, production sales transactions having terms greater than 90
days or any other similar transactions (including any option with respect to any
of such transactions) or any combination of such transactions.
(v) Fairness Opinion. Ultima Co's board of directors has received a verbal
opinion as of March 28, 2004 (and have been advised that they will receive a
written opinion) from CIBC World Markets Inc. that the consideration to be
received by Ultima Unitholders in connection with the Special Distribution and
Acquisition and Redemption Transaction is fair, from a financial point of view,
to the Ultima Unitholders.
(w) Employee Benefit Plans. All employee benefits plans covering active, former
or retired employees of the Ultima Parties are listed in the Ultima Disclosure
Letter (the "Ultima Plans"). Ultima will make available to Petrofund Co true,
complete and correct copies of each Ultima Plan, any related trust agreement,
annuity or insurance contract or other funding vehicle, and: (i) each Ultima
Plan has been maintained and administered in material compliance with its terms
and is, to the extent required by applicable Law or contract, fully funded
without having any deficit or unfunded actuarial liability or adequate provision
has been made therefor; (ii) all required employer contributions under any such
plans have been made and the applicable funds have been funded in accordance
with the terms thereof; (iii) each Ultima Plan that is required or intended to
be qualified under applicable law or registered or approved by a governmental
agency or authority has been so qualified, registered or approved by the
appropriate governmental agency or authority, and nothing has occurred since the
date of the last qualification, registration or approval to adversely affect, or
cause, the appropriate governmental agency or authority to revoke such
qualification, registration or approval; (iv) to the knowledge of Ultima and
Ultima Co, there are no pending or anticipated material claims against or
otherwise involving any of the Ultima Plans and no suit, action or other
litigation (excluding claims for benefits incurred in the ordinary course of
Ultima Plan activities) has been brought against or with respect to any Ultima
Plan; (v) all material contributions, reserves or premium payments required to
be made to the Ultima Plans have been made or provided for; and (vi) no Ultima
Party has any material obligations for retiree health and life benefits under
any Ultima Plan.
(x) Insurance. Policies of insurance are in force as of the date hereof naming
an Ultima Party as an insured which adequately cover all risks as are
customarily covered by oil and gas producers in the industry in which the Ultima
Parties operate. All such policies shall remain in force and effect and shall
not be canceled or otherwise terminated as a result of the transactions
contemplated by this Agreement.
(y) Indebtedness To and By Officers, Directors and Others. None of the Ultima
Parties is indebted to any of the directors, officers, employees or consultants
or any of their respective associates or affiliates or other parties not at
arm's length to any Ultima Party, except for amounts due as normal compensation
or reimbursement of ordinary business expenses from the previous 60 days, nor is
there any indebtedness owing by any such parties to any of the Ultima Parties.
-C-7-
(z) No Limitation. Except as set forth in the Ultima Disclosure Letter, there
is no non-competition, exclusivity or other similar agreement, commitment or
understanding in place to which any Ultima Party is a party or by which it is
otherwise bound that would now or hereafter in any way limit the business or
operations of any Ultima Party in a particular manner or to a particular
locality or geographic region or for a limited period of time and the execution,
delivery and performance of this Agreement does not and will not result in the
restriction of any Ultima Party from engaging in this business or from competing
with any person or in any geographic area.
(aa) No Shareholder Rights Plan. Ultima is not a party to and prior to the
Closing Date will not implement, a shareholder rights plan or any other form of
plan, agreement, contract or instrument that will trigger any rights to acquire
Ultima Units or other securities of Ultima or rights, entitlements or privileges
in favour of any person upon the entering into of this Agreement or the
consummation of the transactions contemplated hereby.
(bb) Guarantees and Indemnification. No Ultima Party is a party to or bound by
any agreement of guarantee, indemnification (other than an indemnification of
directors and officers in accordance with the by-laws of the respective
corporation or applicable laws and other than standard indemnity agreements in
underwriting and agency agreements) or any like commitment in respect of the
obligations, liabilities (contingent or otherwise) of indebtedness of any other
person, other than guarantees of obligations among the Ultima Parties.
(cc) Information to Independent Engineer. Ultima has provided to McDaniel &
Associates Consultants Ltd. and Gilbert Laustsen Jung Associates Ltd. all
material information concerning land descriptions, well data, facilities and
infrastructure, ownership and operations, future development plans and
historical technical and operating data respecting the principal oil and gas
assets of the Ultima Parties, in each case as at December 31, 2003, and, in
particular, all material information respecting the Ultima Parties' interest in
their principal oil and gas assets and royalty burdens and net profits interest
burdens thereon and such information was accurate and correct in all material
respects as at the respective date thereof and did not omit any information
necessary to make any such information provided not misleading as at the
respective dates thereof and there has been no material adverse change in any of
the material information so provided since the date thereof.
