. ,. ., 41J12SW9467 63.3175 ABERDEEN 010 9 ©c^r*. NO SECURITIES COMMISSION GR OTHER SIMILAR AUTHORITY IN C©iNADA, HAS IN AN^tfAY PASSED UPON THE MERITS OF THE SECURITIES OFFERED HEREUNDER, AND AN:^EPRESENTATION TO THE CONTRARY is AN OFFENSE. S. ? l 75 CAVALIER ENERGY INC. Suite 420, 120 Adelaide Street West Toronto, Ontario \
PROSPECTUS
COMMON SHARES (without par value)
MHW ISSUE: 1,000,000 Common Shares
CAVALIER ENERGY INC. {the "Company") offers 1,000,000 common shares {"Shares") consisting of 990,000 treasury shares and 10,000 shares donated for the benefit of the Company, through Rosmar Corporation Limited {"Rosmar") acting as Agent on its behalf. The Offering, which is to be by way of a distribution over-the-counter, will continue for a period {the "Offering Period") of 90 days from the earlier to be received of the date of acceptance for filing of this Prospectus by the Ontario Securities Commission and the Nova Scotia Securities Commission, until all of the 1,000,000 shares have been sold or until Rosinar exercises its guarantee as below set out, whichever shall first occur. None of the shares offered by the Company will be sold to the public at a price to net the Company less than $l per share. The costs of this issue are estimated not to exceed $35,000. In consideration for acting on behalf of the Company and the guarantee to provide the Company with at least the sum of $350,000, Rosmar will be paid a commission of 251 and selling expenses of 15% of the selling price of the shares sold pursuant to this Offering save that the fee so payable to Rosmar will, if necessary, be reduced so that in no case will the Company receive less than $1.00 with respect to each share sold by it. Sales of shares may also be made through other Registered Dealers appointed by Rosmar to act as sub-agents and who will be paid commissions by Rosmar out of commissions payable to it by the Company as above stated. Rosmar has agreed, following completion of the Offering Period, to purchase such number of shares of the Company so that the purchase price thereof when added to the monies received by the Company from the sale of its shares during the Offering Period, will, after payment of the fees to Rosmar as above referred to, equal the sum of ^350,000. The price to be paid by Rosmar for shares so purchased by it will b6 settled by Rost.ar but in any event will not be less than $1.00 per share or 75^ of the closing selling price for shares of the Company on the last day©of Offering Period, whichever is greater. Any chares so purchased by Rosmar from the Company may bc offered for sale over-the-counter in the Pro vinces of Ontario and Nova Scotia but at a price not exceeding the amount paid therefor plus 25%. The purpose of this issue is to provide funds for the construction of a gas processing plant to process gas reserves of the Company, gathering facilities for such plants, to drill further wells, to engage in further exploration for oil and gas and for the general expenses of the Company, all as detailed under "Use of Proceeds". THERE IS HO MARKET FOR SHARES OF THE COMPANY. THESE SECURITIES ARE SPECULATIVE. Particular reference should be made to the captions "History and Business", the various property sections thereunder, "Offering" and "Speculative Aspects."
Prospectus dated March 26th, 19 41J12SW9467 63.3175 ABERDEEN 0 10C Page
HISTORY AND BUSINESS ...... * l
OIL AND GAS PROPERTIES ...... 2 General ...... •...•••••••••••••••* 2 Reserves ...... '•••••••••••••••* 2 Acreage ...... ,...... -.... 3 Alberta ...... 6 Saskatchewan ...... ••.••••••••* 9 Royalty Interests ...... l0 Capped Wells ...... * H Producing Gas Wells ...... H Producing Oil Wells ...... •••••••••••* H Crude Oil and Natural Gas Production ...... 12 Daysland ...... ••••••••••••* 12 Title to Properties ...... 12 Andaman islands ...... 12 Phillipine Islands ...... 14
MINING PROPERTIES ...... 14 Aberdeen Additional Township ...... i *. * * 14 Benneweis Township Property ...... 15 Kootenay Lake ...... tt*...... 15
AGREEMENT WITH SYNGAS RECYCLING CORPORATION ...... 16
USE OP PROCEEDS ...... *. . i 8
OFFERING ...... 20
DESCRIPTION OF CAPITAL STOCK ...... 21 CAPITALIZATION ...... *. . * * * 2 i MANAGEMENT ...... * i...... 21
REMUNERATION OF MANAGEMENT ...... 23
PRINCIPAL SHAREHOLDERS ...... 2 4 ESCROWED SHARES ...... *..'* * 2 4 DIVIDENDS ...... *...... - ...... * 2 S AUDITORS ...... *...... * . i . . . .* 2 5 REGISTRAR AND TRANSFER AGENT ...... *...... o 2 5 PRIOR SALES OF SHARES ...... *'' 2 5 Private Placement ...... 26 PW)NS ...... , ...... 26
PRELIMINARY EXPENSES ...... , ...... 27 PROMOTER AND INTEREST OF MANAGEMENT AND OTHERS IN MATERIAL TRANSACTIONS ...... 27 SPECULATIVE ASPECTS ...... 28 MATERIAL CONTRACTS . ,...... 29 PURCHASER'S STATUTORY RIGHTS OF WITHDRAWAL AND RESCISSION ...... 30 AUDITORS REPORT ...... 31 ~ FINANCIAL STATEMT-.'VS ...... 32 SIGNATURE PAGE ...... 43
\\, s - l -
CAVALIER ENERGY INC.
HISTORY AND BUSINESS
The Company is the surviving Company resulting from a pooling of interests by way of amalgamation of Allied Roxana Minerals Ltd. ("Allied") a company incorporated under the laws of the Province of Albert-a, Embassy Petroleums Ltd. ("Embassy"), a company incorporated under the Canada Corporations Act, Dormark Oils Ltd. ("Dormark") a company incorporated under the laws of the Province of Saskatchewan and Safari Explorations Limited ("Safari") , a company incorporated under the laws of the Province of Ontario. Because of the differing jurisdictions of incorpor ation of each of the predecessor companies, it was necessary for each of Allied, Embassy and Dormark to sell their assets to 275053 Ontario Limited, 275054 Ontario Limited and 275055 Ontario Limited, Ontario corporations which had never before carried on business, incorporated for the sole purpose of ac quiring the same. The three purchasing Ontario Corporations subsequently amalgamated with Safari Explorations Limited and the four companies continue as one company under the name CAVALIER ENERGY INC. (the "Company"). Articles of Amalgamation effective February 25, 1974 were issued pursuant to the provisions of The Business Corporations Act (Ontario) to give effect to the Amal gamation Agreement. The business of the Company is to engage in the acquisition, exploration, Evaluation, development and operation of petroleum and natural gas and mines, mineral lands and deposits. The Head Office of the Company is located at Suite 420, 120 Adelaide Street Wes!:, Toronto, Ontario and the Calgary office is located at Suite 1800 Elveden House, 717-7th Avenue South West, Calgary, Alberta. The Company employs 8 persons on a full time basis at its Calgary office. The premises occupied by it are leased from British Pacific Building Limited and constitute approximately 3,000 square feet. The annual rental is S20,980.92 plus parking and maintenance and tax escalation. The lease expires on November 30, 1976 but may be renewed for a further five year term at a rental, terms and conditions to be mutually agreed upon. At its head office, the Company pays a monthly con tribution of $200 to D'Eldona Gold Mines Limited for rent. A number of the properties in which the Company holds varying interests as detailed below, have producing gas wells and oil wells, proven developed reserves, proven undeveloped reserves and probable reserves of natural gas "lid petroleum substances. Prior to the amalgamation above referred to, Allied, Embassy, Dormark and Safari shared participations in many of the same projects. In the majority of these projects, Allied was designated as the "Operator". Although a number of other companies also hold interests in such projects, the Company has substantial interests therein. - 2 -
OIL AND GAS PROPERTIES
General As of the .date of this Prospectus, tha Company held interests in Petroleum and Natural Gas Rights to 880,283 gross acres, amounting to 313,349 net acres of properties in Alberta, Saskatchewan, Nova Scotia and *:he North West Territories. As used in this Prospectus, the terra "Gross Acres" is dexi.^d as the total acreage in which the Company has an interest and the term "Net Acres" is defined as the total of the gross acreage in each parcel multiplied by the percentage interest owned therein by the Company. A report covering the estimated proven developed and probable additional reserves of crude oil, natural gas, natural gas liquids and sulphur of the Company as of December 31, 1973 has been prepared by McDaniel Consultants (1965) Ltd., independ ent petroleum reservoir Engineers, under the date of January 25, 1974. The full report of McDaniel Consultants (1965) Ltd. is available for inspection in the public files of the Ontario Securities Commission and is also available for inspection during normal business hours at the offices of the Company during the time the shares of the Company are in the course of distrib ution to the public. The total net proven and probable additional reserves of the Company and the present Worth value thereof (after deduc tion of all royalty and overriding royalty interests) determined as of December 31, 1973 by McDaniel Consultants (1965) Ltd. were estimated to be as follows:
Estimated Company Net Share Estimated Company of Remaining Reserves Share of Present as of December 31, 1973 Worth Value at 9% Barrels -Mmcf - Long Tons Discount Rate as Probable of December 31, Reserves Proven Additional Total 1973. g______
Crude Oil (bbls) 311,900 166,500 478,400 280,600 Natural Gas (mmcf) 64,280 24,310 88,590 5,967,600 Natural Gas Liquids (bbls) 6,900 1,200 8,100 7,100 Sulphur (It) 830 150 980 2,900
Total 6,258,200 - 3 -
(a) The Company's net share of proven remaining reserves was forecast to generate a future net revenue of $15,750,100 having a present worth value of $5,654,700 at nine ( 91) percent semi-annual discount rate. (b) These estimates of the Company's share ot net revenue do not necessarily reflect the amount which would be realized if the reserves were to be sold. ;
The unproven acreage interests of the Company were also evaluated by McDaniel Consultants (1965) Ltd. under date of January 25, 1974. The fair market value of such unproven acreage interests were estimated to be some $1,132,900 as of December 31, 1973.
