October 30, 2007 Canetic Resources Trust Canetic Resources Inc. 1900, 255 5th Avenue S.W. Calgary, Alberta T2P 3G6 Attention: J. Paul Charron President and Chief Executive Officer Gentlemen: Re: Proposed Business Combination
Exhibit
99.1
October
30, 2007
Canetic
Resources Inc.
1900,
000 0xx Xxxxxx
X.X.
Xxxxxxx,
Xxxxxxx X0X 0X0
Attention: J.
Xxxx Xxxxxxx
President
and Chief Executive
Officer
Gentlemen:
Re: Proposed
Business Combination
This
letter sets forth the agreement between Penn West Energy Trust ("Penn
West"), Penn West Petroleum Ltd. ("Penn
WestPetroleum"), Canetic Resources Trust
("Canetic") and Canetic Resources Inc. ("CRI")
with respect to a proposed transaction (the "Transaction") to
combine Penn West and Canetic.
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1.
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Structure
of the Transaction and Exchange
Ratio
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Pursuant
to the Transaction holders of trust units ("Canetic Units") of
Canetic will receive for each Canetic Unit 0.515 of a trust unit ("Penn
West Unit") of Penn West.
In
addition, Canetic will declare a special cash distribution of $0.09 per Canetic
Unit (the "Special Distribution") payable to holders of Canetic
Units on or preceding the effective date (the "Effective Date")
of the Transaction.
Subject
to the terms and conditions set forth below, the Transaction will be carried
out
pursuant to a plan of arrangement under the Business Corporations Act
(Alberta) (the "ABCA").
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2.
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Transaction
Agreement
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Penn
West and Canetic, acting reasonably and in good faith, shall negotiate and
enter
into an agreement ("Transaction Agreement") as soon as
reasonably practicable and in any event by December 10, 2007 to implement
the
Transaction to provide for the merger of Penn West and Canetic and the issue
and
distribution of Penn West Units and the payment of the Special Distribution
to
holders of Canetic Units ("Canetic Unitholders") on the basis
described in paragraph 1. Penn West and Canetic will work together to
achieve mutually agreeable structuring of the Transaction before the execution
of the Transaction Agreement, having regard to relevant securities, corporate
and trust laws and regulatory, stock exchange, tax and economic
considerations. It is intended that the Transaction will be
structured to allow Canetic Unitholders to receive Penn West Units on a
tax-deferred basis for Canadian and United States income tax
purposes. It is also intended, to the extent possible and subject to
the terms and conditions below, that the Transaction will be structured to
qualify for the exemption from registration provided by section 3(a)(10)
of the
U.S. Securities Act of 1933, as amended.
The
Transaction Agreement shall contain, in addition to the representations,
warranties, covenants, conditions and other terms specified herein, customary
representations and warranties by each of Penn West and Canetic in favour
of the
other, and such other customary terms, covenants and conditions as would
be
normal for a transaction of this nature on the terms generally proposed
herein.
If
the parties fail to execute the Transaction Agreement on or before December
10,
2007, each of Penn West and Canetic shall, subject to applicable law, be
entitled, but not obligated, to proceed and require the other party to this
agreement to proceed with the Transaction pursuant to the terms and conditions
of this agreement.
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3.
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Governance
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On
the Effective Date, the board of directors of Penn West Petroleum will be
reconstituted to have 10 members, three of whom will be current directors
of CRI
and seven of whom will be current directors of Penn West Petroleum.
On
the Effective Date, the senior management of Penn West Petroleum will
include:
Xxxxxxx
X. Xxxxxx, Chief Executive Officer
J.
Xxxx Xxxxxxx, President
Xxxxx
X. Xxxxxxxxx, Chief Operating Officer
Xxxxxxx
X. Xxxxx, Senior Vice President, Business Development
Thane
X. X. Xxxxxx, Senior Vice President, Exploration & Development
Xxxx
X. Xxxxxxxx, Senior Vice President, Finance - Treasury
Xxxxx
X. Broshko, Senior Vice President, Finance - Financial Reporting
Xxxx
X. Xxxxxxxxxx, Senior Vice President, Operations
Xxxx
X. Xxxxxxxx, Senior Vice President, Production
Xxxxx
X. Xxxxx, Senior Vice President, General Counsel & Corporate
Secretary
Xxxxx
Xxxx, Senior Vice President, Stakeholder Relations
The
parties' current intention is that Penn West will initially distribute $0.34
per
unit per month following the Effective Date.
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4.
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Employees
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Unless
otherwise agreed between Canetic and Penn West, the employment of all employees
of Canetic and its subsidiaries and Penn West and its subsidiaries (the
"Continuing Employees") will be continued by Penn West
Petroleum or CRI or one of their subsidiaries as the case may be. The
Continuing Employees, unless their employment is terminated, shall continue
their employment on the terms and conditions comparable, in the aggregate,
to
the terms and conditions on which they are currently employed.
Penn
West and Canetic acknowledge that the Transaction will result in a "change
of
control" for purposes of the Canetic 2006 unit award incentive plan
("UAIP") and related executive unit award agreements and the
Canetic executive employment agreements. The parties agree that upon
approval of the Transaction by Canetic Unitholders, and prior to the Effective
Date, all outstanding unit entitlements under such plans and agreements shall
be
paid in Canetic Units to be issued from treasury (and not cash) that will
participate in the Transaction on the same basis as the existing Canetic
Units.
2
Penn
West and Canetic acknowledge that the Transaction will not result in a "change
of control" or any other form of accelerated vesting for the purposes of
the
Penn West trust unit rights incentive plan and executive employment or change
of
control agreements and will not constitute a "change of control" or result
in
accelerated vesting or payment for the purposes of any other employment or
consulting services agreement, incentive, bonus or similar plan.
The
accompanying disclosure letter dated the date hereof and executed by the
parties
(the "Disclosure Letter") sets forth a bona fide, good faith
estimate by Canetic as of September 30, 2007, having regard to the assumptions
set forth in the Disclosure Letter, of all obligations of Canetic pursuant
to
all employment or consulting services agreements, termination, severance
and
retention plans or policies for severance, termination or bonus payments
or any
other payments related to any Canetic incentive plan, arising out of or in
connection with the Transaction (collectively, the "Canetic Change of
Control Payments");
The
Canetic Change of Control Payments shall be paid as soon as is reasonably
practicable following the Effective Date.
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5.
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Canetic
Unitholder Approval
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Canetic
will, with the co-operation of Penn West, prepare an information circular
-
proxy statement ("Information Circular") to be mailed to the
Canetic Unitholders for the purpose of its unitholder meeting to be called
to
consider the Transaction and related matters. Each of the parties
shall provide the other with all information with respect to itself as may
be
required for inclusion in the Information Circular and shall indemnify the
other
for any misrepresentation contained in such information.
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6.
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Cooperation
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Each
of Penn West and Canetic covenants and agrees to do all acts and things and
take
all steps required to complete the Transaction. Without limiting the generality
of the foregoing, each of Penn West and Canetic covenants and agrees to use
its
commercially reasonable efforts to cause to be fulfilled the conditions
precedent to the other party’s obligations to complete the Transaction and to
not take any action that would cause such conditions not to be
fulfilled. Further, and without restricting the generality of the
foregoing: (i) each party shall reasonably cooperate with the other party
and
its tax advisors in structuring the Transaction in a tax effective manner,
and
assist the other party and its tax advisors in making such investigations
and
inquiries with respect to such party in that regard, as the other party and
its
tax advisors shall consider necessary, acting reasonably, provided that such
party shall not be obligated to consent or agree to any structuring that
has the
effect of reducing the consideration to be received under the Transaction
by any
of its unitholders or of imposing tax obligations on its unitholders in
connection with the Transaction incremental to those contemplated in paragraph
2; and (ii) if the parties are unable to implement the Transaction by way
of
plan of arrangement, the parties shall cooperate with each other to implement
the Transaction by way of a merger whereby Penn West would effectively acquire
all or substantially all of the assets of Canetic within approximately the
same
time periods and on economic terms (including trust unit exchange ratio,
payment
of the Special Distribution and tax treatment that allows Canetic Unitholders
to
receive Penn West Units on a tax-deferred basis for Canadian and United States
income tax purposes) having consequences to the Canetic Unitholders that
are
economically equivalent to those contemplated by this agreement (an
"Alternative Transaction"), and the parties agree to support
the completion of such Alternative Transaction in the same manner as the
Transaction and shall otherwise fulfill their respective covenants contained
in
this agreement in respect of such Alternative Transaction.
