<PAGE>
SCHEDULE 14C INFORMATION
Information Statement Pursuant to Section 14(c)
of the Securities Exchange Act of 1934 (Amendment No. )
Check the appropriate box:
[_] Preliminary Information Statement [_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14C-5(D)(2))
[X] Definitive Information Statement
American Rivers Oil Company
- --------------------------------------------------------------------------------
(Name of Registrant As Specified In Charter)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[_] $125 per Exchange Act Rules 0-11(c)(1)(ii), or 14c-5(g).
[_] Fee computed on table below per Exchange Act Rules 14c-5(g) and 0-11.
(1) Title of each class of securities to which transaction applies:
--------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
--------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
--------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
--------------------------------------------------------------------------
(5) Total fee paid:
--------------------------------------------------------------------------
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
--------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
--------------------------------------------------------------------------
(3) Filing Party:
--------------------------------------------------------------------------
(4) Date Filed:
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<PAGE>
ALLIANCE RESOURCES PLC AMERICAN RIVERS OIL COMPANY
October 21, 1999
To shareholders of Alliance Resources PLC and American Rivers Oil Company:
The Boards of Directors of Alliance Resources and American Rivers are
proposing that American Rivers change its state of incorporation from Wyoming to
Delaware by merging into the subsidiary of a new Delaware holding company and
that the new Delaware holding company offer to acquire all of the shares of
Alliance Resources PLC. If we complete these transactions, American Rivers
shareholders and Alliance shareholders who accept the offer will own shares in a
new Delaware corporation , the subsidiaries of which will own all of the assets
now owned by Alliance Resources PLC and American Rivers Oil Company. After the
reincorporation, the new company will be named AROC Inc. and we refer to that
company as it will exist after the transactions as new Alliance.
If all of the shareholders of Alliance accept the offer, they will own 98%
of the shares of the new company and the present shareholders of American Rivers
will own approximately 2% of the total shares of the new company. The Board of
Directors and executive officers of the new company will be the same as the
current Board of Directors and executive officers of Alliance.
American Rivers common stock is currently quoted on the OTC Bulletin Board
under the symbol "AROC." Alliance's shares are currently traded on the Official
List of the London Stock Exchange under the "ARS" symbol. After these
transactions, we expect that the shares of the new Alliance will be quoted on
the OTC Bulletin Board, but we cannot assure you that there will be any
substantial trading volume for the stock.
The Board of Directors of American Rivers has unanimously recommended that
the American Rivers shareholders vote in favor of the reincorporation. Because
the offer for Alliance Resources PLC will be made by the new Delaware company,
the American Rivers shareholders are not being asked to vote on the offer
itself. The directors of American Rivers, who directly or indirectly control
approximately 53.5% of the outstanding shares of the company, have indicated
that they intend to vote for the approval of the reincorporation. Therefore,
approval of the reincorporation is assured and we are not asking American Rivers
shareholders for a proxy.
American Rivers has called a special meeting of the shareholders to vote on
the reincorporation. The record date for voting at the meeting is October 12,
1999. The meeting will be held November 18, 1999.
The Board of Directors of Alliance has unanimously recommended that all
Alliance shareholders accept the offer as each of the Board members intend to do
in respect of their holdings of Alliance shares, which total 389,484 Alliance
ordinary shares representing 0.82% of the outstanding ordinary shares of
Alliance.
Alliance shareholders who wish to accept the offer should ensure that they
return their completed Form of Acceptance in the enclosed postage paid envelope
as soon as possible and in any event so as to be received by no later than 3:00
p.m. on November 19, 1999.
This document contains more complete information about the reincorporation
of American Rivers and the offer for the Alliance shares. You should read this
entire document carefully, including the Annual Reports on Form 10-K for both
Alliance and American Rivers. It is first being mailed on October 21, 1999.
See "Risk Factors," beginning on page 7 for a discussion of certain risks
relating to the transactions and the ownership of new Alliance common
stock.
Neither the Securities and Exchange Commission nor any State Securities
Commission has determined if this information statement is truthful or complete.
Any representation to the contrary is a criminal offense.
Sincerely, Sincerely,
JOHN A. KEENAN, KARLTON TERRY,
Chairman and Managing Director President and Chief Executive Officer
Alliance Resources PLC American Rivers Oil Company
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
SUMMARY............................................................................ 1
The Companies................................................................... 1
The Proposed Transactions....................................................... 1
Reasons for the Transactions.................................................... 1
Voting by American Rivers Shareholders.......................................... 2
American Rivers Shareholders' Exercise of Dissenters' Rights.................... 2
Recommendation to American Rivers Shareholders.................................. 2
Procedure for Acceptance of the Offer by Alliance Shareholders.................. 2
Recommendation to Alliance Shareholders......................................... 3
Material United States Federal Tax Consequences of the Merger and Exchange...... 3
Material U.K. Tax Consequences of the Exchange.................................. 3
How the Transactions Will Affect Your Rights as a Shareholder................... 3
Accounting Treatment of the Transactions........................................ 3
Summary Historical and Pro Forma Financial and Oil and Gas Data................. 5
RISK FACTORS....................................................................... 7
There are a number of risks associated with the transactions.................... 7
There are a number of risks inherent in the oil and gas business................ 8
FORWARD-LOOKING STATEMENTS MAY PROVE INACCURATE.................................... 10
THE PROPOSED TRANSACTIONS.......................................................... 10
Background of the Reincorporation Proposal and Offer............................ 10
Reasons for the Reincorporation and the Offer................................... 11
Recommendation of the American Rivers Board of Directors........................ 13
Recommendation of the Alliance Board of Directors............................... 13
THE TERMS OF THE TRANSACTIONS...................................................... 14
Overview........................................................................ 14
Conditions to the Transactions and Effective Time............................... 15
Termination..................................................................... 15
Consequences Under Federal Securities Laws; Resale of New Alliance Stock........ 15
Accounting Treatment............................................................ 15
PROCEDURE FOR ACCEPTANCE OF THE OFFER BY ALLIANCE SHAREHOLDERS..................... 16
VOTING INFORMATION FOR AMERICAN RIVERS SHAREHOLDERS................................ 16
Special Meeting................................................................. 16
Record Date..................................................................... 16
Vote Required for Approval...................................................... 16
Dissenters' Rights.............................................................. 17
Exchange of Share Certificates.................................................. 18
Fractional Shares............................................................... 18
MATERIAL TAX CONSEQUENCES OF THE
MERGER AND EXCHANGE............................................................. 18
United States Taxation.......................................................... 18
United Kingdom Taxation......................................................... 24
COMPARATIVE RIGHTS OF SHAREHOLDERS................................................. 26
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
ANTI-TAKEOVER PROVISIONS OF DELAWARE LAW AND OF THE ORGANIZATIONAL
DOCUMENTS OF NEW ALLIANCE....................................................... 36
Classified Board of Directors................................................... 37
Number of Directors; Removal; Filling Vacancies................................. 37
Advance Notice Provisions for Director Nominations and Stockholder Proposals.... 37
Preferred Shares................................................................ 38
Amendment of the new Alliance Certificate of Incorporation...................... 38
Business Combinations Under Delaware Law........................................ 38
BUSINESS OF AMERICAN RIVERS........................................................ 38
BUSINESS OF ALLIANCE............................................................... 38
SELECTED HISTORICAL CONSOLIDATED FINANCIAL AND OPERATING DATA OF AMERICAN RIVERS... 41
SELECTED HISTORICAL CONSOLIDATED FINANCIAL AND OPERATING DATA OF ALLIANCE.......... 43
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS........................ 45
MANAGEMENT OF NEW ALLIANCE......................................................... 49
Directors and Executive Officers................................................ 49
Business Histories of Directors and Executive Officers.......................... 49
SECURITY OWNERSHIP................................................................. 50
MARKET FOR ALLIANCE'S COMMON EQUITY AND RELATED SHAREHOLDER MARKET INFORMATION..... 52
SHAREHOLDER PROPOSALS.............................................................. 53
OTHER MATTERS...................................................................... 53
LEGAL MATTERS...................................................................... 53
EXPERTS............................................................................ 53
WHERE YOU CAN GET INFORMATION...................................................... 54
EXCHANGE AND MERGER AGREEMENT............................................... Appendix A
WYOMING BUSINESS CORPORATION ACT - ARTICLE 13 DISSENTERS' RIGHTS........... Appendix B
TERMS OF THE OFFER.......................................................... Appendix C
PROCEDURE FOR ACCEPTANCE OF THE OFFER BY ALLIANCE SHAREHOLDERS.............. Appendix D
</TABLE>
ALLIANCE RESOURCES PLC ANNUAL REPORT
ON FORM 10-K FOR THE YEAR ENDED APRIL 30,1999
ALLIANCE RESOURCES PLC QUARTERLY REPORT
ON FORM 10-Q FOR THE QUARTER ENDED JULY 31, 1999
AMERICAN RIVERS OIL COMPANY ANNUAL REPORT
ON FORM 10-K FOR THE YEAR ENDED MARCH 31, 1999
AMERICAN RIVERS OIL COMPANY QUARTERLY REPORT
ON FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1999
ii
<PAGE>
SUMMARY
This summary provides an overview of the information contained in this document
and does not contain all the information you should consider. Therefore, you
should also read the more detailed information set forth in this document and
the Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q for both
American Rivers Oil Company and Alliance Resources PLC that are included with
this document.
<TABLE>
<CAPTION>
The Companies
<S> <C>
American Rivers Oil Company (Wyoming) American Rivers Oil Company, a Wyoming corporation,
historically engaged in the oil and gas business, but it has
now sold nearly all of its oil and gas properties. The
executive offices of American Rivers are located at 700 East
Ninth Avenue, Suite 106, Denver, Colorado 80203, and its
telephone number is (303) 832-1117.
American Rivers Oil Company (Delaware) American Rivers Oil Company, a Delaware corporation and
wholly-owned subsidiary of American Rivers, was recently
formed to facilitate the offer to the Alliance shareholders and
the reincorporation of the Wyoming company into a
Delaware corporation. After the transactions, this company
will be a holding company for subsidiaries that will own all
of the assets of the Wyoming company and Alliance. After
the reincorporation, the new company will be named AROC
Inc. and we sometimes refer to that company as new
Alliance. Its offices will be located at Alliance's offices in
Tulsa, Oklahoma.
Alliance Resources PLC Alliance Resources PLC is a U.K. public limited company
whose principal activities are the acquisition, exploration,
development and production of oil and gas properties in the
U.S. and internationally. Alliance's registered offices are at
12 St. James's Square, London SW1Y 4BR, England.
Alliance maintains its principal operating offices at 4200 East
Skelly Drive, Suite 1000, Tulsa, Oklahoma 74135.
</TABLE>
The Proposed Transactions
The Board of Directors of American Rivers has proposed that American Rivers
change its state of incorporation from Wyoming to Delaware by merging into the
subsidiary of a newly formed Delaware company. In the reincorporation, each
shareholder of American Rivers will receive .11 shares of the new Delaware
company for each share of common stock or Class B common stock of American
Rivers that the shareholder now owns. Therefore, the relative ownership of the
American Rivers' shareholders among themselves will not change.
The new Delaware company will make an offer to the shareholders of Alliance to
acquire all of the outstanding shares of Alliance on the basis of one share of
the new company's common stock for each ordinary share of Alliance they now
hold. The Board of Directors of Alliance has recommended that the Alliance
shareholders accept the offer. When the reincorporation and the offer are
completed, if all of the Alliance shareholders accept the offer, the Alliance
shareholders will own 98% of the new company, and the American Rivers
shareholders will own 2% of the new company. The individuals that were
directors and officers of Alliance will be the directors and officers of the new
company.
Reasons for the Transactions
The Board of Directors of American Rivers has proposed the reincorporation in
connection with a proposal by the new Delaware company to make an offer to
acquire all of the outstanding shares of Alliance. Management of American
Rivers believes that a combination of American Rivers with Alliance is in the
best interests of the American Rivers shareholders because it will permit them
to have a continuing interest in a company with substantial assets.
1
<PAGE>
The Board of Directors of Alliance believes that the proposed combination with
American Rivers is in the best interests of the Alliance shareholders. The
administrative burden and extra costs created by complying with the securities
requirements of both the United States and the United Kingdom have been far
greater than the Directors of Alliance anticipated and the level of investor
interest in Alliance in the U.K. has been less than the Directors of Alliance
anticipated.
The achievement of Alliance's business plan will require that further
financing or refinancing is obtained. In the opinion of the Directors of
Alliance, the most likely source of this finance is from entities in the U.S.
and this is more likely to be accessed if new Alliance is domiciled in the U.S.
Because Alliance's executive officers, the holders of a majority of its shares
and a significant portion of its properties are located in the U.S., the
Directors of Alliance believe that it would be in the best interests of Alliance
and its shareholders for the parent company to be incorporated in the U.S.
rather than the U.K. They also believe that it is desirable for the U.S.
company to be incorporated in the State of Delaware to take advantage of the
benefits afforded by Delaware corporate laws.
Voting by American Rivers Shareholders
A special meeting of the American Rivers shareholders will be held on November
18, 1999, at the offices of American Rivers, 700 East Ninth Avenue, Suite 106,
Denver, Colorado 80203 (or at any adjournments or postponements thereof) to
consider and vote on the proposal to approve the reincorporation and any other
matters that may properly come before such meeting. The presence, in person or
by proxy, of shareholders holding a majority of the outstanding shares of
American Rivers common stock and Class B Common Stock, in the aggregate, will
constitute a quorum. Only those shareholders of record at the close of business
on October 12, 1999, as shown in the records of American Rivers, will be
entitled to vote or to grant proxies to vote at the special meeting.
Approval of the reincorporation requires the affirmative vote of the
shareholders of American Rivers holding at least a majority of the outstanding
shares of American Rivers common stock and Class B Common Stock, voting as a
single class. As of October 12, 1999, there were 3,565,770 shares of American
Rivers common stock and 7,267,820 shares of American Rivers Class B Common Stock
outstanding and entitled to vote. The directors and executive officers of
American Rivers and their affiliates directly owned, in the aggregate, 5,795,967
shares (approximately 53.5%) of the total number of shares of American Rivers
common stock and Class B Common Stock outstanding at the record date. These
persons have indicated that they will vote all of their shares of American
Rivers common stock and Class B Common Stock for the approval of the
reincorporation. Therefore, American Rivers is not soliciting proxies in
connection with the meeting.
American Rivers Shareholders' Exercise of Dissenters' Rights
If an American Rivers shareholder does not vote in favor of the
reincorporation and complies with the detailed provisions contained in Article
13 of the Wyoming Business Corporation Act, that shareholder will be entitled to
dissent and seek the payment of the fair value of the shares of American Rivers.
A copy of Article 13 of the Wyoming Business Corporation Act is reproduced as
Appendix B to this document. American Rivers shareholders who wish to dissent
should read those materials carefully. If an American Rivers shareholder votes
for the reincorporation, the shareholder will waive the dissenters' rights. If
the shareholder votes against the reincorporation without otherwise complying
with the additional notice and other provisions of Article 13 of the Wyoming
Business Corporation Act, the shareholder will not effectively exercise
dissenters' rights.
Recommendation To American Rivers Shareholders
The American Rivers board of directors has approved the merger agreement and
recommends that shareholders of American Rivers vote FOR approval of the
reincorporation.
Procedure for Acceptance of the offer by Alliance Shareholders
In order to accept the proposed offer to exchange shares, Alliance
shareholders must complete, execute, have witnessed and return a form or forms
of acceptance, included with this document, to IRG plc, 390/398 High Road,
Ilford, Essex 1G1 1NQ if your registered address is in the United Kingdom or
otherwise outside the United States or Canada, or
2
<PAGE>
to Registrar and Transfer Company as forwarding agent at 10 Commerce Drive,
Cranford, NJ 07016 if your registered address is in the United States or Canada,
no later than 3 p.m. (London time) on November 19, 1999. Separate forms of
acceptance should be completed for holdings in certificated and uncertificated
form, holdings in uncertificated form under different member account IDs and
holdings in certificated form under different designations. If Alliance shares
are held in certificated form, Alliance shareholders should include the relevant
share certificate(s) and/or other documents of title with the signed and
witnessed form of acceptance. If Alliance shares are in uncertificated form,
Alliance shareholders should send, or arrange for a sponsor to send, properly
authenticated and completed instructions to CRESTCo to settle in CREST the
necessary details related to the exchange. For a more detailed account of the
offer acceptance procedures for Alliance shareholders, refer to "Procedure for
Acceptance of the Offer," included as Appendix D to this document.
Recommendation to Alliance Shareholders
The directors of Alliance unanimously recommend that all Alliance shareholders
accept the offer, as they intend to do in respect of their aggregate holdings of
Alliance shares, which total 389,484 Alliance shares representing 0.82% of the
outstanding ordinary shares of Alliance.
Material United States Federal Tax Consequences of the Merger and Exchange
This section summarizes the material United States federal income tax
consequences to you of the transactions. As summary information is by its nature
less precise and detailed, you are encouraged to carefully read the discussions
under "Material Tax Consequences of the Merger and Exchange." In addition,
although this summary and the more detailed discussion under "Material Tax
Consequences of the Merger and Exchange" does address certain tax consequences
to the shareholders of American Rivers and Alliance in general, it does not
address all aspects of taxation that may be relevant to your individual
circumstances. You are encouraged to consult with your own tax advisor for
information on how the transactions will impact you based on your individual
circumstances.
Tax Treatment of the Merger. We have structured the merger of American Rivers
into a subsidiary of new Alliance to be tax-free to American Rivers, new
Alliance, the subsidiary of new Alliance into which American Rivers will merge
and you for United States federal income tax purposes if you are a U.S.
Shareholder unless you exercise your dissenters' rights. The subsidiary of new
Alliance into which American Rivers will merge should have a tax basis and
holding period in the assets of American Rivers equal to American Rivers' tax
basis and holding period in those assets before the merger. American Rivers'
U.S. shareholders should not recognize any gain or loss for United States
federal income tax purposes on the exchange of their American Rivers stock for
stock in new Alliance as a result of the merger.
Tax Treatment of the Exchange of Alliance Shares in the Offer. We have
structured the offer to be tax-free to you for United States federal income tax
purposes if you accept the offer and are either a Non-U.S. Shareholder or you
are a U.S. Shareholder and shareholders owning at least 80 percent of the total
combined voting power of all of Alliance's classes of stock entitled to vote
exchange their shares pursuant to the offer. If the exchange of the ordinary
shares of Alliance in the offer is tax-free to you, your tax basis and holding
period in the shares of new Alliance common stock you receive should be the same
as your tax basis and holding period of your current ordinary shares of
Alliance.
Material U.K. Tax Consequences of the Exchange
We expect the exchange of Alliance ordinary shares for new Alliance common
stock in the offer to be tax-free to you for U.K. capital gains purposes if you
own less than 5 percent of the Alliance ordinary shares.
How the Transactions Will Affect Your Rights as a Shareholder
The rights of shareholders under Delaware law differ from the rights of
shareholders under U.K. and Wyoming law. For a detailed comparison of these
rights, refer to "Comparative Rights of Shareholders" below.
Accounting Treatment of the Transactions
3
<PAGE>
As a result of the Alliance shareholders owning approximately 98% of
the combined company, Alliance will be treated as having acquired American
Rivers for accounting purposes. Alliance will treat the business combination as
an issuance of securities.
4
<PAGE>
Summary Historical and Pro Forma
Financial and Oil and Gas Data
The following tables set forth summary historical financial data for American
Rivers and Alliance. The historical financial data for the years ended March
31, 1999 for American Rivers and April 30, 1999 for Alliance have been derived
from, are qualified in their entirety by, and should be read together with, the
Consolidated Financial Statements and notes of the entity contained in the
American Rivers Annual Report on Form 10-KSB for the year ended March 31, 1999,
and the Alliance Annual Report on Form 10-K for the year ended April 30, 1999,
which are included in this document. The historical information for the three
months ended June 30, 1999 for American Rivers and July 31, 1999 for Alliance is
unaudited and should be read in conjunction with the unaudited financial
statements contained in the American Rivers and Alliance Form 10-Qs included
with this document; however, in the opinion of management, all adjustments which
are of a normal recurring nature, necessary for a fair presentation of the
results of such periods, have been made. The results of operations for the
three months ended June 30, 1999 and July 31, 1999 are not necessarily
indicative of the results to be expected for the entire fiscal year or any other
interim period. The summary historical financial data for American Rivers and
Alliance should also be read together with the selected financial data on pages
42 through 45.
The following table sets forth certain unaudited pro forma combined financial
information giving effect to the transactions accounted for as a purchase in
accordance with generally accepted accounting principles. The summary selected
pro forma financial data for the periods indicated has been derived from the
unaudited pro forma combined condensed financial statements and related notes
appearing elsewhere in this document. See "Unaudited Pro Forma Combined
Condensed Financial Statements." The following pro forma information is not
necessarily indicative of actual results that would have occurred had the
transactions occurred on such dates or expected future results.
The summary historical reserve data have been estimated for Alliance by Lee
Keeling & Associates, Inc., independent petroleum engineers. Additional
information about American Rivers' and Alliance's oil and natural gas reserves
is discussed in Risk Factors--Uncertainty of Estimates of Oil and Natural Gas
Reserves," and Note 12 to the Consolidated Financial Statements of American
Rivers, Note 17 to the Consolidated Financial Statements of Alliance, and Item 1
and Item 2, "Business and Properties", in the American Rivers Form 10-KSB and
Alliance Form 10-K included with this document.
<TABLE>
<CAPTION>
Alliance American Rivers
Historical Historical Pro Forma
April 30, 1999 March 31, 1999 Combined
------------------ ---------------- -----------
(in thousands, except per share amounts)
<S> <C> <C> <C>
Income Statement Data:
Oil and gas revenues $ 6,234 $ 18 $ 6,252
------------- ------------ ----------
Operating expenses:
Lease operating expenses 3,096 38 3,134
Exploration costs - 5 -
General and administrative expenses 3,486 387 3,873
Depreciation, depletion and amortization 1,671 9 1,680
Impairment of oil and gas properties 28,260 - 28,260
------------- ------------ ----------
Total operating expenses 36,513 439 36,947
------------- ------------ ----------
Loss from operations (30,279) (421) (30,695)
------------- ------------ ----------
Other income (expense):
Interest income 26 17 43
Interest expense (3,355) (3) (3,358)
Gain on sale of oil and gas properties - 293 -
Write-off of deferred loan costs (870) - (870)
Loss on sale of fixed assets (9) - (9)
Miscellaneous income 23 - 23
------------- ------------ ----------
Net loss $ (34,464) $ (114) $ (34,866)
============= ============ ==========
Loss per share $ (.82) $ - $ (.65)
============= ============ ==========
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
Alliance American Rivers
Historical Historical
Three months ended Three months ended Pro Forma
July 31, 1999 June 30, 1999 Combined
-------------------- ------------------- ------------
(in thousands)
<S> <C> <C> <C>
Income Statement Data:
Oil and gas revenues $ 1,487 $ - $ 1,487
--------------- ---------------- -----------
Operating expenses:
Lease operating expenses 957 - 957
General and administrative expenses 736 29 765
Depreciation, depletion and amortization 402 - 402
Impairment of oil and gas properties 2,000 - 2,000
---------------- ---------------- -----------
Total operating expenses 4,095 29 4,124
---------------- ---------------- -----------
Loss from operations (2,608) (29) (2,637)
---------------- ---------------- -----------
Other income (expense):
Interest income 7 - 7
Interest expense (1,120) - (1,120)
Miscellaneous income 14 - 14
---------------- ---------------- -----------
Total other expense (1,099) - (1,099)
---------------- ---------------- -----------
Net loss $ (3,707) $ (29) $ (3,736)
================ ================ ===========
Loss per share $ (.07) $ 0.00 $ (.07)
================ ================ ===========
Balance Sheet Data:
Total assets $ 41,859 $ 97 $ 41,592
Long-term debt, less unamortized discount 52,372 - 52,372
Convertible subordinated unsecured loan notes 1,551 - -
Stockholders' deficit (20,344) (42) (19,623)
</TABLE>
6
<PAGE>
RISK FACTORS
In addition to the other information presented in this document you should
carefully consider the following risk factors in deciding how to vote on the
reincorporation or whether to accept the offer.
There are a number of risks associated with the transactions
The anti-takeover provisions in new Alliance's organizational documents may
have the effect of discouraging a change in ownership or management.
Some of the provisions of Delaware law and of new Alliance's certificate of
incorporation may discourage a third party from making an acquisition proposal
for new Alliance, and may inhibit a change of control of new Alliance under
circumstances that could give you an opportunity to realize a premium over then-
prevailing market prices. Furthermore, your ability to change the management of
new Alliance could be substantially impeded by these provisions. For a more
complete discussion of these risks, see "Anti-Takeover Provisions of Delaware
Law and of the Organizational Documents of New Alliance."
The uncertainty of reserve information and future net revenue estimates
makes it difficult to predict what new Alliance's reserves or future net
revenues will be.
There are numerous uncertainties inherent in estimating oil and gas
reserves and their values. Although we believe the reserve estimates contained
in this document are reasonable, reserve estimates are imprecise and are
expected to change as additional information becomes available. For a more
complete discussion of these uncertainties, see "Item 2. Properties." in the
Alliance Form 10-K included in this document.
United States or United Kingdom taxes may be incurred by you or the
involved entities.
We believe the reincorporation merger will qualify as a tax-free
reorganization for the involved entities and certain of their shareholders. We
also believe that the exchange of ordinary shares of Alliance in the offer will
qualify as a tax-free reorganization under U.S. law for the involved entities,
non-U.S. Shareholders and U.S. Shareholders if shareholders owning at least 80
percent of the total combined voting power of all of Alliance's classes of stock
entitled to vote exchange their shares pursuant to the offer. We have not
asked, however, nor do we intend to ask, for a ruling from the Internal Revenue
Service that the reincorporation merger and exchange will qualify as tax-free
reorganizations. There is always a risk that the Internal Revenue Service's
interpretation of the reorganizations transactions could be unfavorable.
We also believe that a holder of ordinary shares of Alliance who, either
alone or together with persons connected with him, does not hold more than 5% of
the ordinary shares of Alliance will not be treated as making a disposal for
United Kingdom capital gains tax purposes as a consequence of receiving new
shares in new Alliance in exchange for his ordinary shares of Alliance. We have
not asked, however, nor do we intend to ask, for a ruling from the Inland
Revenue concerning these matters. There is always a risk that the Inland
Revenue's interpretation of the transaction could be unfavorable.
New Alliance has not paid dividends on its common shares in the past and
does not expect to pay dividends in the foreseeable future. If new Alliance
were to pay dividends to its non-U.S. Shareholders, they would be subject to
United States withholding taxes. If a dividend was paid to a United States
trade or business, it would be subject to the regular United States federal
income tax. You may also be subject to "backup withholding" at rates of up to
31% on dividends on the sale or exchange of new Alliance unless you meet
certain specified exceptions or exemptions. If an amount is withheld in this
manner, it serves as a credit against your United States federal income tax
liability.
There is also a tax on U.S. Shareholders in the exchange of ordinary shares
of Alliance in the offer if Alliance is determined to be a Passive Foreign
Investment Corporation, known as a "PFIC". This would cause certain U.S.
Shareholders to recognize ordinary income or loss on the exchange. We do not
believe that this tax applies. We have not asked, and do not intend to ask, for
a ruling from the Internal Revenue Service addressing whether this tax applies.
In addition, we have not asked for a tax opinion as to whether each individual
shareholder would be subject to this tax. For a more detailed explanation of
the tax consequences to shareholders under the PFIC rules, read the discussion
under "Material Tax Consequences of the Exchange-The Exchange-U.S. Shareholders-
- -Passive Foreign
7
<PAGE>
Investment Company Considerations".
Alliance is currently highly leveraged. Following the consolidation new
Alliance will also be highly leveraged.
After the consolidation, new Alliance will have approximately $59 million
of long-term debt. This level of debt will have several important effects on
its future operations, including:
. a substantial portion of its cash flow from operations must be
dedicated to the payment of interest on its debt and will not be
available for other purposes;
. covenants contained in its credit facilities will require it to meet
a number of financial tests;
. other restrictions may limit its ability to borrow additional funds
or to dispose of assets and may affect its flexibility in planning
for, and reacting to, changes in its business, including possible
acquisition activities; and
. its ability to obtain additional financing in the future for working
capital, capital expenditures, acquisitions, general corporate
purposes or other purposes may be impaired.
New Alliance may be unable to continue as a going concern
Alliance continues to experience net losses and working capital deficits.
These factors may indicate new Alliance will be unable to continue as a going
concern for a reasonable period of time. New Alliance's continuation as a going
concern is dependent upon its ability to generate sufficient case flow to meet
its obligations on a timely basis, to continue to comply with the terms of its
borrowing agreements, to obtain additional financing or refinancing as will be
required and ultimately to attain profitability.
There are a number of risks inherent in the oil and gas business
New Alliance's success might be adversely affected by the volatility of oil
and gas prices.
New Alliance's revenues, profitability, future growth and ability to borrow
funds or obtain additional capital, as well as the carrying value of its
properties, will be substantially dependent upon prevailing prices of oil and
gas. Historically, the markets for oil and gas have been volatile, and they are
likely to continue to be volatile in the future. Prices for oil and gas may
fluctuate widely in response to relatively minor changes in the supply of and
demand for oil and gas, market uncertainty and a variety of additional factors
that are beyond new Alliance's control.
It is impossible to predict future oil and gas price movements with
certainty. Declines in oil and gas prices may materially adversely affect new
Alliance's financial condition, liquidity, ability to finance planned capital
expenditures and results of operations. Lower oil and gas prices also may
reduce the amount of oil and gas that new Alliance can produce economically.
Oil and gas price hedging and financial hedging arrangements may expose new
Alliance to financial loss in some circumstances.
In order to reduce its exposure to short-term fluctuations in the prices of
oil and gas, Alliance periodically has entered into hedging arrangements. The
hedging arrangements apply to only a portion of its production and provide only
partial price protection against declines in oil and gas prices. These hedging
arrangements will remain in place following the transactions and may expose new
Alliance to risk of financial loss in some circumstances, including instances
where production is less than expected or where the other party to any hedging
arrangement fails to perform. In addition, the hedging arrangements may limit
the benefit to new Alliance of increases in the prices of oil or gas.
Significant capital needs may require that new Alliance obtain additional
financing.
Due to its plans for active acquisition, development and exploration
programs, Alliance has experienced, and new Alliance expects to experience,
substantial capital needs. As a result, additional financing may be required in
the future to fund new Alliance's growth and developmental and exploratory
drilling. We cannot assure you as to the
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availability or terms of any such additional financing that may be required or
whether financing will continue to be available under existing or new credit
facilities. If sufficient capital resources are not available to new Alliance,
its drilling and other activities may be curtailed.
New Alliance's reserves are concentrated in a few fields
We estimate that new Alliance will receive approximately 40% of its total
estimated year 2000 production from its interests in the East Irish Sea. Any
interruption in the production from these wells could materially adversely
affect the operations of new Alliance.
There are numerous risks relating to drilling activities.
New Alliance's success will be materially dependent upon the continued
success of its drilling program. Oil and gas drilling involves numerous risks,
including the risk that no commercially productive oil or gas reservoirs will be
encountered. The cost of drilling, completing and operating wells is often
uncertain, and drilling operations may be curtailed, delayed or canceled as a
result of a variety of factors, including, unexpected drilling conditions,
pressure or irregularities in formations, equipment failures or accidents,
adverse weather conditions, compliance with governmental requirements, and
shortages or delays in the availability of drilling rigs and the delivery of
equipment. New Alliance's future drilling activities may not be successful and,
if drilling activities are unsuccessful, such failure will have an adverse
effect on new Alliance's future results of operations and financial condition.
Although new Alliance has identified numerous drilling prospects, we cannot
assure you that those prospects will be drilled or that oil or gas will be
produced from any such identified prospects or any other prospects.
Risks relating to the acquisition of oil and gas properties may affect new
Alliance's future success.
The successful acquisition of producing properties requires an assessment
of recoverable reserves, future oil and gas prices, operating costs, potential
environmental and other liabilities and other factors. Such assessments are
necessarily inexact and their accuracy inherently uncertain. In connection with
such an assessment, new Alliance will perform a review of the subject properties
that it believes to be generally consistent with industry practices. This
usually includes on-site inspections and the review of reports filed with
various regulatory entities. Such a review, however, will not reveal all
existing or potential problems, nor will it permit a buyer to become
sufficiently familiar with the properties to fully assess their deficiencies and
capabilities. Inspections may not always be performed on every well, and
structural and environmental problems are not necessarily observable even when
an inspection is undertaken. Even when problems are identified, the seller may
be unwilling or unable to provide effective contractual protection against all
or part of these problems. We cannot assure you that any acquisition of
property interests by new Alliance will be successful and, if an acquisition is
unsuccessful, that the failure will not have an adverse effect on new Alliance's
future results of operations and financial condition.
There are a number of hazards relating to well operations, and new Alliance
does not insure against all of them.
The oil and gas business involves numerous operating hazards, such as well
blowouts, craterings, explosions, uncontrollable flows of oil, gas or well
fluids, fires, formations with abnormal pressures, pollution, releases of toxic
gas, and other environmental hazards and risks. Any of these could result in
substantial losses to new Alliance. New Alliance will not be fully insured
against these events either because insurance is not available or because new
Alliance will elect not to insure against them because of prohibitive premium
costs. While new Alliance intends to maintain all types of insurance commonly
maintained in the oil and gas industry, it does not maintain business
interruption insurance. In addition, new Alliance cannot predict with certainty
the circumstances under which an insurer might deny coverage. If an event not
fully covered by insurance occurs, it could have a material adverse effect on
new Alliance's financial condition and results of operations.
The Year 2000 problem poses risks.
The failure to correct a material Year 2000 problem could result in an
interruption in, or a failure of, some normal business activities or operations.
This risk exists both as to the information technology systems such as
computers, programs and related systems and non-information technology systems
such as embedded technology on a silicon chip, as well as to the systems of
third parties. Such failures could materially and adversely affect new
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Alliance's results of operations, cash flow and financial condition. Due to the
general uncertainty inherent in the Year 2000 problem, resulting in part from
the uncertainty of the Year 2000 readiness of third party suppliers, vendors and
transporters, we are unable to determine at this time whether the consequences
of Year 2000 failures will have a material impact on results of operations, cash
flow or financial condition. Although it is currently not possible to determine
the consequences of Year 2000 failures, the current assessment is that new
Alliance's areas of greatest potential risk are in connection with the
transporting and marketing of the oil and gas production. Alliance is
contacting the various purchasers and pipelines with which it regularly does
business to determine their state of readiness for the Year 2000. Although the
purchasers and pipelines will not guaranty their state of readiness, the
responses received to date have indicated no material problems. New Alliance
believes that in a worse case scenario, the failure of its purchasers and
transporters to conduct business in a normal fashion could have a material
adverse effect on cash flow for a period of six to nine months. The evaluation
of third party readiness will be followed by the development of contingency
plans.