(dd) No Insider Rights. No director, officer, insider or other party not at
arm's length to any Ultima Party has any right, title or interest in (or the
right to acquire any right, title or interest in) any royalty interest,
participation interest or any other interest whatsoever, in any properties of
any Ultima Party.
(ee) Disclosure. The data and information in respect of the Ultima Parties and
their respective assets, reserves, liabilities, businesses, affairs and
operations provided by or on behalf of Ultima to or on behalf of Petrofund was
and is accurate and correct in all material respects as at the respective dates
thereof 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.
(ff) Debt and Working Capital. As at January 31, 2004, Ultima's consolidated
indebtedness does not exceed $73,000,000 and its working capital deficiency is
not greater than $10,500,000.
(gg) Production. For the month of February 2004, the Ultima Parties' production
was not less than 9,750 boe/d.
-C-8-
(hh) No Defaults under Leases and Agreements.
(i) No Ultima Party has received notice of any default under any of the
leases and other title and operating documents or any other agreement
or instrument pertaining to the Ultima Parties' oil and gas assets to
which an Ultima Party is a party or by or to which any Ultima Party or
any such assets are bound or subject except to the extent that such
defaults would not in the aggregate have a Material Adverse Effect.
(ii) To their knowledge:
(A) each of the Ultima Parties is in good standing under all, and is
not in default under any; and
(B) there is no existing condition, circumstance or matter which
constitutes or which, with the passage of time or the giving of
notice, would constitute a default under any,
leases and other title and operating documents or any other agreements
and instruments pertaining to its oil and gas assets to which it is a
party or by or to which it or such assets are bound or subject and, to
their knowledge, all such leases, title and operating documents and
other agreements and instruments are in good standing and in full
force and effect and none of the counterparties to such leases, title
and operating documents and other agreements and instruments is in
default thereunder except to the extent that such defaults would not
in the aggregate have a Material Adverse Effect.
(ii) No Encumbrances. None of the Ultima Parties has encumbered or alienated its
interest in the Ultima Parties' oil and gas assets or agreed to do so and such
assets are free and clear of all Encumbrances except for or pursuant to
Encumbrances disclosed in the Public Record, any governmental registry
(including the personal property registry in British Columbia, Alberta or
Saskatchewan) or those arising in the ordinary course of business, which are not
material in the aggregate or listed in the Ultima Disclosure Letter.
(jj) No Reduction of Interests. None of the Ultima Parties' oil and gas assets
are subject to reduction by reference to payout of or production penalty on any
well or otherwise or to change to an interest of any other size or nature by
virtue of or through any right or interest granted by, through or under a Ultima
Party except to the extent that such reduction or change to an interest would
not in the aggregate have a Material Adverse Effect.
(kk) Royalties, Rentals and Taxes Paid. All royalties and rentals payable on or
before the date hereof under the leases and other title and operating documents
pertaining to the Ultima Parties' oil and gas assets and all ad valorem,
property, production, severance and similar taxes and assessments based upon or
measured by the ownership of such assets or the production of petroleum
substances derived therefrom or allocated thereto or the proceeds of sales
thereof payable on or before the date hereof have been properly paid in full and
in a timely manner.
(ll) Production Allowables and Production Penalties.
(i) None of the wells in which any of the Ultima Parties holds an interest
has been produced in excess of applicable production allowables
imposed by any applicable law or any governmental authority and none
of the Ultima Parties has any knowledge of any impending change in
production allowables imposed by any applicable law or any
-C-9-
governmental authority that may be applicable to any of the wells in
which any of them holds an interest, other than changes of general
application in the jurisdiction in which such wells are situate.
(ii) None of the Ultima Parties has received notice of any production
penalty or similar production restriction of any nature imposed or to
be imposed by any governmental authority, including gas-oil ratio,
off-target and overproduction penalties imposed by the Alberta Energy
and Utilities Board, and, to their knowledge, none of the wells in
which any of them holds an interest is subject to any such penalty or
restriction.