3
Penn
West and Canetic shall use their reasonable commercial efforts to cause the
Effective Date to occur on or about January 11, 2008 or as soon thereafter
as
reasonably practicable and to cause the mailing of the Information Circular
to
the Canetic Unitholders (the "Mailing Date") to occur as soon
as reasonably practicable and in any event by December 28,
2007.
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7.
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Board
Authorizations
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(a)
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The
board of directors of Penn West Petroleum (the "Penn West
Petroleum Board") has unanimously endorsed the Transaction and
approved this agreement, has unanimously determined that the Transaction
and this Agreement are in the best interests of Penn West and the
Penn
West Unitholders, and has, based on the opinion of its financial
advisor,
unanimously determined that the Transaction is fair, from a financial
point of view, to Penn West
Unitholders.
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(b)
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The
board of directors of CRI (the "Canetic Board") has
unanimously endorsed the Transaction and approved this agreement,
has
unanimously determined that the Transaction and this agreement
are in the
best interests of Canetic and the Canetic Unitholders, and has,
based on
the opinion of its financial advisor, unanimously determined that
the
Transaction is fair, from a financial point of view, to Canetic
Unitholders and has resolved unanimously to recommend approval
of the
Transaction by Canetic Unitholders.
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8.
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Penn
West Conditions
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Penn
West's obligation to proceed with the Transaction is subject to the following
conditions:
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(a)
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No
Material Adverse Change: No material adverse change
shall occur in the affairs, operations or business of Canetic and
its
subsidiaries, taken as a whole, from and after the date hereof
and prior
to the Effective Date, and no material adverse change in the financial
condition of Canetic and its subsidiaries, taken as a whole, shall
have
occurred prior to the date hereof or shall occur from and after
the date
hereof and prior to the Effective Date from that reflected in the
audited
consolidated financial statements of Canetic for the fiscal year
ending
December 31, 2006 or in the unaudited financial statements of Canetic
for
the fiscal period ending June 30, 2007 (other than a material adverse
change resulting from: (i) conditions affecting the oil and gas
industry generally in jurisdictions in which it carries on business,
including changes in commodity prices, royalties, laws or taxes;
(ii) general or economic, financial, currency exchange, securities or
commodities market conditions; (iii) any matter which was publicly
disclosed or which was communicated in writing to Penn West by
Canetic
prior to the date of this agreement; or (iv) any matter permitted by
this agreement, the Disclosure Letter or the Transaction Agreement,
or
consented to by Penn West) ("Canetic Material Adverse
Change").
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(b)
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No
Actions: No act, action, suit, proceeding, objection
or opposition shall have been threatened or taken before or by
any
domestic or foreign court, tribunal or governmental agency or other
regulatory or administrative agency or commission by any elected
or
appointed public official or private person in Canada or elsewhere,
whether or not having the force of law, and no law, regulation,
policy,
judgment, decision, order, ruling or directive (whether or not
having the
force of law) shall have been proposed, enacted, promulgated, amended
or
applied, which in the sole judgment of Penn West, acting reasonably,
in
either case has had or, if the Transaction was consummated, would
result
in, a material adverse change within the meaning of paragraphs 8(a)
and 9(a), respectively, in the affairs, operations or business
of Canetic
or Penn West, respectively, or would have a material adverse effect
on the
ability of the parties to complete the
Transaction.
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(c)
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No
Material Breach: Canetic shall not be in material
breach of its obligations under this agreement or under the terms
of the
Transaction Agreement, which breach, individually or in the aggregate,
would or would reasonably be expected to cause a Canetic Material
Adverse
Change or would, or would reasonably be expected to, materially
impede
completion of the Transaction.
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(d)
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Mailing
Date: The Mailing Date shall occur not later than December
28,
2007.
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(e)
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Approvals:
Penn West and Canetic shall obtain all necessary consents, waivers,
permissions and approvals by or from relevant third parties, on
terms and
conditions satisfactory to Penn West, acting reasonably, including
without
limitation:
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(i)
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the
approval of the unitholders of Canetic required for the Transaction
pursuant to the constating documents of Canetic, as applicable,
or, if the
Transaction is carried out as a plan of arrangement, as required
by the
Court of Queen's Bench of Alberta (the
"Court");
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(ii)
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all
applicable regulatory approvals, orders, notices and consents (including,
without limitation, under the Competition Act (Canada), the
Investment Canada Act (Canada) and those of the Toronto Stock
Exchange and New York Stock Exchange (in respect of the listing
of the
Penn West Units, including those to be issued pursuant to the Transaction,
and Canetic convertible debentures to be assumed by Penn West (on
the
Toronto Stock Exchange only) and, if applicable, with respect to
any
securityholder approvals) or other securities regulatory authorities),
and
all applicable statutory or regulatory waiting periods shall have
expired
or been terminated;
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(iii)
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if
required, the approval of the Court;
and
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(iv)
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if
required, the approval or consent of Penn West's and Canetic's
bankers and
creditors,
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(collectively,
the "Third Party Approvals").
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(f)
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Dissents: If
dissent rights are granted to Canetic Unitholders by the Court
in
connection with the Transaction, holders of not more than 5% of
the issued
and outstanding Canetic Units shall have validly exercised rights
of
dissent in relation to the
Transaction;
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(g)
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Debt: At
September 30, 2007, Canetic's Debt shall not exceed
$1.75 billion. "Canetic's Debt" means
total indebtedness, including long-term debt, bank debt, convertible
debentures and working capital deficiency, but excluding hedging
obligations.
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(h)
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Status
of Parties: Canetic and Penn West shall each be a "mutual fund
trust" within the meaning of the Income Tax Act (Canada) (the
"Tax Act") immediately prior to the time of completion
of
the Transaction, and the completion of the Transaction shall not
cause
Penn West to cease to be a "mutual fund trust" within the meaning
of the
Tax Act or cause the tax measures announced by the Minister of
Finance
(Canada) on October 31, 2006 and contained in Xxxx C-52 which received
royal assent on June 22, 2007 to apply to Penn West before
2011.
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(i)
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Closing:
The Effective Date shall have occurred not later than January 30,
2008 (the "Outside
Date").
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(j)
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Representations
and Warranties: The representations and warranties
made by Canetic in this agreement and the Disclosure Letter shall
be true
and correct as of the Effective Date as if made on and as of such
date
(except to the extent such representations and warranties speak
as of an
earlier date or except as affected by transactions contemplated
or
permitted by this agreement or the Transaction Agreement), except
where
the failure of such representations and warranties to be true and
correct,
individually or in the aggregate, would not result or would not
reasonably
be expected to result in a Canetic Material Adverse Change or would
not,
or would not reasonably be expected to, materially impede completion
of
the Transaction, and Canetic shall have provided to Penn West a
certificate of two senior officers certifying such accuracy on
the
Effective Date; provided that Canetic shall be entitled to cure
any breach
of a representation and warranty within five business days after
receipt
of written notice thereof from Penn West (except that no cure period
shall
be provided for a breach which by its nature cannot be cured and,
in no
event, shall any cure period extend beyond the Outside
Date).
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(k)
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Covenants:
Canetic shall have complied in all material respects with its covenants
herein, except where the failure to comply in all material respects
with
its covenants, individually or in the aggregate, would not result
or would
not reasonably be expected to result in a Canetic Material Adverse
Change
or would not, or would not reasonably be expected to, materially
impede
completion of the Transaction, and Canetic shall have provided
to Penn
West a certificate of two senior officers certifying compliance
with such
covenants; provided that Canetic shall be entitled to cure any
breach of a
covenant within five business days after receipt of written notice
thereof
from Penn West (except that no cure period shall be provided for
a breach
which by its nature cannot be cured and, in no event, shall any
cure
period extend beyond the Outside
Date).
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Penn
West may waive, in whole or in part, any of the foregoing conditions at any
time
on written notice to Canetic. If any of the foregoing conditions are not
satisfied or waived, this agreement shall terminate on the earlier of the
date
the condition was to have been satisfied and the Outside Date save and except
for Sections 15, 17 and 18 hereof which shall survive such termination and
remain in full force and effect.
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9.