A summary of the important oil and gas properties of the Company is set out below. Leases - Crown \. Reservations, Permits, and Freehold Area Licences (Acres)(1) (Acres) (2)—— Gross(3) Net (3) Net Leaseable(4) Gross (3) Net(3)
Alberta Calling Lake 21,120 8,126 4,063 Benjamin Creek 60,703 1,760(6) Whitalaw 12,160 12,160 Provost Viking Gas Unit No.2 7,676 6,142 West Provost 3,360 72(5) Lavoy 23,622 3,383 Vegreville 37,688 4,388 Flat Lake 14,400 14,400 Athabasca 23,520 6,892 6,400(5) Island Lake 11,520 2,310 1,155 Wander 92,160 29,133 14,617 Smith 3,840 1,920 - 4 -
Pelican Portage 190,080 92,194 46,097 35,200 18,880 Richdale 1,440 720 Virgo 1,280 38 Pleasant (10,880 1,008 504 ( 640 640 640(5) Prosperity 14,240 7,520 Gordondale 2,887 88 Ghost Pine 1,120 10(5) Jumping Pound ( 2,000 16| (5) ( 160 Wolf Creek 3,200 153
Saskatchewan Alsask 3,840 3,640 Marengo ( 4,320 4,000 { 1,280 1,280(5)
Milton 641 641 East Milton 7,824 3,634 Lloydminster 2,360 2,301
North West Territories Banks Island 157,156 32,866 16,433 Amund Ringnes (26,054 2,605 1,303 Island (26,054 2,605 1,303(5)
Nova Scotia Chedabucto Bay 34,560 13,295 6,647 Northumberland Strait 68,630 27,452 13,727 Notes (1) These interests confer upon the holder the right to conduct exploratory operations on the lands contained - 5 -
in the reservations, permits or licences. These inter ests are subject to the performance of certain minimum work obligations and/or the payment of fees or charges in order to retain the interests and to have the right to convert the interest to leases. The interests must be converted to leases if oil or gas '.s to be produced therefrom. (2) These interests confer upon the holder the right to explore for, drill for, produce and remove petroleum and natural gas trom the lands covered by the leases. Petroleum and natural gas leases obtained from provincial governments presently require varying rental payments (generally $l per acre per year) ;md varying royalties on production (from 5% to 25%). Leases obtained from freehold owners generally require rental payments of 51 per acre per year and royalties on production vary ing from 12-l,m to 15%. (3) The term "Gross Acres" is defined as the total acreage in which the Company has an interest and the term "Net Acres" is defined to mean the total acreage in each parcel multiplied by the percentage of the interest therein owned by the Company. Net acreage is based upon the percentage interest owned in the gross acreage without allowing for production payments or the provisions of certain agreements which may .entitle others to acquire an interest following drilling or other exploration. (4) In some instances, only a portion of the net acreage comprising some reservations, permits and licences can be converted to lease in accordance with the provisions contained therein, the resulting acreage capable of being converted to leases referred to as "Net Leaaeable". (5) The Company's interest in these properties is in the form of a gross overriding royalty. (6) The Company 1 " interest in these properties is in the form of a net carried interest. The terms "farm in" and "farm out" when used in the oil and gas industry mean rights given or received, by drilling an "earning well" or performing other work, to an interest in a property owned by another. For example, if the Company "farms in", it acquires the right to earn, by drilling an earning well or other specified exploration on that property, a specific per centage interest in all petroleum and natural gas products from that property. If the Company "farms out" a property, it grants similar rights to another company. - 6 -
ALBERTA Provost (Township 30, Ran gg 7 W4M) The Company has an 8(^ working interest in 7,678 gross acres in the Provost Viking Gas Unit No. 2 in the Provost area of central Alberta. The property has 2 producing wells, the gas being sold to TransCanada PipeLines Limited on the basis of 26C per 1,000 cubic feet before royalty and expenses and the oil is sold to Gibson Petroleums Limited en the basis of $5.835 per barrel before royalty and expenses.
Whitelaw (Townships 81 and 82, Ranges l and 2 W6M) The Company has a 100% interest in 12,160 gross acres in the Whitelaw area of northwestern Alberta. The property has l producing gas well and 2 capped wells. The gas at Whitelaw is sold to Northwestern Utilities Limited at a present price of 14.27-C per 1,000 cubic feet net to the Company after operating costs but such price is presently under negotiation, the new price to be retroactive effective as of November, 1973.
Lavoy (Townships 50, 51, 52 and 53, Ranges 13, H, 15 and 16 W4M) The Company has working interests ranging from 11. 1251 to 15i in 23,622 gross acres in the Lavoy area of Alberta. The property has 5 producing gas wells and 2 capped wells. The gas is under contract to TransCanada PipeLines Limited at *i price of 26C per 1,000 cubic feet before royalty and expenses. The gas is put through the facilities of the Alberta Gas Trunk Line. Four of the producing wells are now tied into the Ranfurly com pressor station partly owned by the Company, located next to the Alberta Gas Trunk Line facilities in section 32-50-13 W4M. The remaining producing well is tied into the Warwick South plant partly owned by the Company. The Company's land and wells are covered by certain agreements which allow for conversion of overriding royalties to working interests. Application has been made to unitize a portion of the lands in the Lavoy and Vegreville areas. The Company anticipates that such application will be successful and, if approved, will place 3 of its Vegreville wells and 5 of its Lavoy wells in the uni* and will participate to the extent of a IQ.43560% interest therein.
Vegreville (Townships 51,52 and 53, Ranges^ 13, 14, 15 and 16 W4M) The Company has working interests ranging from l6% to 201 in 37,688 gross acres in the Vegreville area of Alberta. The property has 6 capped wells and l producing we l?, and the gas is under contract to TransCanada PipeLines Limited at a price of 26* per 1,000 cubic feet before royalty and expenses. Of the 6 capped wells, 2 are tied into the Ranfurly compressor station partly owned by the Company and 4 wells are capped and not tied into production but it is planned that some of the other capped - 7 - kwells will go on production in late 1974 through the Waskwei plant, referred to under the caption "Use of Proceeds". The Company's land and wells are covered by certain agreements which allow for conversion of overriding royalties to working interests and the participation by joint venture participants in the pur chase anrt drilling of certain currently held lands or lands which may be acquired in the future,
Flat Lake (Township 66 and 67, Ranges 18 and 19 W4M) The Company has a 10(H working interest in 14,400 gross acres in the Flat Lake area of northeastern Alberta. The property j has 5 capped wells and is located approximately 8 miles from l the nearest gas pipe-line. The Company has contracted to deliver ' 5 million cubic feet per day to Pan-Alberta Gas Ltd. subject to Pan-Alberta obtaining export approval from the Provincial and Federal governments. The interest in these lands reverts to a 50% working interest after payout from production of all costs incurred-on the property.
Athabasca (Townships 65 and 66, Ranges 22, 23 and 24 W4M) The Company has a 57.5t working interest in 640 gross acres in the Athabasca area of Alberta on which is located l capped well. Siebens Oil Se Gas Limited has the right to elect to convert to a 50.Oi working interest after cost of the well has been recovered by the Company and its joint venture parti cipants, leaving the Company's interest at 28.75%. The Company also has a 57.5% working interest in 1,760 gross acres, a 28.75% working interest in 14,720 gross acres on which 2 capped wells are located and a 20% working interest plus a a.75% gross over riding royalty in 6,400 gross acres on which l capped well is located.
Prosperity (Townships 67 and 68, Ranges 19, 20 and 21 W4M) The Company has a 50% working interest in 4,640 gross acres and a 25% working interest in 1,600 gross acres in the Prosperity urea of northeastern Alberta. The Company also has a 100% working interest in 640 acres on which l capped well is located, a 50% working interest in 5,760 gross acres in which 2 capped wells are located and an 801 working interest in 1,600 gross acres in the area.
Pleasant (Township 69, Range 20 W4M) The Company has a 7.5% working interest in 3,200 gross acres in the Pleasant area of northeastern Alberta on which l capped well is located. It also owns a 1QI working interest in 7,680 gross acres and a gross overriding royalty of 1.23% on 640 acres on which is located l capped well. - 8 - Wander The Company has a 28.751 working interest in 79,680 gross acres on which is located l capped well, a 5(H working interest in 8,960 gross acres and a 57. 5i working interest in 3,520 gross acres on which are located 5 capped wells subject to a 15% royalty convertible to a 501 working interest after pay out of 4 capped wells located on the property reducing the Company's interest in these 4 capped wells to 28.75%. Pelican The Company has interests varying fxom 22.5% to 57.5% in 225,280 gross acres. The Company's interest is 25% to 57.5% in 25 capped wells, some of which have conversion privileges. The Company also has interests in 33,280 gross acres varying from 12.5% to 100%. For the purpose of maintaining its own records, the Company has applied its own designations to sub- areas within the Pelican area. Pelican i is situated within or adjoins an oil sands area and the Company and Sun Oil Company Limited, 805-8th Avenue S.W., Calgary, Alberta ("Sun"), pursuant to the provisions of memoranda dated January 7th, 1974, amended January 30th, 1974 and March 13th, 1974, propose the sale of all the Company's gas reserves in petroleum and natural gas reservations numbers 1568, 1570 and part of 1569 in the Pelican Area to Sun. The Company's interest in the properties forming the subject matter of the agreement ranges from a 25% to a 57.5% working interest. The Company has submitted an application to the Energy Resources Conservation Board of Alberta which must approve the agreement as a scheme to produce gas occurring within or immediately adjoining an oil sands area. Approval in principle has been obtained from the Board for the material parts of the property in question, subject to advertisement, objection and hearing. The Company has drilled a sufficient number of wells on the reservations to demonstrate a total deliverability from the lands of over 20 million cubic feet of gas per day. If the approval of the Energy Resources Conservation Board is received, Sun would pay for a minimum of 12 million cubic feet of gas per day from the 1st day of July, 1974 until the date for commence ment of gas deliveries and the Company would be committed to proceed in early 1975 with the installation of a gas gathering system on the reservations at an estimated total cost of approxi mately ?500,000, the Company's share thereof to be 50%. The price to be paid by Sun for gas from the property, payable on a monthly basis, would be 20* per 1,000 cubic feet from July l, until December 31, 1974. Commencing January l, 1975 the price would escalate by 1C per 1,000 cubic feet on January 1st of each year thereafter until January 1st, 1978. On January 1st, 1978 and the first day of January in each second year thereafter, the price to be paid by Sun would be subject to rodetermination by the parties and, in the event they could not agree, the samo would be submitted to arbitration. Sun has advanced the funds required, without interest, amounting to ^229,000, for the drilling of the wells necessary to demonstrate deliverability. By way of security for such advances, the Company is required to deliver to Sun a trust agreement covering the entire working interest of the Company in each section of land in which an obligation weM is located. - 9 - All advances made by Sun are deemed to be in account of minimum payments for gas produced and Sun is not required to wake any of such minimum payments until such advances have been recouped and would continue to hold the properties in trust for the Company until such time as such recoupment had been made, at wh '.eh time the properties would be returned to the Company without any additional payments being made. Sun would also pay to the Company an amount ^.qual to any Crown royalty in excess of 25%. Assuming that the Energy Resources Conservation Board grants its approval, the Company estimates that the sum of $229,000 advanced by Sun would be recouped by Sun by uid-October, 1974. Sun would be obligated to arrange for the installation of a pipe-line to the delivery point and the installation of all compression and central dehydration facilities necessary to take the gas into its system. On Pelican II, (which includes Athabasca and Wander) the Company has drilled 14 wells of which 6 wells were dry and have been abandoned and 9 were completed and capped as potential gas wells. Calling Lake (Township 73, Range 20 j*nd 21 W4H) The Company has earned a 72.375% working interest in I,280 gross acres on which there are 2 capped wells. These wells ha:'e conversion privileges. The Company also has a 37.5% working interest in 19,840 acres. Is land Lake (Township 67 and 68, Range 24 W4M) The Company owns a 37. 5i working interest in 800 gross acres on which there is a capped well subject to conver sion to an IS.75% working interest on 10,720 additional gross acres and has an option to earn an IB.75% working interest in II,520 additional acres. The Company has elected to drill an additional well to earn an IS.75% working interest in 5,760 acres of the 11,520 acres. The Company is presently negotiating an agreement to drill a well to earn a 1/3 interest in the spacing unit and a 1/6 interest in the balance of the lands totalling 3,840 acres which could be subject to conversion privileges. The Company proposes to offer Teck Corporation the right to take up a 25% interest because the lands are in an area of mutual interest. SASKATCHEWAN East Milton (Township 30, Range 26 and 27 W3M) The Company has varying working interests from 37.5% to 50% in 7,824 gross acres in the East Milton area of south western Saskatchewan on which are located 7 capped wells adjacent to a low pressure gas pipe-line system. The Company has a 50% working interest in l capped well and a 37.5% interest in 3 capped wells. It also is entitled to receive a 25% working interest in 3 other capped wells in the same area after 300% of the cost of the wells has Loen recovered from production. - 10 -
JMarengo (Township 28, Range 27 W3M) The Company has a 10(^ working interest in 4,320 gross acres on which 4 capped wells are located and a 5(H working interest in 640 gross acres on which l capped well is located. The Company has farmed out 1,280 acres to Saskatchewan Power Corporation and has retained a gross overriding royalty of 15% on gas and a sliding royalty of 5% to 154 on oil produced. Saskat chewan Power has drilled a well on the property and the results are an indicated potential gas well.