FORWARD-LOOKING STATEMENTS MAY PROVE INACCURATE
Some statements contained or incorporated by reference in this document
regarding future financial performance and results and other statements that are
not historical facts are "forward-looking statements." The words "expect,"
"project," "estimate," "predict," "anticipate," "believes" and similar
expressions are also intended to identify forward-looking statements. Such
statements, new Alliance's results and the price of its shares may be affected
by numerous risks, uncertainties and assumptions, including but not limited to:
. changes in general economic conditions in the United States or the
United Kingdom;
. changes in law and regulations to which new Alliance is subject;
. the level of investor interest in and trading activity of Alliance's
shares;
. the cost and effects of legal and administrative claims and proceedings
against new Alliance or its subsidiaries or which may be brought against
new Alliance or its subsidiaries;
. conditions in the capital markets utilized by new Alliance to access
capital to finance operations;
. energy prices;
. competition from other oil and gas producers and alternate fuels;
. the ability of new Alliance to sustain its past practice of growth
through acquisitions;
. the general level of natural gas and petroleum product demand and
weather conditions, among other things; and
. the general uncertainty inherent in the Year 2000 problem resulting in
part from the Year 2000 readiness of third parties and the
interconnection of computer systems.
THE PROPOSED TRANSACTIONS
Background of the Reincorporation Proposal and Offer
Since its merger with LaTex Resources, Inc. in 1997, the holders of a
majority of Alliance's shares have been located primarily in the United States,
but its shares have been traded primarily on the London Stock Exchange.
Following the issue of Alliance Shares to U.S. shareholders in connection with
the merger with LaTex Resources, Inc., Alliance has been required to comply with
the securities requirements of both the United States and the United Kingdom.
The administrative burden and extra costs and delays created by this dual
compliance requirement has been far greater than the directors of Alliance
anticipated and the level of investor interest in the company in the U.K. has
been less than the directors of Alliance anticipated. Therefore, the directors
of Alliance have from time to time considered changing the jurisdiction of the
company's organization and its principal trading market from the U.K. to the
U.S.
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In 1998 Alliance acquired interests in the East Irish Sea, which resulted
in the issue of additional shares and warrants to mainly U.S. investors because
the directors of Alliance and its advisers were unable to generate investor
interest in the U.K. In addition, the dual compliance requirements caused
excessive delays in acquiring these interests, during which time market
conditions for the relevant financial instruments to fund the transaction
significantly deteriorated, ultimately necessitating a reduction by one-half in
the size of the interest acquired. The directors of Alliance believe that being
subjected to the dual compliance requirements puts Alliance at a distinct
competitive disadvantage to its peer group in the oil and gas industry.
During fiscal 1998 and 1999, American Rivers sold virtually all of its oil
and gas properties to repay existing obligations. After completing those sales,
American Rivers management determined to pursue a combination with another
company in order to preserve the remaining value of American Rivers for its
shareholders. In March 1998, Royal Scott Minerals, Inc., a wholly owned
subsidiary of a public company, Rackwood, Inc., listed on the London Stock
Exchange, purchased options from Karlton Terry Oil Company, Francarep, Inc.,
Karlton Terry, Jubal Terry, and Art and Music Outreach for Kids with the view to
acquire their shares in connection with a potential transaction. Royal Scott
Minerals elected not to exercise these options, however, and they expired in
September 1998. After the options expired, the principals who granted the
options continued to attempt to negotiate an extension of the options, but the
negotiations terminated late in January 1999 without the options being extended.
In early May 1999, Alliance management contacted Karlton Terry, the
president of American Rivers, to discuss the possibility of American Rivers
acquiring Alliance on an agreed basis. Mr. Terry and Mr. Keenan, the chief
executive of Alliance, were prior business acquaintances, having been previously
introduced to each other by Mr. Michael Humphries, a director of Alliance. The
parties discussed Alliance's plans and the current status of American Rivers and
concluded that there was sufficient interest on both parts to arrange a formal
meeting. The parties exchanged information and discussed same in several follow-
up telephone conversations.
Thereafter, Mr. Keenan traveled to Denver to meet with Mr. Terry and other
representatives of American Rivers. Mr. Keenan and Mr. Terry briefed each other
on their respective companies and there followed a detailed discussion of the
cross-border regulatory aspects of a potential offer by American Rivers.
Possible structures of the transaction and terms were discussed. The parties
agreed to discuss the outcome of the meeting with their respective boards of
directors and advisors.
During this same period Mr. Keenan held meetings with Alliance's lenders
regarding the proposals being discussed and secured their preliminary consent,
subject to final terms and conditions being satisfactory to them, as required by
their agreements with Alliance.
Alliance and American Rivers continued to exchange information and on June
14, 1999, representatives of the parties met in Phoenix. Mr. Keenan was
accompanied by Mr. Paul Fenemore, a fellow executive and director of Alliance,
and Mr. Terry was accompanied by Mr. Denis Bell, a fellow director of American
Rivers. The parties discussed the final terms of the proposed offer and the
post-transaction ownership by the Alliance shareholders and American Rivers
shareholders. Both parties agreed to meet with their respective boards of
directors as soon as possible to present the proposed transaction and seek their
respective approvals.
Follow-up telephone conversations took place between Mr. Keenan and Mr.
Terry as final terms and conditions were worked out. Thereafter, on July 7, 1999
and July 21, 1999, the respective boards of directors met and approved each
party entering into an agreement whereby American Rivers would make an offer to
acquire Alliance on the basis that, after the transaction was completed, the
Alliance shareholders would hold 98% and the American Rivers shareholders would
hold 2% of the new company. On July 22, 1999, the parties executed the Exchange
and Merger Agreement formalizing the agreement between them.
Reasons for the Reincorporation and the Offer
The Board of Directors of American Rivers has proposed the reincorporation
in connection with a proposal to offer to exchange shares of the new Delaware
company for all of the outstanding shares of Alliance. Management of American
Rivers believes that a combination of American Rivers with Alliance is in the
best interests of the American Rivers shareholders because it will permit them
to have a continuing interest in a company with substantial assets. As a result
of its recent sales of properties, American Rivers has no significant assets,
while Alliance has more than $36 million in assets at April 30, 1999.
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As referred to above, the directors of Alliance believe that being obliged
to comply with the securities requirements of both the United Kingdom and the
United States puts Alliance at a distinct competitive disadvantage to its peer
group in the oil and gas industry. As a result, Alliance is proposing to change
the company's organization and its principal trading market from the U.K. to the
U.S.
Alliance Shareholders will see from Alliance's 1999 Annual Report on Form
10-K, included with this document, that Alliance continues to experience net
losses and working capital deficits. These factors may indicate Alliance will
be unable to continue as a going concern for a reasonable period of time.
Alliance's continuation as a going concern is dependent upon its ability to
generate sufficient cash flow to meet its obligations on a timely basis, to
continue to comply with the terms of its borrowing agreements, to obtain
additional financing or refinancing as will be required and ultimately to attain
profitability. The directors of Alliance have a business plan which they
believe will, if successfully executed, achieve these objectives. However, the
achievement of the plan will require, among other things, that further financing
or refinancing is obtained.
In the opinion of the directors of Alliance, the most likely source of this
financing is from entities in the U.S. and this is more likely to be accessed if
new Alliance is domiciled in the U.S. For this reason and because Alliance's
executive officers, the holders of a majority of its shares and a significant
portion of its properties are located in the U.S., the directors of Alliance
believe that it would be in the best interests of Alliance and its shareholders
for the parent company to be incorporated in the U.S. rather than the U.K. and
for Alliance's listing on the London Stock Exchange to be cancelled.
The directors of Alliance have determined that the most appropriate method
to achieve this change is for a U.S. company to make an offer to acquire all of
the outstanding shares of Alliance in exchange for shares in the U.S. company.
However, the directors of Alliance were unable to identify a potential offeror
whose shares would, in their view, provide an attractive investment for Alliance
shareholders. Therefore, the directors of Alliance have concluded that the most
desirable offeror would be a company that has no substantial assets and whose
shareholders would retain only a small investment in the resulting entity, so
that Alliance shareholders would not be significantly diluted by the
transaction. On reaching this conclusion, the directors of Alliance identified
and approached American Rivers as a potential offeror for the Alliance shares.
American Rivers, the common stock of which is currently quoted on the U.S.
OTC Bulletin Board under the symbol "AROC", is an independent oil and gas
exploration and production company located in Denver, Colorado that has
historically engaged in the acquisition, development and exploration of oil and
gas properties. In the past two financial years American Rivers has sold
virtually all of its oil and gas properties to repay existing obligations and
accordingly has no significant assets or liabilities.
American Rivers is incorporated in the State of Wyoming. The directors of
Alliance believe that it is preferable for the company to be incorporated in
Delaware rather than Wyoming for several reasons. For many years, Delaware has
followed a policy of encouraging incorporation in that state and, in furtherance
of that policy, has adopted comprehensive, modern and flexible corporate laws
that are periodically updated and revised to meet changing business needs. As a
result, many major corporations have initially chosen Delaware for their
domicile or have subsequently reincorporated in Delaware. The Delaware courts
have developed considerable expertise in dealing with corporate issues, and a
substantial body of case law has developed construing Delaware law and
establishing public policies with respect to Delaware corporations, thereby
providing greater predictability with respect to legal affairs. Accordingly,
American Rivers will be merged into a newly incorporated subsidiary of new
Alliance, which is itself a newly incorporated company which was formed for the
purpose of making the offer. The principal activities of new Alliance will be
the acquisition, exploration, development and production of oil and gas
properties in the U.S. and internationally.
The Boards of Directors of American Rivers and Alliance determined that it
was appropriate that, after the transactions, the Alliance shareholders should
hold 98% and the American Rivers shareholders should hold 2% of the new company.
Although American Rivers has no substantial assets, the boards believe that
because the structure of American Rivers facilitates the change of the Alliance
shareholders' investment from the U.K. to the U.S., the shareholders of American
Rivers should receive 2% of the resulting entity.
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Recommendation of the American Rivers Board of Directors
The Board of Directors of American Rivers has unanimously approved and
recommends that all American Rivers shareholders approve the reincorporation.
In reaching its decision, the board reviewed the fairness to American
Rivers and its shareholders of the proposed transactions and determined that,
because the transaction with Alliance will preserve some value and liquidity for
shareholders of American Rivers, which would not be preserved if American Rivers
were to liquidate, the transactions are in the best interests of the American
Rivers shareholders. The directors noted that the principal shareholders of
American Rivers have attempted for more than the past year to identify and reach
an arrangement with a third party similar to the proposed transactions and have
not been able to conclude any other arrangement. Therefore, the Board of
Directors believes that the proposed transactions offer the American Rivers
shareholders a unique opportunity to continue their investment.
Recommendation of the Alliance Board of Directors
The Board of Directors of Alliance has unanimously approved the Exchange
and Merger Agreement and recommends that all Alliance shareholders accept the
offer.
The Board of Alliance considers that the success of the offer is crucial to
the future of Alliance and accordingly that the offer is in the interests of
Alliance and its shareholders taken as a whole.
In reaching its decision, the board reviewed the fairness to Alliance and
its shareholders of the proposed transactions and determined that the
transaction is in the best interests of the Alliance shareholders. Management
of Alliance believes that the most appropriate method of effecting the change of
its shareholders' investment is through an offer by an existing U.S. company
that has no substantial assets, such as American Rivers.
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THE TERMS OF THE TRANSACTIONS
The transactions consist of the reincorporation of American Rivers and the
offer to the Alliance shareholders. The terms of the transactions are contained
in the Exchange and Merger Agreement dated July 22, 1999, among American Rivers,
new Alliance and Alliance. The following discussion summarizes the terms of the
Exchange and Merger Agreement and is qualified in its entirety by reference to
the full text of the agreement, which is attached as Appendix A to this
document.
Overview
The Reincorporation. Under the terms of the Exchange and Merger Agreement,
when the reincorporation has been approved by the necessary votes of American
Rivers shareholders and the offer has been accepted by at least a majority of
the Alliance shareholders, a subsidiary of new Alliance will merge with American
Rivers. The separate corporate existence of American Rivers will cease and the
subsidiary will be the surviving corporation. Each previously outstanding share
of the subsidiary's stock will remain outstanding and each previously
outstanding share of American Rivers common stock will be converted into .11
shares of new Alliance common stock. The previously outstanding shares of new
Alliance common stock will be canceled.
The Offer. Concurrently with the solicitation of the vote of the
shareholders of American Rivers, new Alliance is making an offer to the
shareholders of Alliance to acquire all of the outstanding shares of Alliance on
the basis of one share of new Alliance common stock for each ordinary share of
Alliance they hold. The offer will be open for acceptance until 3:00 p.m.
(London time) on November 19, 1999. An Alliance shareholder may revoke the
acceptance of the offer at any time prior to the expiration date of the offer.
New Alliance will not be entitled to make any revision to the offer. The offer
will lapse unless all its conditions, which are set out below, have been
satisfied or waived by 3:00 p.m. (London time) on November 19, 1999 or such
later date as new Alliance may determine. If the offer lapses, all prior
acceptances are expected to be of no effect and no additional acceptances may be
received. Settlements of acceptances will be made not later than 14 days after
November 19, 1999 or 14 days after receipt of a valid and complete form of
acceptance, whichever is later. The offer is not being made to and this document
does not constitute an offer in any jurisdiction to any person to whom it is not
lawful to make the offer in that jurisdiction. Further details concerning the
terms of the offer are contained in Appendix C to this document.
When the reincorporation has been approved by the necessary votes of
American Rivers shareholders and the offer has been accepted by Alliance
shareholders holding more than 50% of the outstanding shares of Alliance, new
Alliance will declare the offer "unconditional." In addition, once the offer
becomes unconditional in all respects, new Alliance intends to apply to the
London Stock Exchange to have the Alliance shares delisted, as is typical for
transactions of this type in the U.K. In these circumstances the date on which
the cancellation of the listing on the London Stock Exchange would take effect
would be specified in the announcement that the offer is wholly unconditional,
and such date would be at least 20 clear business days following the date of
that announcement. Management of Alliance therefore anticipates that once the
offer becomes unconditional, virtually all of the holders of the Alliance shares
will accept the offer. Under U.K. law, when the holders of at least 90% of the
outstanding shares, which are the subject of the offer, of Alliance have
accepted the offer, new Alliance may compel the remaining Alliance shareholders
to accept the offer.
The Result of the Reincorporation and the Offer. As a result of the
foregoing, upon consummation of the transactions, if all of the Alliance
shareholders accept the offer, the Alliance shareholders will hold 98% of the
outstanding shares of new Alliance, and the current shareholders of American
Rivers will own 2% of the outstanding shares of new Alliance common stock. For
accounting purposes, the assets and liabilities of new Alliance and its
subsidiaries on a consolidated basis immediately after the consummation of the
transactions will be substantially identical to the assets and liabilities of
Alliance and its subsidiaries on a consolidated basis immediately prior to the
transactions.
In addition, after the transactions new Alliance will have outstanding
warrants to purchase up to 6,272,730 shares of new Alliance common stock at
prices varying from $0.01 to $1.60 per share, options to purchase up to 275,000
shares of new Alliance common stock at a price of $10.00 per share and equity
securities convertible into up to 20,000,000 shares of common stock depending on
the production and reserves attributable to the company's U.K. interests. See
"Security Ownership." All of these instruments will provide the holders rights
on terms that are substantially similar to the terms of their existing
arrangements with Alliance.
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The transactions will result in changes in the rights and obligations of
current Alliance and American Rivers shareholders under applicable corporate
laws. For an explanation of these differences, see "Comparative Rights of
Shareholders."
Conditions to the Transactions and Effective Time
The offer and the obligation of each of the parties to the Exchange and
Merger Agreement is subject to the satisfaction of the following conditions at
or prior to the time the merger becomes effective:
1. The shareholders of American Rivers must have approved the
reincorporation.
2. The holders of at least a majority of the ordinary shares of Alliance
must have accepted the offer.
3. No action, suit or proceeding is pending or threatened in which an
unfavorable ruling would prevent any of the transactions; cause any
of the transactions to be rescinded following completion; cause new
Alliance, Alliance or American Rivers, or any of their officers or
directors, to become liable for any material damages; or affect
adversely the right of new Alliance to own the former assets or to
operate the former businesses of American Rivers.
4. There has not been any statute, rule or regulation enacted,
promulgated or deemed applicable to the transactions by any
governmental entity that prevents the transactions.
5. New Alliance must have entered into agreements with the holders of
Alliance's warrants, convertible loan notes and convertible restricted
voting shares providing for issuance of warrants, convertible shares
or common stock to those holders on substantially the same terms as
those instruments currently provide with respect to Alliance.
The transactions, including the offer, will become effective when these
conditions have been met, which we anticipate will be promptly after the meeting
of the American Rivers shareholders and, in any event, will not be later than
November 19, 1999 or such later date as new Alliance may determine.
Termination
The Exchange and Merger Agreement may be terminated and the reincorporation
may be abandoned at any time before formal announcement of the offer is made, by
action of the boards of directors of both American Rivers and Alliance.
Consequences Under Federal Securities Laws; Resale of New Alliance Stock
The new Alliance common stock issuable in connection with the transactions
have been registered under the Securities Act. Accordingly, there will be no
restrictions upon the resale or transfer of such shares by stockholders, except
for those unitholders or stockholders who are considered "affiliates" of
American Rivers or Alliance, as that term is defined in Rule 144 and Rule 145
adopted under the Securities Act.
New Alliance stock received by those stockholders who are considered to be
"affiliates" of American Rivers or Alliance may be resold without registration
only as provided for by Rule 145 or as otherwise permitted under the Securities
Act. Persons who may be considered to be affiliates of American Rivers or
Alliance generally include individuals or entities that control, are controlled
by or are under common control with, American Rivers or Alliance and may include
the executive officers and directors of American Rivers and Alliance, as well as
some of the principal stockholders of American Rivers and Alliance.
Accounting Treatment
As a result of the Alliance shareholders owning approximately 98% of the
combined company, Alliance will be treated as having acquired American Rivers
for accounting purposes. Alliance has treated the business combination as an
issuance of securities. Accordingly, the fair value of the tangible net assets
of American Rivers has been credited to stockholders' equity.
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PROCEDURE FOR ACCEPTANCE OF THE OFFER BY ALLIANCE SHAREHOLDERS
To accept the offer, Alliance shareholders must complete and return the
Form of Acceptance included with this document, whether or not their Alliance
shares are in CREST. CREST is the system for paperless settlement of trades and
the holding of uncertificated shares administered by CRESTCo. Limited. The
completed Form of Acceptance together with the share certificates for the
Alliance shares or other documents of title should be returned by post or by
hand to IRG plc, 390/398 High Road, Ilford, Essex 1G1 1NQ in the case of
Alliance shareholders with registered addresses in the United Kingdom or
otherwise outside of the United States or Canada, and to Registrar and Transfer
Company as forwarding agent at 10 Commerce Drive, Cranford, NJ 07016 in the case
of all Alliance shareholders with registered addresses in the United States or
Canada, in each case as soon as possible but in any event so as to be received
no later than 3:00 pm London time on November 19, 1999. A postage paid reply
envelope is enclosed for your convenience. To accept the offer for all your
Alliance shares, you must complete the enclosed Form of Acceptance in the
presence of a witness, in accordance with the instructions on the form.
To accept the offer for less than all your Alliance shares you must
indicate on the form the number of Alliance shares for which you wish to accept
the offer.
Further details relating to the procedure for acceptance of the offer are
set out in Appendix D.
Alliance Shares in uncertificated form (in CREST).
If your Alliance shares are in uncertificated form, you must indicate on
the Form of Acceptance the participant ID and member account ID under which your
Alliance shares are held in CREST and otherwise complete and return the Form of
Acceptance as described in detail in Appendix D to this document.
If you are in any doubt as to the procedure for acceptance, please contact
IRG plc by telephone at 0181 639 2000. If you are a CREST sponsored member, you
should contact your CREST sponsor before taking any action.
VOTING INFORMATION FOR AMERICAN RIVERS SHAREHOLDERS
Special Meeting
A special meeting of the American Rivers shareholders will be held at 10:00
a.m. on November 18, 1999, at the offices of American Rivers, 700 East Ninth
Avenue, Suite 106, Denver, Colorado 80203 (or at any adjournments or
postponements thereof) to consider and vote on the proposal to approve the
reincorporation and any other matters that may properly come before such
meeting. The presence, in person or by proxy, of shareholders holding a majority
of the outstanding shares of American Rivers common stock and Class B Common
Stock, in the aggregate, will constitute a quorum. Only those shareholders of
record at the close of business on October 12, 1999, as shown in the records of
American Rivers, will be entitled to vote or to grant proxies to vote at the
special meeting.
Record Date
Only those shareholders of record at the close of business on October 12,
1999, as shown in the records of American Rivers, will be entitled to vote or to
grant proxies to vote at the special meeting.
Vote Required For Approval
Approval of the reincorporation requires the affirmative vote of the
shareholders of American Rivers holding at least a majority of the outstanding
shares of American Rivers common stock and Class B Common Stock, voting as a
single class. As of October 12, 1999, there were 3,565,770 shares of American
Rivers common stock and 7,267,820 shares of American Rivers Class B Common Stock
outstanding and entitled to vote. The directors and executive officers of
American Rivers and their affiliates directly owned, in the aggregate, 5,795,967
shares (approximately 53.5%) of the total number of shares of American Rivers
common stock and Class B Common Stock outstanding at the record date. These
persons have indicated that they will vote all of their shares of American
Rivers
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common stock and Class B Common Stock for the approval of the reincorporation.
Therefore, American Rivers is not soliciting proxies in connection with the
meeting.
Dissenters' Rights
Shareholders of American Rivers are entitled to assert dissenters' rights
under Article 13 of the Wyoming Business Corporation Act in connection with the
reincorporation. A copy of Article 13 is included as Appendix B. The following
discussion of dissenters' rights is qualified in its entirety by reference to
the provisions of Article 13, which is hereby incorporated by reference.
Notice of Intent to Demand Payment. Any shareholder who wishes to assert
dissenters' rights must do both of the following:
1. Deliver to American Rivers, before the vote on the reincorporation is
taken at the special meeting, written notice of the shareholder's
intention to demand payment for the shareholder's shares if the
reincorporation is effectuated; and
2. Not vote the shares in favor of the reincorporation.
Any shareholder who does not satisfy these requirements is not entitled to
demand payment for the shareholder's shares under Article 13.
Demanding Payment for Shares. If the reincorporation is approved, American
Rivers will give a written notice to all shareholders who have satisfied the
requirements of Items 1 and 2 above and are entitled to demand payment for their
shares. The notice will be given no later than 10 days after the Effective Date
of the reincorporation and will describe the procedures dissenting shareholders
must follow to demand payment for their shares. The notice will also inform
dissenting shareholders of any restrictions on the transfer of their shares
after the payment demand is received by American Rivers. Subject to very
limited exceptions, the demand for payment and deposit of share certificates are
irrevocable.
Shareholders who do not demand payment and deposit their share certificates
in the manner required, and by the date or dates set forth in the dissenters'
notice given by American Rivers, are not entitled to payment for their shares
under Article 13.
Payment for Shares. Subject to certain limited exceptions, upon the later
of the Effective Date of the reincorporation or the receipt of a payment demand,
American Rivers will pay to the dissenting shareholder the amount American
Rivers estimates to be the fair value of the dissenting shareholder's shares,
plus accrued interest. The payment will be accompanied by, among other things,
financial statements of American Rivers, a statement of American Rivers'
estimate of the fair value of the shares, and an explanation of how interest was
calculated.
Procedure if Dissatisfied with Payment Amount. If a dissenting shareholder
believes that the amount paid or offered by American Rivers is less than the
fair value of the shares or that interest due was incorrectly calculated, the
shareholder may give written notice to American Rivers of the shareholder's
estimate of the fair value of the shares and the amount of interest due and may
demand payment of such estimate, less any payment made by American Rivers. A
dissenting shareholder waives this right unless the shareholder causes American
Rivers to receive the notice within 30 days after American Rivers pays or offers
to pay the shareholder for the shares.
Court Action to Resolve Payment Amount. If any dissenting shareholder
demands payment as provided in the immediately preceding paragraph, American
Rivers may, within 60 days after receiving the payment demand, commence a
proceeding and petition a court to determine the fair value of the shares and
accrued interest. If American Rivers does not commence the proceeding within
this 60-day period, it must pay to each dissenting shareholder whose demand
remains unresolved the amount demanded by the shareholder.
Each dissenting shareholder who is made a party to the court action is
entitled to the amount, if any, by which the court finds the fair value of the
dissenting shareholder's shares, plus interest, exceeds the amount paid by
American Rivers.
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Exchange of Share Certificates
At the completion of the transactions, all American Rivers shares will
cease to be outstanding and will automatically be canceled and retired. Each
certificate formerly representing American Rivers shares, other than those held
by shareholders who have properly exercised their right to dissent, will
represent ownership of the right to receive the new Alliance common stock to
which they are entitled as a result of the reincorporation until those
certificates are surrendered to the exchange agent. The exchange agent for the
transactions is AST.
Fractional Shares
You will not receive any fractional shares of new Alliance common stock as
a result of the reincorporation. Instead of fractional shares, you will receive,
upon surrender of your certificate(s) to the exchange agent, along with the
signed letter of transmittal, a number of shares rounded up or down to the
nearest whole share. Half shares will be rounded up to the next whole share.
MATERIAL TAX CONSEQUENCES OF THE
MERGER AND EXCHANGE
United States Taxation
In the opinion of Jenkens & Gilchrist, a Professional Corporation, "U.S.
Special Tax Counsel" to American Rivers and Alliance, the following are
material United States federal tax considerations arising from and relating to
the merger (the "Merger") and the exchange (the "Exchange") of Alliance shares
for new Alliance shares that are generally applicable to you if you are a U.S.
Shareholder and in some cases if you are a non-U.S. Shareholder. You are a U.S.
Shareholder if you are a United States citizen or resident, domestic
corporation, domestic partnership, estate subject to United States federal
income tax on your income regardless of source, or a trust but only if a court
within the United States is able to exercise primary supervision over your
administration and one or more United States fiduciaries have the authority to
control all of the substantial decisions of the trust. Otherwise, you are a
non-U.S. Shareholder.
This opinion does not address all of the United States federal tax
consequences that may be relevant to you in light of your particular
circumstances, including:
. the United States federal income tax consequences to U.S. Shareholders
who directly or indirectly own 10 percent or more, by vote or value,
of the stock of Alliance;
. the potential application of the alternative minimum tax; or
. the United States federal income tax consequences to certain types of
investors subject to special treatment under the United States federal
income tax laws, such as life insurance companies, broker-dealers,
financial institutions, tax-exempt entities, holders of stock who
received such stock as compensation, certain United States nonresident
alien individuals who were United States citizens or United States
lawful permanent residents within the past ten years.
The explanation of material United States federal tax laws set out below is
based on the Internal Revenue Code of 1986, as amended (the "Code"), existing
and proposed regulations, IRS rulings and pronouncements, reports of
congressional committees, judicial decisions and current administrative rulings
and practice, all as of the date of this document, and which are subject to
change. Any such change could be retroactive and change the United States
federal tax consequences discussed below. No advance ruling from the Internal
Revenue Service with respect to these matters has been requested. Accordingly,
it is possible that the United States federal tax consequences of the Merger and
Exchange may differ from those described below. No United States state or local
tax considerations are discussed.
All American Rivers and Alliance shareholders are urged to consult their
professional tax advisors regarding the specific tax consequences of the Merger
and Exchange, including the applicability of united states federal income tax
law, state and local tax laws, the tax laws of any other jurisdiction to which
they may be subject; possible future changes in U.S. federal income tax laws;
and any pending or proposed legislation.
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The Merger. In the opinion of U.S. Special Tax Counsel, the following are
material United States federal income tax considerations arising from and
relating to the Merger that are applicable to American Rivers, new Alliance, the
subsidiary of new Alliance into which American Rivers will merge and you. As
described in more detail below, the Merger should qualify as tax-free to
American Rivers, new Alliance, the subsidiary of new Alliance into which
American Rivers will merge and you provided you are a U.S. Shareholder and
exchange your shares pursuant to the Merger. This conclusion is based on
factual assumptions and reliance on representations from American Rivers, new
Alliance and the subsidiary of new Alliance into which American Rivers will
merge.
This discussion is based upon United States laws, regulations, rulings and
decisions currently in effect, all of which are subject to change, possibly with
retroactive effect. No advance income tax ruling has been sought or obtained
from the Internal Revenue Service regarding the tax consequences of any of the
transactions. Accordingly, the United States federal income tax consequences to
you, American Rivers, new Alliance and the subsidiary of new Alliance into which
American Rivers will merge of the Merger may differ from those described
below.
Consequences of the Merger to American Rivers Shareholders. The Merger of
American Rivers into the wholly-owned subsidiary of new Alliance should qualify
as a tax-free reorganization. If you are a U.S. Shareholder of American Rivers
and exchange your shares pursuant to the Merger, you should not recognize any
gain or loss on the Merger for United States federal income tax purposes. Your
basis and holding period in the shares of new Alliance common stock received in
such exchange pursuant to the Merger, should be the same as your respective
basis and holding period in the stock in American Rivers exchanged therefor in
the Merger.
In contrast, if you are an U.S. Shareholder of American Rivers and exercise
your dissenter's rights in accordance with the standards described in the
section above entitled "Dissenters' Rights", the conclusions in the immediately
preceding paragraph concerning the tax treatment and the various consequences
thereof to American Rivers shareholders do not apply. As a result, if you are a
U.S. Shareholder of American Rivers and the conditions contained in this
paragraph apply, you will recognize taxable gain or loss equal to the difference
between (i) the payment you receive from American Rivers calculated to be the
fair market value of your shares and (ii) your adjusted tax basis in the shares
of American Rivers common stock. The gain or loss will generally be a capital
gain or loss provided the shares are held as a capital asset as defined in
Section 1221 of the Code. Any capital gain or loss will be a long-term capital
gain or loss if your holding period for United States federal income tax
purposes in such shares is more than 1 year as of the date of the exchange.
If you are a non-U.S. Shareholder and you own and have owned 5% or less of
the total fair market value of common stock of American Rivers during the 5 year
period ending on the date of the Merger, you should not be subject to United
States federal income tax or withholding tax with respect to the exchange of
your shares of American Rivers pursuant to the Merger. If you are a non-U.S.
Shareholder who does not meet the foregoing criteria (including, but not limited
to Class B common stockholders and non-U.S. Shareholders owning more than 5% of
the total fair market value of common stock of American Rivers during the 5 year
period ending on the date of the Merger), you are urged to consult your own tax
advisors regarding your particular United States federal tax consequences.
Consequences of the Merger to American Rivers and new Alliance. The Merger
should qualify as tax-free to American Rivers and new Alliance with the
following United States federal income tax consequences:
. The subsidiary of new Alliance into which American Rivers will merge
will recognize no gain or loss on the receipt of American Rivers'
assets;
. American Rivers will recognize no gain or loss in connection with the
Merger;
. The subsidiary of new Alliance into which American Rivers will merge
will take a tax basis in the assets of American Rivers equal to
American Rivers' tax basis immediately prior to the Merger; and
. The holding period in the American Rivers assets received by the
subsidiary of new Alliance into which American Rivers will merge will
include American Rivers' holding period in such assets.
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The Exchange.
In the opinion of U.S. Special Tax Counsel, the following are material
United States federal income tax considerations arising from and relating to the
Exchange that are applicable to Alliance, new Alliance and you. As described in
more detail below, the Exchange should qualify as tax-free to Alliance, new
Alliance and you provided you accept the offer and are either a non-U.S.
Shareholder or you are a U.S. Shareholder and shareholders owning at least 80
percent of the total combined voting power of all classes of stock entitled to
vote exchange their shares pursuant to the offer. This conclusion is based on
factual assumptions and reliance on representations from Alliance and new
Alliance.
This discussion is based upon United States laws, regulations, rulings and
decisions currently in effect, all of which are subject to change, possibly with
retroactive effect. No advance income tax ruling has been sought or obtained
from the Internal Revenue Service regarding the tax consequences of any of the
transactions. Accordingly, the United States federal income tax consequences to
you, Alliance and new Alliance of the Exchange may differ from those described
below.
U.S. Shareholders. The following discussion applies if you are a U.S.
Shareholder and
. your ownership, receipt or disposition of ordinary shares of Alliance
and/or New Alliance common stock is not attributable to a permanent
establishment in a country other than the United States for purposes
of an income tax treaty to which the United States is a party;
. you are not a resident of a country other than the United States for
purposes of an income tax treaty to which the United States is a
party; and
. you do not and have not actually or constructively owned 10 percent or
more of the voting stock of Alliance at any time in the 5-year period
ending immediately prior to the Exchange.
If you are a U.S. Shareholder and do not meet one or more of the foregoing
criteria, you should consult your tax advisors regarding your particular United
States federal income tax consequences.
The Exchange --Greater than 80 Percent Acceptance.
The United States federal income tax consequences of the Exchange of
Alliance common stock, pursuant to the offer in exchange for common stock in new
Alliance to you depends upon whether shareholders owning at least 80 percent of
total combined voting power of all classes of stock entitled to vote exchange
all of their shares pursuant to the offer. If shareholders owning at least 80
percent of the total combined voting power of all classes of stock entitled to
vote exchange all of their shares pursuant to the offer, the Exchange should
qualify as a reorganization within the meaning of Section 368(a) of the Code
with the following United States federal income tax consequences provided you
accept the offer:
. You will not recognize gain or loss from the Exchange;
. The United States federal income tax basis of the new Alliance common
stock you receive pursuant to the Exchange will be the same as the tax
basis of the ordinary shares of Alliance you surrender in exchange
therefor; and
. The holding period for the shares of new Alliance common stock
acquired in the Exchange will include the holding period of the
ordinary shares of Alliance surrendered in exchange therefor.
If you do not accept the offer, and shareholders owning at least 90 percent
of the value of the ordinary shares of Alliance do not exchange all of their
shares pursuant to the offer, your nonacceptance of the offer will not have any
United States federal income tax consequences to you. In contrast, if you do
not accept the offer and shareholders owning at least 90 percent of the value of
the ordinary shares of Alliance exchange all of their shares pursuant to the
offer, your shares in Alliance will be exchanged for shares in new Alliance and
you will be subject to the United States federal income tax consequences
discussed in this section as if you had accepted the offer.
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Internal Revenue Service Notice Requirement
If you receive common stock of new Alliance in the Exchange and take the
position that such Exchange is eligible for tax-free nonrecognition treatment,
you are required to file a notice with the Internal Revenue Service on or before
the last day for filing a United States federal income tax return (taking into
account any extensions of time therefor) for your taxable year in which the
Exchange occurs if you would have realized a gain had the Exchange been taxable.