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Canetic
Conditions
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Canetic's
obligation to proceed with the Transaction is subject to the following
conditions:
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(a)
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No
Material Adverse Change: No material adverse change
shall occur in the affairs, operations or business of Penn West
and its
subsidiaries, taken as a whole, from and after the date hereof
and prior
to the Effective Date, and no material adverse change in the financial
condition of Penn West and its subsidiaries, taken as a whole,
shall have
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occurred
prior to the date hereof or shall occur from and after the date
hereof and
prior to the Effective Date from that reflected in the audited
consolidated financial statements of Penn West for the fiscal
year ending
December 31, 2006, or in the unaudited consolidated financial
statements of Penn West for the fiscal period ending June 30, 2007
(other than a material adverse change resulting from: (i) conditions
affecting the oil and gas industry generally in jurisdictions
in which it
carries on business, including changes in commodity prices, royalties,
laws or taxes; (ii) general or economic, financial, currency
exchange, securities or commodities market conditions; (iii)
any matter
which was publicly disclosed or which was communicated in writing
to
Canetic by Penn West prior to the date of this agreement; or
(iv) any
matter permitted by this agreement or the Transaction Agreement,
the
Disclosure Letter or consented to by Canetic) ("Penn West Material
Adverse Change").
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(b)
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No
Actions: No act, action, suit, proceeding, objection
or opposition shall have been threatened or taken before or by
any
domestic or foreign court, tribunal or governmental agency or other
regulatory or administrative agency or commission by any elected
or
appointed public official or private person in Canada or elsewhere,
whether or not having the force of law, and no law, regulation,
policy,
judgment, decision, order, ruling or directive (whether or not
having the
force of law) shall have been proposed, enacted, promulgated, amended
or
applied, which in the sole judgment of Canetic, acting reasonably,
in
either case has had or, if the Transaction was consummated, would
result
in, a material adverse change within the meaning of paragraphs
8(a) and
9(a), respectively, in the affairs, operations or business of Canetic
or
Penn West or would have a material adverse effect on the ability
of the
parties to complete the
Transaction.
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(c)
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No
Material Breach: Penn West shall not be in material
breach of its obligations under this agreement or under the terms
of the
Transaction Agreement, which breach, individually or in the aggregate,
would or would reasonably be expected to cause an Penn West Material
Adverse Change or would, or would reasonably be expected to, materially
impede completion of the
Transaction.
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(d)
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Approvals:
Penn West and Canetic shall obtain all Third Party Approvals on
terms and
conditions satisfactory to Canetic, acting
reasonably.
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(e)
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Dissents: If
dissent rights are granted to Canetic Unitholders by the Court
in
connection with the Transaction, holders of not more than 5% of
the issued
and outstanding Canetic Units shall have validly exercised rights
of
dissent in relation to the
Transaction.
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(f)
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Debt: At
September 30, 2007, Penn West's Debt shall not exceed $2.05 billion.
"Penn West's Debt" means total indebtedness, including
long-term debt, bank debt, convertible debentures and working capital
deficiency, but excluding hedging
obligations.
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(g)
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Status
of the Parties: Canetic and Penn West shall each be a
"mutual fund trust" within the meaning of the Tax Act immediately
prior to
the time of completion of the Transaction, and the completion of
the
Transaction shall not cause Penn West to cease to be a "mutual
fund trust"
within the meaning of the Tax Act or cause the tax measures announced
by
the Minister of Finance (Canada) on October 31, 2006 and contained
in Xxxx
C-52 which received royal assent on June 22, 2007 to apply to Penn
West
before 2011.
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(h)
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Tax-Deferred
Transaction: The Transaction shall be completed in a
manner which results in a tax-deferred exchange of Canetic Units
for Penn
West Units for Canadian and United States income tax
purposes.
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(i)
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Closing:
The Effective Date shall have occurred not later than the Outside
Date.
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(j)
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Representations
and Warranties: The representations and warranties
made by Penn West in this agreement and the Disclosure Letter shall
be
true and correct as of the Effective Date as if made on and as
of such
date (except to the extent such representations and warranties
speak as of
an earlier date or except as affected by transactions contemplated
or
permitted by this agreement or the Transaction Agreement), except
where
the failure of such representations and warranties to be true and
correct,
individually or in the aggregate, would not result or would not
reasonably
be expected to result in a Penn West Material Adverse Change or
would not,
or would not reasonably be expected to, materially impede completion
of
the Transaction, and Penn West shall have provided to Canetic a
certificate of two senior officers certifying such accuracy on
the
Effective Date; provided that Penn West shall be entitled to cure
any
breach of a representation and warranty within five business days
after
receipt of written notice thereof from Canetic (except that no
cure period
shall be provided for a breach which by its nature cannot be cured
and, in
no event, shall any cure period extend beyond the Outside
Date).
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(k)
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Covenants:
Penn West shall have complied in all material respects with its
covenants
herein, except where the failure to comply in all material respects
with
its covenants, individually or in the aggregate, would not result
or would
not reasonably be expected to result in a Penn West Material Adverse
Change or would not, or would not reasonably be expected to, materially
impede completion of the Transaction, and Penn West shall have
provided to
Canetic a certificate of two senior officers certifying compliance
with
such covenants; provided that Penn West shall be entitled to cure
any
breach of a covenant within five business days after receipt of
written
notice thereof from Canetic (except that no cure period shall be
provided
for a breach which by its nature cannot be cured and, in no event,
shall
any cure period extend beyond the Outside
Date).
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Canetic
may waive, in whole or in part, any of the foregoing conditions at any time
on
written notice to Penn West. If any of the foregoing conditions are not
satisfied or waived, this agreement shall terminate on the earlier of the
date
the condition was to have been satisfied and the Outside Date save and except
for Sections 15, 17 and 18 hereof which shall survive such termination and
remain in full force and effect.
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10.
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Representations
and Warranties
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Penn
West represents and warrants to and in favour of Canetic and acknowledges
that
Canetic is relying upon such representations and warranties in connection
with
the matters contemplated by this agreement:
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(a)
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This
agreement has been duly executed and delivered by each of Penn
West and
Penn West Petroleum and constitutes a legal, valid and binding
obligation
of each of Penn West and Penn West Petroleum enforceable against
it in
accordance with its terms, subject to bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium and other laws relating to
or
affecting creditors' rights generally, and to general principles
of
equity.
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(b)
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There
are not more than 241.5 million Penn West Units issued and outstanding
plus not more than 14.5 million Penn West Units issuable pursuant to
rights granted under Penn West's trust unit rights incentive plan
as of
October 31, 2007. Not more than 5.6 million Penn West Units
will be issued pursuant to Penn West's proposed acquisition of
Vault
Energy Trust ("Vault"). If the acquisition of
Vault Energy Trust is completed, there will be two issues of Vault
convertible debentures assumed by Penn West, namely the 8% convertible
debentures in the principal amount of $48,671,000 (conversion price
of
$82.14 per Penn West Unit) and the 7.2% convertible debentures
in the
principal amount of $50 million (conversion price of $75.00 per
Penn West
Unit).
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(c)
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The
data and information in respect of Penn West and its assets, reserves,
liabilities, business and operations provided by Penn West or its
advisors
to Canetic or its advisors was and is accurate and correct in all
material
respects as at the respective dates thereof and, in respect of
any
information provided or requested, did not knowingly omit any material
data or information necessary to make any data or information provided
not
misleading in any material respect as at the respective dates
thereof. Penn West has no knowledge of any Penn West Material
Adverse Change to the oil and gas reserves of Penn West from that
disclosed in such data and
information.
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(d)
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The
information and statements set forth in the information filed by
Penn West
after December 31, 2006 with any securities commission or similar
regulatory authority in compliance, or intended compliance, with
applicable securities laws (the "Penn West Public
Record") as at the date hereof, as relates to Penn West, are
true, correct, and complete and did not contain any misrepresentation,
as
of the respective dates of such information or statements, and
no material
change has occurred in relation to Penn West which is not disclosed
in the
Penn West Public Record, and Penn West has not filed any confidential
material change reports which continue to be
confidential.
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(e)
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Penn
West's consolidated audited financial statements as at and for
the fiscal
year ended December 31, 2006 and Penn West's consolidated unaudited
financial statements as at and for the six months ended June 30,
2007
(collectively the "Penn West Financial Statements") were
prepared in accordance with Canadian generally accepted accounting
principles ("GAAP") and present fairly in accordance with
GAAP the consolidated financial position, results of operations
and
changes in financial position of Penn West as of the dates thereof
and for
the periods indicated therein (subject, in the case of any unaudited
interim financial statements, to normal year-end audit adjustments)
and
reflect appropriate and adequate reserves in respect of contingent
liabilities, if any, of Penn West on a consolidated
basis. There has been no material change in Penn West's
accounting policies, except as described in the notes to the Penn
West
Financial Statements, since January 1,
2006.