(mm) Operation and Condition of Wells. All wells in which any of the Ultima
Parties holds an interest:
(i) for which any of the Ultima Parties was or is operator, were or have
been drilled and, if and as applicable, completed, operated and
abandoned in accordance with good and prudent oil and gas industry
practices in Canada and all applicable Law; and
(ii) for which none of the Ultima Parties was or is operator, to their
knowledge, were or have been drilled and, if and as applicable,
completed, operated and abandoned in accordance with good and prudent
oil and gas industry practices in Canada and all applicable Law.
(nn) Operation and Condition of Tangibles. The Ultima Parties' tangible
depreciable property used or intended for use in connection with their oil and
gas assets:
(i) for which any of the Ultima Parties was or is operator, was or has
been constructed, operated and maintained in accordance with good and
prudent oil and gas industry practices in Canada and all applicable
Law during all periods in which an Ultima Party was operator thereof
and is in good condition and repair, ordinary wear and tear excepted,
and is useable in the ordinary course of business; and
(ii) for which none of the Ultima Parties was or is operator, to their
knowledge, was or has been constructed, operated and maintained in
accordance with good and prudent oil and gas industry practices in
Canada and all applicable Law during all periods in which none of the
Ultima Parties was operator thereof and is in good condition and
repair, ordinary wear and tear excepted, and is useable in the
ordinary course of business.
(oo) Outstanding AFEs. There are no outstanding authorizations for expenditure
pertaining to any of the Ultima Parties' oil and gas assets or any other
commitments, approvals or authorizations pursuant to which an expenditure may be
required to be made in respect of such assets after the date of the most recent
Ultima Financial Statements other than those listed in the Ultima Disclosure
Letter.
(pp) Brokers and Finders. The Ultima Parties have not retained nor will they
retain any financial advisor, broker, agent or finder or pay, or agree 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 CIBC World Markets Inc. which has been retained as Ultima
Co's financial advisor in connection with certain matters including the
transactions contemplated hereby. The total obligation of the Ultima Parties to
such financial advisor is set forth in the Ultima Disclosure Letter. After the
payment of the financial obligations to CIBC World Markets Inc. as set forth in
the Ultima Disclosure Letter, the Ultima Parties will not have any continuing
obligations to CIBC World Markets Inc. other than those related to
indemnification, confidentiality and the payment of expenses.
-C-10-
(qq) Officer Obligations. The obligations of the Ultima Parties to its officers
set forth in the Ultima Disclosure Letter for retention and for severance or
termination payments in connection with a termination of employment or change of
control of Ultima pursuant to any written agreements do not exceed an aggregate
of $2,102,292.
(rr) Confidentiality Agreements. All agreements entered into by Ultima with
persons other than Petrofund regarding the confidentiality of information
provided to such persons or reviewed by such persons with respect to the sale of
Ultima or a substantial portion of its assets or any other business combination
or similar transaction with another party are in substantially the form of the
Confidentiality Agreement and Ultima has not waived the standstill or other
provisions of any of such agreements.
(ss) Outstanding Acquisitions. The Ultima Parties have no rights to purchase
assets, properties or undertakings of third parties with a value in excess of
$1,000,000, in aggregate, under any agreements to purchase that have not closed.
(tt) Place of Principal Offices. The principal offices of the Ultima Parties
are not located within the United States.
(uu) Location of Assets and U.S. Sales. The Ultima Assets are located outside
the United States and did not generate sales in or into the United States
exceeding US$50 million during Ultima's most recent fiscal year.
(vv) Foreign Private Issuer. Ultima is a "foreign private issuer" within the
meaning of Rule 405 of Regulation C adopted by the SEC under the U.S. Securities
Act.
(ww) Registration of Ultima Units. The Ultima Units are not a class of security
that is registered pursuant to Section 12 of the Exchange Act.
(xx) U.S. Holders. As of the date hereof, and as of the date 30 days prior to
the commencement of the solicitation of Ultima Unitholders in respect of the
Special Distribution and the Acquisition and Redemption Transaction, less than
10% of the holders of the then outstanding Ultima Units are and shall be
resident in the United States, as determined pursuant to Rule 800(h) under the
U.S. Securities Act.