Lloydminster (Townships 48 and 49 , Ranges 26 and 27 W3M) The Company has a 100% working interest in 2,301 gross acres on which 12 producing oil wells are located and a 351 working interest in 20 gross acres on which l producing oil well is located. The 35% working interest on the same converts to a '.V* working interest after payout of the well. The Company also has' a 25% working interest in 20 gross acres on which 2 oil wells are located.
Royalty Interest The royalty rate on the Company's natural gas now in effect under Albe±ta Crown leases is 221 of the value of produc tion at the wellhead. Royalty rates applicable to the Company in freehold lease rights in Alberta and Saskatchewan ranges up to 25% of the value of production at the wellhead. In addition to royalties payable to the Alberta Government or to freeholders, in some cases the Company is also required to pay royalties of up to ie-2/3% based on the value of production at the well head, to prior owners of property rights. In computing the proceeds of production for royalty purposes, the lessee is permitted to deduct from the contract price the cost of gathering from the wellhead and of compressing, treating and transportation to the point of delivery. Royalty rat., on natural gas now in effect under Saskat chewan Crown leases are the greater of 8% of the sale value or fair value of not less than 1/2C per 1,000 cubic feet. On oil, a sliding scale is in effect and a mineral surcharge is also imposed. A gross overriding royalty on certain properties in the amount of 1151 is also payable to Paramount Oil fi Gas Ltd. of which company Robert M. Sinclair, a director and officer bf the Company, is also an officer and director, on the Value of production at wellhead. Mr- Clavton H. Riddell, Consultant to the Company, is the Pre**Vlanv and controlling shareholder of Paramount Oil and Gas L . and C.H. Riddell Coneultanta Ltd., as referred to under the caption "Promoters and Interest of Management and Others in Material Transactions". * * -li
^PRODUCTION The following are the producing and capped oil and gas wells of the Company. No. of Wells Subject to Capped Wells Gross Payout Net Area Whitelaw (Alberta) 2 2.0 Athabasca (Alberta 4 1 1.350 Flat Lake (Alberta) 5 5 5.0 Prosperity (Alberta) 3 2.0 Pleasant (Alberta) 2 .075 Pelican (Alberta) 25 17 12.825 Wander (Alberta) 6 5 3.1625 Vegreville (Alberta) 6 1 .84 Lavoy (Alberta) 2 .28135 East Milton (Saskatchewan) 6 4.5 Calling Lake (Alberta 2 2 1.4475 Island Lake (Alberta) 1 1 .3333
Producing Gas Wells Area Lavoy (Alberta) 5 .6770 Whitelaw (Alberta) 1 1.0 Provost (Alberta) 2 .60 Vegreville (Alberta) 1 .11
Producing Oil We11a Lloydminster (Saskatchewan) 15 12.85
Those wells listed under the "subject to payout" column above are subject to the right to convert to a SO'fc working interest - 12 - by the farmer after the farmee has recovered payout of all expenses of drilling and production.
Crude Oil and Natural Gas Production Following is the Company's net crude oil and natural gas production, after royalties, for the 5 calendar years ended Febru ary 28, 1973, together with 10 month period ended December 31, 1973. 10 month ____Year Ended February 28th-____ Period Ending 69 70 71 72 73' Dec. 31, 1973 Natural Gas (me f) Alberta 139,968 201,676 213,996 222,528 296,854 587,200 Crude Oil (Barrels) Alberta 544 4,221 6,052 6,259 5,681 4,070 Saskatchewan 30,100 39,051 39,556 52,707 35,113 34,300
Daysiand, Alberta The Company has negotiated a farmin at Daysland in the Province of Alberta to earn a 604 working interest in 640 acres subject to obtaining adjoining option lands. A well would be drilled in mid 1974 at an estimated cost of $45,000 and option wells may also be drilled.
Title to Properties The majority of the foregoing properties are held under Crown licence or lease from the Provinces involved. The Company believes that it has satisfactory title to its properties which are material to the use and conduct of the Company's business. The practice of the industry, employed by the Company, is usually to make no independent investigation of title acquired to non- producing property interests until such time as it is proposed to incur significant expenditures with respect thereto. The Company has, however, made historic searches of titles to all its producing properties and properties capable of producing in connection with advances made by its bankers pursuant to Section 82 of The Bank Act and has good title to such properties in accordance with the interests above reflected.
Andaman Islands, India The Company has entered into an agreement to participate in a joint application by Taurus Oil Limited and Nhiterabbit - 13 -
Resources Ltd., 717 Seventh Avenue S.W., Calgary, Alberta, for an exploration permit off-shore the Andaman Islands, India. If successful the Company's interest would be 25% of the project and if the application is granted by the government of India it would be responsible for 25?i of all costs in order to earn such interest. The property would be subject to a 3% gross overriding royalty to Pluto Oils Limited on production, and after payment of all production costs, and, upon achievement of production, 5(^ of revenue would be attributable to payout of costs accrued to date and the remaining 5(^ would be divided as to 401 thereof to the applicants and 6(^ to the government of India. After all costs of production are recovered, then production income would be shared 4(^ by the applicants and 6Q* by the government of India. The Company's initial commitment is the sum of $2,500 to defray past expenses. If the permit is granted, then the Company would pay a further fee of $10,000 to Taurus-Whiterabbit and 25% of all costs thereafter to earn its 25% interest subject to the overriding royalty above set out. Taurus-Whiterabbit would be carried through the first well for 15% of the interest accruing to the applicants. Application has been made to the government of India for the permit but such application has not yet been granted nor is there any assurance that the same will be granted. The agree ment further provides that, after payment of the initial commit ment of $2,500 and the further fee,of $10,000 as aforesaid, the Company may elect, within 7 days after receiving an Appropriation of Expenditure for the seismic survey, to participate therein and retain its interest. If it does not so elect, it would lose its interest and have no further obligation under the agreement. The estimated cost of the total seismic program on the permits would be $2CG,000 in the first 18 months of explora tion and the same sum of 5200,000 during the second 18 months of exploration. The only person owning a greater than 5% interest in Pluto Oils Limited is Prince Khedker of Khedanjanvel, 126 New Street S.E., Calgary, Alberta. The only person owning a greater than 5% interest in Whiterabbit Resources Ltd. is M.M. Susko, 717-7th Avenue S.W. , Calgary, Alberta. Taurus Oil Limited is a public company and its register currently shows that the only persons holding a greater than 5% interest therein are Canadian Enterprise Development Corporation Limited, 914-1111 West Hastings Street, Vancouver, B.C.; Gilbert Securities Limited, c/o Royal Trust Company, Montreal, Quebec; Nevron Industries Company Limited, 1600 Dorchester Blvd. West, Montreal, Quebec; Toronto-Dominion Dank, Toronto-Dominion Centre, Toronto, Ontario; R.L. Ball, 1050 Elvedon House, Calgary, Alberta; John A. Downing, 1050 Elveden House, Calgary, Alberta and Long Lac Minerals Ltd., 101 Richmond Street West, Toronto, Ontario. The Company has no knowledge of the beneficial ownership of any such shares. - 14 - Phillipine Islands The Company is entitled to receive a 1.5i gross over riding royalty on the working interest of Paramount Oil St Gas Ltd., as referred to under the caption "Interest of Management and Others in Material Transactions". Paramount has taken an option for 90 days covering Phillipine Petroleum Concessions 52, 53, 73, 102 and 126 in the Phillipine Islands. These concessions cover approximately 543,000 acres and Paramount may earn a 40% working interest by drilling two wells. The Company has not ex pended any funds in obtaining such interest and is not required to expend any funds to maintain the same. Copies of all engineers' reports relating to the fore going properties are available for inspection in the public files of the Ontario Securities Commission. MINING PROPERTIES Aberdeen Additional Township By Agreement dated April 15, 1970, Safari Explorations Limited,'one of the Company's predecessors, acquired from Martin Allison, now of 82 York Road, Willowdale, Ontario, two groups comprising a total of 7 unpatented mining claims located near Two Horse Lake, Aberdeen Additional Township, in the Sault Ste. Marie mining division of the Province of Ontario. Three claims, being claims numbered SSM 206186 to SSM 206188 inclusive, are located at the north end of Two Horse Lake and the remaining group of 4 claims, being claims SSM 206185 and SSM 206189 to SSM 206191, inclusive, are located a.h the south end of Two Horse Lake. The consideration paid by Safari for the said claims was 500,000 fully paid and non-assessable shares of its capital stock. The cost thereof to Mr. Allison was the sum of $350 expended for the staking of the same. To the knowledge of the Company, no person other than Martin Allison has received or is entitled to receive any part of the vendor consideration. There is no surface, or underground plant or equipment upon the property upon which Safari expended approximately $7,700 consisting of a preliminary program of geological mapping, soil survey and Induced Polarization Survey. The claims are presently in good standing until October 31, 1974, by virtue of an extension of time granted by the Mining Commissioner of Ontario. The following is a summary of a report dated February 14, 1974 of Tom Gledhill, P.Eng., whose full report is available for inspection in the public files of the Ontario Securities Comm ission and at the Company's office. Two claim groups are located in Aberdeen Additidridl township on the north limb of a Huronian syncline* Thfe inter vening ground had boen explored for copper that occurs in Huronian sediments along the contact with the Nipissing diabaao sill. - 15 -
Recent mapping has located diabase on the eastern portion of both groups. Unsuccessful attempts have been made to option the intervening ground. A copper geochemical survey revealed that areas of diabase are anomalous in copper. An induced polarization survey has located an anomalous zone, the projection of which corresponds to the copper soil anomaly. Two diamond drill holes are recommended to test the anamalous copper zones. A budget for this work would be $6,000. The Company intends to carry out Mr. Gledhill's recomm endations as set forth above.