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(f)
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None
of Penn West or its subsidiaries has any material liabilities of
any
nature (matured or unmatured, fixed or contingent), other
than:
|
|
|
(i)
|
those
set forth or adequately provided for in the most recent balance
sheet and
associated notes thereto included in the Penn West Financial Statements
(the "Penn West Balance
Sheet");
|
|
|
(ii)
|
those
incurred in the ordinary course of business and not required to
be set
forth in the Penn West Balance Sheet under
GAAP;
|
9
|
|
(iii)
|
those
incurred in the ordinary course of business since the date of the
Penn
West Balance Sheet and consistent with past practice;
and
|
|
|
(iv)
|
those
incurred in connection with the execution of this
agreement.
|
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(g)
|
Other
than has been publicly disclosed, there has not occurred any material
spills, emissions or pollution on any property of Penn West or
any of its
subsidiaries (collectively the "Penn West Parties"), nor
have any of the Penn West Parties been subject to any stop orders,
control
orders, clean-up orders or reclamation orders under applicable
laws or
regulations applicable to the protection of the environment, hazardous
substances or public and occupational health and safety (collectively,
"Environmental Laws"), any of which might reasonably be
expected to cause a Penn West Material Adverse Change. All operations
of
the Penn West Parties have been and are now being conducted in
compliance
with all applicable Environmental Laws, except where the failure
to be in
compliance would not reasonably be expected to cause a Penn West
Material
Adverse Change. None of the Penn West Parties is subject to or
aware of:
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|
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(i)
|
any
proceeding, application, order or directive which relates to
environmental, health or safety matters, and which may require
any
material work, repairs, construction, or expenditures;
or
|
|
|
(ii)
|
any
demand or notice with respect to the breach of any Environmental
Laws
applicable to the Penn West Parties, including, without limitation,
any
regulations respecting the use, storage, treatment, transportation,
or
disposition of any hazardous
substances,
|
which
would reasonably be expected to cause a Penn West Material Adverse
Change.
|
|
(h)
|
There
are no actions, suits or proceedings in existence or pending or,
to the
knowledge of Penn West or Penn West Petroleum, threatened or for
which
there is a reasonable basis, affecting or that would reasonably
be
expected to affect the Penn West Parties or affecting or that would
reasonably be expected to affect any of their property or assets
at law or
equity or before or by any Governmental Authority which action,
suit or
proceeding involves a possibility of any judgment against or liability
of
the Penn West Parties which, if successful, would reasonably be
expected
to cause a Penn West Material Adverse Change, or would significantly
impede the ability of the Penn West Parties to consummate the
Transaction.
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(i)
|
Penn
West is a "mutual fund trust" within the meaning of the Tax Act
and is a
"foreign private issuer" for the purposes of U.S. securities
laws.
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(j)
|
Penn
West is not registered and, to the best of its knowledge, is not
required
to be registered as an investment company pursuant to the United
States
Investment Company Act of 1940, as amended, and Penn West was
not, in 2006 and prior years, and does not expect to be, in 2007,
a
"passive foreign investment company" for the purposes of United
States tax
laws.
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(k)
|
To
the knowledge of Penn West, Penn West has not withheld from Canetic
any
material information or documents concerning Penn West or any of
its
subsidiaries or their respective assets or liabilities during the
course
of Canetic's review of Penn West and its assets. No representation
or
warranty contained herein and no statement contained in any schedule
or
other disclosure document provided or to be provided to Canetic
by Penn
West pursuant hereto contains or will contain an untrue statement
of a
material fact which is necessary to make the statements herein
or therein
not misleading.
|
10
Canetic
represents and warrants to and in favour of Penn West and acknowledges that
Penn
West is relying upon such representations and warranties in connection with
the
matters contemplated by this agreement:
|
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(a)
|
This
agreement has been duly executed and delivered by each of Canetic
and CRI
and constitutes a legal, valid and binding obligation of each of
Canetic
and CRI enforceable against it in accordance with its terms, subject
to
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium
and other laws relating to or affecting creditors' rights generally,
and
to general principles of equity.
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(b)
|
There
are not more than 235.0 million Canetic Units outstanding plus
not more
than 4.7 million Canetic Units issuable pursuant awards granted
under
Canetic's UAIP and related executive and other unit award agreements
as of
October 31, 2007. Not more than 7.0 Canetic Units will be
issued pursuant to Canetic's proposed acquisition of Titan Exploration
Ltd. In addition there are outstanding not more than $252
million principal amount of convertible debentures outstanding
that, as at
the date hereof, can be converted into 10.6 million Canetic
Units.
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(c)
|
The
data and information in respect of Canetic and its assets, reserves,
liabilities, business and operations provided by Canetic or its
advisors
to Penn West or its advisors was and is accurate and correct in
all
material respects as at the respective dates thereof and, in respect
of
any information provided or requested, did not knowingly omit any
material
data or information necessary to make any data or information provided
not
misleading in any material respect as at the respective dates
thereof. Canetic has no knowledge of any Canetic Material Adverse
Change
to the oil and gas reserves of Canetic from that disclosed in such
data
and information.
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(d)
|
Except
as set forth in the Disclosure Letter, the information and statements
set
forth in the information filed by Canetic after December 31, 2006
with any securities commission or similar regulatory authority
in
compliance, or intended compliance, with applicable securities
laws (the
"Canetic Public Record") as at the date hereof, as
relates to Canetic, are true, correct, and complete and did not
contain
any misrepresentation, as of the respective dates of such information
or
statements, and no material change has occurred in relation to
Canetic
which is not disclosed in the Canetic Public Record, and Canetic
has not
filed any confidential material change reports which continue to
be
confidential.
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(e)
|
Canetic's
consolidated audited financial statements as at and for the fiscal
year
ended December 31, 2006 and Canetic's consolidated unaudited financial
statements as at and for the six months ended June 30, 2007 (collectively
the "Canetic Financial Statements") were prepared in
accordance with GAAP and fairly present in accordance with GAAP
the
consolidated financial position, results of operations and changes
in
financial position of Canetic as of the dates thereof and for the
periods
indicated therein (subject, in the case of any unaudited interim
financial
statements, to normal year-end audit adjustments) and reflect appropriate
and adequate reserves in respect of contingent liabilities, if
any, of
Canetic on a consolidated basis. There has been no material
change in Canetic's accounting policies, except as described in
the notes
to the Canetic Financial Statements, since January 1,
2006.
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11
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(f)
|
Other
than as contemplated by the Disclosure Letter, none of Canetic
or its
subsidiaries has any material liabilities of any nature (matured
or
unmatured, fixed or contingent), other
than:
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(i)
|
those
set forth or adequately provided for in the most recent balance
sheet and
associated notes thereto included in the Canetic Financial Statements
(the
"Canetic Balance
Sheet");
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(ii)
|
those
incurred in the ordinary course of business and not required to
be set
forth in the Canetic Balance Sheet under
GAAP;
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(iii)
|
those
incurred in the ordinary course of business since the date of the
Canetic
Balance Sheet and consistent with past practice;
and
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|
(iv)
|
those
incurred in connection with the execution of this
agreement.
|
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(g)
|
Other
than has been publicly disclosed, there has not occurred any material
spills, emissions or pollution on any property of Canetic or any
of its
subsidiaries (collectively the "Canetic Parties"), nor
have any of the Canetic Parties been subject to any stop orders,
control
orders, clean-up orders or reclamation orders under applicable
Environmental Laws, any of which might reasonably be expected to
cause a
Canetic Material Adverse Change. All operations of the Canetic
Parties
have been and are now being conducted in compliance with all applicable
Environmental Laws, except where the failure to be in compliance
would not
reasonably be expected to cause a Canetic Material Adverse
Change. None of the Canetic Parties is subject to or aware
of:
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|
|
(i)
|
any
proceeding, application, order or directive which relates to
environmental, health or safety matters, and which may require
any
material work, repairs, construction, or expenditures;
or
|
|
|
(ii)
|
any
demand or notice with respect to the breach of any Environmental
Laws
applicable to the Canetic Parties, including, without limitation,
any
regulations respecting the use, storage, treatment, transportation,
or
disposition of any hazardous
substances,
|
which
would reasonably be expected to cause a Canetic Material Adverse
Change.
|
|
(h)
|
There
are no actions, suits or proceedings in existence or pending or,
to the
knowledge of Canetic or CRI, threatened or for which there is a
reasonable
basis, affecting or that would reasonably be expected to affect
the
Canetic Parties or affecting or that would reasonably be expected
to
affect any of their property or assets at law or equity or before
or by
any Governmental Authority which action, suit or proceeding involves
a
possibility of any judgment against or liability of the Canetic
Parties
which, if successful, would reasonably be expected to cause a Canetic
Material Adverse Change, or would significantly impede the ability
of the
Canetic Parties to consummate the
Transaction.
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|
|
(i)
|
Canetic
is a "mutual fund trust" within the meaning of the Tax Act and
is a
"foreign private issuer" for the purposes of U.S. securities
laws.