Schedule "D"
Representations of the Petrofund Parties
Petrofund and Petrofund Co hereby jointly and severally represent and warrant to
Ultima and Ultima Co as follows:
(a) Organization and Qualification. Petrofund is a trust duly created and
validly existing under the laws of the Province of Ontario and has the requisite
power and authority to own its assets and to carry on its business as now
conducted and as proposed to be conducted. Each of the Petrofund Parties (other
than Petrofund) is a corporation duly incorporated or amalgamated and validly
existing under the laws of its jurisdiction of incorporation and has the
requisite corporate power and authority to own its assets as now owned and to
carry on its business as now conducted and as presently proposed to be
conducted. Each of the Petrofund Parties (other than Petrofund) is duly
registered to do business in each jurisdiction in which the character of its
assets, owned or leased, or the nature of its activities makes such registration
necessary, except where the failure to be so registered would not have a
Material Adverse Effect on the Petrofund Parties. Copies of the constating
documents of the Petrofund Parties provided to Ultima Co, together with all
amendments to date, are accurate and complete as of the date hereof and have not
been amended or superseded. Petrofund is a "mutual fund trust" for the purpose
of Section 132 of the Tax Act and the completion of the transactions
contemplated hereby will not adversely affect its status as a "mutual fund
trust". Petrofund Units do not constitute "foreign property" for the purposes of
Part XI of the Tax Act and the completion of the transactions contemplated
hereby will not result in the Petrofund Units constituting foreign property for
the purposes of Part XI of the Tax Act.
(b) Authority Relative this Agreement. Each of Petrofund and Petrofund Co 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 Petrofund and Petrofund Co of the Acquisition and Redemption
Transaction have been duly authorized by the Petrofund Co Board and, in the
event that either the TSX or the AMEX requires or if the Petrofund Trust
Indenture requires Petrofund Unitholders to approve the Acquisition and
Redemption Transaction, subject to the requisite approval of the Petrofund
Unitholders, no other proceedings on the part of Petrofund or Petrofund Co are
necessary to authorize this Agreement or the Acquisition and Redemption
Transaction. This Agreement has been duly executed and delivered by each of
Petrofund and Petrofund Co and constitutes a legal, valid and binding obligation
of each of Petrofund and Petrofund Co enforceable against them in accordance
with its terms, subject to the qualification that such enforceability may be
limited by bankruptcy, insolvency, reorganization or other laws of general
application relating to or affecting rights of creditors and that equitable
remedies, including specific performance, are discretionary and may not be
ordered.
(c) Subsidiaries. Neither Petrofund nor Petrofund Co has any subsidiaries
(other than Petrofund Co in respect of Petrofund) which are material to its
business, operation or financial condition.
(d) No Violations. Except as disclosed in the Petrofund Disclosure Letter or
contemplated by this Agreement:
(i) neither the execution and delivery of this Agreement by Petrofund and
Petrofund Co nor the consummation of the Acquisition and Redemption
Transaction nor compliance by the Petrofund Parties with any of the
provisions hereof will: (A) violate, conflict with, or result in a
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 the creation
of any Encumbrance upon any of the properties or assets of the
Petrofund
-D-2-
Parties or cause any indebtedness to come due before its stated
maturity or cause any credit to cease to be available, under any of
the terms, conditions or provisions of (1) the Petrofund Trust
Indenture or Petrofund Co's articles or by-laws or shareholder
agreements, or (2) any material note, bond, mortgage, indenture, loan
agreement, deed of trust, agreement, lien, contract or other
instrument or obligation to which a Petrofund Party is a party or to
which any of them, or any of their respective properties or assets,
may be subject or by which a Petrofund Party is bound; or (B) subject
to compliance with applicable statutes and regulations, violate any
judgment, ruling, order, writ, injunction, determination, award,
decree, statute, ordinance, rule or regulation applicable to the
Petrofund Parties or any of their respective properties or assets
(except, in the case of each of clauses (A) and (B) above, for such
violations, conflicts, breaches, defaults, terminations, accelerations
or creations of Encumbrances which, or any consents, approvals or
notices which if not given or received, would not have any Material
Adverse Effect on the Petrofund Parties, or significantly impede the
ability of the Petrofund Parties to consummate the Acquisition and
Redemption Transaction); or (C) cause the suspension or revocation of
any authorization, consent, approval or license currently in effect
which would have a Material Adverse Effect on the Petrofund Parties;
and
(ii) other than in connection with or in compliance with the provisions of
applicable Laws, and except for the requisite approval of Petrofund
Unitholders, (A) there is no legal impediment to the Petrofund
Parties' consummation of the Acquisition and Redemption Transaction,
and (B) no filing or registration with, or authorization, consent or
approval of, any domestic or foreign public body or authority is
required of the Petrofund Parties in connection with the consummation
of the Acquisition and Redemption Transaction, 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 the Petrofund Parties, or significantly
impede the ability of the Petrofund Parties to consummate the
Acquisition and Redemption Transaction.