Benneweis Township Property By Agreement dated October 15, 1970, Safari Explorations Limited acquired 9 unpatented mining claims located in the northwest corner of Benneweis Township, Sudbury Mining Division, Ontario, and being mining claims Nos. S 285151 to and including S 285159 from Martin Allison, now residing at 82 York Road, Willowdale, Ontario, for a consideration of 250,000 fully paid and non-asa- essable shares in the capital stock of the Company. To the knowledge of the Company, no person has received or is entitled to receive any portion of the consideration paid to Mr. Allison who advised that the acquisition cost of the claims to him was the sum of $450 expended for staking. The claims are located in the northeast corner of Benn eweis Lake which lies approximately 1/2 mile from Ontario highway 560 to Gowgama and access can be had to Lake Benneweis by bush aircraft as well. There is no surface or underground plant or equipment upon the property. Prior to amalgamation, Safari carried out geological mapping, Induced Polarization Surveying and diamond drilling on the property at an approximate cost of $14,700. The claims are in good standing to October l, 1974, but no further work is proposed and the claims have been written down to $1.00.
Kootenay Lake Embassy Petroleums Ltd.i one of the Company's pre decessors holds lots Nos. 3784 to and including 3789, known respectively as the "Lavine", "Iron Cap", "Ruthie Belle", "St. Joseph", "Bute Fraction" and "Giant" Mineral Claims in the Kootenay Lake Aroa of British Columbia. Thfe Company is the owner Of all minerals under thfe claims save coal, petroleum and any natural gas. Thore are surface workings and an underground shaft and other workings on the property but no other equipment. Embassy acquired the claims on May 15, 1959. Since the Company owns mineral title thereto, there are no amounts required to - 16 - be expended on the property to keep the same in good standing. Annual property taxes amount to approximately $25 per year for all the claims. The Company has no intention of performing any work on the property at the present time. AGREEMENT WITH SYNGAS RECYCLING CORPORATION The Company entered into an Agreement dated as of the 26th day of March, 1974, with Steel Investments Limited, {"Steel"), 65 Queen Street West, Toronto, Ontario, to purchase 5^ of the issued and outstanding common shares of Syngas Recycling Corpora tion ("Syngas"), 65 Queen Street West, Toronto, Ontario. Syngas is a private Ontario Company and has, by Agreement dated March 26, 1973 bet;weun it and Herman F. Feldmann {the "Inventor"), 3359 Crestview Drive, Bethel Park, Pennsylvania, U.S.A. acquired the right throughout the world, outside the United States, its territories and possessions, to a process invented by the In ventor for converting solid wastes to pipeline gas for which patents have been applied for and granted in the United States and applied for in Canada, Great Britain, the Netherlands and Belgium although, by reason of the Inventor's prior publication, there is. a question as to whether or not such patents will be granted in every case. If a patent applied for be not granted, the Company is satisfied that the only detriment to it would be the loss of exclusivity conferred by a patent and, if the process be economically feasible, it would have an advantage over any com petition because of its research on the process technology there by acquired. The process, as above stated, relates to a contin uous process for the pressure hydrogasification of carbonaceous constituants of solid wastes for the production of pipeline gas. Although the process has application to any waste material with a carbon content, it is essentially directed toward common commun ity and industrial waste. The common constituants of such waste or garbage presently cause a very serious problem to municipal ities which becomes more acute witn each passing year, The cost to Steel of the said shares was $241 direct to the treasury of Syngas but it has advanced its share of $45,000 for expenses of Syngas to date. The Inventor's process, if it can be proven economically feasible, is.a continuous process, exothermic and non-polluting in its nature, which produces methane and ethane in pipe-line quality with those portions of the waste not contributing to the process, such as glass and metal, being salvageable at the end of the process in condition to be returned for recycling. Laboratory studies to date have indicated that the price of gas produced by the process (assuming that the solid waste is available at no cost) is approximately 20* to 30* less than the same BTU from coal gasification processes. The present cost of coal gasification is 63 cents to 88 cents for each one thousand cubic feet. The price to be paid by the Company for 511 of the issued and outstanding common shares of Syngas as aforesaid is 550,000 common shares of its capital stock which have been allotted, - 17 -
Since the economic feasibility of the Syngas process 'has not yet been demonstrated, however, the Company has reserved the right under the agreement for further examination of the process for a period of 90 days and the right to rescind the entire transaction at any time during the currency of the agree ment, if, in its sole discretion, it should be of the opinion that such process is not or cannot be made economically feasible. The shares representing 5^ of Syngas are to be held by a trustee for both parties to the transaction and, if the Company determines that the Syngas process is or can be made economically feasible, will be released to it in exchange for issuance of its shares in payment, ,if the Company elects to rescind the transaction, will be returned to Steel. As a part of its determination as to the feasibility of the process, and providing its further examination of the process renders such steps, in its opinion, advisable, the Company has agreed to loan to Syngas the money required to finance further testing of the process at a cost of approximately $240,000 at the Battelle Memorial Institute, Columbus, Ohio, pursuant to a proposed agreement between Syngas and the Battelle Memorial Institute as of dated January 31, 1974. The money would be advanced on a monthly basis as required by Battelle in the amount of approximately $19,000 per month. Subsequent to completion of further study, the Company will assess the results thereof and, if it deems them economically feasible, complete the pur chase and, if it does not deem themr to be economically feasible, rescind the agreement. The monies advanced will be secured by a promissory note of Syngas due on the anniversary of compl etion of the project by the Battelle Memorial Institute or on the 31st day of December, 1976, whichever should last occur. The loan is interest free until the due date and, if default should be made in payment, would bear interest thereafter at the then current bank rate plus l* until paid. The only persons having a 5% interest or greater in Syngas Recycling Corporation are: Steel Investments Limited, Herman P. Feldmann and Dr. Joseph Adlerstein. It has been agreed that Dr. Adlerstein will remain and be re-elected a director and chief executive officer of Syngas. The only persons having a 5% interest or more in Steel Investments Limited is: Jack Allan Gilbert, Q. C. , 265 Upper Highland Crescent, Willowdale, Ontario. Steel has agreed with CGA Capital Corporation to sell 5(U of all consideration received by it from the Company at its cost. The only persons owning a greater than 5!* interest in CGA are Jack Allan Gilbert, aforesaid, Four Millbank Investments Limited (on behalf of Crown Agents for Overseas Governments and Administrations), 4 Millbank, London England and E. D. Sassoon Bank S Trust International Ltd. , P.O. Box N-3045, Nassau, Bahama Islands. - 18 -
USE OF PROCEEDS
The minimum proceeds to be received by the Company from the shares offered hereunder is $350,000 which will be reduced by the costs of this issue estimated at $35,000. Such minimum proceeds will be sufficient to meet minimum commitments taking into consideration application made by the Company to its bankers for a bank loan in the amount of 5600,000 to be secured by assign ment pursuant, to Section 82 of the Bank Act (Canada) and projected annual oil and gas sales net of direct operating costs and royal ties of $315,000 from the Company's properties. Such minimum proceeds will be used to pay the difference between proceeds realized from projected income and bank loan, as aforesaid, and the Company's present and projected commitments, operating ex penses and projects. The Company's approximate present commitments and operating expenses: 0 The Company's share of the Waskwei Gas Process Plant $ 32,000 Payment for participating in the drilling of 14 Wells in the Pelican and Athabasca area to earn a 43-1/31 interest in .4 v;ells, a 28.75% interest in l well, all at Wander at an aggregate cost of 598,158; 44-l/^ of 4 wells at Tower at an aggregate cost of $93,766; 44-l/^ of l well, 50% of l well and 57.5** of 2 wells, all at Pelican, at an aggregate cost of 5101,320; and 28.75?, of l well at Athabasca at a cost of 59,947, plus contingencies 5330,000 Participating in the drilling of 3 earning wells in the Calling Lake Area to earn a 35% interest in the acreage and a 72.3751 interest in spacing unit 5112,500 Participating in drilling 2 wells to earn a 37.5% interest in spacing units at Island Lake and l well to earn a ID.75% interest in 5,760 acres 5 75,000 Payment of 100% of cost to earn a 60% work ing interest in 640 acres 5 45,000 Purchasing 2 Crown drilling reservations of 10 sections each in the Pelican area 5 30,000 Exploration of mining claims, as redommertded 5 6,000 Participation in Andaman islahd Project 5 12,300 - 19 -
'Bank interest on present and projected borrowings $ 90,000 Principal repayments on bank loans over l year $180,000 General and administrative expenses over l year $240,000 Lease rentals over l year $100,000 Balance of amalgamation expenses $150,000 Costs of issue ^ 35,000 Total ^1,438,000
The Company's projected receipts over the forthcoming year are*as follows: Proceeds from projected additional production loan $600,000 Projected gas and oil sales net of direct operating costs and royalties $315,000 Proceeds from private placement of 350,000 shares $350,000 Total $1,265,000 Excess of commitments and expenses over projected receipts $173,000
If all shares being offered by this Prospectus are sold, the Company would realize a minimum of $1,000 / 000. Monies received by the Company in excess of its present commitments will be Used, if the Company deems it advisable, and as required, for the construction of the project to test the Syngas process as referred to under the caption "Agreement with Syngas Recycling Corporation", to reduce bank borrowings and for further explora tion and development. While the Company has no plans in this regard at the present time, monies in its treasury as available, may also be used to defray the costs of acquiring, staking, exploring and developing other permits and properties, either alone or in consort or on a farm-out basis with others and generally to aarry out exploration programs as opportunities and finances permit, but no such properties will be acquired, farm-out agreements entered into or interests earned out of the ordinary course of the Com pany's business and monies will not be expended thereon to a - 20 -
terial extent without an amendment to this Prospectus being filed if the securities of the Company are then in the course of distribution to the public. Monies available in the Company's treasury, may also, subject to approval of the shareholders of the Company, be utilized to purchase securities of other corporations, but no such purchases will be made while the securities offered hereunder are in the course of distribution to the public.
OFFERING
The Company offers 1,000,000 common shares ("Shares") through Rosmar Corporation Limited, ("Rosroar"), 100 Adelaide Street West, Toronto, Ontario, acting as agent on its behalfi The offering, to be by way of distribution over-the-counter in the Provinces of Ontario and Nova Scotia, will continue for a period (the "Offering Period") of 90 days from the date of acceptance for filing of this Prospectus by the Ontario and Nova Scotia Securities Commissions, until all the 1,000,000 shares have been sold or until earlier terminated by mutual agreement between the Company and Rosmar* whichever should first occur. None of the Shares offered hereunder will be sold to the public to net the Company less than $1.00 per share. For acting on behalf of the Company in this offering, Rosmaf will be paid a commission of 25*k and selling expenses of 15% of the selling pricQ of the Shares sold hereunder, all to net the Company 60% of the selling price of the said Shares. Sales of shares may also be made through other Registered Dealers appointed by Rosmar to act as sub-agents and who will be paid commissions by Rosmar out of the commissions payable to it by the Company as above stated and not by the Company. Rosmar entered into an Agreement dated March 26th, 1974 with the Company whereunder it agreed immediately following com pletion of the Offering Period, to purchase such number of Shares of the Company so that the purchase price thereof, when added to the monies received by the Company from the sale of its Shares during the Offering Period, will equal the sum of $350,000 after the payment of the commissions and selling expenses to Rosmar as referred to above. The price to be paid by Rosroar for Shares so purchased by it will be settled by Rosmar, but in any event will not be less than $1.00 per share or 75% of the closing selling price for shares of the Company on the last day of the Offering Period, whichever is greater. Any Shares so purchased by Rosmar from the Company may be Offered for salo by Rosmar to the public. In no event will the selling price of such shares to the public exceed the price paid therefor plus 254. If Rosmar purchases any Shares as aforesaid, an Amendment to this Prospectus will be filed with the Ontario and Nova Scotia Securities Com missions. - 21 -
DESCRIPTION OF CAPITAL STOCK
The conunon shares offered by this Prospectus consti tute the Company's only class of shares. All shares issued by the Company rank equally as to dividends and there are no inden tures or agreements limiting the payment of dividends. All shares issued by the Company rank equally as to voting power, one vote for each share held. There are no conversion rights and there are no special liquidation rights, pre-emptive rights or subscription rights. The presently outstanding common shares of the Company are not subject to any call or assessment and the shares being offered hereunder, when issued and sold as described in this Prospectus, will not be subject to any call or assessment and will be held as fully paid and non-assessable by the purchasers thereof.