The notice must contain the information specifically enumerated in Section
7.367(b)-1 of the United States Treasury Regulations, and you are advised to
consult your tax advisors for assistance in preparing that notice. If you are
required to give notice as described and do not, and if you fail to establish
reasonable cause for the failure, the Internal Revenue Service will be required
to determine, based on all of the facts and circumstances, whether the Exchange
is eligible for nonrecognition treatment. In making the determination, the
Internal Revenue Service may conclude:
. that the Exchange is eligible for nonrecognition treatment, despite
any noncompliance;
. that the Exchange is eligible for nonrecognition treatment, provided
that certain other conditions imposed by the United States Treasury
Regulations are satisfied; or
. that the Exchange is not eligible for nonrecognition treatment and
that any gain recognized will be taken into account for purposes of
increasing the tax basis of your shares of common stock in new
Alliance received in the Exchange.
Nevertheless, the failure of another U.S. Shareholder to satisfy the foregoing
notice requirements should not bar you from receiving nonrecognition treatment
with respect to the Exchange if you satisfy the requirements listed above.
The Exchange --Less than 80 Percent Acceptance.
If shareholders owning at least 80 percent of the total combined voting
power of all classes of stock entitled to vote do not exchange all of their
shares pursuant to the offer, the Exchange should not qualify as a tax-free
reorganization within the meaning of Section 368(a) of the Code. If the
Exchange does not qualify as reorganization, the conclusions in the immediately
preceding paragraphs concerning tax treatment and the various consequences
thereof do not apply. As a result, if you are a U.S. Shareholder and you
exchange your shares under those circumstances, you will recognize taxable gain
or loss equal to the difference between (i) the sum of the fair market value of
the new Alliance common stock received in the Exchange on the date of the
Exchange and (ii) your adjusted tax basis in the ordinary shares of Alliance you
exchanged on the date of the Exchange. The gain or loss will generally be a
capital gain or loss provided the shares are held as a capital asset as defined
in Section 1221 of the Code. Any capital gain or loss will be a long-term
capital gain or loss if your holding period for United States federal income tax
purposes in such shares is more than 1 year as of the date of the Exchange.
Passive Foreign Investment Company Considerations. For United States
federal income tax purposes, Alliance generally will be classified as a passive
foreign investment company as defined in Section 1297 of the Code ("PFIC") for
any taxable year during which either:
. 75 percent or more of its gross income is passive income, as defined for
United States federal income tax purposes; or
. on average for such taxable year, 50 percent or more of its assets by
value produce or are held for the production of passive income.
For purposes of applying these tests, all or some of the assets and gross
income of Alliance's subsidiaries will be attributed to it. While there can be
no assurance with respect to the classification of Alliance as a PFIC, Alliance
believes that it was not a PFIC during any taxable year ending at or prior to
consummation of the Exchange. In connection with the transaction contemplated in
this document, U.S. Special Tax Counsel will not be rendering an opinion with
regard to the Alliance's status as a PFIC. In addition, Alliance has not asked,
nor does it intend to ask, for a ruling from the Internal Revenue Service
addressing whether Alliance has been a PFIC during any taxable year ending at or
prior to the consummation of the Exchange. There is always the risk that the
Internal Revenue Service could determine that Alliance has been a PFIC and that
you may be subject to the PFIC rules set forth below. Because the United States
federal income
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tax consequences to you under the PFIC provisions may be significant, you are
urged to discuss those consequences with your tax advisors.
Non-U.S. Shareholders. The following discussion applies to you if you are
a non-U.S. Shareholder and
. you hold ordinary shares of Alliance or will hold shares of common
stock in new Alliance as capital assets within the meaning of Section
1221 of the Code;
. you do not actually or constructively own, nor have you at any time in
the preceding five-year period actually or constructively owned, five
percent or more of the stock of Alliance;
. your ownership, receipt or disposition of ordinary shares in Alliance
and/or common stock in new Alliance is not attributable either to the
conduct of a trade or business in the United States or to a permanent
establishment in the United States;
. you are not a resident of the United States for purposes of United
States federal income tax law or an income tax treaty to which the
United States is a party; and
. you are not subject to tax pursuant to the provisions of the Code
applicable to some United States expatriates.
If you are a non-U.S. Shareholder who does not meet one or more of the foregoing
criteria, you are urged to consult your own tax advisors regarding your
particular United States federal tax consequences.
The Exchange. Whether or not the Exchange qualifies as a tax-free
reorganization within the meaning of Section 368(a) of the Code, you will not
generally be subject to United States federal income tax on gain recognized, if
any, upon the Exchange unless:
. the gain is effectively connected with the conduct of a trade or
business within the United States by you;
. the gain is attributable to a permanent establishment in the United
States;
. you are a nonresident alien and hold shares of Alliance common stock as
a capital asset, you are present in the United States for 183 or more
days in the taxable year and certain other circumstances are present; or
. you are subject to tax pursuant to the provisions of the Code applicable
to some United States expatriates.
If you would be subject to United States federal income tax on such gains and
take the position that the exchange of shares of common stock in Alliance for
shares of common stock in new Alliance is eligible for nonrecognition treatment,
you will be required to file a notice with the Internal Revenue Service. See
"U.S. Shareholders- Internal Revenue Service Notice Requirement" above.
Dividends on new Alliance Common Stock. Generally, dividends received by
you with respect to new Alliance common stock will be subject to United States
withholding tax at a rate of 30 percent, which rate may be subject to reduction
by an applicable income tax treaty. For example, the withholding rate is
generally 15 percent on dividends paid to residents of the United Kingdom who
qualify for the benefits of the income tax treaty between the United States and
the United Kingdom which is reduced to 5 percent on dividends paid to corporate
residents of the United Kingdom who control, directly or indirectly at least 10
percent of the voting stock of the payor and who qualify for the benefits of the
income tax treaty between the United States and the United Kingdom. If the
dividends you receive are effectively connected with the conduct of a United
States trade or business or are attributable to a permanent establishment in the
United States of yours, they will be taxed at the graduated rates that are
applicable to United States citizens, resident aliens and domestic corporations
and will not be subject to United States withholding tax if you give an
appropriate statement to the withholding agent in advance of the dividend
payment. A non-U.S. Shareholder that is a corporation may be subject to an
additional branch profits tax on effectively connected dividends, with certain
adjustments.
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Sale of new Alliance Common Stock. You will generally not be subject to
United States federal income tax on gain recognized, if any, upon the sale of
shares of new Alliance common stock unless:
. the gain is effectively connected with conduct of a trade or business
within the United States;
. the gain is attributable to a permanent establishment in the United
States;
. you are a nonresident alien individual and hold the new Alliance common
stock as a capital asset, you are present in the United States for 183
or more days in the taxable year and other specific circumstances are
present;
. you are subject to tax pursuant to the provisions of the Code applicable
to certain United States expatriates;
. New Alliance is or has been a "United States real property holding
corporation" ("USRPHC") for United States federal income tax purposes,
as such term is defined by Section 897(c) of the Code, and you owned
directly or pursuant to attribution rules at any time during the five
year period ending on the date of the disposition more than 5 percent of
the value or vote of new Alliance common stock; or
. New Alliance ceases to be regularly traded on an established securities
market, within the meaning of Section 897(c)(3) of the Code prior to the
sale.
Alliance believes that the as of the date of the Exchange, new Alliance will not
be a USRPHC and that new Alliance common stock will be treated as being traded
on an established exchange.
Estate Tax. New Alliance common stock owned, or treated as owned, by an
individual who is a non-U.S. Shareholder may be included in his or her gross
estate for United States federal estate tax purposes and thus may be subject to
United States federal estate tax, unless an applicable estate tax treaty
provides otherwise.
Information Reporting and Backup Withholding. New Alliance must report
annually to the Internal Revenue Service and to you and all other shareholders
the amount of dividends paid that year, and the tax withheld with respect to
such dividends, if any. These information reporting requirements apply
regardless of whether withholding tax was reduced by an applicable income tax
treaty. Copies of these information returns reporting such dividends and
withholding are generally made available to the tax authorities in the country
in which a non-U.S. Shareholder resides under the provisions of an applicable
income tax treaty or other agreement with the tax authorities in that country.
In general, information reporting requirements may apply to dividend
distributions on new Alliance common stock, or the proceeds of a sale or
exchange of new Alliance common stock. A 31 percent backup withholding tax may
apply to these payments unless the payment comes within a specific exempt
category or you are a corporation or come within a specific exempt category and,
when required, demonstrate your exempt status or provide a correct taxpayer
identification number, certify as to no loss of exemption from backup
withholding and otherwise comply with applicable requirements of the backup
withholding rules. If you are required to provide your correct taxpayer
identification number and fail to do so, you may be subject to penalties imposed
by the Internal Revenue Service.
United States backup withholding tax generally will not apply to dividends
paid on new Alliance common stock that are subject to the 30 percent or reduced
treaty rate of withholding previously discussed or on which withholding is not
otherwise required pursuant to section 1.1441-4(a) and (f) of the United States
Treasury Regulations, provided any documentation necessary to establish your
status is properly furnished. Under current law, dividends paid on new Alliance
common stock to you at an address outside the United States are generally exempt
from backup withholding tax, but not from 30% withholding rate, as discussed
above.
On October 14, 1997 the Internal Revenue Service issued final regulations
which affect your United States taxation. Under the these regulations, for
dividends paid after December 31, 2000, a non-United States person must
generally provide proper documentation indicating their status to a withholding
agent in order to avoid backup withholding tax. However, dividends paid to
exempt recipients, not including individuals, will not be subject to backup
withholding even if such documentation is not provided if the withholding agent
is allowed to rely on certain presumptions concerning the recipient's non-United
States status (i.e. payment to an address outside the United States).
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If you are a non-U.S. Shareholder, payments of proceeds from the sale of
shares of common stock in New Alliance by you made to or through a non-United
States office of a broker generally will not be subject to information reporting
or backup withholding. However, payments made to or through a non-United States
office of a United States broker or a non-United States office of a non-United
States broker that has certain specified connections with the United States, are
generally subject to information reporting, but not backup withholding unless
you certify your non-United States status under penalties of perjury or
otherwise establish your entitlement to an exemption. Payments of proceeds from
the sale of new Alliance common stock by you made to or through a United States
office of a broker are generally subject to both information reporting and
backup withholding at a rate of 31 percent unless you certify your non-United
States status under penalties of perjury or otherwise establish your entitlement
to an exemption.
Any amounts withheld under the backup withholding rules from a payment to
you will be allowed as a credit against your United States federal income tax,
provided that the required information is furnished to the Internal Revenue
Service.
United Kingdom Taxation
In the opinion of Hobson Audley Hopkins & Wood, "U.K. Tax Advisors" to
Alliance, the following are material U.K. tax considerations arising from and
relating to the offer.
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United Kingdom Resident Shareholders. The following paragraphs, which are
intended as a general guide only, are based on current U.K. legislation and
Inland Revenue practice. They summarize certain limited aspects of the U.K. tax
treatment of acceptance of the offer, and they relate only to the position of
validly accepting shareholders who hold their Alliance shares as an investment
and who are resident or ordinarily resident in the U.K. for taxation purposes
and who are not resident in any other territory. If you are subject to taxation
in any other jurisdiction, or are in any doubt as to your taxation position you
should consult an appropriate adviser without delay.
Taxation of Capital Gains
(a) A holder of ordinary shares of Alliance who, either alone or together
with persons connected with him, does not hold more than 5% of the ordinary
shares of Alliance will not be treated as making a disposal for the purposes of
United Kingdom capital gains tax as a consequence of receiving new Alliance
common stock in exchange for his ordinary shares of Alliance. Any gain or loss
which would otherwise have arisen on a disposal by such holder of his ordinary
shares of Alliance will be "rolled over" into his new Alliance common stock.
The new Alliance common stock will be treated as the same asset as his ordinary
shares of Alliance acquired at the same time and for the same consideration as
he acquired his ordinary shares of Alliance.
(b) A holder of ordinary shares in Alliance who, either by himself or with
other persons connected with him, holds more than 5% thereof may or may not also
be treated as one holding 5% or less.
(c) A subsequent disposal of New Alliance common stock received in
exchange for ordinary shares of Alliance may, depending on individual
circumstances, give rise to a liability to United Kingdom taxation of capital
gains.
(d) A U.K. resident who is domiciled within the U.K. and is a participator
in a non-U.K. resident company which would be "close" if it were U.K. resident
and which holds ordinary shares of Alliance will have attributed to him a
proportion of any gain realized by the company as a consequence of receiving new
Alliance common stock in exchange for ordinary shares of Alliance, unless his
share of such gain does not exceed 5% thereof.
(e) A U.K. resident settlor or U.K. resident and domiciled beneficiary of
a trust which is not resident in the U.K. for capital gains tax purposes and
holds ordinary shares of Alliance or is a participator in a non-resident company
which would be close if it were resident in the U.K. and which holds ordinary
shares of Alliance may in certain circumstances be chargeable on any gain
realized as a consequence of the trust or company receiving new Alliance common
stock in exchange for ordinary shares of Alliance or, except in the case of a
settlor who is not domiciled in the U.K., where any gain is "rolled over" into
new Alliance common stock, on disposal of that common stock.
Stamp duty and Stamp Duty Reserve Tax
No stamp duty or stamp duty reserve tax will be payable by validly
accepting shareholders as a result of accepting the offer.
Other Taxation Matters
Special provisions may apply to Alliance shareholders who have acquired or
acquire their ordinary shares of Alliance by exercising options under any share
schemes, including provisions imposing a charge to income tax.
Shareholders neither resident nor ordinarily resident in the United
Kingdom. The following paragraphs, which are intended as a general guide only,
are based on current U.K. legislation and Inland Revenue practice. They relate
only to the position of validly accepting shareholders who hold their ordinary
shares of Alliance as an investment and who are neither resident nor ordinarily
resident in the U.K. for taxation purposes. However, if you are in any doubt as
to your taxation position you should consult an appropriate adviser without
delay.
Taxation of capital gains
No capital gains tax will be payable by validly accepting shareholders as a
result of accepting the offer unless, in certain circumstances, the accepting
shareholder is an individual or an individual is a participator, settlor or
beneficiary who would be affected by paragraphs (d) or (e) above if resident,
and he resumes U.K. residence after an interval including fewer than five years
ending 5 April during which he was not resident in the United Kingdom.
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Stamp duty and stamp duty reserve tax
No stamp duty or stamp duty reserve tax will be payable by validly
accepting shareholders as a result of accepting the offer.
Other taxation matters
Special provisions may apply to Alliance shareholders who have acquired or
acquire their ordinary shares of Alliance by exercising options under any share
schemes, including provisions imposing a charge to income tax.
Shareholders with Dual Residence. Holders of Alliance ordinary shares who
are resident in both the United Kingdom and another territory should consult an
appropriate adviser to ascertain which jurisdiction has taxing rights over any
gain realized as a consequence of receiving new Alliance common stock in
exchange for ordinary shares of Alliance or, where any gain is "rolled over"
into new Alliance common stock, on disposal of that common stock.
Stamp duty and stamp duty reserve tax
No stamp duty or stamp duty reserve tax will be payable by validly
accepting shareholders as a result of accepting the offer.
Other taxation matters
Special provisions may apply to Alliance shareholders who have acquired or
acquire their ordinary shares of Alliance by exercising options under any share
schemes, including provisions imposing a charge to income tax.
COMPARATIVE RIGHTS OF SHAREHOLDERS
When the transactions are completed, the former shareholders of Alliance,
which is a U.K. public limited company, and American Rivers, a Wyoming company,
will become shareholders of new Alliance, a Delaware company. Differences
between U.K., Wyoming and Delaware law will result in various changes in the
rights of shareholders of Alliance and American Rivers.
The following is a summary of the rights of the shareholders of Alliance
and American Rivers compared to those of new Alliance shareholders under
applicable law and charter documents. This summary does not purport to be
complete and is qualified in its entirety by reference to new Alliance's
Certificate of Incorporation and Bylaws, which are exhibits to the registration
statement of which this document is a part.
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Alliance Shareholders American Rivers Shareholders New Alliance Shareholders
(U.K. Law) (Wyoming Law) (Delaware Law)
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Right to Call Meetings And
Submit Proposals
Under English law, notwithstanding any As permitted by Wyoming law, American As permitted by Delaware law, new
provision to the contrary in a company's Rivers' Bylaws provide that a special Alliance's Bylaws provide that a
articles of association, an extraordinary meeting of shareholders may be called by special meeting of shareholders may be
general meeting of shareholders may be called (i) the president, (ii) the Board of called at any time only by the
by a request of shareholders holding not less Directors, or (iii) the president at the Chairman of the Board of Directors or
than one-tenth of the paid-up capital of the request of the holders of not less than a majority of the members of the Board
company having voting rights at general 10% of all shares entitled to vote at of Directors then in office. In
meetings. In addition, shareholders holding the meeting. addition and as permitted by Delaware
not less than one-twentieth of the paid-up law, the Certificate of Incorporation
capital of Alliance or not less than 100 sets out requirements for submission
shareholders holding shares in Alliance on of proposals at an annual meeting. A
which there has been paid up an average sum, stockholder must give timely notice to
per shareholder, of not less than (Pounds)100 the Secretary of the Corporation which
are entitled to propose resolutions at notice must include (i) a description
Alliance's annual general meetings. of the business to be brought before
the annual meeting and reasons for
conducting such business, (ii) the
name and address of the stockholders
making and supporting such proposal,
(iii) the class and number of shares
of new Alliance owned by each
stockholder making and supporting the
proposal, (iv) a description of any
interest of the stockholder in the
proposal and (v) a representation that
the stockholder is a holder of record
of new Alliance and intends to appear
in person or by proxy at the meeting
to present the proposal.
Conduct of Shareholder
Meetings
An ordinary resolution requires 14 As permitted by Wyoming law, American Under Delaware law, all matters
clear days' notice and requires a Rivers' Articles of Incorporation required to be approved by
majority vote of those present and require that all matters which shareholders must be approved by the
voting. An extraordinary resolution pursuant to statute requires the vote affirmative vote of the holders of at
requires 14 clear days' notice and a of two-thirds of the outstanding least a majority of the outstanding
three-quarters majority vote of shares entitled to vote thereon, must shares of new Alliance Common Stock.
those present and voting. A special be approved or authorized by a Written notice of a meeting of
resolution requires 21 clear days' majority of the shares entitled to shareholders must be given,
notice and a three-quarters majority vote on the matter. Written notice, personally or by mail, not fewer than
vote of those present and voting. stating the place, day and hour of ten nor more than sixty days before
An annual general meeting requires the meeting and, in the case of a the meeting (unless otherwise
21 clear days' notice regardless of special meeting, the purpose for required by law) to each shareholder
the type of resolution to be which the meeting is called must be entitled to vote at such meeting.
proposed. The term "clear days' delivered to each shareholder This notice must state the place, date
notice" means calendar days and entitled to vote at the meeting no and hour of the meeting and the
excludes the day of mailing, the fewer than ten nor more than sixty purpose or purposes for which the
deemed date of receipt of days before the meeting. meeting is called.
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such notice (normally the day following
such mailing, if sent by first class
mail) and the date of the meeting
itself. "Extraordinary resolutions"
are limited to certain matters out
of the ordinary course of business,
such as a proposal to wind up the
affairs of the company. Proposals
that are the subject of "special
resolutions" include proposals to
change the name of a company, to
alter a company's capital structure
(but not to increase an existing
class of share capital), to change
or amend the rights of shareholders,
to amend a company's and Articles of
Association and to carry out certain
other matters. Most other proposals
relating to the ordinary course of a
company's business, such as the
election of directors, are the
subject of an ordinary resolution.
Notice of any type of meeting must
state the place, date and hour of
the meeting and the general nature
of the business to be transacted at
the meeting.
Rights to Shareholder LIsts
The register of shareholders and Under Wyoming law, any Shareholders of new Alliance have
index of shareholders' names of an shareholder has the right to inspect the right, in person or by attorney or
English company may, in general, be the shareholder list during the period other agent, upon written demand
inspected by a shareholder during beginning two days after notice of a stating the purpose thereof, during
business hours without charge, and meeting of shareholders and usual business hours, to inspect for
by other persons upon payment of a continuing throughout the meeting. any proper purpose a list of the
charge. Any person may request to Otherwise, only holders of at least names, addresses and shares held by
be supplied with a copy of the whole 5% of the outstanding shares who shareholders.
or part of the register upon payment have been shareholders for at least
of a charge. six months have the right to inspect
the shareholder list, provided they
give five days written notice and the
demand to inspect the list is made in
good faith and for a proper purpose.
Right to Inspection of Books
and Records
A shareholder of any English Under Wyoming law, any Under the Delaware law, any
company may inspect the minutes of shareholder of American Rivers may shareholder of new Alliance, upon
shareholder meetings and obtain inspect or copy the "Corporate written request stating the purpose of
copies (within 7 days) upon payment Records" of the corporation (as the inspection, has the right to
of a charge. defined in the Wyoming Business inspect for any proper purpose new
Corporation Act), upon written Alliance's books and records, and to
demand five business days before the make copies of those records.
date on which he
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Shareholders are not entitled to intends to inspect or copy such
inspect the accounting records of a "Corporate Records." However, only a
company or minutes of directors' shareholder who has been of record for
meetings. However, the Secretary of at least six months immediately
State of Trade and Industry may, on preceding the demand and who is
the application of at least 200 a holder of 5% of all
shareholders or of shareholders outstanding shares may inspect
holding not less than 10% of the accounting records, excerpts of
issued share capital of a company, minutes of the board of directors or
appoint inspectors to investigate the shareholders, to the extent not subject
affairs of the company and inspect all to inspection under the general rule,
documents relating of or to the and the record of shareholders (with
company. the rules differing on inspection of
this record before a meeting of
Certain registers required to be kept shareholders) in good faith and for a
by a company are open to public proper purpose so described in the
inspection, including, the Register of demand.
Directors and Secretaries, Register of
Directors' Interest in Shares and
Debentures, Register of Charges, the
Register of Debenture Holders and
the Register of Interests in Shares.
Service contracts of directors of the
company are available for inspection
in certain circumstances and at certain
times. Copies of instruments creating
charges that are registrable with the
Registrar of Companies together with
any other charges in the Register of
Charges of the company must be kept
and be made available for inspection
by shareholders and creditors without
charge.
Voting Requirements
Under English law, the voting rights As permitted by Wyoming law, Delaware law provides that, unless
of shareholders are governed by the American Rivers' Bylaws provide that otherwise provided in a company's
Companies Act 1985 of the United each outstanding share, regardless of certificate of incorporation, each
Kingdom, as amended, and by class is entitled to one vote on each shareholder is entitled to one vote for
company's articles of association. matter voted on at a shareholder's each share of stock held by such
Shareholders have the statutory right meeting. shareholder, on each matter submitted
to demand a poll (a vote by the to a vote of shareholders of the
number of shares held rather than by a Under Wyoming law, voting by company. New Alliance's Certificate
show of hands) at a general meeting shareholders for directors is non- of Incorporation provides that a
in certain circumstances. Under cumulative unless provided otherwise shareholder is entitled to one vote for
Alliance's Articles of Association, a in the articles of incorporation. each share of new Alliance's
poll may be demanded at any general American Rivers' Articles do not Common stock held by such
meeting by (i) the chairman of the provide for cumulative voting. Under shareholder.
meeting, (ii) at least three non-cumulative voting, each
shareholders present in person or by shareholder entitled to vote for Under the Delaware law, voting by
proxy and having the right to vote at directors may vote, for each director, shareholders for directors is non-
the meeting, (iii) a shareholder or the number of votes equal to the cumulative unless provided otherwise
shareholders present in person or by number of shares held by the in the certificate incorporation.
proxy representing not less than 10% shareholder. Since voting is non- New Alliance's Certificate of
of the total voting rights of all the cumulative, the holders of a majority incorporation does not provide for
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shareholders having the right to vote of the voting stock may elect all of cumulative voting. Therefore, new
at the meeting or (iv) a shareholder or the Directors. Alliance will employ non-cumulative
shareholders present in person or by voting. Since voting is non-
proxy holding shares conferring a As permitted by Wyoming law, the cumulative, the holders of a majority
right to vote at the meeting, being Bylaws of American Rivers provide of the voting stock may elect all of the
shares on which an aggregate sum has that action required or permitted to be Directors.
been paid-up equal to, but not less taken at a shareholders' meeting may
than 10% of the total sum paid-up on be taken without a meeting if a As permitted by Delaware law, new
all the shares conferring that right. consent in writing, setting forth the Alliance's Certificate of
action so taken, shall be signed by the Incorporation required that any action
Cumulative voting is essentially holders of all shares entitled to vote required or permitted to be taken by
unknown under English law. on the action. the stockholders of new Alliance be
Alliance's Articles of Association effected at a duly called annual or
specify that two persons entitled to special meeting and not by any
vote on the business to be transacted consent in writing by the
shall constitute a quorum. stockholders.
Subject to any special rights or
restrictions attached to any shares, on
the show of hands, every shareholder
who is present in person or is present
by a duly authorized representative at
any meeting by proxy and is entitled
to vote shall have one vote, and on a
poll every shareholder who is present
either personally or by proxy and is
entitled to vote shall have one vote
for every ordinary share held by him.
If there is a failure by a shareholder
within 14 days to comply with a
request made by Alliance to disclose
certain information regarding his
shares under Section 212 of the
Companies Act, the Board may
suspend the shareholder's voting
rights in relation to such shares.
Distributions and Dividends
Holders of Alliance shares are Wyoming law provides that dividends New Alliance's Certificate of
entitled to receive such dividends as may be paid, unless after giving effect Incorporation provides that the Board
may be declared by the Board of to such distribution, the corporation of Directors may declare dividends
Directors of Alliance. Alliance's would not be able to pay its debts as upon the issued and outstanding
credit agreements with its lenders they come due in the usual course of shares of new Alliance's Common
prohibit Alliance from paying business, or the corporation's total Stock, subject to the prior payment of
dividends. In addition, Alliance is assets would be less than the sum of dividends upon any series of preferred
precluded from paying dividends until its total liabilities, plus (unless the stock outstanding. The ability of new
such time as its retained loss is corporation's articles of Alliance's Board of Directors to
cleared or canceled by court order. incorporation permit otherwise) the declare dividends for holders of the
Alliance has not paid any dividends on amount needed to satisfy preferential common stock will only be limited by
its outstanding ordinary shares during distributions. The Articles of the rights and priority of any holders
the last five years. Incorporation of American Rivers of new Alliance preferred stock.
provide that the Board may declare
dividends on its outstanding shares
and pay such dividends out of any
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funds legally available therefor at
such times and in such amounts as the
Board may determine.
Dilution
Without prejudice to any special American Rivers' Certificate of New Alliance's Certificate of
rights previously conferred on the Incorporation permits the issuance of Incorporation permits the issuance of
holders of any existing shares or class additional shares of common stock or additional shares of common stock or
of shares, any shares in the capital of shares of preferred stock, pursuant to shares of preferred stock, pursuant to
Alliance may be issued with such which the interests in the assets, which the interests in the assets,
special rights, privileges or liabilities, cash flow and results of liabilities, cash flow and results of
restrictions as Alliance in general operations of American Rivers may operations of new Alliance
meeting may (before the issuance of be diluted. American Rivers' Board represented by the shares of new
such shares) from time to time of Directors by resolution may Alliance Common Stock may be
determine. establish one or more classes or series diluted. Issuances of additional
of preferred stock having the number shares of common stock or preferred
Alliance may from time to time by of shares, designations, relative stock could adversely affect existing
ordinary resolution of shareholders voting rights, preferences, and shareholders' equity interest in new
increase its capital by the creation of limitations that the Board of Alliance and the market price of the
new shares, consolidate all or any of Directors fixes without any common stock. New Alliance's
its shares into shares of a larger shareholder approval. Board of Directors by resolution may
amount than its existing shares and establish one or more classes or series
subdivide its existing shares or any of Under Wyoming law, shareholders are of preferred stock having the number
them into shares of smaller amount. denied preemptive rights unless of shares, designations, relative voting
preemptive rights are provided for in rights, preferences, and limitations
Under United Kingdom law, the articles of incorporation. that the Board of Directors fixes
shareholders have a right to pre- American Rivers' Articles of without any shareholder approval.
emption in respect of further issues Incorporation do not provide for
of shares for cash. However, it is preemptive rights. Under the Delaware law, shareholders
common to disapply such right of pre- are denied preemptive rights unless
emption on an annual basis, in preemptive rights are provided for in
respect of cash issues representing the certificate of incorporation. New
in the aggregate not more than 5% of Alliance's Certificate of
the company's issued share capital. Incorporation currently does not
provide for preemptive rights.
Liquidation
Alliance's Articles of Association American Rivers' Articles of Upon dissolution, the corporation or
provide that if the Company is wound Incorporation provide that when a the receiver or trustee of the
up, a court-appointed liquidator may, compromise or arrangement is corporation are to pay all claims
with the authority of an extraordinary proposed between the corporation and according to their priority, and among
resolution and any other sanction its creditors and/or between the claims of equal priority, ratably to the
required by law, divide among the corporation and its shareholders, any extent of assets legally available for
shareholders in specie the whole or court of equitable jurisdiction may, distribution, except that a receiver or
any part of the assets of Alliance, and on the application of the corporation trustee may determine which claims
for that purpose, set such values as he or of a majority of its stock, or on the are valid and all others must submit
deems fair upon the property to be application of a receiver or trustee in certain records to the trustee or
divided, and determine how the dissolution, order a meeting of the receiver for examination. If the claim
division shall be carried out between creditors and/or shareholders. If a is disallowed, the creditor may appeal
the shareholders. The liquidator may, majority in number representing at to the Court of Chancery within 30
with like authority, vest any part of least three-fourths in amount of the days of such determination.
the assets in trustees upon such trust creditors and/or holders of the
majority of the stock of the
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for the benefit for shareholders as he corporation agree to any compromise
with like authority shall think fit. or arrangement and to any
reorganization of the corporation as a
consequence of that compromise or
arrangement, that compromise or
arrangement and/or reorganization
shall, if sanctioned by the court, be
binding on all creditors and/or
shareholders of the corporation.
Under Wyoming law, a dissolved
corporation continues its corporate
existence but may not carry on any
business except what is appropriate to
liquidate its business, which includes
discharging its liabilities and
distributing remaining property
among its shareholders according to
their interests. American Rivers
could also be administratively or
judicially dissolved, if they met the
grounds for such dissolution.
Transferability
There are, in general, no restrictions American Rivers' Shares are New Alliance's Shares are
in Alliance's Articles of Association transferable on American Rivers' transferable on new Alliance's books
on the transferability of fully-paid books by the holder of record or by a by the holder of record, by a transfer
ordinary shares. The board may in its legal representative who furnishes agent for the stock, or by an attorney
absolute discretion, and without proper evidence of authority to authorized by a power of attorney
giving a reason therefor, decline to transfer, or by an attorney authorized which is duly executed and filed with
register a transfer of any share that is by a power of attorney which is duly the Secretary of the corporation, along
not fully-paid to a person of whom it executed and filed with the Secretary with surrender of the share certificate
does not approve or of any share over of the corporation, along with properly endorsed or accompanied by
which it has a lien. The board may surrender for cancellation of the share a duly executed transfer power.
also in certain circumstances, decline certificate.
to register a transfer of a share in
respect of which the shareholder has
not replied to a request by the
company as to the identity of persons
interested in such share.
Redemption Rights
Holders of Alliance ordinary shares Holders of American Rivers' New Alliance Common Stock is not
will have no right to surrender their Common Stock and Class B Common redeemable.
shares in exchange for the pro rata Stock do not have any right of
share of Alliance's net assets redemption.
attributable to such shares, and the
ordinary shares are not redeemable. If
Alliance shareholders so authorize,
Alliance may repurchase its shares, as
permitted by law. Any shares
repurchased must be canceled.
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Change of Control
For a company such as Alliance The Wyoming Management Stability New Alliance is subject to the
listed on the London Stock Act restricts the ability of a provisions of Section 203 of
Exchange, shareholder approval may "Qualified Corporation," which Delaware law, which restricts
be required for certain acquisitions or includes certain publicly traded "business combinations" involving a
disposal of assets involving directors corporations incorporated in company and an "interested
or substantial shareholders or their Wyoming generally having at least shareholder" for three years
associates. $10,000,000 of assets and in excess following the date on which the
of 1,000 record stockholders and shareholder acquired 15% or more of
with substantial operations in the the outstanding voting stock of the
state, to engage in certain "business company, unless certain statutory
combinations" with an "interested exceptions are satisfied.
shareholder" for three years
following the date on which the
shareholder acquired 15% or more of
the outstanding voting stock of the
corporation, unless certain statutory
exceptions are satisfied. American
Rivers is not a "Qualified
Corporation" and therefore is not
subject to the protections of this Act.
Indemnification
Under English law, Alliance may only As permitted by Wyoming law, Section 145 of the Delaware law
indemnify its officers and directors American Rivers' Articles of permits a corporation to indemnify
against liabilities they incur in Incorporation provide that American any person who is, or is threatened to
defending proceedings (whether civil Rivers shall indemnify any person be made, a party to any suit owing to
or criminal) in which (i) a judgment who is or was a director to the the fact that the person is or was a
has been given in the indemnitee's maximum extent provided by statute. director, officer, employee or agent
favor, (ii) the indemnitee is acquitted American Rivers shall indemnify any acting on behalf of the corporation,
or (iii) relief has been granted to the person who is or was an officer, subject to a determination by the
indemnitee by the court from liability employee or agent of American board of directors that the person has
for negligence, default, breach of duty Rivers who is not a director to the met certain standards of conduct.
or breach of trust in relation to the maximum extent provided by law and Section145 also provides that it is
affairs of Alliance or its subsidiaries. if provided by resolution of American not exclusive of any other rights to
The Articles of Association of Rivers' shareholders or directors, or indemnification or advancement of
Alliance provide that directors and in a contract. Wyoming law permits expenses. New Alliance's Certificate
officers of Alliance will be entitled to indemnification of officers and of Incorporation requires
the benefit of this indemnification. directors against liability and indemnification of any director or
expenses incurred in derivative or officer or any legal representative of
third-party actions if the indemnitee any director or officer of new
acted in good faith and he or she Alliance who is, or is threatened to be
reasonably believed the acts were in made a party to such a suit to the
or at least not opposed to the best fullest extent permitted by Delaware
interests of the corporation. law and permits indemnification of
Wyoming law also permits the any employee, attorney, agent or
advancement of expenses to an officer representative to the fullest extent
or director related to a proceeding, permitted by Delaware law. New
contingent on the involved person's Alliance's Certificate also requires
commitment to repay any such the advancement of expenses incurred
advance if it is ultimately determined by the director or officer indemnitee.
that he or she is not entitled to
indemnification.