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(j)
|
Canetic
is not registered and, to the best of its knowledge, is not required
to be
registered as an investment company pursuant to the United States
Investment Company Act of 1940, as amended, and Canetic was not,
in 2006 and prior years, and does not expect to be, in 2007, a
"passive
foreign investment company" for the purposes of United States tax
laws.
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12
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|
(k)
|
To
the knowledge of Canetic, Canetic has not withheld from Penn West
any
material information or documents concerning Canetic or any of
its
subsidiaries or their respective assets or liabilities during the
course
of Penn West's review of Canetic and its assets. No representation
or
warranty contained herein and no statement contained in any schedule
or
other disclosure document provided or to be provided to Penn West
by
Canetic pursuant hereto contains or will contain any untrue statement
or a
material fact which is necessary in order to make the statements
herein or
therein not misleading.
|
|
11.
|
Material
Changes
|
From
and after the date of execution of this agreement and ending on the earlier
of
the Effective Date or the termination of this agreement, each of Penn West
and
Canetic shall promptly notify the other in writing of any material change
(actual, anticipated, contemplated or threatened, financial or otherwise)
in its
business, operations, affairs, assets, capitalization, financial condition,
prospects, licenses, permits, rights, privileges or liabilities, whether
contractual or otherwise.
|
12.
|
Mutual
Covenants Regarding
Non-Solicitation
|
|
|
(a)
|
Each
party shall immediately cease and cause to be terminated all existing
discussions and negotiations (including, without limitation, through
any
advisors or other parties on its behalf), if any, with any parties
conducted before the date of this agreement with respect to any
Acquisition Proposal (as defined herein) and shall immediately
request the
return or destruction of all information provided to any third
parties who
have entered into a confidentiality agreement with such party relating
to
an Acquisition Proposal and shall use all reasonable commercial
efforts to
ensure that such requests are
honoured.
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|
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(b)
|
Neither
party shall, directly or indirectly, do or authorize or permit
any of its
officers, directors or employees or any financial advisor, expert
or other
representative retained by it to do, any of the
following:
|
|
|
(i)
|
solicit,
knowingly facilitate, initiate or encourage any Acquisition
Proposal;
|
|
|
(ii)
|
enter
into or participate in any discussions or negotiations regarding
an
Acquisition Proposal, or furnish to any other person any information
with
respect to its businesses, properties, operations, prospects or
conditions
(financial or otherwise) in connection with an Acquisition Proposal
or
otherwise cooperate in any way with, or assist or participate in,
facilitate or encourage, any effort or attempt of any other person
to do
or seek to do any of the foregoing;
|
|
|
(iii)
|
waive,
or otherwise forbear in the enforcement of, or enter into or participate
in any discussions, negotiations or agreements to waive or otherwise
forbear in respect of, any rights or other benefits under confidential
information agreements, including, without limitation, any "standstill
provisions" thereunder; or
|
13
|
|
(iv)
|
accept,
recommend, approve or enter into an agreement to implement an Acquisition
Proposal;
|
provided,
however, that notwithstanding any other provision hereof, each party and
its
officers, directors and advisers may:
|
|
(v)
|
enter
into or participate in any discussions or negotiations with a third
party
who (without any solicitation, initiation or encouragement, directly
or
indirectly, after the date of this agreement, by such party or
any of its
officers, directors or employees or any financial advisor, expert
or other
representative retained by it) seeks to initiate such discussions
or
negotiations and, subject to execution of a confidentiality and
standstill
agreement substantially similar to the confidentiality and standstill
agreements dated October 17, 2007 (the "Confidentiality
Agreements") entered into between Penn West and Canetic (provided
that such confidentiality agreement shall provide for disclosure
thereof
(along with all information provided thereunder) to the other party
as set
out below), may furnish to such third party information concerning
such
party and its business, properties and assets, in each case if,
and only
to the extent that:
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|
|
(A)
|
the
third party has first made a written bona fide Acquisition Proposal
which
the board of directors of the administrator of such party determines
in
good faith: (1) that funds or other consideration necessary for
the
Acquisition Proposal are or are likely to be available; (2) (after
consultation with its financial advisor) would, if consummated
in
accordance with its terms, result in a transaction financially
superior
for unitholders of the Receiving Party (as herein defined) than
the
transaction contemplated by this agreement; and (3) after receiving
the
advice of outside counsel as reflected in minutes of the board
of
directors of the administrator of such party, that the taking of
such
action is necessary for the board of directors in discharge of
its
fiduciary duties under applicable laws (a "Superior
Proposal"); and
|
|
|
(B)
|
prior
to furnishing such information to or entering into or participating
in any
such discussions or negotiations with such third party, such party
provides prompt notice to the other party to the effect that it
is
furnishing information to or entering into or participating in
discussions
or negotiations with such person or entity together with a copy
of the
confidentiality agreement referenced above and if not previously
provided
to the other party, copies of all information provided to such
third party
concurrently with the provision of such information to such third
party,
and provided further that such party shall notify the other party
orally
and in writing of any inquiries, offers or proposals with respect
to a
Superior Proposal (which written notice shall include, without
limitation,
a copy of any such proposal (and any amendments or supplements
thereto),
the identity of the person making it, if not previously provided
to the
other party, copies of all information provided to such party and
all
other information reasonably requested by the other party), within
24
hours of the receipt thereof, shall keep the other party informed
of the
status and details of any such inquiry, offer or proposal and answer
the
other party's questions with respect thereto;
and
|
14
|
|
(vi)
|
comply
with Section 172 of the Securities Act (Alberta)
and similar provisions under applicable Canadian securities laws
relating
to the provision of directors' circulars and make appropriate disclosure
with respect thereto to its securityholders;
and
|
|
|
(vii)
|
accept,
recommend, approve or enter into an agreement to implement a Superior
Proposal from a third party, but only if prior to such acceptance,
recommendation, approval or implementation, the board of directors
of its
administrator shall have concluded in good faith, after considering
all
proposals to adjust the terms and conditions of this agreement
as
contemplated by paragraph 12(c) and after receiving the advice
of outside
counsel as reflected in minutes of the board of directors of such
party,
that the taking of such action is necessary for the board of directors
of
such party in discharge of its fiduciary duties under applicable
laws and
such party complies with its obligations set forth in paragraph
12(c) and
terminate this agreement in accordance with paragraph 16(e) or
(f), as
applicable, and concurrently therewith pays the amount required
by
paragraph 15(a) or 15(b), as applicable, to the other
party.
|
|
|
(c)
|
Any
party in receipt of a Superior Proposal (a "Receiving
Party") shall give the other party (the "Responding
Party"), orally and in writing, at least 72 hours advance notice
of any decision by the board of directors of the Receiving Party
to
accept, recommend, approve or enter into an agreement to implement
a
Superior Proposal, which notice shall confirm that the board of
directors
of the Receiving Party has determined that such Acquisition Proposal
constitutes a Superior Proposal, shall identify the third party
making the
Superior Proposal and shall provide a true and complete copy thereof
and
any amendments thereto. During such 72 hour period, the Receiving
Party
agrees not to accept, recommend, approve or enter into any agreement
to
implement such Superior Proposal and not to release the party making
the
Superior Proposal from any standstill provisions and shall not
withdraw,
redefine, modify or change its recommendation in respect of the
Transaction. In addition, during such 72 hour period the Receiving
Party
shall, and shall cause its financial and legal advisors to, negotiate
in
good faith with the Responding Party and its financial and legal
advisors
to make such adjustments in the terms and conditions of this agreement
and
the Transaction as would enable the Receiving Party to proceed
with the
Transaction as amended rather than the Superior Proposal. In the
event the
Responding Party proposes to amend this agreement and the Transaction
to
provide the holders of Penn West Units or the Canetic Units, as
applicable, (the "Receiving Party Securities") with a
value per Receiving Party Security equal to or having a value greater
than
the value per Receiving Party Security provided in the Superior
Proposal
and so advises the board of directors of the administrator of the
Receiving Party prior to the expiry of such 72 hour period, the
board of
directors of the administrator of the Receiving Party shall not
accept,
recommend, approve or enter into any agreement to implement such
Superior
Proposal and shall not release the party making the Superior Proposal
from
any standstill provisions and shall not withdraw, redefine, modify
or
change its recommendation in respect of the
Transaction.
|
|
|
(d)
|
Each
party agrees that all information that may be provided to it by
the other
party with respect to any Superior Proposal pursuant to this
Section 12 shall be treated as if it were "Confidential
Information" as that term is defined in the
Confidentiality Agreements and shall not be disclosed or used except
in
accordance with the provisions of the Confidentiality Agreements
or in
order to enforce its rights under this agreement in legal
proceedings.
|
15
|
|
(e)
|
Each
party shall ensure that its officers, directors and employees and
any
investment bankers or other advisers or representatives retained
by it are
aware of the provisions of this Section 12 applicable to such party.