CAPITALIZATION Amount to be outstanding Outstanding Outstanding if all shares Designation as at Dec. as at Mar. being offered of Security Authorized 31, 1973 15, 1974 are sold Common Shares without par value 5,000,000 1,884,605 2,234,612 3,224,612(2) C$5,000,000) C$1,350,788) C$1,753,295) C$2,743,295) based on minimum Secured Bank Loan (1) 309,000 $ 431,500 $ 431,500 (1) The said loans are secured pursuant to Section 82 of the Bank Act (Canada) and the Company's bankers have agreed to a 5 year payout thereof although the technical terms of such loans provide for the same to be payable on demand. (2) Does not include 550,000 shares to be allotted in payment for 51* of the outstanding shares of Syngas Recycling Corporation in the event the Company deems its process to be economically feasible and does not include 10,000 escrowed shares donated back for the benefit of the Company the proceeds of which will be credited to contributed surplus.
MANAGEMENT
The names, home addresses, offices held in the Company and principal occupations within the five preceding years of the Directors and Officers of the Company are as follows: - 22 -
Name and Address^ Position Principal Occupation Murray Cooper President and Mining executive for 2500 Bathurst Street Director more than 5 five years. Toronto, Ontario President and a director of D'Eldona Gold Mines Limited, parent of Dormark. Formerly president and director of Allied Embas sy, Dormark and Safari.
Charles Douglas Cameron Vice-President Retired since April 1969. 1276 Islington Avenue and Director Prior thereto, Branch Islington, Ontario Manager, Conunonwealth Savings fi Loan Corpora tion, Toronto; since July 1971 Relief Manager. Also a former director of Allied and Dormark.
Robert MacKinnan Managing Director, Office manager of Embassy Sinclair Treasurer 'and for more than 5 years, 4417-16A Street, S.W. Director also a former director and Calgary, Alberta secretary of Allied, Embassy and Dormark.
David Gordon Director Mining executive for more Apt. 1114, 51 than five years. A Alexander Street former director of Embassy Toronto, Ontario
Hugh Grant Harper Director Professional engineer and 314 Hendon Avenue Economic Geologist, sel::- Willowdale, Ontario employed for more than five years. A director of D'Eldona Gold Mines Limited, the parent of Dormark.
Robert Brown Secretary Corporate Secretary. 6 Zaharias Court Officer and director of Willowdale, Ontario D'Eldona Gold Mines Limited. Former officer of Allied/ Embassy, Dormark and Safari. - 23 -
REMUNERATION OF MANAGEMENT
To date direct remuneration has been paid to each of the directors and senior officers of the Company in the amount of 3600 who are entitled to receive $50.00 for uach meeting of directors and shareholders attended by them. Mr. Sinclair, a director and treasurer of the Company, will continue to manage the Company's operational office at 717-7th Avenue S,W., Calgary, Alberta, and will be paid a salary of $2,000 per month for acting in such capacity. Robert Brown Corporate Services Limited, of which company Robert Brown, the Company's Secretary, is President and controlling shareholder, will be paid the sum of $900 per month for routine head office accounting and secretarial services, Apart from the foregoing, the Company does not propose to pay any additional remuneration to any of its directors or senior officers. . As stated under the caption "History and Business" the Company is a successor company arising from a pooling of interests by way of amalgamation of 4 predecessor companies, being Allied Roxana, Embassy, Dormark and Safari. Sec out below are particulars of the aggregate direct remuneration paid to the directors and senior officers of each of the 4 companies and of the 3 companies formed to purchase the assets of Allied Roxana, Embassy and Dormark for the periods indicated, namely: Twelve Months From year end to preceding February 25,1974 Name Year End year end (Amalgamation Date)
Allied Roxana Feb. 28, 1973 $ 10,760 (1) $ 550 Embassy Feb. 28, 1973 $ 10,710 (1) $ 550 Dormark Feb. 28, 1973 5 1,200 (1) 5 250 Safari Jan. 31, 1973 $ 900 (1) $ 250 275053 Ontario Limited $ 900 (2) 275054 Ontar:.o Limited $ 900 (2) 275055 Ontario Limited $ 900 (2) (1) The sums shown represent aggregate direct enumeration paid to the directors and senior officers as such but do not include the sum Of $4,250 in the case of Allied Roxana, $4 / 250 in the case of Embassy, $1,150 in the cafee of Dormark - 24 -
and $4,400 in the case of Safari, paid to Robert Brown Corporate Services Limited of which company Robert Brown, Secretary of the Company, formerly the treasurer of Allied, Embassy and Dorrnark and secretary-treasurer of Safari, is the owner of all the issued and outstanding shares. (2) From incorporation to Amalgamation Date. These companies are the Ontario Companies formed to purchase the assets of Allied, Embassy and Dormark, respectively.
PRINCIPAL SHAREHOLDERS
Set forth below are particulars of the present principal holders of common shares of the Company whose ownership is direct, of record and beneficial. Name and. No. of Shares Percentage Address ______of Class? (1) Dormark Oils Ltd. 1800 Elveden House 71 7- 7th Avenue S. W. Calgary, Alberta 530,000 23. 7U
D'Eldona Gold Mines Limited, 120 Adelaide Street West, Toronto, Ontario, is the owner of all the issued and outstanding shares of Dormark. The percentage of the shares of the Company owned, directly or indirectly, by all directors and senior officers of the Company aa a group, arc: Designation of Class Percentage of CI as s ( l ) Common Shares no par value .16%
(1) Calculated on the basis of 2,234,612 shares issued and out standing.
ESCROWED SHARES
No shares of Allied Roxana, Embassy or Dormark were held in dBcrow prior to the amalgamation although certificates - 25 - representing 675,000 shares of Safari were held in escrow by ^Guaranty Trust Company of Canada. On the amalgamation, shares of Safari were effectively exchanged on a basis of l snare of the Company for every 25 shares of Safari issued and outstanding so that, following the amalgamation and taking into consideration 10,000 escrowed shares donated back for the benefit of the Company, certificates representing 17,000 shares of the Company are held in escrow by Guaranty Trust Company of Canada and may not be sold, assigned, hypothecated, alienated, released from escrow, transferred within escrow or otherwise in any manner dealt with without the express consent, order or direction in writing of the Ontario Securities Commission. The prior consent of the Company is also required for release of any such shares or certi ficates from escrow. The 550,000 shares of the Company allotted to Syngas Recycling Corporation will, when issued, be placed in escrow with the said Guaranty Trust Company of Canada subject to the same .terms and conditions as to sale, assignment, hypothecation, alienation and release.
DIVIDENDS t Wo dividends have been paid to date by the Company and no dividends were paid by any of Allied Roxana, Embassy, Dormark or Safari prior to their amalgamation.
AUDITORS t The auditors of the Company are Messrs. Laventhol Krekstein Horwath S Horwath, Chartered Accountants, 700 Richmond- Adelaide Centre, 120 Adelaide Street West, Toronto, Ontario.
REGISTRAR AND TRANSFER AGENT Guaranty Trust Company of Canada, 88 University Avenue, Toronto, Ontario, acts as the Company's Registrar and Transfer Agent.
PRIOR SALES OF SHARES The shares of certain predecessor companies were listed on one or more stock exchanges in Canada and, subsequent to the amalgamation creating the Company ll,240 shares of the Company were traded at prices ranging from $1.06 to S 1.60 a share but adequate trading has not taken place to create a public market. The Articles of Amalgamation creating the Company have the effect of consolidating the iss-aed and outstanding shares of each of the predecessor companies as follows t - 26 -
redecessor Company Exchange Basis Allied Roxana l share of the Company for every 3.54 shares held. Embassy l share of the Company for every 3.54 shares held. Dormark 883.33 shares of the Company for every l share held. Safari l share of the Company for every 25 shares held.
To assist shareholders of the predecessor companies in the conversion of their shares into shares of the Company and to avoid the creation of fractions upon conversion, only the share holders of Safari received fractional certificates on the exchange of shares resulting from the amalgamation. Where fractions result from such exchange in the case of Allied Roxana or Embassy, the Company will purchase such fractions to eliminate the same as permitted by the provisions of The Business Corporations Act (Ontario).
Private Placement By agreement dated the 28th day of February, 1974, Paxton Corporation Limited, Freeport, Bahama Islands, purchased 175,000 common shares in the capital stock of the Company at the price of $1.15 per share by way of private placement, netting the Company, after payment of commiseions, the sum of $175,000. By agreement dated the 28th day of February, 1974, E.D. Sassoon Bank fi Trust International Ltd., Nassau, Bahama Islands, purchased 175,000 common shares in the capital stock of the Company at the price of $1.15 per share by way of private placement, netting the Company, after payment of commissions, the sum of 5175,000. To the knowledge of the signatories hereto, the only person owning a greater than 51 interest in Paxton Corporation Limited is Anthony C. Hepburn, Naussau, Bahama Islands.
OPTIONS
By agreements dated as at the 26th day of February, 1974, the Company granted non-transferable incentive options to purchase an aggregate 30,000 common shares of its capital stock to certain of its employees. Apart from options granted - 27 -
to such employees (all of whom are senior officers of the Company in accordance with the definition thereof) no other options to purchase shares of the Company have been given or are proposed to be given to any director or senior officer of the Company. The options are exercisable for a period of two years from the 26th day of February, 1974, provided the employee is still within the employment of the Company at the time of the exercise thereof. Options granted to such employees are divided, in each case, into 2 equal portions, one of each of such portions being exer cisable during each of the two years of the option term. The price at which the said options are exercisable are $1.10 per share and, while the market value of shares of the Company at the time of the granting of the options cannot be stated with certainty, owing to the fact that the granting of such options occured almost immediately subsequent to amalgamation, a calculation of a projected price by applying the ratios of the amalgamation to the trading prices of the Amalgamating Companies pt Lor to the amalgamation, would appear to indicate that such price would have been approximately $1.20 per share. 0
PRELIMINARY EXPENSES
The preliminary administrative expenses of the Company, including the costs of the Amalgamation, are estimated in the amount of $225,000. Administrative'expenses of the Company during the current year are estimated at the sum of $240,000, Development expenses of the Company, relating primarily to the interests of the amalgamating companies in Alberta and Saskatchewan as detailed under the caption "History and Business" are estimated at $525,000.