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Limits on Management's
Liability
English law does not provide any As permitted under Wyoming law New Alliance's Certificate of
mechanism for limiting the liability of and as provided for in the Articles of Incorporation, as permitted by the
directors. Incorporation of American Rivers, a Delaware law eliminates the monetary
director is not personally liable for liability of new Alliance's directors
monetary damages to the corporation for a breach of their fiduciary duty as
or its shareholders for his actions as a directors, except for liability (i) for
director except in connection with (i) any breach of a director's duty of
breach of the director's duty of loyalty to new Alliance or its
loyalty to the corporation or its shareholders, (ii) for acts or
shareholders, (ii) acts or omissions omissions not in good faith or that
not in good faith or which involved involve intentional misconduct or a
intentional misconduct or a knowing knowing violation of law, (iii) under
violation of law, (iii) violation of Section 174 of the Delaware law
certain provisions of the Wyoming (which provides for liability of
Business Corporation Act, or (iv) any directors for unlawful payment of
transaction from which the director dividends or unlawful stock purchases
derived an improper personal benefit. or redemptions), or (iv) for any
transaction from which the director
derived an improper personal benefit.
Removal
Under English law, shareholders Under Wyoming law, shareholders Under Delaware law, because new
holding a majority of the company's holding a majority of the company's Alliance's Certificate of Incorporation
shares have the power to remove a shares have the power to remove a provides that the board of directors is
director before the expiration of his director before the representation of to be classified into three classes,
period of office, notwithstanding his period of office, notwithstanding directors may removed only for
anything in the articles of association anything in the articles of association cause by the vote of shareholders
or any service agreement. or any service agreement. holding a majority of the company's
shares.
Appraisal Rights
While English law does not generally Under Wyoming law, a shareholder of Under Delaware law, a holder of new
provide for appraisal rights, if a a corporation participating in certain Alliance shares who does not vote in
shareholder applies to a court as mergers and reorganizations may be favor of a merger or consolidation of
described below, the court may entitled to receive cash in the amount new Alliance may, upon compliance
specify such terms for the acquisition of the "fair value" of his or her with certain procedures, be entitled to
as it considers appropriate. shares, as determined by a court, in receive the fair value of the shares in
lieu of the consideration he or she cash in lieu of the consideration that
The Companies Act 1985 of the would otherwise receive in the would otherwise be received in the
United Kingdom, as amended, transaction, however, appraisal rights merger or consolidation. Appraisal
provides that where a take-over offer may not be available if a shareholder rights are not available in certain
(as defined therein) is made for the vote was not required to approve the mergers, including (a) mergers in
shares of a company incorporated in merger or reorganization. However, which new Alliance is the surviving
the U.K. and the offeror has, within Wyoming law imposes significant corporation and in which no vote of
four months of the date of the offer, duties on shareholders who wish to its shareholders was required and (b)
acquired or contracted to acquire not avail themselves of the right to mergers when the shares were then
less than nine-tenths in value of the demand and receive payment of the listed on a national securities
shares to which the offer relates, the fair cash value of their stock, and any exchange or held of record by more
offeror may, within two months of shareholder who does not satisfy than 2,000 holders and the holders of
reaching the nine-tenths level, notify these duties will not be entitled to shares are not required to accept in
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shareholders who did not accept the payment for his or her shares. For a exchange for their shares anything
offer and require them to transfer more complete description of other than shares of stock of the
their shares on the terms of the offer. shareholder's rights under Wyoming surviving corporation that, on the
A dissenting shareholder may apply to law, refer to "Voting Information - effective date of the merger, would be
the court within six weeks of the date Dissenters' Rights." listed on a national securities
on which such notice is given, exchange or held of record by more
objecting to the transfer or its than 2,000 holders, cash in lieu of
proposed terms. The court is unlikely fractional shares, or any combination
(absent fraud or oppression) to thereof.
exercise its discretion to order that the
acquisition not take effect, but it may
order that the offeror shall not be
entitled to acquire the relevant shares
or specify such terms of the transfer
as it finds appropriate. A minority
shareholder is also entitled in these
circumstances to require the offeror
to acquire his shares on the terms of
the offer.
Conflicts of Interest
Alliance's Articles of Association American Rivers' Articles of New Alliance's bylaws provide that,
provide that a director, or a firm in Incorporation provide that the to the extent provided by Delaware
which he is interested, may act in a officers, directors and other members law, no contract or transaction
professional capacity for Alliance and of management of American Rivers between new Alliance and one or
will be entitled to remuneration for shall be subject to the doctrine of more of its directors or officers or
such services as if he were not a corporate opportunities only insofar between new Alliance and any other
director, except that such party is not as it applies to business opportunities company, partnership, association or
authorized to act as auditor to in which American Rivers has other organization in which any of
Alliance. A director may contract expressed an interest as determined such directors or officers have a
with Alliance provided he disclosed from time to time by the financial interest, shall be void or
his interests. Alliance's Articles of corporation's Board of Directors as voidable solely for this reason, or
Association also detail those matters evidenced by resolutions appearing in soley because the directors or
on which an interested director may the corporation's minutes. When officers are present at or participate
or may not vote. such areas of interest are delineated, in the meeting of the board or committee
all such business opportunities within thereof which authorizes contract
such areas of interest which come to or transaction, or solely because the
the attention of the officers, directors directors or officers or their votes are
and other members of management of counted for such purpose. However,
of the corporation shall be disclosed this paragraph will only apply if the
promptly to the corporation and made director or officer who will
available to it. participate in the interested
transactions has disclosed the material
facts of the relationship to the board
and the board authorizes or ratifies
the transaction by a majority of
directors present; or to the
stockholders and they authorize or
ratify the transaction by a majority of
the shares present; or the transaction
is fair to the corporation as of the
time it is authorized or ratified by the
board or the stockholders.
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Common or interested directors may
be counted in determining the
presence of a quorum at a meeting of
the Board of Directors or a committee
thereof which authorizes the contract
or transaction.
Trading of Shares
The Alliance shares are traded on the The American Rivers shares are We expect the new Alliance shares
London Stock Exchange under the currently quoted on the OTC Bulletin will be quoted on the OTC Bulletin
Symbol "ARS." Board under the symbol "AROC," but Board after the share exchange.
they are not traded on any exchange.
Under current U.K. law, the transfer
of Alliance shares will generally give
rise to a liability to U.K. stamp duty,
normally at the rate of 50p for every
100 (pounds) (or part thereof) of the actual
consideration paid.
Number of Authorized Shares and Identity
of Transfer Agent
415,001,376 Ordinary Shares, par 5,000,000 shares of Preferred Stock, 10,000,000 shares of preferred stock,
value 1p per share par value $0.05 per share par value $0.001 per share
1,414,998,624 Deferred Shares, par 20,000,000 shares of Common Stock, 180,000,000 shares of common
value 1p per share par value $0.01 per share stock, par value $0.001 per share
10,000,000 shares of convertible 8,000,000 shares of Class B Common 10,000,000 share of convertible
value 1p per share Stock, par value $0.01 per share restricted voting stock, par value
$0.001 per share
The transfer agent for Alliance is
IRG PLC. The transfer agent for American The transfer agent for new Alliance is
Rivers is AST. Registrar and Transfer Company.
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ANTI-TAKEOVER PROVISIONS OF DELAWARE LAW
AND OF THE ORGANIZATIONAL DOCUMENTS OF NEW ALLIANCE
The new Alliance certificate of incorporation and new Alliance bylaws
contain a number of provisions that may inhibit or impede the acquisition or
attempted acquisition of control of new Alliance by means of a tender offer,
proxy contest or otherwise. These provisions are expected to discourage coercive
takeover practices and inadequate takeover bids and to encourage persons seeking
to acquire control of new Alliance to negotiate first with the new Alliance
board. These provisions may increase the likelihood that proposals initially
will be on more attractive terms than would be the case in their absence and
increase the likelihood of negotiations. This might outweigh the potential
disadvantages of discouraging these proposals because, among other things,
negotiation of the proposals might result in an improvement of their terms. The
discussion below highlights some of these anti-takeover provisions in the new
Alliance charter documents. Because it is a summary, it may not contain all of
the information that might be important to you. We urge you to read the new
Alliance certificate of incorporation and the new Alliance bylaws, copies of
which have been filed as exhibits to the registration statement of which this
document is a part, as well as the Delaware General Corporation Law for a
complete description of these anti-takeover provisions.
36
<PAGE>
Classified Board Of Directors
The new Alliance certificate of incorporation provides for a classified or
"staggered" board of directors. This means that all of the directors' terms of
office do not expire at the same time. Once the new Alliance board consists of
three or more directors, the new Alliance board will be divided into three
classes of directors, with each class constituting approximately one-third of
the total number of directors, and with the classes serving staggered three-year
terms. The classification of the new Alliance board will have the effect of
making it more difficult for stockholders to change the composition of the new
Alliance board and therefore the control of new Alliance, because only a
minority of the directors are up for election at any one time, and may be
replaced by a vote of the stockholders.
The classification provisions also could have the effect of discouraging a
third party from accumulating a large block of the capital stock of new Alliance
or attempting to obtain control of new Alliance, even though such an attempt
might be beneficial to new Alliance and some, or a majority, of new Alliance's
stockholders. Accordingly, under some circumstances stockholders could be
deprived of opportunities to sell their new Alliance common stock and new
Alliance preferred stock at a higher price than might otherwise be available.
Number of Directors; Removal; Filling Vacancies
After giving preference to any rights of holders of preferred shares of new
Alliance to elect additional directors under specified circumstances, the new
Alliance certificate of incorporation and the new Alliance bylaws provide that
the number of directors must not be less than one nor more than fifteen. In
addition, the new Alliance certificate of incorporation provides that, after
giving preference to rights of holders of preferred shares, any vacancies will
be filled by majority of the remaining directors, even though less than a
quorum, or by a sole director and any vacancies created by an increase in the
total number of directors may be filled only by the new Alliance board.
Accordingly, the new Alliance board could temporarily prevent any stockholder
from enlarging the new Alliance board and then filling the new positions with
the stockholder's own nominees.
The new Alliance certificate of incorporation and the new Alliance bylaws
provide that, after giving preference to any rights of holders of preferred
shares, directors may be removed only for cause upon the affirmative vote of
holders of a majority of the entire voting power of all the then-outstanding
shares entitled to vote in the election of directors, voting together as a
single class.
Advance Notice Provisions for Director Nominations and Stockholder Proposals
The new Alliance certificate of incorporation provides for an advance
notice procedure for stockholders to make nominations of candidates for director
or to bring other business before the annual meeting of stockholders. According
to this procedure (1) only persons who are nominated by, or at the direction of,
the new Alliance board, or by a stockholder who has given timely written notice
containing specified information to the Secretary of new Alliance prior to the
meeting at which directors are to be elected, will be eligible to nominate
candidates for director of new Alliance and (2) at an annual meeting, only such
business may be conducted as has been brought before the meeting by, or at the
direction of the new Alliance board or by a stockholder who has given timely
written notice to the Secretary of new Alliance of his intention to bring the
business before the meeting. In general, for notice of stockholder nominations
or proposed business to be conducted at an annual meeting to be timely, the
notice must be received by new Alliance not less than 60 days nor more than 90
days prior to the scheduled date of the meeting.
The purpose of requiring stockholders to give advance notice of nominations
and other business is to afford the new Alliance board a meaningful opportunity
to consider the qualifications of the proposed nominees or the advisability of
the other proposed business. To the extent necessary or considered desirable by
the new Alliance board, the advance notice provision will allow the new Alliance
board to inform stockholders and make recommendations about the nominees or
business, as well as to ensure an orderly procedure for conducting meetings of
stockholders. Although the new Alliance certificate of incorporation does not
give the new Alliance board power to block stockholder nominations for the
election of directors or proposals for action, the advance notice procedure may
have the effect of discouraging a stockholder from proposing nominees or
business, precluding a contest for the election of directors or the
consideration of stockholder proposals if procedural requirements are not met.
This might also deter third parties from soliciting proxies for a non-management
proposal or slate of directors, without regard to the merits of the proposal or
slate.
37
<PAGE>
Any action required or permitted to be taken by the new Alliance
stockholders must be taken at a properly called annual or special meeting of the
new Alliance stockholders and may not be taken by written consent. Special
meetings of the new Alliance stockholders may be called at any time but only by
the Chairman of the board or by a majority of the directors then in office.
Preferred Shares
The new Alliance certificate of incorporation authorizes the new Alliance
board to establish one or more series of preferred shares, and to determine
preferences, rights and other terms of those series. The purpose of allowing the
new Alliance board to issue one or more series of preferred shares is to provide
increased flexibility in structuring possible future financings and
acquisitions, and in meeting other corporate needs. The authorized preferred
shares are available for issuance without further action by the new Alliance
stockholders, unless the action is required by applicable law or the rules of
any stock exchange or automated quotation system on which the new Alliance
securities may be listed or traded. New Alliance has no present intention to,
although it could in the future, issue a series of preferred shares. A new
series of preferred stock, due to its terms, could impede a merger, tender offer
or other transaction that some, or a majority, of its stockholders might believe
to be in their best interests or in which stockholders might receive a premium
over then prevailing market prices for their new Alliance common stock.
Amendment of the new Alliance Certificate of Incorporation
The new Alliance certificate of incorporation provides that it may be
amended only if the holders of not less than a majority of the votes entitled to
be cast vote in favor of the amendment.
Business Combinations Under Delaware Law
New Alliance will be required to comply with the provisions of Section 203
of the Delaware General Corporation Law, a statutory provision restricting
business combinations with a category of stockholders called "interested
stockholders," defined as persons who beneficially own or acquire 15% or more of
a Delaware corporation's voting stock, with the exception of any person who
owned and has continued to own shares in excess of the 15% limitation since
December 23, 1987. Section 203 defines "business combination" broadly to include
mergers, consolidations, sales or other disposition of assets having a total
value in excess of 10% of the consolidated assets of the corporation, and other
transactions that would increase an interested stockholder's proportionate share
ownership in the corporation. Section 203 prohibits business combinations
between a publicly held Delaware corporation and any interested stockholder for
a period of three years after the date on which the interested stockholder
became an interested stockholder, unless (a) prior to that date, the
corporation's board approved either the proposed business combination or the
transaction that resulted in the interested stockholder becoming an interested
stockholder; (b) when the transaction that resulted in the interested
stockholder becoming an interested stockholder was completed, the interested
stockholder already owned at least 85% of the voting stock of the corporation
outstanding at the time; or (c) on the date on which the business combination is
approved by the corporation's board of directors and authorized at an annual or
special meeting of stockholders, the transaction was approved by at least two-
thirds of the outstanding voting stock that is not owned by the interested
stockholder.
BUSINESS OF AMERICAN RIVERS
American Rivers is an independent oil and gas exploration and production
company located in Denver, Colorado, that has historically engaged in the
acquisition, development and exploration of oil and gas properties. During
fiscal 1998 and 1999, American Rivers sold virtually all of its oil and gas
properties to repay existing obligations. The executive offices of American
Rivers are located at 700 East Ninth Avenue, Suite 106, Denver, Colorado 80203.
Additional information concerning American Rivers, including its business,
properties, financial statements and management's discussion and analysis of
financial condition and the results of operations, is included in its annual
report on Form 10-KSB for the year ended March 31, 1999, which is included with
this document.
BUSINESS OF ALLIANCE
Alliance is a United Kingdom public limited company whose principal
activities are the acquisition, exploration, development and production of oil
and gas properties. The Company currently owns producing oil and gas properties
in
38
<PAGE>
the East Irish Sea off the West coast of the U.K. and in the United States, with
a majority of its proved U.S. reserves located in the states of Alabama,
Louisiana, Mississippi, Oklahoma and Texas. Since 1996, the Company has focused
its efforts on maximizing the value of its properties in the U.S. and on
acquiring and developing suitable international opportunities. The executive
offices of Alliance are at 4200 East Skelly Drive, Suite 1000, Tulsa, Oklahoma
74135.
In connection with its acquisition of its U.K. interests in 1998, Alliance
issued to the sellers of the U.K. interests restricted voting shares convertible
into 10,000,000 ordinary shares and a contingent right to acquire up to
10,000,000 additional ordinary shares over the next five years. It is a
condition to the offer that new Alliance enter into satisfactory agreements with
the sellers of the U.K. interests to provide the sellers with comparable rights.
Accordingly, new Alliance and the sellers of the U.K. interests have entered
into an agreement providing that new Alliance will issue to the sellers
10,000,000 convertible restricted voting shares which may be converted into up
to 20,000,000 shares of new Alliance's common stock. The number of shares of
common stock that would be actually issued as a result of this contingent right
will depend on the sales production actually achieved from, or the estimated
value attributable to, the U.K. interests, as set out in the table below. The
sellers would receive 5,000,000 shares if none of the production targets or
reserve values are achieved, 20,000,000 shares if all the production targets or
reserve values are achieved and will receive a number of shares within this
range if only some of the production targets or reserve valuations are achieved.
The convertible restricted voting shares are entitled to one-half vote per share
and to vote with the common stock on all matters. In addition, the holders of
the convertible restricted voting shares may elect one director to new
Alliance's board of directors, who will then be subject to reelection in the
same manner as other directors.
If any Sustained Production Level (as defined below) is achieved, the
sellers will be entitled to receive the number of shares set forth below
corresponding to such Sustained Production Level. "Sustained Production Level"
means sales of production attributable to the U.K. interests for a period of at
least 90 consecutive days at rates equal to or in excess of the levels described
in the table set out below.
If the first three Sustained Production Levels set out below are achieved,
but the fourth or fifth Sustained Production Levels set out below are not
achieved, and the Reserves Value (as defined below) is equal to or in excess of
that set out below with respect to such Sustained Production Level which has not
been achieved, then additional shares shall be issued to the sellers so that the
total number of additional shares issued to the sellers is equal to the amount
which would have been issued had the Sustained Production Level been achieved
which corresponds to such Reserves Value. "Reserves Value" means the net present
value of the following reserves, bearing interest or discounted at the rate of
10%, as applicable, net of U.K. corporate tax, and determined in accordance with
generally accepted reservoir engineering standards: (i) the proceeds previously
received which are attributable to the total volume of reserves produced and
sold from the U.K. interests from and after January 1, 1998, less the aggregate
amount of all capital expenditures and operating costs incurred since January 1,
1998 which are attributable to the U.K. interests and (ii) the proceeds
estimated to be received attributable to the total volume of hydrocarbon
reserves that geological and engineering data demonstrate, with a greater than
50% certainty, as determined by statistical means, to be recoverable from the
U.K. interests in the future from known reservoirs under existing operating
conditions based upon the most recent reserve report prepared by Alliance's
third-party engineering firm, which report shall be prepared no less often than
annually, less the aggregate amount of all capital expenditures and operating
costs attributable to such reserves.
<TABLE>
<CAPTION>
Base Number of Alliance
Sustained Production Level Shares to be Issued Reserves Value (1)
--------------------------- ------------------- -----------------
<S> <C> <C>
8 MMcf/day 8,000,000 N/A
12 MMcf/day 3,000,000 N/A
16 MMcf/day 3,000,000 N/A
20 MMcf/day 3,000,000 $ 34.15 million
24 MMcf/day 3,000,000 $ 37.5 million
</TABLE>
(1) These Reserves Values are not comparable to Pre-tax PV10 value or the
Standardized Measure of the reserves attributable to the company's
properties or to the U.K. interests described in other filings by Alliance
because the calculation of "Reserves Value" is to be made in the manner
described in the paragraph preceding this table, which is different than
the manner in which the Pre-tax PV10 value and the Standardized Measure are
calculated.
39
<PAGE>
Additional information concerning Alliance, including its business,
properties, financial statements and management's discussion and analysis of
financial condition and the results of operations, is included in its annual
report on Form 10-K for the year ended April 30, 1999, which is included with
this document.
40
<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL AND OPERATING DATA
OF AMERICAN RIVERS
The selected historical financial information for American Rivers for the
year ended March 31, 1995 includes the results of operations of properties
contributed by Karlton Terry Oil Company (KTOC) in exchange for 80% of the
outstanding voting shares of American Rivers. The exchange, for accounting
purposes, was treated as if the owners of KTOC had acquired American Rivers.
Information for periods prior to December 8, 1995 (the effective date of the
exchange) includes the results of operations of the properties contributed by
KTOC. The selected historical financial information as of and for the years
ended March 31, 1999 should be read in conjunction with American Rivers' audited
financial statements and the notes thereto included under Item 8 and
Management's Discussion of Financial Condition and Results of Operations at Item
7 contained in the American Rivers Annual Report on Form 10-KSB. The selected
historical financial information for the three months ended June 30, 1998 and
1999 is unaudited and should be read in conjunction with the unaudited financial
statements contained in the American Rivers Form 10-Q included with this
document; however, in the opinion of management, all adjustments which are of a
normal recurring nature, necessary for a fair presentation of the results of
such periods, have been made. The results of operations for the three months
ended June 30, 1998 and 1999 are not necessarily indicative of the results to be
expected for the entire fiscal year or any other interim period.
<TABLE>
<CAPTION>
As of and for the
three months ended
As of and for the years ended March 31, June 30
--------------------------------------- -------
1995 1996 1997 1998 1999 1998 1999
------ ------- ------- ------- ------ ------ ------
(in thousands, except per share amounts and average sales data)
Income Statement Data:
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Oil and gas sales $ 147 $ 173 $ 757 $ 655 $ 18 $ 19 $ -
Operator fees 4 7 6 3 - - -
------ ------- ------- ------- ------ ------ ------
Total revenue 151 180 763 658 18 19 -
------ ------- ------- ------- ------ ------ ------
Operating expenses:
Oil and gas production costs 53 91 394 409 38 21 -
Exploration costs - - 79 5 5 1 -
General and administrative 142 592 559 475 387 83 29
Depreciation and depletion 34 42 84 297 9 11 -
Impairment of oil and gas
properties - - - 2,567 - - -
------ ------- ------- ------- ------ ------ ------
Total expenses 229 725 1,116 3,753 439 116 29
------ ------- ------- ------- ------ ------ ------
Loss from operations (78) (545) (353) (3,095) (421) (97) (29)
Other income (expense)
Gain (loss) on sale of oil and gas
properties 138 (140) - 92 293 205 -
Equity in loss of Bishop Capital
Corporation (162) (524) (95) - - -
Interest expense (22) (18) (78) (84) (3) (10) -
Interest income - - - - 17 - -
------ ------- ------- ------- ------ ------ ------
Net income (loss) before income
taxes 38 (865) (955) (3,182) (114) 98 (29)
Deferred income tax benefit - 225 19 232 - - -
------ ------- ------- ------- ------ ------ ------
Net income (loss) $ 38 $ (640) $ (936) $(2,950) $ (114) $ 98 $ (29)
====== ======= ======= ======= ====== ====== ======
Net income (loss) per common share $ - $ (0.15) $ (0.21) $ (0.29) $ - $ - $ -
====== ======= ======= ======= ====== ====== ======
Net income (loss) per class B common
share $ 0.01 $ (0.06) $ (0.04) $ (0.26) $ - $ 0.01 $ -
====== ======= ======= ======= ====== ====== ======
Weighted average number of common
shares outstanding - 1,640 3,157 3,614 3,606 3,612 3,566
====== ======= ======= ======= ====== ====== ======
Weighted average number of class B
common shares outstanding 6,715 7,049 7,268 7,268 7,268 7,268 7,268
====== ======= ======= ======= ====== ====== ======
Balance Sheet Data (End of Period):
Total assets $ - $ 5,406 $ 5,850 $ 930 $ 101 $ 350 $ 97
Net oil and gas properties - 3,196 3,877 137 - 127 -
Working capital (deficit) - (157) (627) 30 (16) 139 (45)
Long term debt, less unamortized
discount - 70 70 69 - 69 -
Stockholders' equity (deficit) - 4,852 4,649 103 (13) 202 (42)
Reserve and Production Data:
Production:
Oil (MBbls) 8 7 16 17 - - -
Gas (MMcf) 7 28 193 198 13 8 -
Average sales prices:
Oil (per Bbl) $16.71 $ 17.53 $ 21.53 $ 17.05 $ - $11.50 $
Gas (per Mcf) $ 1.88 $ 1.76 $ 2.11 $ 1.84 $ 2.10 $ 2.10 $
Proved reserves (end of period):
Oil (Mbls) 318 1,293 1,361 65 - 1,216 -
Gas (MMcf) 490 3,448 4,542 1,148 - 4,534 -
</TABLE>
41
<PAGE>
<TABLE>
<CAPTION>
As of and for the
three months ended
As of and for the years ended March 31, June 30
--------------------------------------- -------
1995 1996 1997 1998 1999 1998 1999
------ ------- ------- ------- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Present value of estimated future
oil and gas revenue before income
taxes (discounted at 10%) $2,321 $11,844 $11,407 $ 1,081 $ -
Standardized measure $1,462 $ 7,639 $ 7,794 $ 708 $ -
</TABLE>
42
<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL AND OPERATING DATA OF ALLIANCE
Alliance completed its acquisition of LaTex Resources, Inc. (LaTex) on May
1, 1997. As the former LaTex shareholders had a controlling interest in the
combined group for accounting and financial reporting purposes, LaTex is treated
as having acquired Alliance. The historical financial information for all
financial periods to April 30, 1997 reflect the results of operations and assets
and liabilities of LaTex. LaTex's fiscal year end was July 31, whereas that of
Alliance is April 30. On October 30, 1998, Alliance completed its acquisition
of Difco Limited ("Difco") and, indirectly, a contract to acquire an interest in
the East Irish Sea Properties. The results of operations and assets and
liabilities of Difco have been included since the date of acquisition.
The selected financial information as of and for the years ended July 31,
1995 and 1996, as of and for the nine months ended April 30, 1997, and as of and
for the years ended April 30, 1998 and 1999, should be read in conjunction with
Alliance's audited financial statements and the notes thereto included under
Item 8 and Management's Discussion and Analysis of Financial Condition and
Results of Operations at Item 7 contained in the Alliance Annual Report on Form
10-K. The selected historical financial information for the three months ended
July 31, 1998 and 1999 is unaudited and should be read in conjunction with the
unaudited financial statements contained in the Alliance Resources Form 10-Q
included with this document; however, in the opinion of management, all
adjustments which are of a normal recurring nature, necessary for a fair
presentation of the results of such periods, have been made. The results of
operations for the three months ended July 31, 1998 and 1999 are not necessarily
indicative of the results to be expected for the entire fiscal year or any other
interim period.
<TABLE>
<CAPTION>
Nine months
Year ended ended Year ended As of and for three
July 31 April 30 April 30 months ended July 31
------- -------- -------- ----------------------
1995 1996 1997 1998 1999 1998 1999
---------- ----------- ---------- --------- --------- --------- ----------
(in thousands, except per share amounts and average sales data)
<S> <C> <C> <C> <C> <C> <C> <C>
Income Statement Data:
Revenues:
Oil and gas sales $ 8,586 $ 11,980 $ 5,699 $10,210 $ 6,234 $ 1,918 $ 1,487
Crude oil and gas marketing 1,223 540 146 -- -- -- --
------- -------- -------- ------- -------- -------- --------
Total revenues 9,809 12,520 5,845 10,210 6,234 1,918 1,487
------- -------- -------- ------- -------- -------- --------
Operating expenses:
Lease operating expense 4,643 5,472 3,117 5,506 3,096 860 957
Cost of crude oil and gas marketing 744 133 16 -- -- -- --
Cessation of overseas
exploration (1) -- 3,447 -- -- -- -- --
General and administrative 2,736 2,893 3,481 3,364 3,486 750 736
Depreciation, depletion and
amortization 3,364 3,511 1,542 2,598 1,671 509 402
Impairment of oil and gas
properties -- -- -- -- 28,260 -- 2,000
Loss on termination of
derivative contract(2) -- -- -- 1,128 -- -- --
------- -------- -------- ------- -------- -------- --------
Total operating expenses 11,487 15,456 8,156 12,596 36,513 2,119 4,095
------- -------- -------- ------- -------- -------- --------
Loss from operations (1,678) (2,936) (2,311) (2,386) (30,279) (201) (2,608)
------- -------- -------- ------- -------- -------- --------
Other income (expense):
Equity in losses and
write-offs of
investments in affiliates (235) (4,034) (20) -- -- -- --
Write-off deferred loan costs -- -- -- -- (870) -- --
Gain (loss) on sale of assets -- -- -- 35 (9) (9) --
Interest income 58 280 52 62 26 (668) (1,120)
Interest expense (1,416) (2,830) (2,102) (2,573) (3,355) 5 7
Miscellaneous income
(expense) (3) -- (1,810) (8) 133 23 22 14
------- -------- -------- ------- -------- -------- --------
Net loss before income taxes (3,271) (11,330) (4,389) (4,729) (34,464) (851) (3,707)
Income tax expense (35) -- -- -- -- -- --
------- -------- -------- ------- -------- -------- --------
Net loss (3,306) (11,330) (4,389) (4,729) (34,464) (851) (3,707)
Preferred stock dividends 133 571 518 -- -- -- --
------- -------- -------- ------- -------- -------- --------
Net loss for ordinary
shareholders $(3,439) $(11,901) $ (4,907) $(4,729) $(34,464) $ (851) $ (3,707)
======= ======== ======== ======= ======== ======== ========
Loss per share $ (0.22) $ (0.77) $ (0.30) $ (0.15) $ (0.82) $ (0.03) $ (0.07)
======= ======== ======== ======= ======== ======== ========
Weighted average shares
outstanding (4) 15,317 15,508 16,585 31,126 41,936 31,209 52,487
======= ======== ======== ======= ======== ======== ========
Balance Sheet Data (End of period):
Total assets $46,549 $ 36,493 $ 30,858 $34,760 $ 36,162 $ 35,200 $ 41,859
Net property, plant and 36,336 29,473 26,708 29,808 30,355 28,967 32,982
equipment
Working capital (deficit) (7,264) (27,970) (9,620) (9,480) (5,621) (12,953) (2,648)
Long term debt, less unamortized 20,635 -- 18,095 18,792 43,177 17,317 52,372
discount
Stockholders' equity (deficit) 14,628 3,846 85 2,183 (16,637) 1,317 (20,344)
Reserve and Production Data:
Production:
Oil (MBbls) 359 405 190 396 278 66 67
Gas (MMcf) 2,612 3,481 1,640 1,689 1,402 430 340
Average sales prices:
Oil (per Bbl) $ 12.86 $ 15.24 $ 15.34 $ 15.75 $ 13.20 $ 18.22 $ 12.07
Gas (per Mcf) 1.48 1.67 1.7 2.36 1.79 1.67 2.02
Proved reserves (end of period):
Oil (MBbls) 5,432 6,353 6,581 6,494 8,708 6,428 8,641
</TABLE>
43
<PAGE>
<TABLE>
<CAPTION>
Nine months
Year ended ended Year ended As of and for three
July 31 April 30 April 30 months ended July 31
------- -------- -------- ----------------------
1995 1996 1997 1998 1999 1998 1999
---------- --------- ---------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Gas (MMcf) 28,113 28,172 25,955 26,321 32,584 25,891 39,623
Present value of estimated
future oil and
gas net revenues
before income taxes (discounted 10%) $32,912 $ 53,499 $ 39,631 $48,600 $ 46,642
Standardized Measure $28,802 $ 43,889 $ 35,368 $45,106 $ 37,663
</TABLE>
1) During the year ended July 31, 1996, the Company ceased its overseas
exploration activities in both Tunisia and Kazakhstan and wrote off its
costs relating to these activities of $3,447.
2) On May 15, 1997, the existing commodity price hedging agreements were
terminated through a buyout. On October 23, 1997, new commodity price
hedging agreements were initiated. The loss relating to the buy-out,
$1,128, has been recognized in its entirety in the year ended April 30,
1998.
3) The miscellaneous expenses in the year ended July 31, 1996 arose from
litigation in connection with the sale in July 1993 of a sale of a
subsidiary of the Company.
4) For periods ending on or before April 30, 1997, the weighted average
number of shares outstanding has been based on the number of Alliance
shares issued on May 1, 1997, which represent the number of LaTex shares
outstanding in each of the relevant periods based on the exchange ratio in
the acquisition of LaTex. The loss for each period is stated after
deducting dividends on the LaTex preferred stock.
44
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
The following unaudited pro forma financial statements give effect to the
business combination contemplated by the transactions described elsewhere in
this document. The unaudited pro forma condensed balance sheet as of July 31,
1999 is presented as if the combination had occurred on that date. The unaudited
pro forma condensed statement of operations for the year ended April 30, 1999
and the three months ended July 31, 1999 assume that the business combination
occurred at the beginning of the earliest period presented.
As a result of the Alliance shareholders owning approximately 98% of the
combined company, Alliance will be treated as having acquired American Rivers
for accounting purposes. As American Rivers has no substantial operations,
Alliance has treated the business combination as an issuance of securities.
The unaudited pro forma combined condensed financial statements should be
read in conjunction with the historical financial statements of American Rivers
and Alliance included elsewhere in this document and "Management's Discussion
and Analysis of Financial Condition and Results of Operations" of American
Rivers and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" of Alliance included elsewhere in this document. The
unaudited pro forma combined condensed statement of operations is not
necessarily indicative of the financial results that would have occurred had the
business combination been consummated on the indicated dates, nor are they
necessarily indicative of future results. The results of operations for the
three months ended July 31, 1999 are not necessarily indicative of the results
to be expected for the entire fiscal year or any other interim period.
The pro forma adjustments are based on preliminary assumptions and
estimates made by Alliance's management. The actual allocation of the
consideration paid may differ from that reflected in the unaudited pro forma
combined condensed financial statements after a more extensive review of the
fair market values of the assets acquired and liabilities assumed has been
completed. Amounts allocated will be based upon the estimated fair values at the
effective date of the business combination, which could vary from the amounts as
of July 31, 1999; however, Alliance does not expect any differences to be
material.