(e) Litigation. Except as disclosed in the Petrofund Disclosure Letter, there
are no actions, suits or proceedings pending or, to the knowledge of Petrofund
and Petrofund Co, threatened affecting the Petrofund Parties or affecting any of
their property or assets at law or equity or before or by any court or
Governmental Entity which action, suit or proceeding involves a possibility of
any judgment against or liability of the Petrofund Parties which, if successful,
would have a Material Adverse Effect on the Petrofund Parties, or would
significantly impede the ability of the Petrofund Parties to consummate the
Acquisition and Redemption Transaction.
(f) Taxes, etc.
(i) All Tax Returns required to be filed by or on behalf of any Petrofund
Parties have been duly filed on a timely basis and such tax returns
are correct in all material respects. All Taxes shown to be payable on
the Tax Returns or on subsequent assessments with respect thereto have
been paid in full on a timely basis, and no other Taxes are payable by
any Petrofund Parties with respect to items or periods covered by such
Tax Returns.
(ii) Petrofund has paid or provided adequate accruals in its consolidated
financial statements for the period from inception to December 31,
2003 for Taxes, including income taxes and related future taxes, if
applicable, for such periods, in conformity with GAAP and written
advice from Petrofund's independent auditors.
-D-3-
(iii)for all periods ended on and after December 31, 2001, Ultima has been
furnished by Petrofund true and complete copies of: (A) material
portions of income tax audit reports, statement of deficiencies,
closing or other agreements received by any Petrofund Party or on
behalf of any Petrofund Party relating to the Taxes; and (B) any
material federal, provincial, state, local or foreign income or
franchise tax returns for each Petrofund Party;
(iv) no material deficiencies exist or have been asserted with respect to
Taxes of Petrofund or any of its Subsidiaries.
(v) Neither Petrofund nor Petrofund Co is a party to any action or
proceeding for assessment or collection of Taxes, nor, to the
knowledge of Petrofund and Petrofund Co, has such event been asserted
or threatened against Petrofund or Petrofund Co or any of their
respective assets which would have a Material Adverse Effect on the
Petrofund Parties. No waiver or extension of any statute of
limitations is in effect with respect to Taxes or Tax Returns of
Petrofund or Petrofund Co. No audit by tax authorities of Petrofund or
Petrofund Co is in process or pending or, to the knowledge of
Petrofund or Petrofund Co, threatened.
(vi) Petrofund has provided adequate accruals in its consolidated financial
statements for the year ended December 31, 2003 (or such amounts are
fully funded) for all pension or other employee benefit obligations of
Petrofund and Petrofund Co 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 Petrofund and
Petrofund Co.
(g) Reporting Issuer Status. Petrofund is a reporting issuer (where such
concept exists) in all provinces and territories of Canada and is in material
compliance with all applicable securities Laws therein and the Petrofund Units
are listed and posted for trading on the TSX and the American Stock Exchange.
(h) Capitalization. As of the date hereof, the authorized capital of Petrofund
consists of an unlimited number of Petrofund Units. As of the date hereof there
are issued and outstanding approximately 72,750,000 Petrofund Units, 939,147
Petrofund Units issuable pursuant to outstanding exchangeable shares of
Petrofund Co and 745,456 Petrofund Units issuable pursuant to the Petrofund
Incentive Plans. Other than Petrofund Units issuable pursuant outstanding
exchangeable shares of Petrofund Co, the Petrofund Rights Plan, the Petrofund
DRIP, the Petrofund Incentive Plans and this Agreement, there are no options,
warrants or other rights, agreements or commitments of any character whatsoever
requiring the issuance, sale or transfer by Petrofund of any securities of
Petrofund (including Petrofund Units) or any securities convertible into, or
exchangeable or exercisable for, or otherwise evidencing a right to acquire, any
securities of Petrofund (including Petrofund Units). All outstanding Petrofund
Units 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 Petrofund Units issuable pursuant to outstanding
exchangeable shares of Petrofund Co, the Petrofund Rights Plan, the Petrofund
DRIP, upon exercise of Petrofund Rights pursuant to the Petrofund Incentive
Plans and this Agreement in accordance with their respective terms will be duly
authorized and validly issued as fully paid and non-assessable and will not be
subject to any pre-emptive rights.
(i) Payment Units. Petrofund has full power and authority to issue the
Petrofund Units as contemplated by this Agreement and, at the Time of Closing,
the Payment Units will be duly and validly authorized, allotted and reserved for
issuance and, upon receipt of consideration therefor, will be duly and validly
issued as fully paid and non-assessable.