PROMOTER AND INTEREST OF MANAGEMENT AND OTHERS IN MATERIAL TRANSACTIONS Rosmar Corporation Limited is the promoter of the Company. Reference is made to the Pacing Page and to the caption "Offering" for particulars as to the agency agreement entered into between the Company and Rosmar relating to the offering of 1,000,000 shares in the capital stock of the Company by this Prospectus. Rosmar also acted as agent for the Company in the obtaining of the two private placements netting the Company the aggregate sum of $350,000 as referred to under the sub-caption "Private Placements" under the caption "Prior Sales of Shares". A fee of $52,500, being at the rate of 15* per share for each share sold, was paid to Rosmar by the Company for acting in such capacity* Martin Allison, 82 York Road, Willowdale, Ontario, who vended the Aberdeen Additional Township and Benneweis Town ship properties to Safari Explorations Limited, one of the Company's - 28 - predecessors, by agreements dated April 15, 1970 and October 15, 1970, respectively, in consideration of an aggregate 750,000 shares of the capital stock of Safari, as referred to under the caption "Mining Properties" is a shareholder of Rosmar Corporation Limited. The only persons owning a greater than 5* interest in the issued and outstanding shares of Rosmar Corporation Limited are: Albert Allison, 50 Sandringham Drive, Toronto, Ontario and Alexander Gordon Fisher, 80 The Bridle Path, Toronto, Ontario. As referred to under the caption "Royalties" the Com pany has entered into an Agreement with Clayton H. Riddell, C. H. Riddell Geological Consultants Ltd. and Paramount Oil & Gas Ltd. providing for the payment of a gross overriding royalty of 1.5% to Paramount on all properties or participations brought to the Company by any of them. For the purposes of the Agreement, Paramount, C. H. Riddell Geological Consultants and Riddell are considered to be one party as Mr. Riddell owns the issued and outstanding shares of the two corporate entities. The Company has further agreed to pay the sum of $2,000 per month to C. H. Riddell Geological Consultants Ltd. for consulting services performed by it for the Company. The Agreement also provides that, on all properties or participations brought to the Company, and upon which it does not elect to earn an interest or to ac quire but in regard to which any one of the other parties to the Agreement retains an interest, 'the Company is entitled to a gross overriding royalty of 1.5* on any interest. The Agreement is automatically renewable from month to month and may be ter minated by either of the parties thereto upon 60 days prior notice in writing. One of the employees stock incentive options granted to employees of the Company, as detailed under the caption "Options" was granted to Robert M. Sinclair, a director and officer of the Company. Dormark Oils Ltd., one of the amalgamating companies, is the largest shareholder of the Company as referred under the caption "Principal Shareholders".
SPECULATIVE ASPECTS
Exploration for oil and gas is speculative and necess arily involves a high degree of risk. There is no assurance that the expenditures to be made by the Company in exploration will result in any discoveries of oil or gas in commercial quantities, In addition, the exploration and drilling for, and the production, transportation and marketing of all oil and gas are subject to various governmental regulations. Ih most areas in which thb Company has an interest in properties thete are presently govern*- mental authorities regulating the conservation of oil and natural - 29 - gas and imposing other restrictions. Governmental royalties payable and restrictions imposed on the Company's properties at the present tii... are referred to under the applicable sub-captions under the caption "Oil and Gas Properties". Reference should also be made to the caption "History and Business", "Offering" and "Agreement with Syngas Recycling Corporation". In the event the Company elects to rescind the agree ment with Syngas because it deems the process not to be economi cally feasible, the likelihood of collecting under the $240,000 note may be considered doubtful.
MATERIAL CONTRACTS
The Company, or its predecessors, has entered into the following material contracts during the past two years, namely: 1. Agreement between Allied Roxana Minerals Ltd. and 275053 Ontario Limited providing for the sale of the assets of Allied Roxana to 275053 as referred to under the caption "History and Business". 2. Agreement between Embassy Petroleums Ltd. and 275054 Ontario Limited providing for the sale of the assets of Embassy to 275054 as referred to under the caption "History and Business". 3. Agreement between Dormark Oils Ltd. and 275055 Ontario Limited providing for the sale of the assets of Dormark to 275055 as referred to under the caption "History and Business". 4. Amalgamation agreement dated the 7th day of September, 1973 and effective the 25th day of February, 1974, the date upon which Articles of Amalgamation were issued creating the Company as referred to under the caption "History and Business". 5. Agency agreement dated the 26th day of March, 1974, between the Company and Rosmar Corporation Limited relating to the offering of shares of the Company referred to under "Offering". 6. Agreement dated the 20th day of February, 1974, between the Company and Paxton Corporation Limited providing for the private placement of 175,000 common shares in the capital stock of the Company as referred to under the caption "Prior Sales of Shares". 7. Agreement dated the 28th day of February, 1974, with E.D. Sassbon Bank St Trust International Ltd. providing for the private placement of 175,000 common shares in the capital stock of the Company as referred to under the caption "Prior Sales of Shares". - 30 -
8. Agreement dated as at the 15th day of March, 1974, between the Company and Steel Investments Limited relating to the acquisition of 51S of the issued and outstanding common shares of Syngas Recycling Corporation as referred to under the caption "Agreement with Syngas Recycling Corporation". 9. Agreement dated the 1st day of March, 1974, between the Company and Paramount Oil fi. Gas Ltd., Clayton H. Riddell and C.H. Riddell, Geological Consultants Ltd. relating to con sulting services and royalties as referred to under the captions "Royalties" and "Promoters and Interest of Management and Others in Material Transactions". 10. Agreement dated the 23rd day of May, 1974, between the Company and Steel Investments Limited relating to the escrowing of 550,000 shares of the Company issuable for a 5^ interest in Syngas Recyling Corporation as provided for under the caption "Escrowed Shares".
PURCHASER'S STATUTORY RIGHTS OF WITHDRAWAL AND RESCISSION
The Securities Act provides, in effect, that where a security is offered to the public in the course of distribution: (a) a purchaser will not be bound by a contract for the purchase of such security if written or telegraphic notice of his intention not to be bound is received by the vendor or his agent not later than midnight on the second business day after the prospectus or amended prospectus offering such security is received or is deemed to be received by him or his agent, and (b) a purchaser has the right to rescind a contract for the purchase of such security, while still the owner thereof, if the prospectus and any amended prospectus offering such security contains an untrue statement of a material fact or omits to state a material fact necessary in order to make any statement therein not misleading in the light of the circumstances in which it was made, but no action to enforce this right can be commenced by a purchaser after the expiration of 90 days from the later of the date of such contract or the date on which such prospectus or amended prospectus is received or is deemed to be received by him or his agent. Reference is mode to Section 64 and 65 of The Securities Act for the complete text of the provisions under which the above- mentioned rights are conferred. - 31 -
AUDITORS' REPORT
To the Directors of Cavalier Energy Inc.
We have examined the combined balance sheet of the predecessor companies as at February 28, 1973, and the combined statements of earnings, deficit and contributed surplus for the five years then ended. Our examination included a general review of the accounting procedures and such tests of accounting records and other supporting evidence as we considered necessary in the circumstances.
In our opinion these combined financial statements present fairly the combined financial position of the companies as at February 28, 1973 and the combined results of their operations for the five years then ended, in accordance with generally accepted accounting principles applied on a consistent basis.
Toronto, Ontario, December 14, 1973. Chartered Accountants. ^^^.sar-,---:.,-:^;^-.'-? -;-'. ••^v^—'Sri . -^*" '••-"SjwWfStS i"*-**'" ,-:V'-'-i', x- ::-/.-;- • '•''•^ ••'- "'. . - - ^.'v^-F^ . /-,^ "cAVALica naeacar isc. - :., ' :'"' "'''' TOSH/I JJALAKC2 SHEET ASD COM8ISBO SALAXCE SH2ET v- ;"^)^;-?V "-•" . "^ - ". . - -'.- ' -. ' ' ' ••f"-f. " ^JriS&f? 1 . . Pro Combined Dccsabcr 31* 1973 rebruary 28, 1973, a. (Unaudited) "(::,tci) (Beta 2) CSote l ) LIABILITIES ASSSTS Current: nri- Currents Sank indebtedness (Note 6) 72.CCO Cash and short tem deposits WJ.937 \ 275,016 657.473 156,773 Accounts payable Vrarketable securities (Note 5) "* 6S7.-73 33,947 Accsur.ts receivable ?.ccci-,-ables fres: participants In 959,366 686,320 Lons-term: joint ventures 38,446 Bank loan (Note 6) - . Prepaid expenses 67,943 l,HO,315 q, 190.502 Less portion due vithin one yeas Son-current receivables frcn participants in joint ventures - 7,1.615 EKOLDSRS' EQUITY Ir.vcstr-.cnts: fCO.tOD shares of Vcstern Resources 25,997 25,001 Capitol stock (Note 7): Minerals Limited, at cost Authorized: 5,000,000 Cowson shares, no par value Property ar.d ccuipncnt, at cost: To ba issued to predecessor companies: 1,354,^1 Prcducins petroleum ar.d natural gas 1,884,605 Common shares 1,350,788 l l acrcsra, including veil cevclcpnent crocr.diturcs, less accumulated Contributed surplus 3.383.301 deletion cf 5143,655 r.r.d vritc 4,7J9,Ci9 •Jo-,.rv ci :-:i,2C6 (February 25, (3.426.457} lj/3t •* " ^ - ^*^v,Cvj)* * ** "^ ^Or*\ 201,581 243,426 1.332.632 i'or.-procucin- pctrolcur.\ and natural 3^5 ccrer-ss 213,354 . 167,935 Expenditures en wells in progress m ar.u capped veils 732,042 555,030 Kir.i-.-.s claims 5,001 5,001 ?rc-ducticn cr.d office equip.-r-.cr.t, I:ss accumulated depreciation of iliC,773 ("cbrcary 25, 1973 - 128,853 i!27,271) ' 212,391; 1.419,369 1,100,305 Other, ac cost: 2cposits x:ith govcmtr.antal nger.cies 41,030 40,361 Ccftrrcd nir.ir.g exploration and tt!:iinistr.irivc expenditures (Note 4) 19,112 17,665 Jlor.-rcfundable option deposits 10.000 60,142 68,026 52,915,823 •^K-^^'^f^-^WOl^^r)^Zty-A*~cl. tbe^O^RrJ: .* S 52.915,823- - a. e n,- 52,425,449 notes* '^^^^-^^xl^-.-rrTTv'Olrcctcr) ^^™asa rALIER ENERGY I COMBINED llEMfcn JLU OF BARK : Ten mont hs ended ' /.-. ,." ~ ::J,li ^. - x . -.^''. -- .'•.•'•'". - ' ^^ Deceinber 31 . ' Fiscal years ended February 28, - . ? 1973 1972 1973 1972 1971 1970 1969 Revenue: (\Jnaudi teal Gas and oil sales 5186,038 5116,549 5145,143 5128,091 5108,173 5 92,170 5 64,745 Royalty Income 3,608 3,819 4,678 . 3,901 ' 4,243 3,244 2,178 189,646 120,368 149,821 131,992 112,416 95,414 66,923 Deduct: Well operating costs 55,777 89,656 99,948 78,551 59,947 61,956 41,934 Depletion 20,810 12,456 28,124 12,933 13,247 9,014 5,762 Depreciation 20,334 11,660 9,313 4,997 3,716 8,360 9,782 96,921 113,772 137,385 96,481 76,910 79,330 57,478
Net production revenue 92,725 6,596 12,436 35,511 35,506 16,084 9,445 •* - Gain on sale of petroleum and natural gas acreages 165,992 165,992 3,028 Gain on sale of shares of Allied Roxana Minerals Ltd. 3,420 Surrendered leases (20,583) (320) (320) (45,442) (2,720) (5,051) Dry wells (29,271) (118,644) (149,839) (133,663) (83,016) Write-down of a petroleum and natural gas acreage and u related well development costs, and mining claims, to estimated present value (31,266) (24,882) (15,284) (17,116) - l Provision for loss of advances to, and investment in. Allied and Embassy Petroleum Corporation of Alaska (1,699) (56,233) Provision for loss on decline in value of marketable securities (40,497) Loss on disposal of interest in petroleum and natural gas acreage (71,499) Loss on disposal of marketable securities (5,314) Excess of book value over proceeds received fron sale of shares l of Embassy Petroleums Ltd. (4,959) General and administrative expenses, net (schedule) (260,622) (154,112) (188,597) (201,802) (125,565) (77,101) (89,010) (310,476) (107,084) (244,527) (401,040) (199,802) (182,284) (170,732)
Net loss before extraordinary item (217,751) (100,488) (232,091) (565,529) (164,296) (166,200) (161,337) Gain on sale (write off of excess cost) of shares of subsidiary company (Note 9) 119,092 (113,820)
Net Iocs - (5217,751) (5100,488) (5232,091) (5246,437) (5164,296) (5166,200) (5275,157) j !