45
<PAGE>
<TABLE>
<CAPTION>
Unaudited Pro Forma Combined Condensed Balance Sheet
July 31, 1999
American
Alliance Rivers
Historical Historical Pro Forma
July 31, 1999 June 30, 1999 Adjustments Combined
-------------- -------------- ------------ ---------
Assets (in thousands)
<S> <C> <C> <C> <C>
Current assets:
Cash $ 4,289 $ - $ - $ 4,289
Accounts receivable 1,278 - - 1,278
Oil and gas properties held for sale - 94 (c) (94) -
Other current assets 65 - - 65
-------- ------- -------- --------
Total current assets 5,632 94 (94) 5,632
-------- ------- -------- --------
Property, plant and equipment, at cost
Oil and gas properties:
United States 43,008 - (c) (270) 42,738
United Kingdom 35,967 - - 35,967
Other depreciable assets 895 - - 895
-------- ------- -------- --------
79,870 - (270) 79,600
Less accumulated depreciation, depletion
and impairments 46,888 - 46,888
-------- ------- -------- --------
Net property, plant and equipment 32,982 - (270) 32,712
-------- ------- -------- --------
Other assets:
Deposits and other assets 168 3 - 171
Deferred loan costs, less accumulated
amortization 3,077 - - 3,077
-------- ------- -------- --------
$ 41,859 $ 97 $ (364) $ 41,592
======== ======= ======== ========
Liabilities and Stockholders' Deficit
Current liabilities:
Accounts payable $ 7,512 63 (b) $ 500 $ 8,075
Accrued expenses 768 - - 768
Current portion of long-term debt - 76 (c) (76) -
-------- ------- -------- --------
Total current liabilities 8,280 139 424 8,843
-------- ------- -------- --------
Long-term liabilities:
Long-term debt, less unamortized discount 52,372 - - 52,372
Convertible subordinated unsecured loan notes 1,551 - (b) (1,551) -
-------- ------- -------- --------
Total liabilities 62,203 139 (1,127) 61,215
-------- ------- -------- --------
Stockholders' deficit:
Ordinary shares 769 - (b) (769) -
Deferred shares 19,612 - (b) (19,612) -
Convertible shares 278 - - 278
Common shares - 47 (b) 475 487
(a) (35)
Class B common shares - 73 (a) (73) -
Additional paid-in capital 21,042 6,194 (a) (6,248) 41,657
(b) 20,957
(c) (288)
Accumulated other comprehensive loss (18) - - (18)
Accumulated deficit (62,027) (4,625) (a) 4,625 (62,027)
-------- ------- -------- --------
(20,344) 1,689 (968) (19,623)
Less treasury stock - (1,731) (a) 1,731 -
-------- ------- -------- --------
Total stockholders' deficit (20,344) (42) 762 (19,623)
-------- ------- -------- --------
$ 41,859 $ 97 $ (364) $ 41,592
======== ======= ======== ========
</TABLE>
46
<PAGE>
<TABLE>
<CAPTION>
Unaudited Pro Forma Combined Condensed Statement of Operations
Year ended April 30, 1999
American Rivers
Alliance Historical Historical
Year ended Year ended Pro Forma
April 30, 1999 March 31, 1999 Adjustments Combined
------------------- --------------- ----------- ------------
(in thousands of dollars, except per share amounts)
<S> <C> <C> <C> <C>
Oil and gas revenues $ 6,234 $ 18 $ - $ 6,252
------------------ --------------- ----------- ------------
Operating expenses:
Lease operating expenses 3,096 38 - 3,134
Exploration costs - 5(c) (5) -
General and administrative expenses 3,486 387 - 3,873
Depreciation, depletion and amortization 1,671 9 - 1,680
Impairment of oil and gas properties 28,260 - - 28,260
------------------ --------------- ----------- ------------
Total operating expenses 36,513 439 (5) 36,947
------------------ --------------- ----------- ------------
Loss from operations (30,279) (421) 5 (30,695)
------------------ --------------- ----------- ------------
Other income (expense):
Interest income 26 17 - 43
Interest expense (3,355) (3) - (3,358)
Gain on sale of oil and gas properties 293(c) (293) -
Write-off of deferred loan costs (870) - - (870)
Loss on sale of fixed assets (9) - - (9)
Miscellaneous income 23 - - 23
------------------ --------------- ----------- ------------
Net loss (34,464) $ (114) $ (288) $ (34,866)
------------------ --------------- ----------- ------------
Loss per share $ (.82) $ - $ (.65)
================== =============== ============
Weighted average number of shares outstanding
Ordinary 41,936 - -
================== =============== ============
Common - 3,606 53,679
================== =============== ============
Class B common - 7,268 -
================== =============== ============
</TABLE>
47
<PAGE>
<TABLE>
<CAPTION>
Unaudited Pro Forma Combined Condensed Statement of Operations
Three Months ended July 31, 1999
American Rivers
Alliance Historical Historical
Three months Three months
ended ended Pro Forma
July 31, 1999 June 30, 1999 Adjustments Combined
------------------- --------------- ------------- ------------
(in thousands of dollars, except per share amounts)
<S> <C> <C> <C> <C>
Oil and gas revenues $ 1,487 $ - $ - $ 1,487
------------------- --------------- ------------- ------------
Operating expenses:
Lease operating expenses 957 - - 957
General and administrative expenses 736 29 - 765
Depreciation, depletion and amortization 402 - - 402
Impairment of oil and gas properties 2,000 - - 2,000
------------------- --------------- ------------- ------------
Total operating expenses 4,095 29 - 4,124
------------------- --------------- ------------- ------------
Loss from operations (2,608) (29) - (2,637)
------------------- --------------- ------------- ------------
Other income (expense):
Interest income 7 - - 7
Interest expense (1,120) - - (1,120)
Miscellaneous income 14 - - 14
------------------- --------------- ------------- ------------
Total other expense (1,099) $ - $ - $ (1,099)
------------------- --------------- ------------- ------------
Net loss $ (3,707) $ (29) $ - $ (3,736)
=================== =============== ============= ============
Loss per share $ (.07) $ 0 $ (.07)
=================== =============== ============
Weighted average number of shares outstanding
Ordinary 52,487 - -
=================== =============== ============
Common - 3,566 53,679
=================== =============== ============
Class B common - 7,268 -
=================== =============== ============
</TABLE>
Notes to Unaudited Pro Forma Combined Condensed Financial Statements
(a) Exchange of American Rivers (AROC) Wyoming shares for 1,191,695 AROC
Delaware shares and retirement of AROC Wyoming treasury shares.
(b) Issuance of 47,487,142 AROC Delaware shares to stockholders of
Alliance including transaction costs, estimated at $500,000. Conversion of
convertible subordinated unsecured loan notes into warrants to subscribe for
1,193,581 shares of common stock.
(c) Conversion by American Rivers (Wyoming), from the successful efforts
method of accounting to the full cost method of accounting for oil and gas
activities, to conform to Alliance's accounting policies.
48
<PAGE>
MANAGEMENT OF NEW ALLIANCE
Directors and Executive Officers
After the transactions are completed, the directors and executive officers
of Alliance will become the directors and executive officers of new Alliance.
The following tables provide information concerning the names, current ages and
positions of the individuals who will be the directors and executive officers of
new Alliance:
<TABLE>
<CAPTION>
Term as
Director
Name Age Expires Position
---- --- -------- --------
<S> <C> <C> <C>
John A. "Jak" Keenan....... 45 2002 Chairman, President and Chief Executive Officer
Paul R. Fenemore........... 43 2002 Director, Vice President - Operations and Business
Development
Francis M. Munchinski...... 45 - Vice President, Secretary and General Counsel
Robert E. Schulte.......... 41 - Vice President and Controller
Michael E. Humphries....... 42 2001 Director and Interim Chief Financial Officer
William J. A. Kennedy...... 60 2001 Director (Chairman of the Audit Committee)
Philip Douglas............. 60 2000 Director (Chairman of the Remuneration
Committee)
John R. Martinson.......... 63 2000 Director
</TABLE>
Business Histories of Directors and Executive Officers
John A. "Jak" Keenan is the Chairman and Managing Director of Alliance. He
is a U.S. citizen and a doctor of law. He has worked in the oil industry since
1976 and was successively first vice president of corporate development, chief
operating officer and director and president of the oil and gas division of
Great Western Resources, Inc. He resigned his position at Great Western
Resources, Inc. in August 1995 and accepted a position at the law firm of
Jenkens & Gilchrist in Houston, Texas, where he specialized in oil and gas
transactions. In February 1996, Mr. Keenan left Jenkens & Gilchrist to assume a
role overseeing Alliance's U.S. operations. He was elected a director of
Alliance in April 1996 and appointed Managing Director in May 1996 and Chairman
in December 1997. Mr. Keenan has been involved in the oil and gas business for
over 23 years.
Paul R. Fenemore is the Operations and Business Development Director of
Alliance. He is a citizen of the United Kingdom and he has a B.S. degree in
combined science and a M.S. degree in marine geotechnics. He has extensive
experience in detailed technical and economic evaluations of exploration and oil
field appraisal and development projects and project management and has held
several technical and senior management positions with Gulf Oil Corporation,
Amoco Europe and West Africa Limited, Amerada-Hess UK Limited, Hamilton Brothers
(UK) Limited, CSX Oil and Gas Corporation, Cairn Energy PLC and Hunting Surveys
Limited. From January 1993 until December 1995, Mr. Fenemore served as Managing
Director of Spectron Petroleum Limited, a petroleum consulting company. Mr.
Fenemore also served as director of Anglo Resources Limited, an oil and gas
exploration and development company, from January 1993 until December 1994. Mr.
Fenemore was appointed to the Board in May 1996 as Operations and Business
Development Director. Mr. Fenemore has been involved in the oil and gas business
for over 22 years.
Francis M. Munchinski is the General Counsel of Alliance. He is a U.S.
citizen and a doctor of law. Prior to joining Alliance in June 1998, he was a
shareholder at the law firm of Jenkens & Gilchrist in Dallas, Texas where he
specialized in oil and gas law for over 13 years. Mr. Munchinski has been
involved in the oil and gas business for over 19 years.
Robert E. Schulte is the Controller of Alliance. He is a U.S. citizen and
has a B.S. degree in accounting. He has worked in the oil and gas industry since
1981 in both domestic and international arenas. He has held management
49
<PAGE>
positions with Bow Valley Petroleum, Kelt Energy, Great Western Resources and
Apache Corporation before joining Alliance in September 1997.
Michael E. Humphries is a non-executive Director of Alliance and was
appointed the Interim Finance Director of Alliance in November 1998. He resides
in the United States and is a citizen of the United Kingdom. Having begun his
career at Britoil Plc, he has spent 16 years working in the international oil
and gas arena and since February 1996 has been a Senior Vice President of
Rothschild Natural Resources, LLC, an affiliate of N.M. Rothschild & Sons
Limited, based in Washington D.C., where he has responsibility for Rothschild's
oil and gas activities in North America. From January 1994 until May 1995, Mr.
Humphries served in a position with NatWest Markets, and from May 1995 until
December 1995, served as a consultant to Petroleum Finance Company. He joined
the Board of Alliance in December 1997 and was appointed Interim Finance
Director in November 1998.
William J. A. Kennedy is a non-executive Director of Alliance. He is a
Canadian citizen. After 25 years experience in the investment industry he became
vice president of a major conglomerate, Crownx, Inc. For the past nine years he
has operated a management consulting service under his own name and sits on the
board of two public Canadian companies, Aur Resources, Inc. and AVL Information
Systems, Inc. Since June 1998, he has also served as Chief Executive Officer of
Lax Technologies, Inc., a private manufacturing company. He joined the board of
Alliance in January 1994.
Philip Douglas is a non-executive Director of Alliance. He was a director
and head of international investment at Morgan Grenfell for 16 years and was a
director of G T Management. Mr. Douglas was a director of Unimed plc, a
pharmaceutical research and development company, from June 1994 until January
1998. He also has a number of other non-executive directorships in public and
private companies. He joined the board of Alliance in November 1993.
John R. Martinson is a non-executive Director of Alliance. He is a U.S.
citizen. He was a director of LaTex from May 1995 until April 1997, having
served as a consultant to that Company since 1994. He is managing director of
Wood Roberts, LLC, where he has been engaged in financial consulting since
January 1989. From 1973 to 1988 Mr. Martinson was an independent oil and gas
entrepreneur. Previously, he was with Kidder Peabody & Co., Oppenheimer & Co.
and Mobil Corporation. He joined the board of Alliance in May 1997.
No family relationships exist among the persons who will be directors or
executive officers of new Alliance or its subsidiaries.
Except as indicated above, none of the persons who will be directors of new
Alliance is a director of any other company that has a class of securities
registered pursuant to Section 12 of the Exchange Act, or that is subject to the
requirements of Section 15(b) of the Exchange Act, or any company registered as
an investment company under the Investment Company Act of 1940.
SECURITY OWNERSHIP
The following table sets forth certain information, as of the record date,
and after giving effect to the transactions, about any person that is known to
Alliance or American Rivers to be the beneficial owner of more than 5% of each
class of Alliance shares or American Rivers shares and each executive officer
and director of Alliance or American Rivers and all executive officers and
directors of Alliance and American Rivers as a group. Except as otherwise
indicated, each of the persons named below is believed by Alliance to possess
sole voting and investment power with respect to the shares beneficially owned
by such person.
50
<PAGE>
<TABLE>
<CAPTION>
Before The Transactions After The Transactions
----------------------- ----------------------
Alliance Shares American Rivers Alliance Shares New Alliance Shares
--------------- ------------------------------- -------------------
Shares Percent Shares Percent Shares Percent
Name And Address Of Owned Owned Owned Owned Owned Owned
Beneficial Owner(1) Beneficially Beneficially Beneficially Beneficially Beneficially Beneficially
- ------------------- ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
John A. Keenan..................... 1,390,000(2) 2.6% 1,390,000 2.5%
Paul R. Fenemore................... 870,000(3) 1.6% 870,000 1.6%
Francis M. Munchinski.............. 520,000(4) 1.0% 520,000 1.0%
Robert E. Schulte.................. 310,000(5) * 310,000 -
Michael E. Humphries............... - - - -
William J.A. Kennedy............... 4,125 * 4,125 *
Philip Douglas..................... 99,583 * 99,583 *
John R. Martinson.................. 778,987(6) 1.5% 778,987 1.4%
LaSalle Street Natural
Resources Corporation............. 7,179,519(7) 12.3% 7,179,519 12.1%
EnCap Equity 1996 Limited
Partnership....................... 11,250,000(8) 21.4% 11,250,000 21.0%
Energy Capital Investment
Company PLC....................... 3,750,000(9) 7.1% 3,750,000 7.0%
EnCap Investments L.C.............. 15,545,454(10) 29.6% 15,545,454 29.0%
Karlton Terry...................... 5,228,022(11) 48.3% 575,082 1.1%
Denis Bell......................... 567,945(12) 5.2% 62,474 *
Jubal Terry........................ 1,034,353(13) 9.5% 113,779 *
Karlton Terry Oil Company.......... 3,749,565(14) 34.6% 412,452 *
Consult & Assist................... 550,000(15) 5.0% 60,500 *
All Directors and
executive officers of
Alliance as a group
(8 persons) (2), (3),
(4), (5), (6).................. 3,972,695 7.1% 3,972,695 6.9%
All Directors and
executive officers of
American Rivers as a
group (2 persons)................. 5,795,967 53.5% 637,556 1.2%
</TABLE>
_______________________________
* Less than 1%
(1) All of Alliance's directors may be contacted at 12 St. James's Square,
London SW1Y 4BR, England. All of American Rivers' directors may be
contacted at 700 East 9th Avenue, Suite 106, Denver, CO 80203.
(2) Includes options to purchase 1,290,000 Shares granted pursuant to
Alliance's executive share option plans.
(3) Consists of options to purchase 870,000 shares granted pursuant to
Alliance's executive share option plans.
(4) Consists of options to purchase 520,000 shares granted pursuant to
Alliance's executive share option plans.
(5) Consists of options to purchase 310,000 shares granted pursuant to
Alliance's executive share option plans.
(6) Includes presently exercisable warrants to purchase 593,211 Shares held by
Wood Roberts, Inc., a corporation under the control of Mr. Martinson.
(7) Consists of 1,500,000 Shares, convertible loan notes and immediately
exercisable warrants convertible into or exercisable for 2,404,519 Shares
issued to an affiliate of Bank of America and warrants to purchase
3,275,000 Shares at a price of 1p per share. The address of LaSalle Street
Natural Resources is 231 S. LaSalle Street, Chicago, Illinois 60697.
(8) The address of EnCap Equity 1996 Limited Partnership is 1100 Louisiana,
Suite 3150, Houston, Texas 77002. EnCap Equity 1996 Limited Partnership
shares voting and dispositive power with EnCap Investments L.C., its
general partner.
(9) The address of Energy Capital Investment Company PLC is c/o Aberdeen Asset
Management, 1 Bow Churchyard, Cheapside, London EC4M 9HH, England. Energy
Capital Investment Company PLC shares dispositive and voting power over
these shares with EnCap Investments L.C.
(10) The address of EnCap Investments L.C. is 1100 Louisiana, Suite 3150,
Houston, Texas 77002. EnCap Investments L.C. shares dispositive and voting
power over 15,000,000 of these shares with EnCap Equity 1996 Limited
Partnership and Energy Capital Investment Company PLC.
51
<PAGE>
(11) Consists of Class B Common Stock. Includes 1,228,457 shares owned directly,
250,000 shares owned by a non-profit organization directed by Karlton
Terry, and 3,749,565 shares owned indirectly through Karlton Terry Oil
Company, of which Karlton Terry owns 87.5%. Mr. Terry's address is 700 East
9th Avenue, Suite 106, Denver, Colorado 80203.
(12) Consists of 192,945 shares of Class B Common Stock and 375,000 shares of
Common Stock. All shares are owned indirectly through Haddon, Inc., of
which Mr. Bell owns 100%. Mr. Bell's address is 700 East 9th Avenue, Suite
106, Denver, Colorado 80203.
(13) Consists of Class B Common Stock. Does not include any indirect ownership
of shares through Karlton Terry Oil company, of which Jubal Terry owns
12.5%. Mr. Terry's address is 700 East 9th Avenue, Suite 106, Denver,
Colorado 80203.
(14) Consists of Class B Common Stock. The company's address is 700 East 9th
Avenue, Suite 106, Denver, Colorado 80203.
(15) All Shares are beneficially owned by George Ligenbrink and includes
currently exercisable options to acquire 275,000 shares of Common Stock at
$1.10 per share. Consult & Assist's address is P.O. Box 9856, Rancho Santa
Fe, CA 92067.
In addition to the interests set out above, John A. Keenan is interested in
45,000 Shares held in the name of Diamond Securities Limited and 102,500 Shares
held in the name of Havensworth Limited by virtue of having proxy over the
voting rights attached to these Shares pending their sale, as required by a
settlement of legal proceedings with the former Managing Director of Alliance in
August 1996.
MARKET FOR ALLIANCE'S COMMON EQUITY AND
RELATED SHAREHOLDER MARKET INFORMATION
Alliance's ordinary shares are traded on the London Stock Exchange under
the symbol "ARS."
The following table sets forth in pounds, for the fiscal quarter or other
period indicated, the high and low sales prices for the ordinary shares of
Alliance on the London Stock Exchange (in pence) for the periods indicated
derived from the official list of the London Stock Exchange. Bid quotations
represent quotations between dealers without adjustment for retail mark-ups,
mark-downs or commissions and may not necessarily represent actual
transactions.
<TABLE>
<CAPTION>
Prices
Alliance Ordinary Shares
--------------------------
<S> <C> <C>
High Low
Fiscal year ended April 30, 1998
Second Quarter 35.5 25
Third Quarter 29.5 23
Fourth Quarter 32.5 21
Fiscal year ended April 30, 1999
First Quarter 32.5 32.5
Second Quarter 32.5 32.5
Third Quarter 19 8
Fourth Quarter 8 4.5
Fiscal year ended April 30, 1999
May 1, 1999 - October 12, 1999 7.5 3
</TABLE>
Quotations for shares listed on the London Stock Exchange are not generally
readily available in newspapers or other publication in the United States, but
are available in the daily U.S. edition of the Financial Times. However,
investors may place orders for the purchase or sale of shares traded on the
London Stock Exchange through most licensed broker dealers in the United
States.
52
<PAGE>
SHAREHOLDER PROPOSALS
If the transactions are not completed, stockholders of American Rivers may
submit proposals on matters appropriate for action at annual meetings in
accordance with regulations adopted by the SEC. However, the rules of the SEC
provide that, if an annual meeting is changed by more than 30 calendar days from
that contemplated at the time of the prior annual meeting, the proposal must be
received by the company within a reasonable time before the proxy solicitation
is made. Proposals should be directed to the attention of the Secretary of
American Rivers.
New Alliance's Certificate of Incorporation establishes an advance notice
procedure that stockholders must follow in order to nominate directors or to
bring other business before an annual meeting of stockholders without complying
with Rule 14a-8 of the Securities Exchange Act of 1934. These advance notice
procedures require that, among other things, notice of a director nomination or
other business must be submitted in writing to the Secretary of new Alliance not
less than 60 days nor more than 90 days prior to the anniversary of the date on
which new Alliance first mailed its proxy materials for the prior annual
meeting, but if less than 70 days' notice or prior public disclosure of the date
of the meeting is given or made to stockholders, then the notice by the
stockholder must be delivered or received not later than the close of business
on the 10th day following the earlier of (i) the day on which such notice of the
date of the meeting was mailed or (ii) the day on which the public disclosure
was made.
The notice must contain the information specified in the Certificate of
Incorporation concerning the matters to be brought before such meeting and
concerning the stockholder proposing such matters, including the name, address,
number of shares beneficially owned and any material interest of the stockholder
making the proposal. Notice of a director nomination must include information on
various matters regarding the nominee, including the nominee's name, age,
business and residence address, principal occupation and security holdings.
Notice of other business must include a description of the proposed business,
the reasons therefor and other specified matters. A copy of the relevant
provisions of new Alliance's Certificate of Incorporation may be obtained by a
stockholder without charge upon written request to the Secretary of new
Alliance. All notices of proposals by stockholders, whether or not to be
included in new Alliance's proxy materials, must be sent to AROC Inc., 4200 E.
Skelly Drive, Suite 1000, Tulsa, Oklahoma 74135, attention: Secretary.
Any stockholder proposal must also comply with all other applicable
provisions of new Alliance's Certificate of Incorporation and Bylaws, the
Securities Exchange Act, including the rules and regulations thereunder, and
Delaware law. No stockholder proposal will be considered unless it is in
compliance with the foregoing requirements. If a stockholder does not comply
with the requirements of Rule 14a-4 of the Securities Exchange Act, then the
persons appointed as proxies in the proxy card solicited by the Board of
Directors of new Alliance for meetings of new Alliance's stockholders may
exercise discretionary voting authority to vote in accordance with their best
judgment on any proposal submitted by such stockholder outside of Rule
14a-8.
OTHER MATTERS
The American Rivers board are not aware of any matters not set forth in
this document that may come before the meeting.
LEGAL MATTERS
The validity of the issuance of new Alliance common stock offered hereby
will be passed upon for new Alliance by Jenkens & Gilchrist, A Professional
Corporation, Dallas, Texas. Certain U.K. and certain U.S. federal income tax
matters will be passed on by Hobson Audley Hopkins & Wood, London, England.
EXPERTS
The consolidated financial statements of American Rivers Oil Company and
subsidiaries as of March 31, 1999 and for the years ended March 31, 1999 and
1998 have been included in this registration statement in reliance upon the
report of Hein + Associates LLP, independent certified public accountants, and
upon the authority of such firm as experts in accounting and auditing. The
report of Hein + Associates LLP covering the March 31, 1999 financial statements
contains an explanatory paragraph that states that the Company's accumulated
deficit, recurring net losses and negative cash flows from operation activities
raise substantial doubt about the entity's ability to continue as a going
concern. Such consolidated financial statements do not include any adjustments
that might result from the outcome of that uncertainty.
53
<PAGE>
The consolidated financial statements of Alliance Resources PLC and
subsidiaries as of April 30, 1999 and 1998 and for each of the three accounting
periods in the thirty-three month period ended April 30, 1999 included in this
registration statement have been audited by KPMG Audit Plc, independent
auditors, to the extent and for the periods indicated in the reports thereon.
The consolidated financial statements have been included in this registration
statement in reliance upon the report of KPMG Audit Plc, and upon the authority
of such firm as experts in accounting and auditing. The report of KPMG Audit Plc
covering the April 30, 1999, financial statements contains an explanatory
paragraph that states that the Company's recurring losses from operations, net
capital deficiency and obligation to commence repayments on its borrowings on
October 30, 2000 raise substantial doubt about the entity's ability to continue
as a going concern. Such consolidated financial statements do not include any
adjustments that might result from the outcome of that uncertainty.
WHERE YOU CAN GET INFORMATION
Alliance and American Rivers file reports, proxy statements and other
information with the SEC pursuant to the Securities Exchange Act. You may read
and copy these reports, proxy statements and other information we file at the
SEC public reference facilities in Washington, D.C., New York, New York and
Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further information
on the public reference rooms. In addition, such materials and other information
concerning Alliance and American Rivers can be inspected at the offices of
NASDAQ at 1735 K Street N.W., Washington, D.C., 20006. You can also find this
information at the SEC's World Wide Web site. The address of the site is
http://www.sec.gov. After the consolidation, new Alliance will be required to
file the same types of information with the SEC and NASDAQ.
New Alliance filed a registration statement on Form S-4 to register the
shares of new Alliance common stock issuable in connection with the
transactions. This document is a part of the registration statement and
constitutes a prospectus of new Alliance in addition to being a proxy statement
for American Rivers and an exchange offer document for Alliance, and, as allowed
by the SEC, does not contain all the information in the registration statement.
54
<PAGE>
APPENDIX A
EXCHANGE AND MERGER AGREEMENT
(as amended October 13, 1999)
THIS EXCHANGE AND MERGER AGREEMENT (this "Agreement") is entered into as of
July 22, 1999, by and among AMERICAN RIVERS OIL COMPANY, a Wyoming corporation
("AROC"), AMERICAN RIVERS OIL COMPANY, a Delaware corporation ("AROC Delaware"),
and ALLIANCE RESOURCES PLC, a public limited company incorporated in England and
Wales ("Alliance").
Recitals
--------
The parties desire to effect certain transactions on the terms, and subject
to the provisions and conditions, of this Agreement.
Agreement
---------
NOW, THEREFORE, for and in consideration of the premises and the mutual
agreements hereinafter set forth, in accordance with the provisions of
applicable law, the parties hereby agree as follows:
1. Definitions. As used in this Agreement and the Exhibits, Schedules and
-----------
documents delivered pursuant to this Agreement, the following terms shall
have the following meanings:
"ADEA" means the Age Discrimination in Employment Act, as amended, or any
successor statute.
"Affiliate" means an "affiliate" or "associate" as those terms are defined
in Rule 12b-2 promulgated by the Commission under the Exchange Act.
"Alliance" means Alliance Resources PLC, a public limited company
incorporated in England and Wales.
"Alliance Assets" means all of the rights, titles and interests, whether
direct or indirect, of the Alliance Entities in and to all of the property,
rights and interests incident to, all oil, gas and mineral properties of every
kind and character, whether producing, non-producing, developed or undeveloped,
wherever situated, including without limitation all of the rights, titles and
interests of the Alliance Entities in and to all leases, royalty interests,
overriding royalty interests, rights-of-way, easements, options, orders and
rulings of applicable regulatory agencies, wells, lease and well equipment,
machinery, production facilities, processing facilities, gathering systems,
transportation systems, disposal systems, fixtures and other items of personal
property and improvements now or as of the Mailing Date appurtenant to such
properties or used, obtained or held for use in connection with the operation of
such properties or with the production, treatment, sale or disposal of
hydrocarbons or water produced therefrom or attributable thereto.
"Alliance Disclosure Schedule" means the Disclosure Schedule delivered by
Alliance to AROC within seven calendar days after the execution of this
Agreement. Each heading in the Alliance Disclosure Schedule shall refer to the
applicable section of this Agreement.
"Alliance Entities" means Alliance and its Subsidiaries.
"Alliance Financial Statements" means, collectively, the audited
consolidated financial statements of the Alliance Entities as of and for the
year ended April 30, 1998; and the unaudited interim financial statements of the
Alliance Entities as of and for the nine months ended January 31, 1999.
"Alliance Convertible Loan Notes" means the convertible loan notes of
Alliance that are convertible into 1,193,581 Alliance Ordinary Shares.
"Alliance Convertible Shares" means the convertible restricted voting
shares of (Pounds)0.01 each in the capital of Alliance.
"Alliance Form 10-K" means Alliance's Annual Report on Form 10-K for the
year ended April 30, 1998.
"Alliance Ordinary Shares" means the ordinary shares of (Pounds)0.01 each
in the capital of Alliance.
<PAGE>
"Alliance Proxy Statement" means the proxy statement for the annual meeting
of Alliance Stockholders held March 5, 1999.
"Alliance Reports" means each registration statement, schedule, report,
proxy statement or information statement prepared by Alliance since April 30,
1998, including, without limitation, (i) the Alliance Form 10-K, (ii) Alliance's
Quarterly Reports on Form 10-Q for the periods ended July 31, October 31, 1998
and January 31, 1999, and (iii) the Alliance Proxy Statement, each in the form
(including exhibits and any amendments thereto) filed with the Commission.
"Alliance Shares" means the Alliance Ordinary Shares and the Alliance
Convertible Shares.
"Alliance Stockholders" means the holders of Alliance Shares from time to
time.
"Alliance Warrants" means the outstanding warrants to purchase a total of
5,079,149 Alliance Ordinary Shares.
"AROC" means American Rivers Oil Company, a Wyoming corporation.
"AROC Assets" means all assets of the AROC Entities.
"AROC Class B Shares" means all of the issued and outstanding shares of
class B common stock of AROC, par value $0.01 per share.
"AROC Common Shares" means all of the issued and outstanding common stock
of AROC, par value $0.01 per share.
"AROC Delaware" means American Rivers Oil Company, a Delaware corporation.
"AROC Delaware Shares" means the common stock, par value $0.01 per share,
of AROC Delaware.
"AROC Disclosure Schedule" means the Disclosure Schedule delivered by AROC
to Alliance within seven calendar days after the execution of this Agreement.
Each heading in the AROC Disclosure Schedule shall refer to the applicable
section of this Agreement.
"AROC Entities" means AROC and its Subsidiaries.
"AROC Financial Statements" means, collectively, the respective audited
consolidated financial statements of the AROC Entities as of and for the years
ended March 31, 1998 and 1999.
"AROC Form 10-K" means AROC's Annual Report on Form 10-K for the year ended
March 31, 1999.
"AROC Reports" means each registration statement, schedule, report, proxy
statement or information statement prepared by AROC since March 31, 1998,
including, without limitation, (i) the AROC Form 10-K, and (ii) AROC's Quarterly
Reports on Form 10-Q for the periods ended June 30, September 30 and December
31, 1998, each in the form (including exhibits and any amendments thereto) filed
with the Commission.
"AROC Shares" means the AROC Common Shares and the AROC Class B Shares.
"AROC Stockholders" means the holders of AROC Shares from time to time.
"City Code" means the City Code on Takeovers and Mergers of the United
Kingdom.
"Code" means the Internal Revenue Code of 1986, as amended, or any
successor statute.
"Commission" means the Securities and Exchange Commission and/or any other
Governmental Entity that administers either the Securities Act or the Exchange
Act.
"DGCL" means the Delaware General Corporation Law.
"Dissenting Shares" has the meaning given that term in Section 3.2(g)(1).
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"Effective Time" has the meaning given that term in Section 3.2(a).
"Encumbrance" means any option, pledge, security interest, lien, charge,
encumbrance, or restriction (whether on voting, sale, transfer, disposition or
otherwise), whether imposed by agreement, understanding, law or otherwise,
except those arising under applicable federal or state securities laws.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, or any successor statute.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, or
any successor statute.
"Exchange Agent" means the transfer agent for the AROC Shares.
"Excluded Shares" has the meaning given that term in Section 3.2(g)(1).
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants, in statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as may be approved by a significant segment of the accounting
profession, which are applicable to the circumstances as of the date of
determination.
"Governmental Entity" means any federal, state, municipal, domestic or
foreign court, tribunal, administrative agency, department, commission, board,
bureau or other governmental authority or instrumentality.
"Indemnified Parties" has the meaning given in Section 10.8.
"Information Statement" means the information statement filed by AROC
pursuant to Section 2.1(b) and any amendments or supplements to the information
statement.
"Mailing Date" has the meaning given in Section 3.1.
"Material Effect" means a material adverse effect on the business or
financial condition of a party and its Subsidiaries taken as a whole.
"Merger" means the merger of AROC with and into Newco, with Newco being the
surviving corporation, pursuant to Section 3.2.
"Merger Consideration" has the meaning given that term in Section
3.2(g)(1).
"Newco" means a Delaware corporation to be formed as a subsidiary of AROC
Delaware.
"Offer" means the offer made pursuant to Section 2.3.
"Offer Documents" means the prospectus included in the Registration
Statement and any other documents used to solicit the Alliance Stockholders to
accept the Offer.
"Plan" means (i) any employee benefit plan as defined in Section 3(3) of
ERISA, which is (a) maintained by a party or any of its Subsidiaries, or (b) to
which a party or any of its Subsidiaries is making or accruing an obligation to
make contributions, or (ii) any other formal or informal obligation to,
arrangement with, or plan or program for the benefit of, employees of a party or
any of its Subsidiaries, including, but not limited to, stock options, stock
bonuses, stock purchase agreements, bonuses, incentive compensation, deferred
compensation, supplemental pensions, vacations, severance pay, insurance or any
other benefit, program or practice.
"Registration Statement" means the registration statement filed by AROC
Delaware pursuant to Section 2.1 and any amendments or supplements to the
registration statement.
"Securities Act" means the Securities Act of 1933, as amended, or any
successor statute.
"Subsidiary" or "Subsidiaries" means any corporation more than fifty
percent (50%) of the voting power of which is owned directly or indirectly by a
party or other relevant person, as the context requires.
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"Surviving Corporation" has the meaning given that term in Section 3.2(b).
"Taxes" means all taxes, charges, fees, levies, duties or other
assessments, including, without limitation, income, gross receipts, excise, ad
valorem, property, production, severance, sales, use, license, payroll and
franchise taxes, imposed by any Governmental Entity and includes any estimated
tax, interest and penalties or additions to tax.
"Tax Return" means a report, return or other information required to be
supplied by a party comprising a part of the Alliance Entities or the AROC
Entities, as the case may be, to a Governmental Entity in connection with Taxes
including, where permitted or required, combined or consolidated returns for any
group of entities that includes that entity.
"WBCA" means the Wyoming Business Corporation Act.
2. The Exchange Offer and Merger.
-----------------------------
2.1. Filings by AROC.
---------------
(a) As soon as reasonably practicable after the date of this Agreement,
AROC Delaware will, in compliance with all applicable state and federal laws,
and in form and substance satisfactory to Alliance, file with the Commission a
registration statement relating to the AROC Delaware Shares to be offered to the
Alliance Stockholders pursuant to the Offer and to be issued to the AROC
Shareholders in the Merger (the "Registration Statement"), and will thereafter
use its best efforts to obtain as promptly as possible and to continue the
effectiveness of the Registration Statement.
(b) As soon as reasonably practicable after the date of this Agreement,
AROC will, in compliance with all applicable state and federal laws, and in form
and substance satisfactory to Alliance, file with the Commission an information
or proxy statement relating to a meeting of the AROC Stockholders to approve the
Merger (the "Information Statement"), and will thereafter use its best efforts
to respond as promptly as possible to all comments of the Commission with
respect to the Information Statement.
(c) Prior to delivering the Offer Documents to the Alliance Stockholders,
AROC Delaware will, in compliance with all applicable state and federal laws,
and in form and substance satisfactory to Alliance, file with the Commission a
Tender Offer Statement on Schedule 14D-1 relating to the Offer containing the
prospectus included in the Registration Statement.
(d) AROC Delaware will prepare and file with the Commission and use its
best efforts to cause as promptly as possible and to continue the effectiveness
of such amendments and supplements to the registration statement, the prospectus
included in the Registration Statement and the Schedule 14D-1 for so long as the
Offer shall continue, and to comply with the requirements of all applicable laws
regarding the conduct of the Offer.