-D-4-
(j) Ownership of Subsidiaries. As of the date hereof, Petrofund is the owner of
all of the outstanding shares of the Petrofund Parties (other than Petrofund)
with good title thereto free and clear of any and all Encumbrances except as
noted in the Petrofund Disclosure Letter. There are no options, warrants or
other rights, shareholder rights plans, agreements or commitments of any
character whatsoever requiring the issuance, sale or transfer by any of the
Petrofund Parties (other than Petrofund) of any securities of the Petrofund
Parties (other than Petrofund) or any securities convertible into, or
exchangeable or exercisable for, or otherwise evidencing a right to acquire, any
securities of any of the Petrofund Parties (other than Petrofund). All
outstanding shares of the Petrofund Parties (other than Petrofund) 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.
(k) No Orders. No order, ruling or determination having the effect of
suspending the sale of, or ceasing the trading of, the Petrofund Units or any
other securities of Petrofund has been issued by any regulatory authority and is
continuing in effect and no proceedings for that purpose have been instituted,
are pending or, to the knowledge of Petrofund and Petrofund Co, are contemplated
or threatened under any applicable Laws or by any other regulatory authority.
(l) Material Agreements. There are no agreements material to the conduct of
Petrofund and Petrofund Co businesses except for those agreements, other than
those disclosed in the Petrofund Disclosure Letter or those entered into in the
ordinary course of business and all such material agreements are valid and
subsisting and Petrofund or Petrofund Co, as applicable, is not in material
default under any such agreements.
(m) Filings. Petrofund has filed all documents required to be filed by it with
all applicable Governmental Entities and all such documents were, as of their
respective dates, in compliance in all material respects with all applicable
Laws and at the time filed 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. Petrofund Co will deliver to Ultima Co, as soon as
they become available, true and complete copies of any material reports or
statements required to be filed by Petrofund with any Governmental Entity
subsequent to the date hereof. As of their respective dates, such reports and
statements (excluding any information therein provided by the Ultima Parties, as
to which Petrofund and Petrofund Co make no representation) 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 in which they are made, not misleading and will comply in all
material respects with all applicable Laws.
(n) No Material Adverse Change. Since January 1, 2004, other than as publicly
disclosed, (i) the Petrofund Parties have conducted their respective businesses
only in the ordinary and normal course, (ii) no liability or obligation of any
nature (whether absolute, accrued, contingent or otherwise) material to
Petrofund, taken as a whole, has been incurred other than in the ordinary course
of business, and (iii) there has not been any Material Adverse Change in respect
of the Petrofund Parties.
(o) Books and Records. The records and minute books of the Petrofund Parties
have been maintained substantially in accordance with all applicable Laws and
are complete and accurate in all material respects.
(p) Reports. As of their respective dates, (i) Petrofund's consolidated audited
financial statements as at and for the fiscal year ended December 31, 2003 (the
"Petrofund Financial Statements"), (ii) Petrofund's Renewal Annual Information
Form dated March 15, 2004 (including all documents incorporated by reference
therein), (iii) Petrofund's Proxy Statement and Information Circular dated
February 27, 2004, and (iv) all Petrofund press releases and material change
reports or similar documents
-D-5-
filed with the Canadian Securities Administrators since January 1, 2003, 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 in which they were made, not misleading and complied
in all material respects with all applicable Laws. The Petrofund Financial
Statements and other financial statements of Petrofund included or incorporated
by reference in such forms, statements, prospectuses and other offering
documents were prepared in accordance with GAAP (except (x) as otherwise
indicated in such financial statements and the notes thereto or, in the case of
audited statements, in the related report of Petrofund's independent auditors or
(y) in the case of unaudited interim statements, to the extent they may not
include footnotes, are subject to normal year end adjustments or may be
condensed or summary statements), and fairly in accordance with GAAP present the
consolidated financial position, results of operations and changes in financial
position of Petrofund and Petrofund Co as of the dates thereof and for the
periods indicated therein (subject, in the case of any unaudited interim
financial statements, to normal year-end audit adjustments) and reflect
appropriate and adequate reserves in respect of contingent liabilities, if any,
of Petrofund on a consolidated basis. There has been no change in Petrofund
accounting policies, except as described in the notes to the Petrofund Financial
Statements, since January 1, 2004.
(q) Absence of Undisclosed Liabilities. The Petrofund Parties have no material
obligations or liabilities of any nature (matured or unmatured, fixed or
contingent), other than:
(i) those set forth or adequately provided for in the balance sheet and
associated notes thereto included in the Petrofund Financial
Statements (the "Petrofund Balance Sheet");
(ii) those incurred in the ordinary course of business and not required to
be set forth in the Petrofund Balance Sheet under GAAP;
(iii) those incurred in the ordinary course of business since the date of
the Petrofund Balance Sheet and consistent with past practice; and
(iv) those incurred in connection with the execution of this Agreement.