Loss per share (Note 11) 50.109 50.051 50.117 SO. 126 50.089 SO. 090 50.177 ' : CAVALIER ENERC5T INC.
CCWBINED STATEMENT OF DEFICIT (NOTE 3)
Ten months ended Fiscal years endedFebryary 28) December 31. 1969 1973 1972 1973 1972 1971 1970 (Unaudited) ,2,963,706 *2,731,615 *2,731,615 52,485,178 S2,320,882 *2,154,682 H.039,525 Deficit at beginning of period 246,437 164,296 166,200 275,157 217,751 100,488 232,091 Net loss 225,000 - Amalgamation fees charged directly to deficit 40,000* Commission on sale of capital stock 33,406,457 32,832,103 32,963,706 32,731,615 32,485,178 32,320,882 32,154,6S2 ; Deficit at end of period
See accompanying notes.
' t ^fi^p^- ' : "lx^...;^ '',-f:::'',\'^.
CAVALIER ENERGY INC.
COMBINED STATEMENT OF CONTRIBUTED SURPLUS (NOTE 3)
Ten months ended Fiscal years ended February 28, December 31 , 1969 1973 1972 1973 1972 1971 1970 (Unaudited) 51,872,881 , $3,377,551 53,368,801 $3,368,801 53,270,381 53,270,381 53,050,381 Balance at beginning of period
Additions arising from premium on issue 220,000 1.177.500 t 10,750 8,750 '8.750 98.420- of shares 53,388,301 53,377,551 53,377,551 53,368,801 53,270,381 53,270,381 53,050,381 Balance at end of period
See accompanying notes. **r^.. ip** 1 "'^ '^,-' : - - '~- --" ••' - - - ,*v \ - - - " ' "" ' - "" -" "' - ' - " -"--': - - r - "' : ;. - - ' "- ' ,~ ' '""- -•.y:,:--^--r-: -i.; w. *-in -*assis? :-; --.'-f. *: : ™C'^ '-ttp^-fi;.";- -"-. ,..- .; - t v - ;^f^-i"yv '. v-:.::'-' . , '. .'/'v' ."- ^.. \ ; \ '-- , . -J-- •'.: ..;. V'-' ",; - :" ^ ~~ * ' . . ' -.-** ' i ' ". * - * - - ' ' t -' '-- -* ' j - ' ' ' ^ :-' ..^^/^ --.i/!-' "TV*.-".- " J&:--- "--i ffi, - - ' '-'-.- "v '.". '. - *'-. .' v •- ; '-.: '. ' ' .-. . -' •"'••/- C ' *" ' V ' ~...,' -. . . ' '^' : ' ' S '"' ' ' -'••i*.-,-'-.;;-:.:': ;-'-; : -.v'., --*i.j? jjf#®fcfjt!fjjjjjfaif? - - .fr,-..,- J^.' TJ-^-'.u ?;i|*.CS- vs3^*"-iv jj-t^.jj-^ -tr-', v .' '•"•'"•-". -. i - - . " . . , - \ .. ' -'.. ' ~. '. -' " - - ~ . ..- - '-- ' ,\ . r . : ~~- S-.',-'- - - ' "---. '.-' "' ^m^..'' ^-^^•^••, : : ..,.: -..- ,, ., - . . .,;:, -. . . -. ' '/' :-";:;V?;f.--..-1:v-"":jf •••^^^^^ jm^^'^' .-•j.. -. ..-. •-.•.J.. ..^ . -. - . V- ^ " " L - r - -" - - " ' ' - - ' ' :. ~ .v - "~ -'* ^^ - --- " - ^B •- CAVALIER ENERGY INC. V ^, .,.^-—i- v . "^
COMBINED SCHEDULE OF GENERAL AND ADMINISTRATIVE EXPENSES
* Ten months ended 5 ended February 28 ^ 31, . Fi seal year December 1971 197J} 196J 1973 1972 1973 1972 (Unaudited) S 9,979 S 38,318 $ 19,507 $ 15,158 ? 14,712 $'52,555 5 25,231 9,600 3,000 Office salaries 13,500 12,100 13,700 13,200 8,600 Administrative and corporate services 1,565 1,340 2,969 4,116 16,474 2,796 3,239 3,558 Interest 80,793 55,286 30,700 16,302 Lease rentals on non-producing properties and taxes 84,560 65,010 25,000 15,666 18,150 22,900 19,500 12,500 23,300 7,782 7,941 6,390 Management fees 14,210 6,540 8,814 8,684 Office expenses 25,000 31,950 14,000 11,550 23,125 20,275 22,620 19,749 -Officers' remuneration and directors' fees 46,925 54,797 45,833 19,211 21,418 28,453 9,058 , Professional fees 12,983 11,094 10,669 6,939 15,036 10,106 12,468 11,616 w Rent 15,221 14,927 14,059 12,451 Stock exchange and transfer agents' fees 13,476 5,591 4,566 5,014 ^ 6,955 3,746 4,971 6,900 Shareholders' information 6,004 4,572 5,509 5,967 i 9,032 4,456 " 5,853 8,32S Telephone 7,420 12,692 11,240 7,866 13,609 7,376 651 Travel and promotion 1,643 834 797 682 3,168 802 1,593 2,285 Depreciation on furniture and fixtures 1,564 6,052 3,181 2,837 2,408 210,984 176,000 117,927 Miscellaneous 310,619 214,791 272,696 244,431 (98,899) (28,917) Less: (59,984) (83,244) (41,520) (71,013) Interest and other income (49,147) (14,406) (850) (695) (855) (1,109) Deferred expenses $125,565 5 77,101 3 89,010 1260,622*itn f.it tlSA 11? S188.597 !J201.802 y^fe^ A ' CAVALIER ENERGY INC. pEFV/,' f. Jfc.'.': NOTES TO I'RO FORMA BALANCE SHEET AND COMBINED FINANCIAL STATEMENTS
l* Pro forma balance sheet: The pro forma balance sheet gives effect to the amalgamation of the following companies and on the following basis, as if it had occurred on December 31, 1973s Shares of Amalgamated . Exchange Corporation Basis to be Issued
Allied Roxana Minerals Ltd. l for 3.54 ' 760,000 'Embassy Petroleums Ltd. l for 3.54 640,000 Dormark Oils Ltd. 883.33 for l 530,000 Safari Explorations Limited l for 25 70.000 \ ''" \ 2,000,000 •"•V ; - ^V Less reduction of shares of the amalgamated corporation resulting from the cancellation of 408,500 shares of Embassy held by Allied 115.395 1,884,605
To accomplish this amalgamation, because each of the amalgamating corporations were incorporated under different jurisdictions, the following steps were takcnt i) The purchase by a newly incorporated Ontario corporation of all the assets (except as indicated in (a) below) and liabilities of Allied Roxana Minc.rnls Ltd. (an Alberta corporation) for the issue of capital stock; li) The purchase by a s econd newly incorporated Ontario corporation of all the assets and liabilities of Embassy Petroleums Ltd. (a Canadian corporation) for the issue of capital stock; iii) the purchase by a third newly incorporated Ontario corporation of i all the assets (excluding liabilities)of Dormark Oils Ltd. (a Saskatchewan corporation) for the issue of capital stock; iv) A statutory amalgamation pursuant to the provisions of the Business Corporations Act(Ontario) of the three newly incorporated companies mentioned in (i)j (ii) and (iii) above, and Safari Explorations Limited (an Ontario corporation). Articles of amalgamation effective February 2! 1974 wetfi isiued and registered under the name df Cavaliot Energy Ittc* In addition to the above, the pro forma balance ehoot givoft effect tot ;; -i fi'/. (a) The payment of $10,'282 debt due by Safari to Allied, which asset was not transferred on amalgamation; (b) A credit to accounts payable and a charge to deficit in the amount of $194,430 to cover the estimated additional costs to be incurred in effecting the proposed amalgamation. (The total expenses of amalgamatior is estimated at 5225,000, of which 530,570 has been paid). (See Note 10] Since the amalgamation is one involving companies having common management ant interests, the pro forma balance sheet records the accounts transferred to the amalgamated company as of December 31, 1973 using the "pooling of interest" accounting method, that is, assets, liabilities, capital, contributed surplus and deficit balances so transferred are carried forward at the net book values shown in the accounts of Allied Roxana Minerals Ltd., Embassy Petroleums Ltd.i Dormark Oils Ltd. and Safari Explorations Limited.