(e) AROC Delaware will use its best efforts to register or qualify the
AROC Delaware Shares offered pursuant to the Offer and the Merger under the
securities or blue sky laws of such jurisdictions as Alliance shall request and
do any and all other acts or things that may be necessary or advisable to enable
to Offer and the Merger to be made and consummated.
(f) After the Commission completes its review of the Information
Statement, and contemporaneously with the making of the Offer, AROC will deliver
the Information Statement, together with such documents as are required under
the City Code, to the AROC Stockholders.
(g) The materials filed by AROC and AROC Delaware with the Commission and
the materials sent by AROC Delaware to the Alliance Stockholders in connection
with the Offer and to the AROC Stockholders in connection with the Information
Statement will not include any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. The materials shall in form and substance be satisfactory to
Alliance and shall include all information regarding the AROC Entities required
by applicable law and the City Code to inform the Alliance Stockholders of the
Offer and to inform the AROC Stockholders of the matters contemplated by this
Agreement.
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(h) Alliance agrees to furnish to AROC and AROC Delaware all information
(which shall meet the standard of the preceding paragraph) reasonably requested
by AROC and AROC Delaware in connection with preparing such materials.
2.2. Filings by Alliance.
-------------------
(a) Not less than 10 business days after the commencement of the Offer,
Alliance will, in compliance with all applicable state and federal laws, and in
form and substance satisfactory to AROC, file with the Commission and deliver to
the Alliance Stockholders a Tender Offer Solicitation/Recommendation Statement
on Schedule 14D-9, and file with applicable state authorities such other
documents as may be necessary or appropriate, recommending (subject to the
fiduciary duties of the directors of Alliance) that the Alliance Stockholders
accept the Offer.
(b) Alliance will prepare and file with the Commission and use its best
efforts to cause as promptly as possible and to continue the effectiveness of
such amendments and supplements to the Schedule 14D-9 for so long as the Offer
shall continue, and to comply with the requirements of all applicable laws and
the City Code regarding the conduct of the Offer.
(c) As soon as reasonably practicable after the date of this Agreement,
Alliance will, in compliance with all applicable laws, and in form and substance
satisfactory to AROC, file with London Stock Exchange Limited and all other
applicable regulatory bodies in the United Kingdom, all materials reasonably
necessary to make, and use its best efforts, to obtain the approval of those
authorities to, the Offer.
(d) The materials filed by Alliance and the materials sent by Alliance to
the Alliance Stockholders in connection with the Offer will not include any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. The materials shall
in form and substance be satisfactory to AROC and shall include all information
regarding the Alliance Entities required by applicable law and the City Code to
inform the Alliance Stockholders of the Offer.
(e) AROC agrees to furnish to Alliance all information (which shall meet
the standard of the preceding paragraph) reasonably requested by Alliance in
connection with preparing such materials.
2.3. Solicitation of Offer. Promptly after the satisfaction of all
---------------------
applicable regulatory requirements, including the filings contemplated by
Sections 2.1 and 2.2 and the completion of the actions contemplated by Section
3, each of Alliance, AROC and AROC Delaware agrees (subject to the fiduciary
duties of the directors of each of them):
(a) that AROC will deliver the Information Statement, together with such
documents as are required under the City Code, to the AROC Stockholders;
(b) to use its best efforts to solicit the Alliance Stockholders to accept
the offer of AROC Delaware to exchange one AROC Delaware Share for each Alliance
Ordinary Share and 0.5 AROC Delaware Shares for each Alliance Convertible Share
(the "Offer");
(c) to make such press announcements as are required under the City Code
in relation to the Offer;
(d) to make the Offer unconditional under U.K. law and the City Code as
soon as practicable after Alliance Stockholders holding a majority of both the
Alliance Ordinary Shares and the Alliance Convertible Shares have accepted the
Offer; and
(e) to continue the Offer for so long as required by applicable U.S. and
U.K. law and the City Code.
2.4. Solicitation of The Merger. Promptly after the satisfaction of all
--------------------------
applicable regulatory requirements, including the filings contemplated by
Sections 2.1 and 2.2 and the completion of the actions contemplated by Section
3, each of Alliance, AROC and AROC Delaware agrees (subject to the fiduciary
duties of the directors of each of them):
(a) to use its best efforts to deliver the Information Statement to the
AROC Stockholders and recommend and solicit the vote of the AROC Stockholders to
approve the Merger;
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(b) to hold the meeting of AROC Stockholders contemplated by the
Information Statement;
3. Mailing Date Actions and Completion of the Merger.
--------------------------------------------------
3.1. Mailing Date. On or prior to the date the Offer Documents are to be
------------
mailed to the Alliance Stockholders (the "Mailing Date"), the parties shall
deliver the following documents at the offices of Jenkens & Gilchrist, P.C.,
1445 Ross Avenue, Suite 3200, Dallas, Texas at 10:00 a.m., local time.
(a) AROC shall deliver to Alliance the following:
(1) A copy of the charters of each of the AROC Entities certified as
of a date within ten days of the Mailing Date by the Secretary of State of the
state of incorporation of each of the respective entities and certified by the
respective corporate secretary as to the absence of any amendments between the
date of certification by the respective Secretary of State and the Mailing Date;
(2) A certificate from the appropriate governmental officials of the
state of incorporation as to the existence and good standing of each of the AROC
Entities and the payment of Taxes by each of the AROC Entities as of a date
within ten days of the Mailing Date, and, if available, a telecopy from such
officials as to the same matters dated the business day before the Mailing Date;
(3) A certificate of the corporate secretary of each of the AROC
Entities attaching thereto a true and correct copy of the bylaws of the
respective entity;
(4) A certificate of the corporate secretary of AROC attaching copies
of the resolutions of the board of directors approving the Offer;
(5) All correspondence of AROC with the Commission relating to the
filing of the documents referred to in Section 2.1;
-----------
(6) The certificate of an officer of AROC referred to in
Section 8(c);
- -------------
(7) The opinion of AROC's counsel referred to in Section 8(e);
------------
(8) All consents or approvals of any third party that are required to
be identified pursuant to Section 4.4; and
-----------
(9) Such other documents as are required pursuant to this Agreement
or as may reasonably be requested from AROC by Alliance or its counsel.
(b) Alliance shall deliver to AROC the following:
(1) a copy of the Memorandum and Articles of Association (and all
amendments thereto, if any) of Alliance and each of Alliance's U.K. Subsidiaries
certified by the corporate secretary as to the absence of any amendments as of
the Mailing Date;
(2) a copy of the charters of each of Alliance's U.S. Subsidiaries
certified as of a date within ten days of the Mailing Date by the appropriate
governmental officials of the jurisdiction of organization of each of the
respective entities and certified by the respective corporate secretary as to
the absence of any amendments between the date of certification by the
governmental official and the Mailing Date;
(3) A certificate from the appropriate governmental officials of the
jurisdiction of organization of each of Alliance's U.S. Subsidiaries as to the
existence and good standing of such Subsidiary as of the date within ten days of
the Mailing Date, and, if available, a telecopy from such officials as to the
same matters dated the business day before the Mailing Date;
(4) A certificate of the corporate secretary of each of Alliance's
U.S. Entities attaching thereto a true and correct copy of the bylaws of the
respective entity;
(5) A certificate of the corporate secretary of Alliance attaching
copies of corporate resolutions duly adopted by its board of directors resolving
to recommend the Offer;
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(6) All correspondence of Alliance with the Commission relating to
the filing of the documents referred to in Section 2.2;
(7) The certificate of an officer of Alliance referred to in
Section 9(b);
- -------------
(8) The opinion of Alliance's counsel referred to in Section 9(d);
------------
(9) All consents or approvals of any third party that are required to
be identified pursuant to Section 5.4;
-----------
(10) Such other documents as are required pursuant to this Agreement
or as may reasonably be requested from Alliance by AROC or its counsel.
3.2 The Merger.
----------
(a) As soon as practicable after the AROC shareholders have approved the
Merger and it is determined that at least a majority of the Alliance
Stockholders have accepted the Offer, and immediately before the Offer becomes
unconditional and AROC Delaware Shares are issued to those Alliance Stockholders
who have accepted the Offer, provided that this Agreement has not been
terminated or abandoned pursuant to Article 11, AROC and Newco will cause a (i)
a Certificate of Merger to be executed and filed with the Secretary of State of
Delaware as provided in Section 251 of the DGCL and (ii) Articles of Merger to
be executed and filed with the Secretary of State of Wyoming as provided in
Section 17-16-1105 of the WBCA. The Merger shall become effective on the date on
which the Delaware Certificate of Merger has been duly filed with the Secretary
of State of Delaware and the Wyoming Articles of Merger have been duly filed
with the Secretary of State of the State of Wyoming, and such time is
hereinafter referred to as the "Effective Time."
(b) At the Effective Time AROC shall be merged with and into Newco and the
separate corporate existence of AROC shall thereupon cease. Newco shall be the
surviving corporation (the "Surviving Corporation") in the Merger and shall
continue to be governed by the laws of the State of Delaware, and the separate
corporate existence of Newco with all its rights, privileges, immunities, powers
and franchises shall continue unaffected by the Merger, except as set forth in
Section 3.2(f) and (g). The Merger shall have the effects specified in the
- -------------- ---
Delaware General Corporation Law and the Wyoming Business Corporation Act.
(c) Change of Name of AROC Delaware. The Information Statement and
-------------------------------
Registration Statement shall provide for, and concurrently with the Effective
Time, AROC Delaware shall file a Certificate of Amendment to its Certificate of
Incorporation to effect, a change of the name of AROC Delaware to "Alliance
Resources Inc."
(d) The Certificate of Incorporation. The Certificate of Incorporation of
--------------------------------
Newco in effect at the Effective Time shall be the Certificate of Incorporation
of the Surviving Corporation, until duly amended in accordance with the terms
thereof and the DGCL.
(e) By-Laws. The By-Laws of Newco in effect at the Effective Time shall be
-------
the By-Laws of the Surviving Corporation, until duly amended in accordance with
the terms thereof and the DGCL.
(f) Directors and Officers. The directors and officers of AROC Delaware
----------------------
and of Newco shall, from and after the Effective Time, and until their
successors have been duly elected or appointed and qualified or until their
earlier death, resignation or removal in accordance with the respective
corporation's Certificate of Incorporation and By-Laws, be the following:
John A. Keenan President and Director of AROC Delaware and
Newco
Francis M. Munchinski Secretary of AROC Delaware and Newco
Paul R. Fenemore Director of AROC Delaware and Newco
Robert E. Schulte Director of Newco
M. Phillip Douglas Director of AROC Delaware
Michael E. Humphries Director of AROC Delaware
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<PAGE>
William J.A. Kennedy Director of AROC Delaware
John R. Martinson Director of AROC Delaware
(g) Conversion or Cancellation of Shares. The manner of converting or
------------------------------------
canceling shares of AROC in the Merger shall be as follows:
(1) At the Effective Time, each AROC Share issued and outstanding
immediately prior to the Effective Time, other than AROC Shares that are owned
by AROC or any direct or indirect subsidiary of AROC or Shares ("Dissenting
Shares") which are held by stockholders ("Dissenting Stockholders") properly
exercising appraisal rights pursuant to (S)17-16-1321 and (S)17-16-1323 of the
WBCA, if applicable (collectively, "Excluded Shares") shall, by virtue of the
Merger and without any action on the part of the holder thereof, be converted
into the right to receive, 0.11 AROC Delaware Shares (the "Merger
Consideration"). At the Effective Time, all AROC Shares, by virtue of the Merger
and without any action on the part of the holders thereof, shall no longer be
outstanding and shall be canceled and retired and shall cease to exist, and each
holder of a certificate representing any such AROC Shares (other than Excluded
Shares) shall thereafter cease to have any rights with respect to such AROC
Shares, except the right to receive the Merger Consideration for such AROC
Shares upon the surrender of such certificate in accordance with Section 3.2(h)
or the right, if any, to receive payment from the Surviving Corporation of the
"fair value" of such Shares as determined in accordance with (S)17-16-1325 of
the WBCA.
(2) At the Effective Time, each AROC Share issued and outstanding at
the Effective Time and owned by AROC Delaware or held in AROC's treasury or
owned by AROC or any direct or indirect subsidiary of AROC shall, by virtue of
the Merger and without any action on the part of the holder thereof, cease to be
outstanding, shall be canceled and retired without payment of any consideration
therefor and shall cease to exist.
(3) At the Effective Time, each Newco Share issued and outstanding at
the Effective Time shall continue to be outstanding and shall not be affected
by the Merger.
(4) At the Effective Time, each AROC Delaware Share issued and
outstanding at the Effective Time (other than AROC Delaware Shares issued or to
be issued pursuant to the Offer) shall, by virtue of the merger and without any
action on the part of the holder thereof, cease to be outstanding, shall be
canceled and retired without payment of any consideration therefore and shall
cease to exist.
(h) Payment for AROC Shares.
-----------------------
(1) AROC Delaware shall make available or cause to be made available
to the Paying Agent at the Effective Time certificates representing the AROC
Delaware Shares sufficient to enable the Paying Agent to deliver the necessary
certificates to the former holders of AROC Shares as required by paragraph (b).
(2) On or after the Effective Time, each person who was immediately
before the Effective Time a holder of record of issued and outstanding AROC
Shares may deliver to the Paying Agent a letter of transmittal in a form
suitable to the Paying Agent duly executed and completed in accordance with the
instructions thereto, together with such holders' certificates representing such
AROC Shares, and AROC Delaware shall cause the Paying Agent to deliver to such
holders certificates in respect of the AROC Delaware Shares and any dividends or
distributions thereon to which such holders are then entitled.
(3) Fractional AROC Delaware Shares will not be issued to any person.
In lieu of issuing a fractional AROC Delaware Share to any person, AROC Delaware
will round the number of AROC Delaware Shares to be issued to each person to the
nearest whole number of AROC Delaware Shares.
(4) If AROC Delaware Shares are to be issued to a person other than
the registered holder of the certificates surrendered, it shall be a condition
of such issue that the certificates so surrendered shall be properly endorsed or
otherwise in proper form for transfer and that the person requesting such
delivery shall pay any transfer or other taxes required by reason of the
delivery to a person other than the registered holder of the certificates
surrendered or establish to the satisfaction of AROC Delaware or the Paying
Agent that such tax has been paid or is not applicable.
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(i) Dissenters' Rights.
------------------
(1) Notwithstanding anything in this Agreement to the contrary, AROC
Shares that are issued and outstanding immediately prior to the Effective Time
and that are held by AROC Stockholders who have delivered a written demand for
appraisal of such AROC Shares in the manner provided in Section 17-16-1321 of
the WBCA (the "Dissenting Shares") shall not be canceled and the holders thereof
shall not receive the right to receive the consideration provided in Section
3.2(g)(1), unless and until such holder shall have failed to perfect or shall
have effectively withdrawn or lost the right to appraisal and payment under the
WBCA, as the case may be. If such holder shall have failed to perfect or shall
have effectively withdrawn or lost such right, the AROC Shares shall thereupon
be deemed to have been canceled and the holders thereof to have become entitled,
with effect from the Effective Time, to receive the consideration specified in
Section 3.2(g)(1).
(2) AROC promptly shall give Alliance notice of any demand made by or
on behalf of any dissenting AROC Stockholder to be paid the "fair value" of the
AROC Stockholder's AROC Shares, as provided in Section 17-16-1321 of the WBCA,
and the Surviving Corporation shall thereupon have sole and exclusive rights to
conduct and resolve, in its sole discretion, all negotiations and proceedings
with respect to, and the ultimate disposition of, any such demands in any manner
that the Surviving Corporation may elect. All such payments shall be made solely
by the Surviving Corporation and shall not be made by, nor shall Alliance
reimburse the Surviving Corporation for, such payments.
(j) Transfer of AROC Shares After the Effective Time. No transfers of AROC
------------------------------------------------
Shares shall be made on the stock transfer books of the Surviving Corporation at
or after the Effective Time. If, after the Effective Time, certificates
formerly representing AROC Shares are presented to the Surviving Corporation,
they shall be canceled and the holders thereof shall instead be entitled to be
issued AROC Delaware Shares as provided in this Section 3.2
-----------
4. Representations, Warranties and Covenants of AROC. Except as expressly set
-------------------------------------------------
forth and specifically identified by section number of this Agreement in
the AROC Disclosure Schedule, AROC represents, warrants and covenants to
Alliance, on the date hereof and as of the Mailing Date, as follows:
4.1 Corporate Organization.
----------------------
(a) Each of the AROC Entities is a corporation duly organized and validly
existing as a corporation and in good standing under the laws of its
jurisdiction of incorporation.
(b) Each of the AROC Entities has the requisite corporate power and
authority to carry on its business as now being conducted and to own, lease and
operate its property and assets, and each of the AROC Entities is duly qualified
or licensed to do business and is in good standing in every jurisdiction in
which the failure to be so qualified and licensed could have a Material Effect.
(c) AROC has delivered or made available to Alliance true, correct and
complete copies of each of the AROC Entities' respective Certificate of
Incorporation and Bylaws as presently in effect.
4.2 Capitalization.
--------------
(a) The authorized capital stock of AROC consists of 20,000,000 shares of
common stock, par value $0.01 per share, 3,615,770 of which are issued and
outstanding, 8,000,000 shares of class B common stock, par value $0.01 per
share, 7,267,820 of which are issued and outstanding, and 5,000,000 shares of
preferred stock, par value $0.50 per share, none of which are outstanding. The
authorized capital stock of AROC Delaware consists of 100 shares of common
stock, par value $0.001 per share, all of which are issued and outstanding.
Section 4.2 of the AROC Disclosure Schedule sets forth the number and type of
securities of AROC that may be acquired pursuant to outstanding options or
rights to purchase AROC Common Shares and the exercise prices at which such
equity securities may be acquired. All of the issued shares of each of the AROC
Entities are, and all of the AROC Delaware Shares to be issued pursuant to the
Offer, when issued in accordance with the terms of the Offer, will be validly
issued, fully paid and nonassessable and none of such shares have been issued in
violation of the preemptive rights of any person. AROC has no shares of capital
stock reserved for issuance.
(b) Except as described in Section 4.2(a), there are no (i) shares of
capital stock or other securities bearing voting or other equity rights, whether
contingent or not, of any of the AROC Entities outstanding; (ii) outstanding
subscriptions, puts, options, warrants or other rights, contractual or
otherwise, to purchase or acquire any capital stock of any of the AROC Entities;
or (iii) contracts, commitments, understandings, arrangements or
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restrictions by which any of the AROC Entities is or may become bound to issue
any additional equity interests or any options or rights with respect thereto,
or any securities convertible into any equity interests.
(c) The issued and outstanding stock of AROC owned by the directors,
executive officers and 5% or greater stockholders of AROC is owned of record,
and to the knowledge of AROC, beneficially, as described in the AROC Form 10-K.
AROC owns all of the issued and outstanding stock of each of its Subsidiaries,
directly or indirectly, free and clear of all Encumbrances. Except for its
Subsidiaries, neither AROC nor any of its Subsidiaries owns or holds any equity,
debt or other interest in any entity or business or any option to acquire any
such interest, except for accounts receivable that have arisen in the ordinary
course of business.
4.3 Authority; No Violation.
-----------------------
(a) The execution and performance of this Agreement by AROC have been duly
and validly authorized by the board of directors of AROC and, except for the
approval of the AROC shareholders, no other corporate action is necessary to
authorize the execution, delivery and performance of this Agreement by AROC.
AROC has full, absolute and unrestricted right, power and authority to execute
and perform this Agreement and, subject to the approval of the AROC
shareholders, to carry out the transactions contemplated hereby. This Agreement
has been duly and validly executed by AROC and, is a valid and binding
obligation of AROC, enforceable in accordance with its terms, except as
enforceability may be limited by bankruptcy, moratorium, reorganization,
receivership or similar laws affecting the rights of creditors generally.
(b) None of the execution, delivery or performance of this Agreement does
or will, after the giving of notice, lapse of time or otherwise, (i) result in
any violation of or be in conflict with or constitute a default under any term
or provision of the Certificate of Incorporation or Bylaws of any of the AROC
Entities of or any term or provision of any judgment, decree, order, statute,
injunction, rule or regulation applicable to any of the AROC Entities, or of any
material note, bond, mortgage, indenture, lease, license, franchise, agreement
or other instrument or obligation to which any of the AROC Entities is bound;
(ii) result in the creation of any material Encumbrance upon AROC Shares, any of
the Alliance Assets or any of the AROC Assets pursuant to any such term or
provision; or (iii) constitute a material default under or give any party the
right to accelerate, amend or modify, terminate, abandon or refuse to perform or
comply with, any material contract, agreement, arrangement, commitment or plan
to which any AROC Entities is a party, or by which any of the AROC Entities or
any of their rights, properties or assets may be subject or bound.
4.4 Consents and Approvals. No consent, waiver, approval or authorization
----------------------
of, or declaration, designation, filing, registration or qualification with, any
Governmental Entity or any third party, is required to be made or obtained by
the AROC Entities in connection with the execution, delivery and performance of
this Agreement or to preserve any material rights and benefits enjoyed by any of
the AROC Entities on the date hereof following the consummation of the
transactions contemplated by this Agreement except (a) those that have already
been obtained or (b) those specifically contemplated by this Agreement.
4.5 Violations of Laws, Permits, etc.
---------------------------------
(a) None of the AROC Entities is in violation of any term or provision of
its Certificate of Incorporation or Bylaws. None of the AROC Entities is in
violation of any term or provision of any judgment, decree, order, statute,
injunction, rule, ordinance or regulation applicable to it, or of any agreement
or instrument applicable to such entity where the violation thereof would result
in a Material Effect.
(b) Each of the AROC Entities holds and has maintained in full force and
effect all certificates, licenses and permits material to the conduct of its
business, and has not received any notification that any revocation or
limitation thereof is threatened or pending where such revocation or limitation
would result in a Material Effect.
4.6. AROC Reports. AROC has made available to Alliance each of the AROC
------------
Reports. As of their respective dates, the AROC Reports did not, and any AROC
Reports filed with the Commission subsequent to the date of this Agreement will
not, contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements made
therein, in light of the circumstances in which they were made, not misleading.
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<PAGE>
4.7 AROC Financial Statements.
-------------------------
(a) In all material respects the consolidated AROC Financial Statements
fairly present the consolidated assets, liabilities and financial position of
the respective entities purported to be covered thereby as of the dates thereof
and the results of their operations and cash flow for the respective periods
ended on such dates, all in conformity with GAAP consistently applied.
(b) The AROC Financial Statements were prepared from the books and
records of each of the respective entities purported to be covered thereby. Such
AROC Financial Statements do not contain any items of a material special or
nonrecurring nature, except as expressly noted in such statements.
4.8 No Undisclosed Liabilities, etc. None of the AROC Entities has any
--------------------------------
material liabilities or obligations, whether direct, indirect, absolute or
contingent (including, without limitation, liabilities as guarantor or otherwise
with respect to obligations of others), except (a) liabilities that are fully
reflected on or reserved against on the latest balance sheet of such entity
included in the AROC Financial Statements or (b) liabilities incurred in the
ordinary course of business since the date of the latest balance sheet included
in the AROC Financial Statements that are consistent with past practice.
4.9 Absence of Certain Changes. Since the date of the latest audited AROC
--------------------------
Financial Statement, none of the AROC Entities has:
(a) Suffered any change that would result in a Material Effect;
(b) Borrowed any money or incurred, assumed or become subject to, whether
directly or by way of guarantee or otherwise, any other material obligation or
liability for borrowed money, whether absolute or contingent;
(c) (i) Issued, purchased or redeemed any of its capital securities or
any option, warrant or right to purchase any of the same; or (ii) authorized,
declared or made any dividends, distributions of earnings or capital on, or
splits or any other reclassification of its equity securities;
(d) Acquired any material assets or properties having a value in excess
of $100,000 in the aggregate;
(e) Increased the salaries, compensation, pension or other benefits
payable, or paid any bonuses, to its officers and directors or their Affiliates;
(f) Agreed, either in writing or otherwise, to take any action described
in this Section 4.9.
------------
4.10. Data Regarding the AROC Assets. All of the information made or to
------------------------------
be made available to Alliance and its representatives regarding the AROC Assets
is accurate and complete in all material respects, when considered in context
and together with all relevant information made available.
4.11. Litigation.
----------
(a) There is no action, proceeding, investigation or inquiry pending or,
to the knowledge of the AROC Entities, threatened (i) against or affecting any
of the AROC Entities or their assets or ordinary conduct of the business that,
if determined adversely to the AROC Entities, would result in a Material Effect,
except as described in the AROC Reports, or (ii) that questions this Agreement
or any action contemplated by this Agreement or in connection with the Merger.
(b) There are no citations, fines or penalties heretofore asserted
against any of the AROC Entities or their assets under any federal, state or
local law relating to air, noise or water pollution or other environmental
protection matters, or relating to occupational health or safety, of which such
entity has received notice and that remain unpaid or that could otherwise bind
the assets of any of the AROC Entities and that would result in a Material
Effect.
(c) AROC has no knowledge of any state of facts or of the occurrence or
nonoccurrence of any event or group of related events, that should reasonably
cause AROC to determine that there exists any basis for any material claim
against the AROC Entities for any of the matters described in paragraphs (a) or
(b).
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<PAGE>
4.12. Tax Returns and Payments.
------------------------
(a) The AROC Entities (or the common parent of any affiliated group of
which any of such entities is or has been a member) have duly filed in correct
form in all material respects all Tax Returns required to be filed by such
entities and have duly paid or provided for payment of (or there have been paid
on their behalf) all Taxes due or claimed to be due from them by federal, state,
local or foreign taxing authorities, excluding Taxes that are being contested in
good faith by appropriate proceedings and as to which adequate reserves have
been provided in the AROC Financial Statements.
(b) There are no tax liens upon any property or assets owned by any of
the AROC Entities that would have a Material Effect.
(c) All Tax Returns of the AROC Entities filed, including any amendments
to date, have been prepared in good faith without willful misrepresentation and
are complete and accurate in all material respects. The federal income tax
returns of the AROC Entities have been examined by the Internal Revenue Service
for all periods described in Section 4.12 of the AROC Disclosure Schedule, and
all deficiencies assessed as a result of such examination have been paid in full
or finally settled and no issue has been raised by the Internal Revenue Service
in any such examination that has been resolved adversely to any of the AROC
Entities or is still pending and, by application of similar principles,
reasonably could be expected to result in an assertion by the Internal Revenue
Service of a material deficiency in any other taxable year or with respect to
any other of the AROC Entities. There are no outstanding agreements, waivers or
other arrangements providing for an extension of time with respect to the filing
of any Tax Returns or the payment by, or assessment against, any of the AROC
Entities for any Taxes.
(d) The reserves made for Taxes on the respective balance sheets in the
AROC Financial Statements are sufficient for the payment of all unpaid Taxes due
and payable by the AROC Entities attributable to all periods ended on or before
the date of the respective balance sheets in accordance with GAAP.
4.13. Bank Accounts. AROC has provided Alliance with the names and
-------------
locations of all bank institutions at which the AROC Entities maintain accounts
or lock boxes of any nature, the account or box number and the names of all
persons authorized to draw thereon or make withdrawals therefrom.
4.14. Contracts.
---------
(a) AROC has made available to Alliance complete and correct copies of
all written agreements, contracts and commitments, together with all amendments
thereto, and accurate (in all material respects) descriptions of all oral
agreements, to which any of the AROC Entities is a party or by which any of
their properties is bound. Such agreements, contracts and commitments are in
full force and effect, and all of such entities and, to the knowledge of the
AROC Entities, all other parties to such agreements, contracts and commitments
have performed all obligations required to be performed by them to date
thereunder in all material respects and are not in default thereunder in any
material respect.
(b) None of the AROC Entities is a party to or bound by any employment,
management, consulting, option, note, loan, lease or other agreements with any
of the officers, directors or shareholders of more than 5% of the outstanding
securities of any of the AROC Entities;
(c) None of the AROC Entities is a party to any agreement that, upon or
after completion of the Merger, could result in the creation of any Encumbrance
upon any of the Alliance Assets or any of the assets of AROC Delaware other than
the AROC Assets.
(d) None of the AROC Entities has outstanding any powers of attorney,
including powers of attorney with respect to representation before any
Governmental Entity, customs agents and brokers, or given in connection with
qualification to conduct business in any other jurisdiction.
4.15. Compensation and Employee Plans.
-------------------------------
(a) AROC has provided Alliance (i) the names and current annual
compensation rates of all present directors, officers, employees, independent
contractors or agents of each of the AROC Entities and (ii) the number, job
category and range of compensation by job category of all employees of such
entities.
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<PAGE>
(b) AROC has made available to Alliance the name of each Plan applicable
to any of the AROC Entities and all documents evidencing any Plan applicable to
any of the AROC Entities.
(c) Each Plan applicable to any of the AROC Entities is now, and has
been from its inception, administered in compliance in all material respects
with the provisions of all applicable laws and regulations, including ERISA, the
Code and the ADEA, insofar as such statutes are applicable to such Plan.
4.16. Brokers, Finders and Advisors. AROC has not employed any broker,
-----------------------------
finder, or investment advisor on its behalf, or incurred any liability for any
brokerage or finder's fees or commissions in connection with the transaction
contemplated hereby.
4.17. Labor Force. Each of the AROC Entities is in compliance in all
-----------
material respects with all applicable laws (including without limitation federal
income tax laws), ordinances, regulations, statutes, rules and restrictions of
any Governmental Entity respecting employment and employment practices and terms
and conditions of employment.
4.18. Books and Records. The books and records of each of the AROC
-----------------
Entities (including, without limitation, the books of account, minute books and
stock record books) are complete and correct in all material respects and have
been maintained in accordance with sound business practices. The minute books
of each of the AROC Entities contain accurate and complete records in all
material respects of all meetings held of, and corporate action taken by, the
shareholders and the Boards of Directors of the respective entities and no
meetings of or actions by such shareholders or any such Boards of Directors have
been held or taken for which minutes have not been prepared and are not
contained in such minute books. None of the records and written documents
furnished or made available to Alliance's representatives or agents by the AROC
Entities concerning the AROC Assets, when considered in context and together
with any relevant or related documents also so furnished or made available,
contain any untrue statement of material fact or omit a material fact necessary
to make any statement therein not misleading.
4.19. Payments. None of the AROC Entities has, directly or indirectly,
--------
paid or delivered any fee, commission or other sum of money or item of property
however characterized to any finder, agent, government official or other party,
in the United States or any other country, in any manner related to its business
or operations, which such entity knows or has reason to believe to have been
illegal under any federal, state or local laws of the United States or any other
country or territory having jurisdiction over such entity, and has not
participated, directly or indirectly, in any boycotts or similar practices.
4.20. Commission Filings. AROC has filed all forms, reports and documents
------------------
required to be filed with the Commission since January 1, 1996 . All of such
filings were prepared in accordance with the requirements of all applicable laws
and did not at the time they were filed contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
4.21. Disclosure. No representation or warranty made by AROC in this
----------
Agreement (including, without limitation, in the AROC Disclosure Schedule)
contains any untrue statement of material fact or omits or will omit to state
any material fact necessary to make the statements herein or therein not
misleading in light of the circumstances under which made.
5. Representations, Warranties and Covenants of Alliance.
-----------------------------------------------------
Except as expressly set forth and specifically identified by section number
of this Agreement in the Alliance Disclosure Schedule, Alliance represents,
warrants and covenants to AROC, on the date hereof and as of the Mailing Date,
as follows:
5.1. Organization, etc.
-----------------
(a) Alliance is a public limited company duly incorporated and validly
existing under the laws of England and Wales.
(b) Each of Alliance's U.K. Subsidiaries is a limited company duly
incorporated and validly existing under the laws of England and Wales. Each of
Alliance's other Subsidiaries is a corporation duly organized, validly existing
and in good standing under the laws of its jurisdiction of incorporation.
A-13
<PAGE>
(c) Each of the Alliance Entities has the requisite corporate power and
authority to carry on its business as now being conducted and to own, lease and
operate its property and assets, and each of the United States Alliance Entities
is duly qualified or licensed to do business and is in good standing in every
jurisdiction in which the failure to be so qualified and licensed could have a
Material Effect.
(d) Alliance has delivered or made available to AROC true, correct and
complete copies of the organizational documents of each of the Alliance Entities
as presently in effect.
5.2. Capitalization.
--------------
(a) The authorized capital stock of Alliance consists of 415,001,376
ordinary shares of (Pounds)0.01 each, 47,487,142 of which are issued and
outstanding, 10,000,000 shares of Alliance Convertible Stock, of which
10,000,000 are issued and outstanding and 1,414,998,624 deferred shares of 1p
each of which 1,217,166,912 are issued and outstanding. There are outstanding
options to subscribe for 3,040,000 Alliance Ordinary Shares at subscription
prices varying from 13.5p to (Pounds)3.00. There are outstanding warrants to
purchase 5,079,149 Alliance Ordinary Shares at purchase prices varying from 1p
to (Pounds)1.00 per share and outstanding convertible loan notes that are
convertible into 1,078,125 Alliance Common Shares at any time upon the payment
by the holder to Alliance of 1p per share. All of the issued shares of each of
the Alliance Entities are validly issued, fully paid and nonassessable and none
of such shares have been or will be issued in violation of the preemptive rights
of any person.
(b) Except as described in Section 5.2(a), there are no (i) shares of
capital stock or other securities bearing voting or other equity rights, whether
contingent or not, of any of the Alliance Entities outstanding; (ii) outstanding
subscriptions, puts, options, warrants or other rights, contractual or
otherwise, to purchase or acquire any capital stock of any of the Alliance
Entities; or (iii) contracts, commitments, understandings, arrangements or
restrictions by which any of the Alliance Entities is or may become bound to
issue any additional equity interests or any options or rights with respect
thereto, or any securities convertible into any equity interests.
(c) The issued and outstanding stock of Alliance owned by the directors
and 5% or greater stockholders of Alliance is owned of record, and to the
knowledge of Alliance, beneficially, as described in the Alliance Proxy
Statement. Alliance beneficially owns all of the issued and outstanding stock of
each of its Subsidiaries, directly or indirectly, free and clear of all
Encumbrances. Except for its Subsidiaries, neither Alliance nor any of its
Subsidiaries owns or holds any equity, debt or other interest in any entity or
business or any option to acquire any such interest, except for accounts
receivable that have arisen in the ordinary course of business.
5.3. Authority; No Violation.
-----------------------
(a) The execution and performance of this Agreement by Alliance have
been duly and validly authorized by the board of directors of Alliance and no
other corporate action is necessary to authorize the execution, delivery and
performance of this Agreement by Alliance. Alliance has full, absolute and
unrestricted right, power and authority to execute and perform this Agreement
and to carry out the transactions contemplated hereby. This Agreement has been
duly and validly executed by Alliance and is a valid and binding obligation of
Alliance, enforceable in accordance with its terms, except as enforceability may
be limited by bankruptcy, moratorium, reorganization, receivership or similar
laws affecting the rights of creditors generally.