Each party shall be responsible for any breach of this Section 12 by
such party's officers, directors, employees, investment bankers,
advisers
or representatives.
|
|
|
(f)
|
"Acquisition
Proposal" means, with respect to Penn West or Canetic, as the
case may be, any inquiry or the making of any proposal to such
party or
its unitholders from any person which constitutes, or may reasonably
be
expected to lead to (in either case whether in one transaction
or a series
of transactions): (i) an acquisition from such party or its unitholders
of
20% or more of the voting securities of such party or its subsidiaries;
(ii) any acquisition of a substantial amount of assets of such
party or
its subsidiaries; (iii) an amalgamation, arrangement, merger, or
consolidation involving such party or its subsidiaries; or (iv)
any
take-over bid, issuer bid, exchange offer, recapitalization, liquidation,
dissolution, reorganization or similar transaction involving such
party or
its subsidiaries; or (v) any other transaction, the consummation
of which
would or could reasonably be expected to impede, interfere with,
prevent
or delay the transactions contemplated by this agreement or the
Transaction or which would or could reasonably be expected to materially
reduce the benefits to the other party under this agreement or
the
Transaction; except that for the purpose of the definition of "Superior
Proposal" in paragraph 12(b)(v)(A) above, the references in the
definition
of "Acquisition Proposal" to "20% or more of the voting securities"
shall
be deemed to be references to "50% or more of the voting securities",
and
the references to "a substantial amount of assets" shall be deemed
to be
references to "all or substantially all of the
assets".
|
|
13.
|
Business
Activities
|
Canetic
agrees that during the period from the date of execution of this agreement
and
ending on the earlier of the Effective Date or the termination of this
agreement, except with the written consent of Penn West or Penn West Petroleum,
as required by law or as otherwise expressly permitted or specifically
contemplated by this agreement, it;
|
|
(a)
|
shall
conduct its business only in the usual and ordinary course of business
and
consistent with past practice, and it shall use all commercially
reasonable efforts to maintain and preserve its business, assets
and
advantageous business relationships, provided that it shall be
entitled
and authorized to comply with all pre-emptive rights, first purchase
rights or rights of first refusal that are applicable to its assets
and
become operative by virtue of this agreement or any of the transactions
contemplated by this agreement;
|
|
|
(b)
|
shall
not except in connection with an internal reorganization of Canetic
implemented in conjunction with the Transaction: (i) amend its
constating documents; (ii) declare, set aside or pay any distribution
or make any other payment (whether in cash, trust units or property)
in
respect of its outstanding securities other than regular monthly
cash
distributions of an amount equal to $0.19 per Canetic Unit and
any
interest payments required to be made on Canetic's outstanding
convertible
debentures; (iii) except as contemplated pursuant to the Disclosure
Letter, issue or agree to issue any trust units, or securities
convertible
into or exchangeable or exercisable for trust units, or otherwise
evidencing a right to acquire trust units, other than the issuance
of
trust units pursuant to the exercise of currently outstanding rights
or
grants to acquire trust units, pursuant to the pending acquisition
of
Titan Exploration Ltd. on the terms previously publicly announced,
pursuant to the employee savings plan, pursuant to its distribution
reinvestment plan or to employees hired after the date hereof in
a manner
consistent with past practice; (iv) redeem, purchase or otherwise
acquire any of its outstanding trust units or other securities
(other than
redemptions required pursuant to its declaration of trust or trust
indenture, as applicable); (v) split, combine or reclassify any of
its trust units; (vi) adopt a plan of liquidation or resolutions
providing for its liquidation, dissolution, merger, consolidation
or
reorganization; or (vii) enter into or modify any contract,
agreement, commitment or arrangement with respect to any of the
foregoing;
|
16
|
|
(c)
|
shall
not, except as previously disclosed on the Canetic Public Record
or
previously disclosed to Penn West in writing or otherwise, without
prior
consultation with and the consent of Penn West, such consent not
to be
unreasonably withheld, directly or indirectly: (i) sell, pledge,
dispose of or encumber any assets having an individual value in
excess of
$10 million, other than production in the ordinary course of
business; (ii) expend or commit to expend more than $10 million
individually or $25 million in the aggregate with respect to any
capital expenditures except to the extent such expenditures are
set forth
in the capital budgets disclosed to Penn West or Penn West Petroleum;
(iii) expend or commit to expend any amounts with respect to any
operating expenses other than in the ordinary course of business
or
pursuant to the Transaction; (iv) acquire (by merger, amalgamation,
consolidation or acquisition of shares or assets) any corporation,
partnership or other business organization or division thereof
which is
not a subsidiary or affiliate of such party, or make any investment
therein either by purchase of shares or securities, contributions
of
capital or property transfer; (v) acquire any assets with an
acquisition cost in excess of $10 million individually or
$25 million in the aggregate; (vi) incur any indebtedness for
borrowed money in excess of existing credit facilities, or any
other
material liability or obligation or issue any debt securities or
assume,
guarantee, endorse or otherwise become responsible for, the obligations
of
any other individual or entity, or make any loans or advances,
other than
in respect of fees payable to legal, financial and other advisors
in the
ordinary course of business or in respect of the Transaction;
(vii) authorize, recommend or propose any release or relinquishment
of any material contract right; (viii) waive, release, grant or
transfer any material rights of value or modify or change in any
material
respect any existing material license, lease, contract, production
sharing
agreement, government land concession or other material document;
(ix) enter into or terminate any xxxxxx, swaps or other financial
instruments or like transactions; or (x) authorize or propose any of
the foregoing, or enter into or modify any contract, agreement,
commitment
or Transaction to do any of the
foregoing;
|
|
|
(d)
|
shall
not make any payment to any employee, officer or director outside
of their
ordinary and usual compensation for services provided, except to
the
extent that any such entitlement to payment to a former employee
or
officer has accrued prior to the date
hereof;
|
|
|
(e)
|
shall
not: (i) grant any officer, director or employee an increase in
compensation in any form; (ii) grant any general salary increase;
(iii) take any action with respect to the amendment or grant of any
severance or termination pay policies or arrangements for any directors,
officers or employees; (iv) amend (other than to permit accelerated
vesting of currently outstanding grants of units) any trust unit
award or
incentive plan or the terms of any outstanding rights thereunder;
nor
(v) advance any loan to any officer, director or any other party not
at arm's length;
|
17
|
|
(f)
|
shall
not adopt or amend or make any contribution to any bonus, employee
benefit
plan, profit sharing, trust unit, deferred compensation, insurance,
incentive compensation, other compensation or other similar plan,
agreement, trust unit incentive or purchase plan, fund or arrangement
for
the benefit of employees, except as is necessary to comply with
the law or
with respect to existing provisions of any such plans, programs,
arrangements or agreements;
|
|
|
(g)
|
shall
use reasonable commercial efforts to maintain in force its current
policies of insurance and will pay all premiums in respect of such
insurance policies that become due after the date hereof;
and
|
|
|
(h)
|
shall
not take any action, refrain from taking any action, permit any
action to
be taken or not taken, inconsistent with this agreement, which
might
directly or indirectly interfere or affect the consummation of
the
Transaction.