Sj- ; ';./:-:'-- K. \''."". ;.' ^|^^^y.|'Sob! exhibit "A11 for acquisition equation. JO - fr v Cavalier Energy Inc. KI X Notc^to pro forma balance sheet and combined financial statements
2.. Combined balance sheet: The combined balance sheet presents the accounts of the predecessor companies, \ on the same basis as outlined in Note l, at their last completed fiscal year ; end, which is February 28, 1973 for all companies except Safari Explorations V'.--i Limited which is at January 31, 1973. "t*' .' 3. .The combined statements of earnings, deficit and contributed surplus combine the V operations of the predecessor companies for the following periods: . Five fiscal years ended February 28, 1973 and the ten months ended : . December 31, 1973 with the corresponding periods of the preceding year: Allied Roxana Minerals Ltd. Embassy Petroleums Ltd. , - Dormark Oils Ltd. Three fiscal years ended January 31, 1973 commencing from February 10, 1970 N^ (incorporation); nnd eleven months ended December 31, 1973 with the -'X corresponding period of the preceding year: Safari Explorations Limited ' Safari Explorations Limited being in the exploration stage, deferred all its exploration and administrative expenditures. Its nccounts have been reclassified to conform with the other companies' accounting policies (see Note 4) for the preparation of the combined statements of income* A. .Accounting policies: practice of the companies is to capitalize lease and royalty interest costs .•-•i. and well development expenditures on producing wells. The cost of producing leases and wells are amortized on the unit of production method based on estimated reserves of oil and gas. Lease rentals and dry holo costs are expensed in the year incurred. Non-producing properties are charged to operations in the year of abandonment or surrender. Depreciation of production equipment is provided on the straight-line basis at l Oft per annum. Mine exploration expenditures and a pro rata portion of administrative expendi- tures are deferred. When a mining project is abandoned the related expenditures ire charged to operations. 5* Markfttable lecuritiest December 31, 1973 February 2B, 1973 Carrying Value Market Value Carrying Value
344,334 shares of D'Eldona Gold Mines Limited, at cost $154,393 ,393 Other shams, at cost less $39,757 allowance for decline in market value 2,380 2. 240 2,380 $156,773 $150,304 $156,773
f v""^'1 * ' .-.'••]"i*U. -.Cavilier Energy Inc. -Nbto^to pro.fprma balance sheet and combined financial.statements ^(continued)' \
^6* ; 'Long-term debt: Bank loan *309,000 Less portion due within one year 72jOOO *237,000
(jjj^r Although the bank loan of 5309,000 is evidenced by a der and promissory ^; r;, note, arrangements have been made with the bank to retire the principal vK amount of the loan at the rate of ?6,000 per month. " As collateral for the loan and other bank indebtedness shown under current V liabilities, the company has assigned certain of its properties under Section 82 of the Bank Act.
7. Capital stock: The following summarizes the issued shares of the predecessor corporations . prior to the amalgamation: For Other For Cash Consideration Total Shares Amount Shares Amount Shares Amount Allied Roxana Minerals Ltd. 2,638,000 52,673,686 50,000 512,5002,688,000 52,686,186 Embassy Petroleums Ltd.2,220,000 1,525,915 50,000 12,500 2,270,000 1,538,415 Dormark dils Ltd. 600 .-- 6,000 600 6,000 Safari Explorations Limited 1.000.003 160.003 750.000 7.500 1.750.003 167.503 5,858,603 54,365,604 850,000 532,500 6,708,603 4,398,104
Deduct premium on issue of shares for cash, which was . credited to contributed surplus; Allied Roxana Minerals Ltd. $2,417,386 Embassy, Petroleums Ltd. .970.915 3.388.301 Total value attributed to issued capital stock of predecessor companies 1,009,803 (Deduct) add the following: Cancellation of inter-company shareholdings (287,264) Liabilities of Dormark Oils Ltd. not assumed by L-i;.V 1 ':. . Cavalier Energy Inci 638,531 tck:',v:SJfc* ",- \. Debt dkle by Safari Exploi?ati6fis Limited to Allied Rdxana Minerals Ltd. net transferred co Cavalier Energy Ine. Irt?: Total issued capital at December 31, 1973 of Cavalier Energy Inc. $1,350,788 f i During the year ended February 28, 1969 Allied and Embassy each issued 50,000 shares, at a valuation of 25^ per share, for an interest in a petroleum and natural gas lease. During the year ended January 31, 1971 Safari issued 750,000 fully paid shares to acquire certain mining claims. All other shares issued during the periods covered by these financial statements were issued for cash. 10,000 shares of the company 1 s capital stock have been donated to this company, which shares will bo used to form part of the offering covered by this prospectuSi Tile proceeds from the sale of these shares will bc credited to contributed surplus. u 40 -
Energy Inc. Otcs to pro forma balance shoot and combined financial statomonts (continued)
Stock options: i On February 26, 1974 the company granted to senior officers options to purchase an aggregate of 30,000 shares of its capital stock at $1.10 per share. One-half of the options granted to each officer is exercisable during the twelve months ended February 26, 1975 and the balance is j exercisable during the twelve months ended February 26, 1976. 9. Extraordinary item: On October 6, 1971 Embassy Petroleums Ltd. sold its wholly-owned subsidiary, Dormark Oils Ltd., for 294,334 shares of D'Eldona Gold Mines Limited. These shares were valued at 5125,092, representing the then quoted market value less a 157. discount because of the number of shares involved. The gain on VN ' ' ' i this Sale of $ll9,092 has been reflected in the combined statement of earnings as an extraordinary item. This gain has been computed as follows: price Cost of Dormark 1 s shares $200,000 Less write-off in 1969 of excess of cost of shares over book value of assets upon acquisition of Dormark Oils Ltd. 113.820 86,180 Less losses of Dormark Oils Ltd. tince its acquisition by Embassy Petroleums Ltd. 106.180 ...20,0.00 Cain on sale, as previously reported 145,092 Less deficit of Dormark Oils Ltd. on date of disposition (included in losses of Dormark Oils Ltd. since its acquisition by Embassy Petroleums Ltd. of 3106,180 as shown above) 26.000 Gain on sale for purpose of combined balance sheet
10. Amalgamation costs - $225,000{ Counsel to the company has advised that this figure is an outside approximation only which will be varied when accounts for all final expenses have been received. Although an attempt has been made to calculate such approximation . A S the highest aggregate figure which the expenses of the amalgamation will attain, no more accurate estimate can presently be made because of the uncertainty as to the amount to bo charged in the various jurisdictions in which the amalgamating companies hold their numerous properties for legal fees of agents, registration and transfer costs and land transfer taxes exigible by such jurisdictions. 11. Loss per share: Losses per share are based on the combined weighted average number of shares outstanding during each period and on the equivalent number of shares as presently constituted. ' 12. Income taxes: The company has available $1,927,000 in exploration and development expenses incurred by predecessor corporations for v/ritc-off against future production income for income tax purposes. c;,-: This amount represents the total of such expenses "inherited" from predecessor '^' corporations as follows:
.Wftttw j.:' ii~.-l,~ y-"' - 41 -
.Cavalier Energy Inc. Otos to pro foma balance sheet and combined financial uintcmento (continued)
12* (continued) Allied Roxana Minerals Limited 640,000 - Embassy Petroleums Limited 553,000* Dormark Oils Limited 552,000 Safari Explorations Limited 182.000 $1,927,000
Exploration and development expenses "inherited" from a particular predecessor corporation may be offset only against production income from resource properties previously owned by that particular predecessor. t 13. Subsequent events: Private placement: By agreements dated February 28, 1974 the company sold 350,000 shares of its capital stock by way of private placement at (1.15 per share less 15^ per share commission, netting the company $350,000. Syngas Recycling Corporation: By agreement dated March 26, 1974 the company acquired the right to purchase 517. of the issued shares of Syngas Recycling Corporation for 550,000 shares of its capital stock. Syngas 1 major asset is a right to a process for converting solid wastes to pipeline gas. Since the economic feasibility of the Syngas process has not yet been demonstrated, the company has reserved the right to rescind the transaction. The company has agreed, providing its further examination of the process within a period of 90 days from the dnr.c of the agreement renders such steps, in its opinion, advisable, to h;an Syngas the money required to finance further testing of the process at a cost of approximately $240,000. The money would be advanced on a monthly basis estimated at approximately $17,000 per month. If after testing, the company elects to rescind the agreement because it deems the process not to be economically feasible, the likelihood of recovery of the advances may be considered doubtful. '^-''^Vp^^ ' '. ''. ."-y:.-"- ' -'- "' xv,-' -. --.^ , ^.""'v "'V-.--'*-* :V-"-' . •"'•) "- ''.''-' ' *? v.v , '. - - ' . ,;;--;^v.::i;:..:; ."':^^:^;'^r^ •- -,- - - "- IB.-- - -;- CAVALIER EMB&f OIC. / -"., ' ' r DETAILS OF ACQUISITION EQUATION EXHIBIT "A"
DECEMBER 31, 1973
Tha following net aassts, at book r aloe, war* brought., into the combinations
Allied Embassy Dornzsrk Safari Total Roxana Petroleums Oils Explorations per Mineral* Ltd. Ltd. Ltd. Ltd. Total Adjustments Pro forma (Subsidiary) (Subsidiary) (Subsidiary) l/ Total aaaeta 52.010.652 5703.897 5421,897 5115,721 53.252,167 (5336.344) 52,915,823 2/ Total liabilities 1,295,553 87,256 24,462 1.407,271 ( 175,920) 1,583,191 Nat assets brought into combination S 715,099 5616,641 . 5421,897 S 91,259 51,844.896 (5512,264) 51,332,632
f
Equity"in net assets allocated as folio l/ Capital stock 5 258,518 5567,500 5644,531 5167.503 51,638,052 (5287.264) 51,350,788
Contributed surplus 2,417,386 970.915 3,388.301 3.388,301 I/ Deficit (1.960,805) (921.774) (222.634) (76,244) (3,181.457) ( 225, r 0) (3,406,457) S 715.099 5616,641 5421.897 S 91.259 51,844,896 (5512,264) 51,332,632
1. Total assets are adjusted fort 2. Total liabilities are adjusted for:
a) Intercompany shareholdings xeooved S 287, 264 a) Amalgamation costs payable 5194, 430 b) Overdraft of Enbacsy Petroloms Ltd. b) Transfer of Embassy - Subsidiary bank overdraft (Subsidiary) offset against bank - 8,228 . to be offset against cash (8, 228)
c) Reduction of cash as Cevalier p*?3 c) Removal of debt of Safari to Allied - Parent (10.282) Allied - Parent for liability of 5175.920 Safari 10,282
d) Removal of amalgamation costs IB 3. The total costs of amalgamation are charged to the prepaid expenses deficit account - 43 -
There are no other material facts. )The foregoing constitutes full, true and plain disclosure of all material facts relating to the securities offered by this Prospectus as required by Part VII of The Securities Act (Ontario) and the regulations thereunder and the Securities Act (Nova Scotia). DATED this 23rd day of May, 1974. "Murray Cooper" "R.M. Sinclair" MURRAY COOPER ROBERT M. SINCLAIR Chief Executive Officer Chief Financial Officer "C. Douglas Cameron" "David W. Gordon" C. DOUGLAS CAMERON DAVID W. GORDON Director Director
PROMOTER
ROSMAR CORPORATION LIMITED Per: "A.G. Fisher" A. G. FISHER foregoing constitutes full, true and plain disclosure of al ts relating to the securities offered by this&jrCs'pectus as requifetMayPart VII of The fecuritios Act {Ontario^^and the regulations theriHiudef and tno Securities Act iSjovtTscotia). DATED this 23rd day of MayT*
IRK OILS LTD. Per: "Murray Cooper 1 MURRAY COOPER To the best of our knowledge, information and belief, the foregoing constitutes full, true and plain disclosure of all material facts relating to the securities offered by this Prospectus as required by Part VII of The Securities Act (Ontario) and the regulations thereundor and the Securities Act {Nova Scotia). DATED this 23rd day of May, 1974.
ROSMAR CORPORATION LIMITED Per: "A.G. Fisher" A. G. FISHER