(r) Environmental. All operations of the Petrofund Parties have been and are
now being conducted in compliance with all applicable Environmental Laws, except
where the failure to be in compliance would not have a Material Adverse Effect
on the Petrofund Parties, taken as a whole. The Petrofund Parties are not
subject to nor are Petrofund or Petrofund Co aware of:
(i) any proceeding, application, order or directive which relates to
environmental, health or safety matters, and which may require any
material work, repairs, construction, or expenditures; or
(ii) other than as set out in the Petrofund Disclosure Letter, any demand
or notice with respect to the breach of any Environmental Laws
applicable to the Petrofund Parties, including, without limitation,
any regulations respecting the use, storage, treatment,
transportation, or disposition of any Hazardous Substances which would
have a Material Adverse Effect on the Petrofund Parties.
(s) Property. The Petrofund Parties have good and sufficient title to their
real property interests including, without limitation, fee simple estate of and
in real property, leases, easements, rights of way, permits, leases or licences
from landowners or authorities permitting the use of land and the extraction of
hydrocarbons therefrom by the Petrofund Parties, necessary to permit the
operation of its businesses, as
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presently owned and conducted, except for such failure of title as would not
have a Material Adverse Effect on the Petrofund Parties.
(t) Licences. Except as disclosed publicly, each of the Petrofund Parties has
obtained and is in compliance with all licences, permits, certificates,
consents, orders, grants and other authorizations of or from any Governmental
Entity necessary to conduct its businesses as they are now being or are proposed
to be conducted, other than such permissions the absence of which would not have
a Material Adverse Effect on the Petrofund Parties.
(u) Compliance with Laws. Each of the Petrofund Parties has complied with and
is in compliance with all Laws applicable to the operation of its business,
except where such non-compliance would not have a Material Adverse Effect on the
business, affairs, operations, assets, prospects or financial condition of the
Petrofund Parties or on the ability of the Petrofund Parties to consummate the
Acquisition and Redemption Transaction.
(v) Fairness Opinion. Petrofund Co's board of directors has received a verbal
opinion as of March 26, 2004 (and have been advised that they will receive a
written opinion) from Scotia Capital Inc. that the consideration to be paid by
Petrofund to the Ultima Unitholders in connection with the Acquisition and
Redemption Transaction, taking into account the Special Distribution, is fair,
from a financial point of view, to the Petrofund Unitholders.
(w) Insurance. Policies of insurance are in force as of the date hereof naming
an Petrofund Party as an insured which adequately cover all risks as are
customarily covered by oil and gas producers in the industry in which the
Petrofund Parties operate. All such policies shall remain in force and effect
and shall not be canceled or otherwise terminated as a result of the
transactions contemplated by this Agreement.
(x) Information to Independent Engineer. Petrofund has provided to Gilbert
Laustsen Jung Associates Ltd. all material information concerning land
descriptions, well data, facilities and infrastructure, ownership and
operations, future development plans and historical technical and operating data
respecting the principal oil and gas assets of the Petrofund Parties, in each
case as at December 31, 2003, and, in particular, all material information
respecting the Petrofund Parties' interest in their principal oil and gas assets
and royalty burdens and net profits interest burdens thereon and such
information was accurate and correct in all material respects as at the
respective date thereof and did not omit any information necessary to make any
such information provided not misleading as at the respective dates thereof and
there has been no material adverse change in any of the material information so
provided since the date thereof.
(y) Disclosure. The data and information in respect of the Petrofund Parties
and their respective assets, reserves, liabilities, businesses, affairs and
operations provided by or on behalf of Petrofund to or on behalf of Ultima was
and is accurate and correct in all material respects as at the respective dates
thereof 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.
(z) No Defaults under Leases and Agreements.
(i) No Petrofund Party has received notice of any default under any of the
leases and other title and operating documents or any other agreement
or instrument pertaining to the Petrofund Parties' oil and gas assets
to which a Petrofund Party is a party or by or to which a Petrofund
Party or any such assets are bound or subject except to the extent
that such defaults would not in the aggregate have a Material Adverse
Effect.