(b) None of the execution, delivery or performance of this Agreement
does or will, after the giving of notice, lapse of time or otherwise, (i) result
in any violation of or be in conflict with or constitute a default under any
term or provision of the organizational documents of any of the Alliance
Entities, or any term or provision of any judgment, decree, order, statute,
injunction, rule or regulation applicable to any of the Alliance Entities or of
any material note, bond, mortgage, indenture, lease, license, franchise,
agreement or other instrument or obligation to which any of the Alliance
Entities is bound; (ii) result in the creation of any material Encumbrance upon
Alliance Shares, any of the AROC Assets or any of the Alliance Assets pursuant
to any such term or provision; or (iii) constitute a material default under or
give any party the right to accelerate, amend or modify, terminate, abandon or
refuse to perform or comply with, any material contract, agreement, arrangement,
commitment or plan to which any of the Alliance Entities is a party, or by which
any of the Alliance Entities or any of their rights, properties or assets may be
subject or bound.
5.4. Consents and Approvals. No consent, waiver, approval or
----------------------
authorization of, or declaration, designation, filing, registration or
qualification with, any Governmental Entity or any third party, is required to
be made or obtained by any of the Alliance Entities in connection with the
execution, delivery and performance of this Agreement or to preserve any
material rights and benefits enjoyed by any of the Alliance Entities on the date
hereof
A-14
<PAGE>
following the consummation of the transactions contemplated by this Agreement
except (a) those that have already been obtained or (b) those specifically
contemplated by this Agreement.
5.5. Violations of Laws, Permits, etc.
---------------------------------
(a) None of the Alliance Entities is in violation of any term or
provision of its organizational documents. None of the Alliance Entities is in
violation of any term or provision of any judgment, decree, order, statute,
injunction, rule, ordinance or regulation applicable to it, or of any agreement
or instrument applicable to such entity where the violation thereof would result
in a Material Effect.
(b) Each of the Alliance Entities holds and has maintained in full force
and effect all certificates, licenses and permits material to the conduct of its
business, and has not received any notification that any revocation or
limitation thereof is threatened or pending where such revocation or limitation
would result in a Material Effect.
5.6. Alliance Reports. Alliance has made available to AROC each of the
----------------
Alliance Reports. As of their respective dates, the Alliance Reports did not,
and any Alliance Reports filed with the Commission subsequent to the date of
this Agreement will not, contain any untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make the
statements made therein, in light of the circumstances in which they were made,
not misleading.
5.7. Alliance Financial Statements.
-----------------------------
(a) In all material respects the consolidated Alliance Financial
Statements fairly present the consolidated assets, liabilities and financial
position of the respective entities purported to be covered thereby as of the
dates thereof and the results of their operations and cash flow for the
respective periods ended on such dates, all in conformity with GAAP consistently
applied, except that the January 31, 1999, unaudited interim financial
statements do not contain footnotes (that, if presented, would not differ
materially from those in the audited Alliance Financial Statements) and are
subject to normal, recurring year-end adjustments (which will not, individually
or in the aggregate, have a Material Effect).
(b) The Alliance Financial Statements were prepared from the books and
records of each of the respective entities purported to be covered thereby.
Such Alliance Financial Statements do not contain any items of a material
special or nonrecurring nature, except as expressly noted in such statements.
5.8. No Undisclosed Liabilities, etc. None of the Alliance Entities has
--------------------------------
any material liabilities or obligations, whether direct, indirect, absolute or
contingent (including, without limitation, liabilities as guarantor or otherwise
with respect to obligations of others), except (a) liabilities that are fully
reflected on or reserved against on the latest balance sheet of such entity
included in the Alliance Financial Statements or (b) liabilities incurred in the
ordinary course of business since the date of the latest balance sheet included
in the Alliance Financial Statements that are consistent with past practice.
5.9. Absence of Certain Changes. Since the date of the latest audited
--------------------------
Alliance Financial Statement, except as specifically disclosed in the January
31, 1999, unaudited interim consolidated Alliance Financial Statements,
none of the Alliance Entities has:
(a) Suffered any change that would result in a Material Effect;
(b) Borrowed any money or incurred, assumed or become subject to,
whether directly or by way of guarantee or otherwise, any other material
obligation or liability for borrowed money, whether absolute or contingent;
(c) (i) Issued, purchased or redeemed any of its capital securities or
any option, warrant or right to purchase any of the same; or (ii) authorized,
declared or made any dividends, distributions of earnings or capital on, or
splits or any other reclassification of its equity securities;
(d) Acquired any material assets or properties, other than oil and gas
production in the ordinary course of business, or other assets having a value in
excess of $100,000 in the aggregate;
(e) Increased the salaries, compensation, pension or other benefits
payable, or paid any bonuses, to its officers and directors or their Affiliates;
A-15
<PAGE>
(f) Agreed, either in writing or otherwise, to take any action described
in this Section 5.9.
-----------
5.10. Data Regarding the Alliance Assets. All of the information made or
----------------------------------
to be made available to AROC and its representatives regarding the Alliance
Assets is accurate and complete in all material respects, when considered in
context and together with all relevant information made available.
5.11. Litigation.
----------
(a) There is no action, proceeding, investigation or inquiry pending or,
to the knowledge of the Alliance Entities, threatened (i) against or affecting
any of the Alliance Entities or their assets or ordinary conduct of the business
that, if determined adversely to the Alliance Entities, would result in a
Material Effect, except as described in the Alliance Reports, or (ii) that
questions this Agreement or any action contemplated by this Agreement or the
transactions contemplated hereby.
(b) There are no citations, fines or penalties heretofore asserted
against any of the Alliance Entities or their assets under any federal, state or
local law relating to air, noise or water pollution or other environmental
protection matters, or relating to occupational health or safety, of which such
entity has received notice and that remain unpaid or that could otherwise bind
the assets of any of the Alliance Entities and that would result in a Material
Effect.
(c) Alliance has no knowledge of any state of facts or of the occurrence
or nonoccurrence of any event or group of related events, that should reasonably
cause Alliance to determine that there exists any basis for any material claim
against the Alliance Entities for any of the matters described in paragraphs (a)
or (b).
5.11. Tax Returns and Payments.
------------------------
(a) The Alliance Entities (or the common parent of any affiliated group
of which any of such entities is or has been a member) have duly filed in
correct form in all material respects all Tax Returns required to be filed by
such entities and have duly paid or provided for payment of (or there have been
paid on their behalf) all Taxes due or claimed to be due from them by federal,
state, local or foreign taxing authorities, excluding Taxes that are being
contested in good faith by appropriate proceedings and as to which adequate
reserves have been provided in the Alliance Financial Statements.
(b) There are no tax liens upon any property or assets owned by any of
the Alliance Entities that would have a Material Effect.
(c) All Tax Returns of the Alliance Entities filed, including any
amendments to date, have been prepared in good faith without willful
misrepresentation and are complete and accurate in all material respects. The
federal income tax returns of the Alliance Entities have been examined by the
Internal Revenue Service for all periods described in Section 5.12 of the
Alliance Disclosure Schedule, and all deficiencies assessed as a result of such
examination have been paid in full or finally settled and no issue has been
raised by the Internal Revenue Service or other relevant tax authority in any
such examination that has been resolved adversely to any of the Alliance
Entities or is still pending and, by application of similar principles,
reasonably could be expected to result in an assertion by the Internal Revenue
Service or other relevant tax authority of a material deficiency in any other
taxable year or with respect to any other of the Alliance Entities. There are no
outstanding agreements, waivers or other arrangements providing for an extension
of time with respect to the filing of any Tax Returns or the payment by, or
assessment against, any of the Alliance Entities for any Taxes.
(d) The reserves made for Taxes on the respective balance sheets in the
Alliance Financial Statements are sufficient for the payment of all unpaid Taxes
due and payable by the Alliance Entities attributable to all periods ended on or
before the date of the respective balance sheets in accordance with GAAP.
5.12. Contracts.
---------
(a) Alliance has made available to AROC complete and correct copies of
all written agreements, contracts and commitments, together with all amendments
thereto, and accurate (in all material respects) descriptions of all oral
agreements, in all cases, to which any of the Alliance Entities is a party or by
which any of their properties is bound. Such agreements, contracts and
commitments are in full force and effect, and all of such entities and, to the
knowledge of the Alliance Entities, all other parties to such agreements,
contracts and commitments have performed
A-16
<PAGE>
all obligations required to be performed by them to date thereunder in all
material respects and are not in default thereunder in any material respect.
(b) None of the Alliance Entities has outstanding any powers of
attorney, including powers of attorney with respect to representation before any
Governmental Entity, customs agents and brokers, or given in connection with
qualification to conduct business in any other jurisdiction.
5.14. Compensation and Employee Plans.
-------------------------------
(a) Alliance has provided AROC (i) the names and current annual
compensation rates of all present directors, officers, employees, independent
contractors or agents of each of the Alliance Entities and (ii) the number, job
category and range of compensation by job category of all employees of such
entities.
(b) Alliance has made available to AROC the name of each Plan applicable
to any of the Alliance Entities and all documents evidencing any Plan applicable
to any of the Alliance Entities.
(c) Each Plan applicable to any of the Alliance Entities is now, and has
been from its inception, administered in compliance in all material respects
with the provisions of all applicable laws and regulations, including ERISA, the
Code and the ADEA, insofar as such statutes are applicable to such Plan.
5.15. Brokers, Finders and Advisors. Alliance has not employed any
-----------------------------
broker, finder, or investment advisor on its behalf, or incurred any liability
for any brokerage or finder's fees or commissions in connection with the
transaction contemplated hereby.
5.16. Labor Force. Each of the Alliance Entities is in compliance in all
-----------
material respects with all applicable laws (including without limitation federal
income tax laws), ordinances, regulations, statutes, rules and restrictions of
any Governmental Entity respecting employment and employment practices and terms
and conditions of employment.
5.17. Books and Records. The books and records of each of the Alliance
-----------------
Entities (including, without limitation, the books of account, minute books and
stock record books) are complete and correct in all material respects and have
been maintained in accordance with sound business practices. The minute books
of each of the Alliance Entities contain accurate and complete records in all
material respects of all meetings held of, and corporate action taken by, the
shareholders and the Boards of Directors of the respective entities and no
meetings of or actions by such shareholders or any such Boards of Directors have
been held or taken for which minutes have not been prepared and are not
contained in such minute books. None of the records and written documents
furnished or made available to AROC's representatives or agents by the Alliance
Entities concerning the Alliance Assets, when considered in context and together
with any relevant or related documents also so furnished or made available,
contain any untrue statement of material fact or omit a material fact necessary
to make any statement therein not misleading.
5.18. Payments. None of the Alliance Entities has, directly or
--------
indirectly, paid or delivered any fee, commission or other sum of money or item
of property however characterized to any finder, agent, government official or
other party, in the United States or any other country, in any manner related to
its business or operations, which such entity knows or has reason to believe to
have been illegal under any federal, state or local laws of the United States or
any other country or territory having jurisdiction over such entity, and has not
participated, directly or indirectly, in any boycotts or similar practices.
5.19. Commission Filings. Alliance has filed all forms, reports and
------------------
documents required to be filed with the Commission since May 1, 1997. All of
such filings were prepared in accordance with the requirements of all applicable
laws and did not at the time they were filed contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
5.20. Disclosure. No representation or warranty made by Alliance in this
----------
Agreement (including, without limitation, in the Alliance Disclosure Schedule)
contains any untrue statement of material fact or omits or will omit to state
any material fact necessary to make the statements herein or therein not
misleading in light of the circumstances under which made.
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<PAGE>
6. Actions of AROC Prior to the Mailing Date.
-----------------------------------------
6.1. Affirmative Covenants. Prior to the Mailing Date, AROC covenants
---------------------
that, unless the prior written consent of Alliance is first obtained, which
consent shall not be unreasonably withheld, the AROC Entities will:
(a) Carry on their respective businesses in the usual, regular and
ordinary course in substantially the same manner as heretofore conducted and use
all reasonable efforts to (i) preserve intact their respective present business
organizations, (ii) keep available the services of their respective present
officers and key employees and (iii) preserve their respective relationships
with customers, suppliers and any others having business dealings with them; and
(b) Duly comply with all laws applicable to them and their respective
properties, operations, business and employees which if not complied with would
result in a Material Effect.
6.2. Negative Covenants. Prior to the Mailing Date, except with the
------------------
prior written consent of Alliance, the AROC Entities will not:
(a) Do any of the restricted acts set forth in Section 4.9 hereof, or
-----------
enter into any agreement of a nature set forth in Section 4.14 hereof;
------------
(b) Enter into or permit any of the AROC Entities to enter into any
transaction other than in the ordinary course of business; or
(c) Amend the respective organizational or governing documents of any of
the AROC Entities.
6.3. Consents. The AROC Entities will use their best efforts to obtain
--------
all consents from third parties necessary or appropriate to effectuate the
transactions contemplated by this Agreement.
6.4. Advice of Changes. AROC will promptly advise Alliance in writing
-----------------
from time to time prior to the Mailing Date with respect to any matter hereafter
arising and known to it that, if existing or occurring at the date of this
Agreement, would have been required to be set forth or described in the AROC
Disclosure Schedule or would have resulted in any representation of AROC in this
Agreement being untrue.
6.5. Best Efforts. The AROC Entities will use their best efforts to
------------
cause to be fulfilled those of the conditions to Alliance's obligations to
consummate the transactions contemplated by this Agreement that are dependent
upon their actions and to execute and deliver such instruments and take such
other actions as necessary or appropriate in order to carry out the intent of
this Agreement.
6.6. Access to Properties and Records. From and after the date of this
--------------------------------
Agreement through the earlier of the Mailing Date or the termination of this
Agreement, the AROC Entities shall (a) provide Alliance an identification of and
access to all books, records and documents, including contracts, agreements,
consents, settlements, revenue and expense information, and all other data and
information relating to the AROC Assets, (b) afford to Alliance and their
officers, attorneys, accountants and other authorized representatives free and
full access during normal business hours to the offices, properties, books and
records of the AROC Entities, and (c) cause counsel and accountants to the AROC
Entities to furnish such additional financial and operating data and other
information as Alliance shall from time to time request in order that Alliance
may have full opportunity to make such investigation as they shall desire to
make of the affairs of the AROC Entities and their assets.
6.7. Supply Documents, Reports, etc.
-------------------------------
(a) AROC shall furnish or make available to Alliance all documents,
reports and other information and data (including financial statements)
concerning the AROC Entities as Alliance may reasonably require in connection
with any statement, application, or document required to be filed with
applicable Governmental Entities in connection with the transactions
contemplated by this Agreement or furnished to any other person, firm,
corporation or Governmental Entity in connection with this Agreement, including,
but not limited to the Commission, the Federal Trade Commission and the
Department of Justice.
(b) AROC represents and warrants that all such information shall be
true, correct, and complete in all material respects and shall not omit any
material fact required to be stated to make such information not misleading in
light of the circumstances under which made.
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<PAGE>
6.8. AROC Disclosure Schedule. AROC agrees to deliver the AROC
------------------------
Disclosure Schedule to Alliance within seven calendar days after the execution
of the Agreement by all parties.
7. Actions of Alliance Prior to the Mailing Date.
---------------------------------------------
7.1. Affirmative Covenants. Prior to the Mailing Date, Alliance
---------------------
covenants that, unless the prior written consent of AROC is first obtained,
which consent shall not be unreasonably withheld, the Alliance Entities will:
(a) Carry on their respective businesses in the usual, regular and
ordinary course in substantially the same manner as heretofore conducted and use
all reasonable efforts to (i) preserve intact their respective present business
organizations, (ii) keep available the services of their respective present
officers and key employees and (iii) preserve their respective relationships
with customers, suppliers and any others having business dealings with them; and
(b) Duly comply with all laws applicable to them and their respective
properties, operations, business and employees which if not complied with would
result in a Material Effect.
7.2. Negative Covenants. Prior to the Mailing Date, except with the
------------------
prior written consent of AROC, the Alliance Entities will not:
(a) Do any of the restricted acts set forth in Section 5.9 hereof, or
-----------
enter into any agreement of a nature set forth in Section 5.13 hereof;
------------
(b) Enter into or permit any of the Alliance Entities to enter into any
transaction other than in the ordinary course of business; or
(c) Amend the respective organizational or governing documents of any of
the Alliance Entities.
7.3. Consents. The Alliance Entities will use their best efforts to
--------
obtain all consents from third parties necessary or appropriate to
effectuate the transactions contemplated by this Agreement.
7.4. Advice of Changes. Alliance will promptly advise AROC in writing
-----------------
from time to time prior to the Mailing Date with respect to any matter hereafter
arising and known to it that, if existing or occurring at the date of this
Agreement, would have been required to be set forth or described in the Alliance
Disclosure Schedule or would have resulted in any representation of Alliance in
this Agreement being untrue.
7.5. Best Efforts. The Alliance Entities will use their best efforts to
------------
cause to be fulfilled those of the conditions to AROC's obligations to
consummate the transactions contemplated by this Agreement that are dependent
upon their actions and to execute and deliver such instruments and take such
other actions as necessary or appropriate in order to carry out the intent of
this Agreement.
7.6. Access to Properties and Records. From and after the date of this
--------------------------------
Agreement through the earlier of the Mailing Date or the termination of this
Agreement, the Alliance Entities shall (a) provide AROC an identification of and
access to all books, records and documents, including contracts, agreements,
consents, settlements, maps, revenue and expense information, production data
and geological and geophysical data relating to the Alliance Assets, (b) afford
to AROC and their officers, attorneys, accountants and other authorized
representatives free and full access during normal business hours to the
offices, properties, books and records of the Alliance Entities, and (c) cause
counsel and accountants to the Alliance Entities to furnish such additional
financial and operating data and other information as AROC shall from time to
time request in order that AROC may have full opportunity to make such
investigation as they shall desire to make of the affairs of the Alliance
Entities and their assets.
7.7. Supply Documents, Reports, etc.
-------------------------------
(a) Alliance shall furnish or make available to AROC all documents,
reports and other information and data (including financial statements)
concerning the Alliance Entities as AROC may reasonably require in connection
with any statement, application, or document required to be filed with
applicable Governmental Entities in connection with the transactions
contemplated by this Agreement or furnished to any other person, firm,
corporation or Governmental Entity in connection with this Agreement, including,
but not limited to the Commission, the Federal Trade Commission and the
Department of Justice.
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<PAGE>
(b) Alliance represents and warrants that all such information shall be
true, correct, and complete in all material respects and shall not omit any
material fact required to be stated to make such information not misleading in
light of the circumstances under which made.
7.8. Alliance Disclosure Schedule. Alliance agrees to deliver the Alliance
----------------------------
Disclosure Schedule to AROC within seven calendar days after the execution of
the Agreement by all parties.
8. Conditions to Alliance's Obligations. Each and every obligation of
------------------------------------
Alliance under this Agreement to be performed on or before the Mailing
Date is, at the option of Alliance, subject to the satisfaction on or
before the date on which the formal press announcement of the Offer
pursuant to the City Code is made (following which the Offer shall be
subject only to the conditions set out in the press announcement, including
the completion of the Merger) of each of the following conditions:
(a) The actions required by Sections 10.9 and 10.10 shall have occurred
-----------------------
and all other options or rights to purchase or acquire AROC Shares have been
canceled.
(b) All employment, management, consulting, option, note, loan, lease or
other agreements with any of the officers, directors or shareholders of more
than 5% of the outstanding securities of any of the AROC Entities shall have
been terminated without liability to Alliance, AROC or AROC Delaware. All
amounts owed to AROC by any officer, director or shareholder of more than 5% of
the outstanding securities of any of the AROC Entities shall have been repaid in
full.
(c) The agreements described in Sections 10.4, 10.5 and 10.6 shall have
------------- ---- ----
been entered into and the actions required by Section 10.7 shall have occurred.
------------
(d) (i) All of the terms, covenants and conditions of this Agreement to be
complied with or performed by AROC at or before the Mailing Date shall have been
duly complied with and performed in all material respects, (ii) the
representations and warranties of AROC set forth in Article 4, as modified by
---------
the statements contained in the AROC Disclosure Schedule, shall be true in all
material respects on and as of the Mailing Date with the same force and effect
as if such representations and warranties had been made on and as of the Mailing
Date (but this provision shall not mean that representations and warranties
relating to a specific date, shall relate to any other date) and (iii) Alliance
shall have received a certificate to such effect from an officer of AROC.
Whether the conditions in subparagraphs (i) and (ii) above have been satisfied
shall be determined without regard to any materiality qualifications or
provisions contained in any such covenants, representations or warranties.
(e) All consents, waivers, approvals, licenses, authorizations of, or
filings or declarations with third parties or Governmental Entities required to
be obtained by the AROC Entities in order to permit the transactions
contemplated by this Agreement to be consummated in accordance with governmental
laws, rules, regulations and agreements shall have been obtained, and the
registration statement required by Section 2.1(a) shall be effective under the
--------------
Securities Act, no stop orders suspending the effectiveness of the registration
statement shall have been issued, no action, suit, proceeding or investigation
by the Commission to suspend the effectiveness thereof shall have been initiated
and be continuing, and all necessary approvals under state securities laws or
the Securities Act or the Securities Exchange Act of 1934 relating to the
issuance or trading of the Alliance Shares issuable pursuant to the Offer shall
have been received.
(f) Alliance shall have received the opinion of counsel for AROC, dated
the Mailing Date, in substance and form acceptable to Alliance and its counsel.
(g) All actions, proceedings, instruments and documents in connection with
the consummation of the transactions contemplated by this Agreement, including
the forms of all documents, legal matters, opinions and procedures in connection
therewith, shall have been approved in form and substance by counsel for
Alliance, which approval shall not be unreasonably withheld.
(h) The AROC Entities shall have furnished such certificates to evidence
compliance with the conditions set forth in this Article, as may be
reasonably requested by Alliance or its counsel.
(i) There shall not have been any material loss resulting from destruction
of the AROC Assets due to acts of God, fire, explosion or other casualty which
is not reimbursable in all material respects under policies of insurance
maintained by or for the benefit of the AROC Entities.
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<PAGE>
(j) No material information or data provided or made available to
Alliance by or on behalf of AROC shall be incorrect in any material respect.
9. Conditions to AROC's Obligations. Each and every obligation of AROC under
--------------------------------
this Agreement to be performed on the Mailing Date is, at the option of
AROC, subject to the satisfaction on or before the date on which the formal
press announcement of the Offer pursuant to the City Code is made
(following which the Offer shall be subject only to the conditions set out
in the press announcement, including the completion of the Merger) of each
of the following conditions:
(a) The agreements described in Sections 10.4, 10.5 and 10.6 shall have
------------- ---- ----
been entered into and the actions required by Section 10.7 shall have occurred.
------------
(b) (i) All of the terms, covenants and conditions of this Agreement to
be complied with or performed by Alliance at or before the Mailing Date shall
have been duly complied with and performed in all material respects, (ii) the
representations and warranties of Alliance set forth in Article 5, as modified
---------
by the statements contained in the Alliance Disclosure Schedule, shall be true
in all material respects on and as of the Mailing Date with the same force and
effect as if such representations and warranties had been made on and as of the
Mailing Date (but this provision shall not mean that representations and
warranties relating to a specific date shall relate to any other date), and
(iii) AROC shall have received a certificate to such effect from an officer of
each of Alliance at Mailing Date. Whether the conditions in subparagraphs (i)
and (ii) above have been satisfied shall be determined without regard to any
materiality qualifications or provisions contained in any such covenants,
representations or warranties.
(c) All consents, waivers, approvals, licenses, authorizations of, or
filings or declarations with third parties or Governmental Entities required to
be obtained by Alliance in order to permit the transactions contemplated by this
Agreement to be consummated in accordance with governmental laws, rules,
regulations and agreements shall have been obtained, and the registration
statement required by Section 2.1(a) shall be effective under the Securities
--------------
Act, no stop orders suspending the effectiveness of the registration statement
shall have been issued, no action, suit, proceeding or investigation by the
Commission to suspend the effectiveness thereof shall have been initiated and be
continuing, and all necessary approvals under state securities laws or the
Securities Act or the Securities Exchange Act of 1934 relating to the of the
Alliance Shares pursuant to this Agreement shall have been received.
(d) AROC shall have received opinions from counsel for Alliance dated
the Mailing Date, in substance and form acceptable to AROC and its counsel.
(e) All outstanding options or other rights to purchase or acquire
Alliance Ordinary Shares (other than the warrants and other rights provided for
by Sections 10.4, 10.5, 10.6 and 10.10 and the option to purchase 50,000
-----------------------------------
Alliance Ordinary Shares held by John Duncan & Co. Ltd.) shall have been
canceled without further liability to AROC or Alliance.
(f) All actions, proceedings, instruments and documents in connection
with the consummation of the transactions contemplated by this Agreement,
including the forms of all documents, legal matters, opinions and procedures in
connection therewith, shall have been approved in form and substance by counsel
for AROC, which approval shall not be unreasonably withheld.
(g) Alliance shall have furnished such certificates of its officers and
others to evidence compliance with the conditions set forth in this Article, as
may be reasonably requested by AROC or its counsel.
(h) There shall not have been any material loss resulting from
destruction of the Alliance Assets due to acts of God, fire, explosion or other
casualty which is not reimbursable in all material respects under policies of
insurance maintained by or for the benefit of the Alliance Entities.
(i) No material information or data provided or made available to AROC
by or on behalf of Alliance shall be incorrect in any material respect.
10. Additional Agreements.
---------------------
10.1. Confidentiality. The parties hereto will, and will cause their
---------------
officers, directors, employees and authorized representatives to, hold in
confidence all, and not to use or to disclose to others any, nonpublic
information received by them from another party hereto in connection with the
transactions contemplated by this
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<PAGE>
Agreement; provided, however, the foregoing shall not restrict necessary
disclosures in compliance with requirements of any law, governmental order or
regulation, the City Code or the rules of the London Stock Exchange.
10.2. Further Assurances. After the Mailing Date, the parties shall
------------------
execute, acknowledge and deliver or cause to be executed, acknowledged and
delivered such instruments and take such other action including payment of
monies as may be necessary or advisable to carry out their obligations under
this Agreement and under any document, certificate or other instrument delivered
pursuant hereto or required by law. If at any time subsequent to the Mailing
Date, any party comes into possession of money or property belonging to another
party, such money or property shall be promptly turned over to the party
entitled thereto.
10.3. Offices. After the Offer becomes unconditional, the executive
-------
offices of AROC shall be located in Tulsa, Oklahoma.
10.4. Warrants. On or prior to the Mailing Date, AROC Delaware shall
--------
enter into warrant agreements with the holders of Alliance Warrants, on terms
satisfactory to Alliance, providing that, after the Offer becomes
unconditional, those warrants will represent the right to receive one AROC
Delaware Share in lieu of each Alliance Ordinary Share that they currently
represent the right to receive.
10.5. Convertible Shares. On or prior to the Mailing Date, AROC Delaware
------------------
shall enter into agreements with the holders of the Alliance Convertible Shares,
on terms satisfactory to Alliance, providing that after the then outstanding
Alliance Convertible Shares are tendered pursuant to the Offer and the Offer
becomes unconditional, each then outstanding Alliance Convertible Share shall be
exchanged for 0.5 AROC Delaware Shares and the right to receive additional AROC
Delaware Shares on terms substantially similar to the terms of the Alliance
Convertible Shares.
10.6. Convertible Loan Notes. On or prior to the Mailing Date, AROC
----------------------
Delaware shall enter into agreements with the holders of the Alliance
Convertible Loan Notes, on terms satisfactory to Alliance, providing that after
the Offer becomes unconditional, the then outstanding Alliance Convertible Loan
Notes shall be exchanged for notes convertible into one AROC Delaware Share in
lieu of each Alliance Ordinary Share that they currently represent the right to
receive, on terms substantially similar to the terms of the Alliance Convertible
Loan Notes.
10.7. AROC Delaware Capitalization. On or prior to the Mailing Date, AROC
----------------------------
Delaware shall revise its Certificate of Incorporation to provide that the
authorized capital stock of AROC Delaware shall consist of 200,000,000 shares,
consisting of 180,000,000 shares of common stock, par value $0.001 per share,
100 of which shall be issued and outstanding, 10,000,000 shares of preferred
stock, par value $0.001 per share, none of which shall be issued and
outstanding, and 10,000,000 shares of convertible restricted voting stock, par
value $0.001 per share, none of which shall be issued and outstanding.
10.8. Indemnification.
---------------
(a) Alliance agrees to indemnify and hold harmless each officer and
director of AROC (the "Indemnified Parties") from and against any and all
losses, claims, damages, liabilities and expenses arising out of or based upon
any untrue statement or alleged untrue statement of a material fact contained in
(i) the documents referred to in Sections 2.1 and 2.2 (or any amendment or
------------ ---
supplement to any of them) and (ii) any other document or correspondence
prepared by or on behalf of Alliance and furnished to the AROC shareholders or
Alliance shareholders pursuant to this Agreement, or arising out of or based
upon any omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
except insofar as such losses, claims, damages, liabilities or expenses arise
out of or are based upon any untrue statement or omission or alleged untrue
statement or omission which has been made therein or omitted therefrom in
reliance upon and in conformity with information provided by AROC or the
Indemnified Parties.
(b) If any action, suit or proceeding shall be brought against any
Indemnified Person in respect of which indemnity may be sought against Alliance
pursuant to Section 10.8(a), the Indemnified Party shall promptly notify
---------------
Alliance and Alliance shall assume the defense thereof, including the employment
of counsel and payment of all fees and expenses. Alliance shall not settle any
such action, suit or proceeding without the prior written consent of the
Indemnified Party unless such settlement includes an unconditional release of
the Indemnified Party from all liability on claims that are the subject matter
of such action, suit or proceeding. Alliance shall not be liable for any
settlement of any such action, suit or proceeding effected without its written
consent.
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<PAGE>
10.9 AROC Options. "As permitted by Section 8(i)(ii) of the Metro Cable
------------
Corporation 1992 Stock Option Plan and Section 6(f)(2) of the American Rivers
Oil Company 1995 Stock Option and Stock Compensation Plan, prior to the Mailing
Date AROC shall (i) provide that the holder of each option outstanding under
those plans shall terminate as of a date fixed by the committee not later than
30 days after the Mailing Date; (ii) notify the holders of all outstanding
options under those plans at least 30 days in advance of the date so fixed; and
(iii) provide that any holder of an outstanding option under those plans shall
have the right, during the period of 30 days preceding such termination, to
exercise the option as to all or any part of the AROC Shares covered thereby,
including shares as to which such option would not otherwise be exercisable.
Any AROC Shares issued upon exercise of such options shall have the same rights
provided to all AROC Shares in Section 3.2 of this Agreement.
-----------
10.10 Consult & Assist Options. The options to purchase up to 275,000
------------------------
AROC Shares held by Consult & Assist shall, at the Effective Time, be converted
into the right to receive an option to purchase 30,250 AROC Delaware Shares at
an exercise price of $10.00 per share.
11. Termination, Waiver and Amendment.
---------------------------------
11.1. Termination. This Agreement and the transactions contemplated
-----------
herein may be terminated and abandoned at any time on or prior to the date on
which the formal press announcement of the Offer pursuant to the City Code is
made.
(a) By mutual consent of AROC and Alliance; or
(b) By Alliance if:
(1) Any representation, warranty or covenant made herein for the
benefit of Alliance or any certificate, schedule or document furnished to
Alliance pursuant to this Agreement is untrue in any material respect (without
regard to any materiality or knowledge qualifications or provisions contained in
such representation, warranty or covenant) and such breach is not cured within
ten (10) days of AROC's receipt of a notice from Alliance that such breach
exists or has occurred;
(2) AROC shall have defaulted in any material respect (without
regard to any materiality qualifications or provisions contained in such
representation, warranty or covenant) in performance of any material obligation
under this Agreement and such breach is not cured within ten (10) days of AROC's
receipt of a notice from Alliance that such breach exists or has occurred; or
(3) Consummation of the transactions contemplated by this Agreement
would violate any nonappealable final order, decree or judgment of any court or
governmental body having competent jurisdiction; or
(c) By AROC if:
(1) Any representation, warranty or covenant made herein for the
benefit of AROC or any certificate, schedule or document furnished to AROC
pursuant to this Agreement is untrue in any material respect (without regard to
any materiality or knowledge qualifications or provisions contained in such
representation, warranty or covenant) and such breach is not cured within ten
(10) days of Alliance's receipt of a notice from AROC that such breach exists or
has occurred;
(2) Alliance shall have defaulted in any material respect (without
regard to any materiality qualifications or provisions contained in such
representation, warranty or covenant) in performance of any material obligation
under this Agreement and such breach is not cured within ten (10) days of
Alliance's receipt of a notice from AROC that such breach exists or has
occurred; or
(3) Consummation of the transactions contemplated by this Agreement
would violate any nonappealable final order, decree or judgment of any court or
governmental body having competent jurisdiction; or
(d) By AROC in its sole discretion within seven calendar days after its
receipt of the Alliance Disclosure Schedule or by Alliance in its sole
discretion within seven calendar days after its receipt of the AROC Disclosure
Schedule; or
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<PAGE>
(e) By either party if the Mailing Date does not occur on or before
December 31, 1999 (or such later date as may be mutually agreed upon by the
parties hereto), and such party has complied with the provisions of Section 6.5
-----------
or Section 7.5, as the case may be.
-----------
11.2. Manner of Exercise. In the event of termination and abandonment by
------------------
Alliance or AROC, or both, authorized by Section 11.1, written notice thereof
------------
shall forthwith be given to the other parties and this Agreement shall terminate
and the transactions contemplated hereunder shall be abandoned without further
action by the parties.
11.3. Effect of Termination. In the event of the termination and
---------------------
abandonment authorized by Section 11.1, then, this Agreement shall become void
------------
and have no effect, without any liability on the part of any of the parties or
their directors or officers or stockholders in respect of this Agreement and the
transactions contemplated hereby, except for the confidentiality obligation of
Section 10.1 and this Section 11.3.
- ------------ ------------
12. Miscellaneous.
-------------
12.1. Survival. Except for Sections 2.1 through 2.3 and this Article 12,
-------- ------------ - - ----------
the representations, warranties, covenants and agreements of the parties to this
Agreement shall not survive after the Offer becomes unconditional and shall
thereafter be of no further force and effect for any purpose.
12.2. Expenses. Except as otherwise provided herein, the parties shall
--------
each pay their own expenses and costs in connection with this Agreement and the
transactions contemplated hereby.
12.3. Press Releases. Subject to the requirements of law, regulatory
--------------
bodies, the City Code and the rules of the London Stock Exchange, no party shall
make any public announcement or press release with respect to this transaction
without first consulting with the other parties and giving such parties the
opportunity to review and comment thereon.
12.4. Binding Effect. This Agreement and all of the provisions hereof
--------------
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and permitted assigns. Neither this Agreement nor any of
the rights, interests or obligations hereunder shall be assigned by any party
without the prior written consent of the others. Nothing contained herein,
express or implied, is intended to confer on any person other than the parties
hereto or their respective successors and permitted assigns, any rights,
remedies, obligations or liabilities under or by reason of this Agreement.