|
Penn
West agrees that during the period from the date of execution of this agreement
and ending on the earlier of the Effective Date or the termination of this
agreement, except with the written consent of Canetic or CRI, as required
by law
or as otherwise expressly permitted or specifically contemplated by this
agreement, it;
|
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(a)
|
shall
conduct its business only in the usual and ordinary course of business
and
consistent with past practice, and it shall use all commercially
reasonable efforts to maintain and preserve its business, assets
and
advantageous business relationships, provided that it shall be
entitled
and authorized to comply with all pre-emptive rights, first purchase
rights or rights of first refusal that are applicable to its assets
and
become operative by virtue of this agreement or any of the transactions
contemplated by this agreement;
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(b)
|
shall
not: (i) amend its constating documents; (ii) declare, set aside
or pay any distribution or make any other payment (whether in cash,
trust
units, or property) in respect of its outstanding securities other
than
regular monthly cash distributions of an amount equal to $0.34
per Penn
West Unit and any interest payments required to be made on Penn
West's
outstanding convertible debentures, if any; (iii) issue or agree to
issue any trust units, or securities convertible into exchangeable
or
exercisable for trust units, or otherwise evidencing a right to
acquire
trust units, other than the issuance of trust units pursuant to
the
exercise of currently outstanding rights or grants to acquire trust
units,
pursuant to the pending acquisition of Vault Energy Trust on the
terms
previously publicly announced, pursuant to the employee savings
plan,
pursuant to its distribution reinvestment plan or to the employees
hired
after the date hereof in a manner consistent with past practice;
(iv) redeem, purchase or otherwise acquire any of its outstanding
trust units or other securities (other than redemptions required
pursuant
to its declaration of trust or trust indenture, as applicable);
(v) split, combine or reclassify any of its trust units;
(vi) adopt a plan of liquidation or resolutions providing for its
liquidation, dissolution, merger, consolidation or reorganization;
or
(vii) enter into or modify any contract, agreement, commitment or
arrangement with respect to any of the
foregoing;
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(c)
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shall
not, except as previously disclosed on the Penn West Public Record
or
previously disclosed to Canetic in writing, or otherwise, without
prior
consultation with and the consent of Canetic, such consent not
to be
unreasonably withheld, directly or indirectly: (i) sell, pledge,
dispose of or encumber any assets having an individual value in
excess of
$20 million, other than production in the ordinary course of
business; (ii) expend or commit to expend more than $20 million
individually or $50 million in the aggregate
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18
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|
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with
respect to any capital expenditures except to the extent that
such
expenditures are set forth in the capital budgets disclosed to
Canetic and
CRI; (iii) expend or commit to expend any amounts with respect to any
operating expenses other than in the ordinary course of business
or
pursuant to the Transaction; (iv) acquire (by merger, amalgamation,
consolidation or acquisition of shares or assets) any corporation,
trust,
partnership or other business organization or division thereof
which is
not a subsidiary or affiliate of such party, or make any investment
therein either by purchase of shares or securities, contributions
of
capital or property transfer; (v) acquire any assets with an
acquisition cost in excess of $20 million individually or
$50 million in the aggregate; (vi) incur any indebtedness for
borrowed money in excess of existing credit facilities, or any
other
material liability or obligation or issue any debt securities
or assume,
guarantee, endorse or otherwise become responsible for, the obligations
of
any other individual or entity, or make any loans or advances,
other than
in respect of fees payable to legal, financial and other advisors
in the
ordinary course of business or in respect of the Transaction;
(vii) authorize, recommend or propose any release or relinquishment
or any material contract right; (viii) waive, release, grant or
transfer any material rights of value or modify or change in
any material
respect any existing material license, lease, contract, production
sharing
agreement, government land concession or other material document;
(ix) enter into or terminate any xxxxxx, swaps or other financial
instruments or like transactions; or (x) authorize or propose any of
the foregoing, or enter into or modify any contract, agreement,
commitment
or arrangement to do any of the
foregoing;
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(d)
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shall
not make any payment to any employee, officer or director outside
of their
ordinary and usual compensation for services provided, except to
the
extent that any such entitlement to payment to a former employee
or
officer has accrued prior to the date
hereof;
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(e)
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shall
not: (i) grant any officer, director or employee an increase in
compensation in any form; (ii) grant any general salary increase;
(iii) take any action with respect to the amendment or grant of any
"change of control", severance or termination pay policies or arrangements
for any directors, officers or employees; (iv) amend any trust unit
incentive plan or the terms of any outstanding rights thereunder;
nor
(v) advance any loan to any officer, director or any other party not
at arm's length;
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(f)
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shall
not adopt or amend or make any contribution to any bonus, employee
benefit
plan, profit sharing, trust unit, deferred compensation, insurance,
incentive compensation, other compensation or other similar plan,
agreement, trust unit incentive or purchase plan, fund or arrangement
for
the benefit of employees, except as is necessary to comply with
the law or
with respect to existing provisions of any such plans, programs,
arrangements or agreements;
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(g)
|
shall
use reasonable commercial efforts to maintain in force its current
policies of insurance and will pay all premiums in respect of such
insurance policies that become due after the date hereof;
and
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(h)
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shall
not take any action, refrain from taking any action, permit any
action to
be taken or not taken, inconsistent with this agreement, which
might
directly or indirectly interfere or affect the consummation of
the
Transaction.
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19
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14.
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Provision
of Information; Access
|
From
and after the date hereof, each party shall provide the other party and its
representatives access, during normal business hours and at such other time
or
times as Canetic and Penn West may reasonably request, to its premises
(including field offices and sites), books, contracts, records, computer
systems, properties, employees and management personnel and shall furnish
promptly to Canetic or Penn West, as the case may be, all information concerning
its business, properties and personnel as Canetic or Penn West may reasonably
request, which information shall remain subject to the Confidentiality
Agreement, in order to permit Canetic and Penn West to be in a position to
expeditiously and efficiently integrate the business and operations of each
of
Canetic and Penn West immediately upon but not prior to the Effective
Date. Without limitation, representatives of each party will be
permitted to attend the other's weekly operations meetings. Each
party agrees to keep the other fully appraised in a timely manner of every
circumstance, action, occurrence or event occurring or arising after the
date
hereof that would be relevant and material to a prudent operator of the business
and operations of Canetic and Penn West. Each party shall confer with
and obtain the other's approval (not to be unreasonably withheld or delayed),
prior to taking action (other than in emergency situations) with respect
to any
material operational matters involved in its business.
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15.
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Damages
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(a)
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If
at any time after the execution of this
agreement:
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(i)
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the
Canetic Board has withdrawn or changed any of its recommendations
or
determinations referred to in paragraph 7(b) in a manner adverse to
Penn West or shall have resolved to do so prior to the Effective
Date;
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(ii)
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a
bona fide Acquisition Proposal is publicly announced, proposed,
offered or
made to the Canetic Unitholders or to Canetic and the Canetic Unitholders
do not approve the Transaction or the Transaction is not submitted
for
their approval, and such Acquisition Proposal, an amended version
thereof
or any other Acquisition Proposal relating to Canetic is consummated
within six months of the date the first Acquisition Proposal is
publicly
announced, proposed, offered or
made;
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(iii)
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Canetic
accepts, recommends, approves or enters into an agreement to implement
a
Superior Proposal;
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(iv)
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Canetic
is in breach of any of its covenants made in this agreement which
breach
individually or in the aggregate causes or would reasonably be
expected to
cause a Canetic Material Adverse Change or materially impedes the
completion of the Transaction, and Canetic fails to cure such breach
within five business days after receipt of written notice thereof
from
Penn West (except that no cure period shall be provided for a breach
which
by its nature cannot be cured and, in no event, shall any cure
period
extend beyond the Outside Date); or
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(v)
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Canetic
is in breach of any of its representations or warranties made in
this
agreement (without giving effect to any materiality qualifiers
contained
therein) which breach individually or in the aggregate causes or
would
reasonably be expected to cause a Canetic Material Adverse Change
or
materially impedes the completion of the Transaction, and Canetic
fails to
cure such breach within five business days after receipt of written
notice
thereof from Penn West (except that no cure period shall be provided
for a
breach which by its nature cannot be cured and, in no event, shall
any
cure period extend beyond the Outside
Date),
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20
(each
of the above being a "Penn West Damages Event"), then in the
event of the termination of this agreement pursuant to Section 16, Canetic
shall pay to Penn West $125 million as liquidated damages in immediately
available funds to an account designated by Penn West within one business
day
after the first to occur of the events described above, and after such event
but
prior to payment of such amount, Canetic shall be deemed to hold such funds
in
trust for Penn West. Canetic shall only be obligated to pay a maximum
of $125 million pursuant to this paragraph 15(a). In the event
that a bona fide Acquisition Proposal is publicly announced, proposed, offered
or made to the Canetic Unitholders or to Canetic and the Canetic Unitholders
do
not approve the Transaction or the Transaction is not submitted for their
approval; and such Acquisition Proposal, an amended version thereof or any
other
Acquisition Proposal relating to Canetic is not consummated within six months
of
the date the first Acquisition Proposal is publicly announced, proposed,
offered
or made; then Canetic shall pay to Penn West $5 million, in full satisfaction
of, and as a fixed amount for reimbursement of, all expenses, including all
third party expenses and costs, of Penn West in relation to the
Transaction.