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(ii) To their knowledge:
(A) each of the Petrofund Parties is in good standing under all, and
is not in default under any; and
(B) there is no existing condition, circumstance or matter which
constitutes or which, with the passage of time or the giving of
notice, would constitute a default under any,
leases and other title and operating documents or any other agreements
and instruments pertaining to its oil and gas assets to which it is a
party or by or to which it or such assets are bound or subject and, to
their knowledge, all such leases, title and operating documents and
other agreements and instruments are in good standing and in full
force and effect and none of the counterparties to such leases, title
and operating documents and other agreements and instruments is in
default thereunder except to the extent that such defaults would not
in the aggregate have a Material Adverse Effect.
(aa) No Encumbrances. None of the Petrofund Parties has encumbered or alienated
its interest in the Petrofund Parties' oil and gas assets or agreed to do so and
such assets are free and clear of all Encumbrances except for or pursuant to
Encumbrances disclosed in the Public Record, any governmental registry
(including the personal property registry in British Columbia, Alberta or
Saskatchewan) or those arising in the ordinary course of business, which are not
material in the aggregate or listed in the Petrofund Disclosure Letter.
(bb) No Reduction of Interests. None of the Petrofund Parties' oil and gas
assets are subject to reduction by reference to payout of or production penalty
on any well or otherwise or to change to an interest of any other size or nature
by virtue of or through any right or interest granted by, through or under a
Petrofund Party except to the extent that such reduction or change to an
interest would not in the aggregate have a Material Adverse Effect.
(cc) Royalties, Rentals and Taxes Paid. All royalties and rentals payable on or
before the date hereof under the leases and other title and operating documents
pertaining to the Petrofund Parties' oil and gas assets and all ad valorem,
property, production, severance and similar taxes and assessments based upon or
measured by the ownership of such assets or the production of petroleum
substances derived therefrom or allocated thereto or the proceeds of sales
thereof payable on or before the date hereof have been properly paid in full and
in a timely manner.
(dd) Production Allowables and Production Penalties.
(i) None of the wells in which any of the Petrofund Parties holds an
interest has been produced in excess of applicable production
allowables imposed by any applicable law or any governmental authority
and none of the Petrofund Parties has any knowledge of any impending
change in production allowables imposed by any applicable law or any
governmental authority that may be applicable to any of the wells in
which any of them holds an interest, other than changes of general
application in the jurisdiction in which such wells are situate.
(ii) None of the Petrofund Parties has received notice of any production
penalty or similar production restriction of any nature imposed or to
be imposed by any governmental authority, including gas-oil ratio,
off-target and overproduction penalties imposed by the
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Alberta Energy and Utilities Board, and, to their knowledge, none of
the wells in which any of them holds an interest is subject to any
such penalty or restriction.
(ee) Operation and Condition of Wells. All wells in which any of the Petrofund
Parties holds an interest:
(i) for which any of the Petrofund Parties was or is operator, were or
have been drilled and, if and as applicable, completed, operated and
abandoned in accordance with good and prudent oil and gas industry
practices in Canada and all applicable Law; and
(ii) for which none of the Petrofund Parties was or is operator, to their
knowledge, were or have been drilled and, if and as applicable,
completed, operated and abandoned in accordance with good and prudent
oil and gas industry practices in Canada and all applicable Law.
(ff) Operation and Condition of Tangibles. The Petrofund Parties' tangible
depreciable property used or intended for use in connection with their oil and
gas assets:
(i) for which any of the Petrofund Parties was or is operator, was or has
been constructed, operated and maintained in accordance with good and
prudent oil and gas industry practices in Canada and all applicable
Law during all periods in which a Petrofund Party was operator thereof
and is in good condition and repair, ordinary wear and tear excepted,
and is useable in the ordinary course of business; and
(ii) for which none of the Petrofund Parties was or is operator, to their
knowledge, was or has been constructed, operated and maintained in
accordance with good and prudent oil and gas industry practices in
Canada and all applicable Law during all periods in which none of the
Petrofund Parties was operator thereof and is in good condition and
repair, ordinary wear and tear excepted, and is useable in the
ordinary course of business.
(gg) Foreign Private Issuer. Petrofund is a "foreign private issuer" within the
meaning of Rule 405 of Regulation C adopted by the SEC under the U.S. Securities
Act.
(hh) Registration of Petrofund Units. The Petrofund Units are registered
pursuant to Section 12 of the Exchange Act. Petrofund is, and for the past 90
days has been, subject to the reporting requirements of Section 13 or 15(d) of
the Exchange Act. Petrofund has filed all reports required to be filed with the
SEC under Section 13 or 15(d) of the Exchange Act during the preceding 12
months.