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(b)
|
If
at any time after the execution of this
agreement:
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|
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(i)
|
Penn
West accepts, recommends, approves or enters into an agreement
to
implement a Superior Proposal;
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(ii)
|
Penn
West is in breach of any of its covenants made in this agreement
which
breach individually or in the aggregate causes or would reasonably
be
expected to cause a Penn West Material Adverse Change or materially
impedes the completion of the Transaction, and Penn West fails
to cure
such breach within five business days after receipt of written
notice
thereof from Canetic (except that no cure period shall be provided
for a
breach which by its nature cannot be cured and, in no event, shall
any
cure period extend beyond the Outside Date);
or
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(iii)
|
Penn
West is in breach of any of its representations or warranties made
in this
agreement (without giving effect to any materiality qualifiers
contained
therein) which breach individually or in the aggregate causes or
would
reasonably be expected to cause a Penn West Material Adverse Change
or
materially impedes the completion of the Transaction, and Penn
West fails
to cure such breach within five business days after receipt of
written
notice thereof from Canetic (except that no cure period shall be
provided
for a breach which by its nature cannot be cured and, in no event,
shall
any cure period extend beyond the Outside
Date),
|
(each
of the above being a "Canetic Damages Event"), then in the
event of the termination of this agreement pursuant to Section 16, Penn
West shall pay to Canetic $125 million as liquidated damages in immediately
available funds to an account designated by Canetic within one business day
after the first to occur of the events described above, and after such event
but
prior to payment of such amount, Penn West shall be deemed to hold such funds
in
trust for Canetic. Penn West shall only be obligated to pay a maximum
of $125 million pursuant to this Section 15(b).
21
Each
party acknowledges that all of the payment amounts set out in this
Section 15 are payments of liquidated damages which are a genuine
pre-estimate of the damages which the party entitled to such damages will
suffer
or incur as a result of the event giving rise to such damages and resultant
termination of this agreement and are not penalties. Each party irrevocably
waives any right it may have to raise as a defence that any such liquidated
damages are excessive or punitive. For greater certainty, the parties agree
that, the payment of the amount pursuant to this Section 15 is the sole
monetary remedy of the party receiving such payment provided, however, that
this
limitation shall not apply in the event of fraud or willful breach of this
Agreement by the party obligated to make such payment. Nothing herein shall
preclude a party from seeking injunctive relief to restrain any breach or
threatened breach of the covenants or agreements set forth in this agreement
or
the Confidentiality Agreements or otherwise to obtain specific performance
of
any of such act, covenants or agreements, without the necessity of posting
bond
or security in connection therewith.
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16.
|
Termination
|
This
agreement may be terminated at any time prior to the Effective
Date:
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|
(a)
|
by
mutual written consent of Penn West and
Canetic;
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(b)
|
as
provided in Sections 8 and 9;
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(c)
|
by
Penn West upon the occurrence of a Penn West Damages Event as provided
in
paragraph 15(a) provided that in the event of a Penn West Damages
Event
provided for in paragraph 15(a)(i), this agreement may not be terminated
by Penn West unless Canetic Unitholders do not approve the Transaction
or
the Transaction is not submitted for their
approval;
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(d)
|
by
Canetic upon the occurrence of a Canetic Damages Event as provided
in
paragraph 15(b);
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(e)
|
by
Penn West upon the occurrence of a Canetic Damages Event as provided
in
paragraph 15(b)(i) (in accordance with paragraph 12(b)(vii) and
provided
Penn West has complied with its obligations set forth in paragraph
12(c))
and the payment by Penn West to Canetic of the amount required
by
paragraph 15(b); and
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(f)
|
by
Canetic upon the occurrence of a Penn West Damages Event as provided
in
paragraph 15(a)(iii) (in accordance with paragraph 12(b)(vii) and
provided
Canetic has complied with its obligations set forth in paragraph
12(c))
and the payment by Canetic to Penn West of the amount required
by
paragraph 15(a).
|
In
the event of the termination of this agreement in the circumstances set out
in
paragraphs (a) through (f) of this Section 16, this agreement shall
forthwith become void and neither party shall have any liability or further
obligation to the other party hereunder except with respect to the obligations
set forth in Section 15 and each party's obligations in the Confidentiality
Agreements, which shall survive such termination.
22
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17.
|
Confidentiality
|
It
is the agreed intention of the parties to issue joint or separate press releases
disclosing the Transaction contemplated hereby immediately following execution
of this agreement and after consultation with each other as to the timing
and
content of such release(s). Neither party will otherwise make any disclosure
of
this agreement or its contents to any third parties without the prior written
consent of the other party provided however that such disclosure may be made,
after consultation with the other party, in response to requirements of
applicable law or the policies, rules or requirements of securities regulatory
authorities or stock exchanges.
|
18.
|
Privacy
Matters
|
The
parties acknowledge that they are responsible for compliance at all times
with
applicable privacy laws which govern the collection, use and disclosure of
personal information acquired by or disclosed to the parties pursuant to
or in
connection with this agreement (the "Disclosed Personal
Information"). None of the parties shall use the Disclosed
Personal Information for any purposes other than those relating to the
performance of this agreement and the completion of the
Transaction.
|
19.
|
Assignment
|
Neither
this agreement nor any of the rights, interests or obligations hereunder
shall
be assigned by any of the parties hereto without the prior written consent
of
the other party.
|
20.
|
No
Finder’s Fee, Etc.
|
Canetic
represents and warrants to Penn West that Canetic has not entered into any
arrangement whereby Penn West or Canetic will have any liability for financial
advisor’s, broker’s or finder’s fees (including without limitation
any disbursements, expenses or fairness opinion) in respect of this transaction,
except for Canetic’s fees to its financial advisors. Canetic will
provide to Penn West true and correct copies of its agreements with each
of its
financial advisors.
Penn
West represents and warrants to Canetic that Penn West has not entered into
any
arrangement whereby Canetic or Penn West will have any liability for financial
advisor’s, broker’s or finder’s fees (including without limitation
any disbursements, expenses or fairness opinion) in respect of this transaction,
except for Penn West's fees to its financial advisors. Penn West will
provide to Canetic true and correct copies of its agreements with each of
its
financial advisors.
|
21.
|
Insurance
|
Penn
West shall secure director and officer insurance coverage for the current
directors and officers of Canetic in a per occurrence coverage amount to
be
agreed by the parties, acting reasonably, on a trailing liability basis and
for
a period of six years.
|
22.
|
Costs
|
Except
as set forth in paragraph 15, all fees, costs and expenses incurred in
connection with this agreement and the transactions contemplated hereby shall
be
paid by the party incurring such cost or expense, whether or not the Transaction
is completed.
23
|
23.
|
Obligations
|
The
obligations of Penn West hereunder are not personally binding upon any trustee
or holder of trust units of Penn West and resort shall not be had to, nor
shall
recourse or satisfaction be sought from, any of the foregoing or the private
property of any of the foregoing, but the property of Penn West only shall
be
bound by such obligations.
The
obligations of Canetic hereunder are not personally binding upon any trustee
or
holder of trust units of Canetic and resort shall not be had to, nor shall
recourse or satisfaction be sought from, any of the foregoing or the private
property of any of the foregoing, but the property of Canetic only shall
be
bound by such obligations.
If
the terms of this agreement are acceptable to Canetic, please sign below
on the
enclosed duplicate copy of this letter and return the same to
Canetic.
Yours
truly, AGREED
TO this 30th day
of October, 2007
|
PENN
WEST ENERGY TRUST,
by
Penn West Petroleum Ltd.
|
Canetic
Resources Inc.
|
|||
|
Per:
|
signed: "Xxxxxxx
X. Xxxxxx"
|
Per:
|
signed: "J.
Xxxx Xxxxxxx"
|
|
|
Xxxxxxx
X. Xxxxxx
President
and Chief Executive Officer
|
J.
Xxxx Xxxxxxx
President
and Chief Executive Officer
|
|||
|
Per:
|
signed: "Xxxx
Xxxxxxxx'
|
Per:
|
signed: "Xxxxx
X. Xxxxx"
|
|
|
Xxxx
Xxxxxxxx
Senior
Vice President and Chief Financial Officer
|
Xxxxx
X. Xxxxx
Vice-President,
General Counsel andSecretary
|
|||
|
PENN
WEST PETROLEUM LTD.
|
CANETIC
RESOURCES INC.
|
|||
|
Per:
|
signed: "Xxxxxxx
X. Xxxxxx"
|
Per:
|
signed: "J.
Xxxx Xxxxxxx"
|
|
|
Xxxxxxx
X. Xxxxxx
President
and Chief Executive Officer
|
J.
Xxxx Xxxxxxx
President
and Chief Executive Officer
|
|||
|
Per:
|
signed: "Xxxx
Xxxxxxxx'
|
Per:
|
signed: "Xxxxx
X. Xxxxx"
|
|
|
Xxxx
Xxxxxxxx
Senior
Vice President and Chief Financial Officer
|
Xxxxx
X. Xxxxx
Vice-President,
General Counsel and Secretary
|
|||
24