12.5. Severability. Any provision of this Agreement that is prohibited or
------------
unenforceable in any jurisdiction shall, in such jurisdiction, be ineffective to
the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
12.6. Notices. Any notice, request, instructions or other document to be
-------
given hereunder to any party shall be in writing, sent by facsimile transmission
or delivered personally or by courier or sent by certified mail, postage
prepaid, as follows:
If to AROC (prior to the completion of the Offer):
American Rivers Oil Company
700 East 9/th/ Avenue
Denver, Colorado 80203
Attn: Karlton Terry, President
FAX: (303)832-2404
If to Alliance (prior to completion of the Offer):
Alliance Resources PLC
4200 East Skelly Drive
Suite 1000
Tulsa, Oklahoma 74135
Attn: John A. Keenan, Managing Director
FAX: (918) 494-4918
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<PAGE>
Any party may change its address for purposes of this Section by giving written
notice of such change of address to the other parties in the manner herein
provided for giving notice. Any notice or communication hereunder shall be
deemed to have been given when (i) deposited in the United States mail, if by
certified mail, and (ii) received, if delivered personally or by courier or
facsimile transmission.
12.7. Entire Agreement. This Agreement (including the instruments between
----------------
the parties referred to herein and any waivers delivered pursuant hereto)
constitutes the entire agreement among the parties and supersedes all other
prior agreements and understandings, both written and oral, among the parties,
or any of them, with respect to the subject matter hereof. The exhibits and
schedules are a part of this Agreement as if fully set forth herein. All
references to articles, sections, subsections, paragraphs, clauses, exhibits and
schedules shall be deemed references to such part of this Agreement, unless the
context shall otherwise require.
12.8. Amendments; Waivers. No supplement, modification, or amendment of
-------------------
this Agreement or waiver of any provision of this Agreement will be binding
unless executed in writing by, or on behalf of, all parties to this Agreement.
No waiver of any of the provisions of this Agreement will be deemed or will
constitute a waiver of any other provision of this Agreement (regardless of
whether similar), nor will any such waiver constitute a continuing waiver unless
otherwise expressly provided.
12.9. Headings. Descriptive headings contained herein are for convenience
--------
of reference only and shall not affect the meaning or interpretation hereof.
12.10. Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be deemed to be an original but all of which
together shall constitute but one agreement.
12.11. Specific Performance. The parties hereto agree that irreparable
--------------------
damage would occur if any of the provisions of this Agreement were not performed
in accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provision hereof in any court of the United States or any state
having jurisdiction, in addition to any other remedy to which they are entitled
at law or in equity.
12.12. GOVERNING LAW. THIS AGREEMENT AND THE LEGAL RELATIONS AMONG THE
-------------
PARTIES HERETO SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
INTERNAL LAWS OF THE STATE OF OKLAHOMA APPLICABLE TO CONTRACTS MADE AND TO BE
PERFORMED IN THAT STATE, WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES.
12.13. Schedules. Any item disclosed by any party in the its Disclosure
---------
Schedule for one purpose and in response to a specific section of this Agreement
shall not be deemed disclosed for any other purpose and in response to any other
section of the Agreement unless specifically so stated.
12.14. Time of Essence. Time is of the essence of the parties'
---------------
obligations to consummate the transactions contemplated by this Agreement on the
Mailing Date.
12.15. Best Efforts. No provision of this Agreement calling for a party
------------
to use its best efforts or reasonable efforts shall be construed so as to
require such party to incur out-of-pocket expenditures other than expenditures
normally incurred in transactions similar to the Offer or to take any step that
would not be commercially reasonable, in light of all of the circumstances.
EXECUTED as of the day and year first above written.
AROC:
AMERICAN RIVERS OIL COMPANY
By: /s/ Karlton Terry
-------------------------------------
Name: Karlton Terry
Title: President
AROC Delaware:
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<PAGE>
AMERICAN RIVERS OIL COMPANY
By: /s/ Karlton Terry
-------------------------------------
Name: Karlton Terry
Title: President
Alliance:
ALLIANCE RESOURCES PLC
By: /s/ John A. Keenan
-------------------------------------
Name: John A. Keenan
Title: Managing Director
A-26
<PAGE>
APPENDIX B
WYOMING BUSINESS CORPORATION ACT
ARTICLE 13. DISSENTERS' RIGHTS
SUBARTICLE A. RIGHT TO DISSENT AND OBTAIN PAYMENT FOR SHARES
(S)17-16-1301 DEFINITIONS -- (a) As used in this article:
(i) "Beneficial shareholder" means the person who is a beneficial owner
of shares held in a voting trust or by a nominee as the record shareholder;
(ii) "Corporation" means the issuer of the shares held by a dissenter
before the corporate action, or the surviving, new, or acquiring corporation, by
merger, consolidation, or share exchange of that issuer;
(iii) "Dissenter" means a shareholder who is entitled to dissent from
corporate action under W.S. 17-16-1302 and who exercises that right when and in
the manner required by W.S. 17-16-1320 through 17-16-1328;
(iv) "Fair value", with respect to a dissenter's shares, means the value
of the shares immediately before the effectuation of the corporate action to
which the dissenter objects, excluding any appreciation or depreciation in
anticipation of the corporate action unless exclusion would be inequitable;
(v) "Interest" means interest from the effective date of the corporate
action until the date of payment, at the average rate currently paid by the
corporation on its principal bank loans or, if none, at a rate that is fair and
equitable under all the circumstances;
(vi) "Record shareholder" means the person in whose name shares are
registered in the records of a corporation or the beneficial owner of shares to
the extent of the rights granted by a nominee certificate on file with a
corporation;
(vii) "Shareholder" means the record shareholder or the beneficial
shareholder.
(S)17-16-1302 RIGHT TO DISSENT -- (a) A shareholder is entitled to
dissent from, and to obtain payment of the fair value of his shares in the event
of, any of the following corporate actions:
(i) Consummation of a plan of merger or consolidation to which the
corporation is a party if:
(A) Shareholder approval is required for the merger or the consolidation
by W.S. 17-16-1103 or 17-16-1111 or the articles of incorporation and the
shareholder is entitled to vote on the merger or consolidation; or
(B) The corporation is a subsidiary that is merged with its parent under
W.S. 17-16-1104.
(ii) Consummation of a plan of share exchange to which the corporation
is a party as the corporation whose shares will be acquired, if the shareholder
is entitled to vote on the plan;
(iii) Consummation of a sale or exchange of all, or substantially all, of
the property of the corporation other than in the usual and regular course of
business, if the shareholder is entitled to vote on the sale or exchange,
including a sale in dissolution, but not including a sale pursuant to court
order or a sale for cash pursuant to a plan by which all or substantially all of
the net proceeds of the sale will be distributed to the shareholders within one
(1) year after the date of sale;
(iv) An amendment of the articles of incorporation that materially and
adversely affects rights in respect of a dissenter's shares because it:
(A) Alters or abolishes a preferential right of the shares;
(B) Creates, alters or abolishes a right in respect of redemption,
including a provision respecting a sinking fund for the redemption or
repurchase, of the shares;
<PAGE>
(C) Alters or abolishes a preemptive right of the holder of the shares
to acquire shares or other securities;
(D) Excludes or limits the right of the shares to vote on any matter,
or to cumulate votes, other than a limitation by dilution through issuance of
shares or other securities with similar voting rights; or
(E) Reduces the number of shares owned by the shareholder to a fraction
of a share if the fractional share so created is to be acquired for cash under
W.S. 17-16-604.
(v) Any corporate action taken pursuant to a shareholder vote to the
extent the articles of incorporation, bylaws, or a resolution of the board of
directors provides that voting or nonvoting shareholders are entitled to dissent
and obtain payment for their shares.
(b) A shareholder entitled to dissent and obtain payment for his shares
under this article may not challenge the corporate action creating his
entitlement unless the action is unlawful or fraudulent with respect to the
shareholder or the corporation.
(S)17-16-1303 DISSENT BY NOMINEES AND BENEFICIAL OWNERS. -- (a) A record
shareholder may assert dissenters' rights as to fewer than all the shares
registered in his name only if he dissents with respect to all shares
beneficially owned by any one (1) person and notifies the corporation in writing
of the name and address of each person on whose behalf he asserts dissenters'
rights. The rights of a partial dissenter under this subsection are determined
as if the shares as to which he dissents and his other shares were registered in
the names of different shareholders.
(b) A beneficial shareholder may assert dissenters' rights as to the
shares held on his behalf only if:
(i) He submits to the corporation the record shareholder's written
consent to the dissent not later than the time the beneficial shareholder
asserts dissenters' rights; and
(ii) He does so with respect to all shares of which he is the beneficial
shareholder or over which he has the power to direct the vote.
SUBARTICLE B. PROCEDURE FOR EXERCISE OF DISSENTERS' RIGHTS
(S)17-16-1320 NOTICE OF DISSENTERS' RIGHTS. -- (a) If a proposed
corporate action creating dissenters' rights under W.S. 17-16-1302 is submitted
to a vote at a shareholders' meeting, the meeting notice shall state that
shareholders are or may be entitled to assert dissenters' rights under this
article and be accompanied by a copy of this article.
(b) If corporate action creating dissenters' rights under W.S. 17-16-
1302 is taken without a vote of shareholders, the corporation shall notify in
writing all shareholders entitled to assert dissenters' rights that the action
was taken and send them the dissenters' notice described in W.S. 17-16-1322.
(S)17-16-1321 NOTICE OF INTENT TO DEMAND PAYMENT. -- (a) If a proposed
corporate action creating dissenters' rights under W.S. 17-16-1302 is submitted
to a vote at a shareholders' meeting, a shareholder who wishes to assert
dissenters' rights shall deliver to the corporation before the vote is taken
written notice of his intent to demand payment for his shares if the proposed
action is effectuated and shall not vote his shares in favor of the proposed
action.
(b) A shareholder who does not satisfy the requirements of subsection
(a) of this section is not entitled to payment for his shares under this
article.
(S)17-16-1322 DISSENTERS' NOTICE. -- (a) If proposed corporate action
creating dissenters' rights under W.S. 17-16-1302 is authorized at a
shareholders' meeting, the corporation shall deliver a written dissenters'
notice to all shareholders who satisfied the requirements of W.S. 17-16-1321.
(b) The dissenters' notice shall be sent no later than ten (10) days
after the corporate action was taken, and shall:
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(i) State where the payment demand shall be sent and where and when
certificates for certificated shares shall be deposited;
(ii) Inform holders of uncertificated shares to what extent transfer of
the shares will be restricted after the payment demand is received;
(iii) Supply a form for demanding payment that includes the date of the
first announcement to news media or to shareholders of the terms of the proposed
corporate action and requires that the person asserting dissenters' rights
certify whether or not he acquired beneficial ownership of the shares before
that date;
(iv) Set a date by which the corporation shall receive the payment
demand, which date may not be fewer than thirty (30) nor more than sixty (60)
days after the date the notice required by subsection (a) of this section is
delivered; and
(v) Be accompanied by a copy of this article.
(S)17-16-1323 DUTY TO DEMAND PAYMENT. -- (a) A shareholder sent a
dissenters' notice described in W.S. 17-16-1322 shall demand payment, certify
whether he acquired beneficial ownership of the shares before the date required
to be set forth in the dissenters' notice pursuant to W.S. 17-16-1322(b)(iii),
and deposit his certificates in accordance with the terms of the notice.
(b) A shareholder who demands payment and deposits his share
certificates under subsection (a) of this section retains all other rights of a
shareholder until these rights are canceled or modified by the taking of the
proposed corporate action.
(c) A shareholder who does not demand payment or deposit his share
certificates where required, each by the date set in the dissenters' notice, is
not entitled to payment for his shares under this article.
(S)17-16-1324 SHARE RESTRICTIONS. -- (a) The corporation may restrict the
transfer of uncertificated shares from the date the demand for their payment is
received until the proposed corporate action is taken or the restrictions
released under W.S. 17-16-1326.
(b) The person for whom dissenters' rights are asserted as to
uncertificated shares retains all other rights of a shareholder until these
rights are canceled or modified by the taking of the proposed corporate action.
(S)17-16-1325 PAYMENT. -- (a) Except as provided in W.S. 17-16-1327, as
soon as the proposed corporate action is taken, or upon receipt of a payment
demand, the corporation shall pay each dissenter who complied with W.S. 17-16-
1323 the amount the corporation estimates to be the fair value of his shares,
plus accrued interest.
(b) The payment shall be accompanied by:
(i) The corporation's balance sheet as of the end of a fiscal year
ending not more than sixteen (16) months before the date of payment, an income
statement for that year, a statement of changes in shareholders' equity for that
year, and the latest available interim financial statements, if any;
(ii) A statement of the corporation's estimate of the fair value of the
shares;
(iii) An explanation of how the interest was calculated;
(iv) A statement of the dissenter's right to demand payment under W.S.
17-16-1328; and
(v) A copy of this article.
(S)17-16-1326 FAILURE TO TAKE ACTION. -- (a) If the corporation does not
take the proposed action within sixty (60) days after the date set for demanding
payment and depositing share certificates, the corporation shall return the
deposited certificates and release the transfer restrictions imposed on
uncertificated shares.
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<PAGE>
(b) If after returning deposited certificates and releasing transfer
restrictions, the corporation takes the proposed action, it shall send a new
dissenters' notice under W.S. 17-16-1322 and repeat the payment demand
procedures.
(S)17-16-1327 AFTER-ACQUIRED SHARES. -- (a) A corporation may elect to
withhold payment required by W.S. 17-16-1325 from a dissenter unless he was the
beneficial owner of the shares before the date set forth in the dissenters'
notice as the date of the first announcement to news media or to shareholders of
the terms of the proposed corporate action.
(b) To the extent the corporation elects to withhold payment under
subsection (a) of this section, after taking the proposed corporate action, it
shall estimate the fair value of the shares, plus accrued interest, and shall
pay this amount to each dissenter who agrees to accept it in full satisfaction
of his demand. The corporation shall send with its offer a statement of its
estimate of the fair value of the shares, an explanation of how the interest was
calculated, and a statement of the dissenter's right to demand payment under
W.S. 17-16-1328.
(S)17-16-1328 PROCEDURE IF DISSENTER IS DISSATISFIED WITH PAYMENT OR
OFFER. -- (a) A dissenter may notify the corporation in writing of his own
estimate of the fair value of his shares and amount of interest due, and demand
payment of his estimate, less any payment under W.S. 17-16-1325, or reject the
corporation's offer under W.S. 17-16-1327 and demand payment of the fair value
of the shares and interest due, if:
(i) The dissenter believes that the amount paid under W.S. 17-16-1325 or
offered under W.S. 17-16-1327 is less than the fair value of his shares or that
the interest due is incorrectly calculated;
(ii) The corporation fails to make payment under W.S. 17-16-1325 within
sixty (60) days after the date set for demanding payment; or
(iii) The corporation, having failed to take the proposed action, does not
return the deposited certificates or release the transfer restrictions imposed
on uncertificated shares within sixty (60) days after the date set for demanding
payment.
(b) A dissenter waives his right to demand payment under this section
unless he notifies the corporation of his demand in writing under subsection (a)
of this section within thirty (30) days after the corporation made or offered
payment for his shares.
SUBARTICLE C. JUDICIAL APPRAISAL OF SHARES
(S)17-16-1330 COURT ACTION. -- (a) If a demand for payment under W.S. 17-
16-1328 remains unsettled, the corporation shall commence a proceeding within
sixty (60) days after receiving the payment demand and petition the court to
determine the fair value of the shares and accrued interest. If the corporation
does not commence the proceeding within the sixty (60) day period, it shall pay
to each dissenter whose demand remains unsettled the amount demanded.
(b) The corporation shall commence the proceeding in the district court
of the county where a corporation's principal office, or if none in this state,
its registered office, is located. If the corporation is a foreign corporation
without a registered office in this state, it shall commence the proceeding in
the county in this state where the registered office of the domestic corporation
merged with or whose shares were acquired by the foreign corporation was
located.
(c) The corporation shall make all dissenters, whether or not residents
of this state, whose demands remain unsettled parties to the proceeding as in an
action against their shares and all parties shall be served with a copy of the
petition. Nonresidents may be served by registered or certified mail or by
publication as provided by law.
(d) The jurisdiction of the court in which the proceeding is commenced
under subsection (b) of this section is plenary and exclusive. The court may
appoint one (1) or more persons as appraisers to receive evidence and recommend
decision on the question of fair value. The appraisers have the powers
described in the order appointing them, or in the amendment to it. The
dissenters are entitled to the same discovery rights as parties in other civil
proceedings.
(e) Each dissenter made a party to the proceeding is entitled to
judgment for:
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<PAGE>
(i) The amount, if any, by which the court finds the fair value of his
shares, plus interest, exceeds the amount paid by the corporation; or
(ii) The fair value, plus accrued interest, of his after-acquired shares
for which the corporation elected to withhold payment under W.S. 17-16-1327.
(S)17-16-1331 COURT COSTS AND COUNSEL FEES. -- (a) The court in an
appraisal proceeding commenced under W.S. 17-16-1330 shall determine all costs
of the proceeding, including the reasonable compensation and expenses of
appraisers appointed by the court. The court shall assess the costs against the
corporation; except that the court may assess costs against all or some of the
dissenters, in amounts the court finds equitable, to the extent the court finds
the dissenters acted arbitrarily, vexatiously, or not in good faith demanding
payment under W.S. 17-16-1328.
(b) The court may also assess the fees and expenses of counsel and
experts for the respective parties, in amounts the court finds equitable:
(i) Against the corporation and in favor of any and all dissenters if
the court finds the corporation did not substantially comply with the
requirements of W.S. 17-16-1320 through 17-16-1328; or
(ii) Against either the corporation or a dissenter, in favor of any other
party, if the court finds that the party against whom the fees and expenses are
assessed acted arbitrarily, vexatiously, or not in good faith with respect to
the rights provided by this article.
(c) If the court finds that the services of counsel for any dissenter
were of substantial benefit to other dissenters similarly situated, and that the
fees for those services should not be assessed against the corporation, the
court may award to these counsel reasonable fees to be paid out of amounts
awarded the dissenters who were benefited.
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<PAGE>
APPENDIX C
TERMS OF THE OFFER
The following terms apply to the offer. Any references to time refer to London
time.
1. Acceptance period
(a) The offer will be open for acceptance until 3:00 p.m. on November 19, 1999.
New Alliance, in its absolute discretion, reserves the right to treat as valid
any acceptance of the offer received after 3:00 p.m. on November 19, 1999 and to
extend the period of the offer.
2. Announcements
(a) By 8.30 am on November 22, 1999 new Alliance will make an appropriate
announcement and simultaneously inform the London Stock Exchange of the
position. Such announcement will also state the total number of Alliance shares
and rights over Alliance shares (as nearly as practicable) for which acceptances
of the offer have been received and will specify the percentage of the Alliance
shares represented by such figure. In calculating the number of Alliance shares
represented by acceptances and purchases, there may be included or excluded for
announcement purposes, acceptances and purchases which are not complete in all
respects or which are subject to verification.
3. Rights of withdrawal
Acceptances of the offer may be withdrawn at any time prior to the
expiration date of the offer and, unless previously accepted for settlement by
new Alliance, may also be withdrawn at any time after December 19, 1999. Subject
to the foregoing, acceptances will be irrevocable.
For a withdrawal to be effective, a written, telegraphic, or facsimile
transmission notice of withdrawal must be timely received by IRG plc. Any
notice of withdrawal must specify the name of the person whose shares are to be
withdrawn, the number of shares to be withdrawn and the name of the registered
holder, if different from that of the person who accepted the offer. If
certificates for shares to be withdrawn have been delivered or otherwise
identified to the IRG plc, the transfer agent, then prior to the physical
release of the certificates, the name of the registered holder and the serial
numbers shown on the certificates must also be submitted to IRG plc, the
transfer agent. Withdrawals of acceptances of the offer may not be rescinded
and the holder of any shares properly withdrawn will thereafter be deemed not to
have accepted the offer with respect to those shares. However, the holder of
the withdrawn may again accept the offer following the procedures described in
Appendix D at any time on or prior to the expiration date of the offer.
4. Revised offer
New Alliance will not be entitled to make any revision to the offer.
5. General
(a) The offer will lapse unless all its conditions have been satisfied or (if
capable of waiver) waived or, where appropriate, have been determined by new
Alliance in its reasonable opinion to be or remain satisfied by 3:00 p.m. London
Time on November 19, 1999 or such later date as Alliance may determine. If the
offer lapses, the offer will cease to be capable of further acceptance and
Alliance Shareholders and new Alliance will cease to be bound by prior
acceptances.
(b) Settlement of the consideration to which any Alliance Shareholder is
entitled under the offer will be implemented in full in accordance with the
terms of the offer and as otherwise set out in this document without regard to
any lien, right of set-off, counterclaim or other analogous rights to which new
Alliance may otherwise be, or claim to be, entitled as against him and are
expectd to be posted or settled not later than December 3, 1999 or 14 days after
receipt of a valid and complete Form of Acceptance, whichever is the later.
(c) The offer is made on October 21, 1999 and is capable of acceptance
thereafter. Copies of the Form of Acceptance, this proxy statement/prospectus
and any related documents are available from IRG plc, 390/398 High Road, Ilford,
Essex 1G1 1NQ.
<PAGE>
(d) The terms, provisions, instructions and authorities contained in or deemed
to be incorporated in the Form of Acceptance constitute part of the terms of the
offer. Words and expressions defined in this document have the same meanings
when used in the Form of Acceptance, unless the context otherwise requires.
(e) The offer and all acceptances thereof or pursuant thereto and the relevant
Form of Acceptance and all contracts made pursuant thereto and action taken or
made or deemed to be taken or made under any of the foregoing shall be /governed
by and construed in accordance with the laws of England. Execution by or on
behalf of an Alliance Shareholder of a Form of Acceptance will constitute his
submission, in relation to all matters arising out of or in connection with the
offer and the Form of Acceptance, to the jurisdiction of the courts of England
and his agreement that nothing shall limit the right of new Alliance to bring
any action, suit or proceeding arising out of or in connection with the offer
and the Form of acceptance in any other manner permitted by law or in any court
of competent jurisdiction.
(f) Any omission to despatch the Form of Acceptance, this proxy
statement/prospectus or any notice required to be despatched under the terms of
the offer to, or any failure to receive the same by, any person to whom the
offer is made, or should be made, shall not invalidate the offer in any way.
Subject to paragraph 6 below, the offer extends to any such person and to all
Alliance Shareholders to whom the Form of Acceptance, this proxy
statement/prospectus and any related documents may not be despatched, and such
persons may collect copies of those documents from IRG plc, 390/398 High Road,
Ilford, Essex 1G1 1NQ.
(g) If the offer does not become unconditional in all respects: (i) the Form of
Acceptance and any share certificate(s) and/or other document(s) of title will
be returned by new Alliance by post within 14 days of the offer lapsing, at the
risk of the Alliance Shareholder concerned, to the person or agent whose name
and address is set out in the relevant Box of the Form of Acceptance; and (ii)
IRG plc will, immediately after the lapsing of the offer, give instructions to
CRESTCo to transfer all Alliance shares held in escrow balances and in relation
to which it is the escrow agent for the purposes of the offer to the original
available balances of the Alliance Shareholders concerned.
(h) No acknowledgement of receipt of any Form of Acceptance, transfer by means
of CREST, share certificate(s) and/or other document(s) of title will be given
by or on behalf of new Alliance.
(i) New Alliance reserves the right to treat acceptances of the offer as valid
if received by or on behalf of new Alliance at any place or places or in any
manner determined by new Alliance otherwise than as set out herein or in the
Form of Acceptance.
(j) A purchase of Alliance shares by new Alliance, its wholly owned
subsidiaries or its nominees (or by a person acting in concert with new Alliance
(or its nominee)) shall be counted towards fulfilling the acceptance condition.
(k) All communications, notices, certificates, documents of title and
remittances to be delivered by or sent to or from any Alliance Shareholders will
be delivered by or sent to or from them (or their designated agents) at their
risk.
(l) If sufficient acceptances are received and/or sufficient Alliance shares
are otherwise acquired, new Alliance intends to apply the provisions of section
428 to 430F of the Companies Act 1985 of the United Kingdom to acquire
compulsorily any outstanding Alliance shares and to apply for the cancellation
of Alliance's listing on the Official List.
(m) Due completion of a Form of Acceptance will constitute an instruction to
new Alliance, on the offer becoming unconditional in all respects, that all
mandates and other instructions or notices recorded in Alliance's records
immediately prior to the offer becoming so unconditional will, unless and until
revoked or varied, continue in full force in relation to new Alliance Common
Stock issued to the relevant Shareholders pursuant to the offer.
(n) In relation to any acceptance of the offer in respect of a holding of
Alliance shares which are in CREST, new Alliance reserves the right to make such
alterations, additions or modifications to the terms of the offer as may be
necessary or desirable to give effect to any purported acceptance of the offer,
whether in order to comply with the facilities or requirements of CREST or
otherwise.
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6. Overseas Shareholders
(a) The making of the offer in, or to persons resident in or citizens of,
jurisdictions outside the U.K., U.S. and Canada ("overseas shareholders") may be
affected by the laws of the relevant jurisdictions. Such overseas shareholders
should inform themselves about and observe any applicable legal requirements. It
is the responsibility of any overseas shareholder wishing to accept the offer to
satisfy himself as to the full observance of the laws of the relevant
jurisdiction in connection therewith, including the obtaining of any government,
exchange control or other consents which may be required, or the compliance with
other necessary formalities needing to be observed and the payment on any issue,
transfer or other taxes or duties due in such jurisdiction. Any overseas
shareholder will be responsible for payment of any issue, transfer or other
taxes or other requisite payments due in such jurisdiction by whomsoever payable
and new Alliance and any person acting on its behalf shall be entitled to be
fully indemnified and held harmless by such shareholder for any issue, transfer
or other taxes as such person may be required to pay.
(b) The availability of new Alliance common stock to overseas shareholders may
be affected by the laws of the relevant jurisdictions. Such overseas
shareholders should inform themselves about and observe any applicable legal
requirements. It is the responsibility of any overseas shareholder acquiring new
Alliance common stock to satisfy himself as to the full observance of the laws
of the relevant jurisdiction in connection therewith, including the obtaining of
any governmental or other consents which may be required, compliance with other
formalities needing to be observed and payment of any issue, transfer or other
taxes or duties due in such jurisdiction.
(c) These provisions and any other terms of the offer relating to overseas
shareholders may be waived, varied or modified as regards specific Alliance
Shareholders or on a general basis by new Alliance in its sole discretion. The
provisions of this paragraph 6 supersede any terms of the offer inconsistent
therewith. References in this paragraph 6 to an Alliance Shareholder include
references to the person or persons executing a Form of Acceptance and, in the
event of more than one person executing the Form of Acceptance, the provisions
of this paragraph 6 shall apply to them jointly and severally.
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APPENDIX D
PROCEDURE FOR ACCEPTANCE OF THE OFFER BY ALLIANCE SHAREHOLDERS
All references to time refer to London time.
Completion of Form of Acceptance
If you hold Alliance shares in both certificated and uncertificated or
CREST form, you should complete a separate Form of Acceptance for each holding.
In addition, you should complete separate Forms of Acceptance for Alliance
shares held in uncertificated form but under different member account IDs and
for Alliance shares held in certificated form but under different designations.
Additional Forms of Acceptance are available from IRG plc, Balfour House,
390/398 High Road, Ilford, Essex 1G1 1NQ (telephone number: 0181 639 2000) in
the case of all Alliance shareholders. To accept the offer in respect of all
your Alliance shares, you must complete Boxes 1 and 3 and, where appropriate,
Box 5 and, if your Alliance shares are in CREST, Box 4 on the Form of
Acceptance. In all cases you must sign Box 2 on the Form of Acceptance in the
presence of a witness, who should also sign in accordance with the instructions
printed thereon. To accept the offer in respect of less than all your Alliance
shares you must insert in Box 1 on the enclosed Form of Acceptance such lesser
number of Alliance shares in respect of which you wish to accept the offer in
accordance with the instructions printed thereon. You should then follow the
appropriate procedure set out above in respect of such lesser number of Alliance
shares.
Return of Form of Acceptance
To accept the offer, the completed Form of Acceptance should be returned
(whether or not your Alliance shares are in CREST) signed and witnessed by post
or by hand to IRG plc, 390/398 High Road, Ilford, Essex 1G1 1NQ in the case of
Alliance shareholders with registered addresses in the United Kingdom or
otherwise outside of the United States or Canada, and to Registrar and Transfer
Company as forwarding agent at 10 Commerce Drive, Cranford, NJ 07016 in the case
of all Alliance shareholders with registered addresses in the United States or
Canada, together with the relevant share certificate(s) and/or other document(s)
of title as soon as possible, but in any event so as to arrive no later than
3:00 p.m. on November 19, 1999. No acknowledgment of receipt of documents will
be given by or on behalf of new Alliance. The instructions printed on the Form
of Acceptance are deemed to form part of the terms of the offer.
Additional Procedures For Alliance Shares in Uncertificated Form
If your Alliance shares are in uncertificated form, you should insert in
Box 4 of the Form of Acceptance the participant ID and member account ID under
which such Alliance shares are held by you in CREST and otherwise complete and
return the Form of Acceptance as described above. In addition, you should take
(or procure to be taken) the action set out below to transfer the Alliance
shares in respect of which you wish to accept the offer to an escrow balance (a
TTE instruction) specifying IRG plc (in its capacity as a CREST participant
under its participant ID referred to below) as the escrow agent, as soon as
possible and in any event so that the transfer to escrow settles no later than
3:00 p.m. on November 19, 1999.
If you are a CREST sponsored member, you should refer to your CREST sponsor
before taking any action. Your CREST sponsor will be able to confirm details of
your participant ID and the member account ID under which your Alliance shares
are held. In addition, only your CREST sponsor will be able to send the
required TTE instruction to CRESTCo in relation to your Alliance shares.
You should send or, if you are a CREST sponsored member, instruct your
CREST sponsor to send, a TTE instruction to CRESTCo which must be properly
authenticated in accordance with CRESTCo's specifications and which must
contain, in addition to the other information that is required for a TTE
instruction to settle in CREST, the following details:
. the number of Alliance shares to be transferred to an escrow balance;
. your member account ID. This must be the same member account ID as
that inserted in Box 4 of the Form of Acceptance;
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. your participant ID. This must be the same participant ID as that
inserted in Box 4 of the Form of Acceptance;
. the member account ID of the escrow agent. This is ALLR;
. the participant ID of the escrow agent, in its capacity as CREST
receiving agent. This is RA06;
. the Form of Acceptance reference number. This is the reference number
that appears at the foot of page 1 of the Form of Acceptance. This
reference number should be inserted in the first eight characters of
the shared note field on the TTE instruction. Such insertion will
enable IRG plc to match the TTE to your Form of Acceptance. You should
keep a separate record of this reference number for future
reference;
. the intended settlement date. This should be as soon as possible and
in any event not later than 3:00 p.m. on November 19, 1999; and
. Corporate Action Number. This is allocated by CRESTCo and can be
found by viewing the relevant corporation action details in CREST.
After completion of the TTE instruction, you will not be able to access the
Alliance shares concerned in CREST for any transaction or charging purposes. If
the offer becomes or is declared unconditional in all respects, the escrow agent
will transfer the Alliance shares concerned to itself.
You are recommended to refer to the CREST manual published by CRESTCo for
further information on the CREST procedures outlined above. For ease of
processing, you are requested, wherever possible, to ensure that a Form of
Acceptance relates to only one TTE instruction.
If no Form of Acceptance reference number, or an incorrect Form of
Acceptance reference number, is included in the TTE instruction, new Alliance
may treat any amount of Alliance shares transferred to an escrow balance in
favor of the escrow agent specified above from the participant ID and member
account ID identified in the TTE instruction as relating to any Form(s) of
Acceptance which relate(s) to the same member account ID and participant ID, up
to the amount of Alliance shares inserted or deemed to be inserted on the
Form(s) of Acceptance concerned.
You should note that CRESTCo does not make available special procedures in
CREST for any particular corporate action. Normal system timings and
limitations will therefore apply in connection with a TTE instruction and its
settlement. You should therefore ensure that all necessary action is taken by
you (or by your CREST sponsor) to enable a TTE instruction relating to your
Alliance shares to settle prior to 3:00 p.m. on November 19, 1999. In this
regard, you are referred in particular to those sections of the CREST manual
concerning practical limitations of the CREST system and timings.
New Alliance will make an appropriate announcement if any of the details
contained in this section alter for any reason in any respect that is material
to Alliance shareholders.
Alliance share certificates not readily available or lost
If your Alliance shares are in certificated form but your share
certificate(s) and/or other document(s) of title is/are not readily available or
is/are lost, the Form of Acceptance should nevertheless be completed, signed and
returned so as to arrive no later than 3:00 pm on November 19, 1999, together
with any share certificate(s) and/or other document(s) of title that you have
available, accompanied by a letter stating that the balance will follow or that
you have lost one or more of your share certificate(s) and/or other document(s)
of title. You should then arrange for the relevant share certificate(s) and/or
other document(s) of title to be forwarded as soon as possible thereafter. No
acknowledgment of receipt of documents will be given. In the case of loss, you
should write as soon as possible to IRG plc, 390/398 High Road, Ilford, Essex
1G1 1NQ for a letter of indemnity for lost share certificate(s) and/or other
document(s) of title which, when completed in accordance with the instructions
given, should be returned to IRG plc in the case of Alliance shareholders with a
registered address in the United Kingdom or otherwise outside of the United
States or Canada, and to Registrar and Transfer Company as forwarding agent in
the case of all Alliance shareholders with registered addresses in the United
States or Canada as set out above.
D-2
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Deposits of Alliance Shares Into and Withdrawals of Alliance Shares From CREST
Normal CREST procedures (including timings) apply in relation to any
Alliance shares that are, or are to be, converted from uncertificated to
certificated form, or from certificated to uncertificated form, during the
course of the offer (whether any such conversion arises as a result of a
transfer of Alliance shares or otherwise). Holders of Alliance shares who are
proposing so to convert any such Alliance shares are recommended to ensure that
the conversion procedures are implemented in sufficient time to enable the
person holding or acquiring the Alliance shares as a result of the conversion to
take all necessary steps in connection with an acceptance of the offer (in
particular, as regards delivery of share certificate(s) and/or other document(s)
of title or transfers to an escrow balance as described above) prior to 3:00
p.m. on November 19, 1999.
Validity of Acceptance
New Alliance reserves the right (subject to the terms of the offer) to
treat as valid in whole or in part any acceptance of the offer which is not
entirely in order or which is not accompanied by the relevant TTE instruction or
(as applicable) the relevant share certificate(s) and/or other document(s) of
title. In that event, no shares of new Alliance common stock will be issued
under the offer until after the relevant TTE instruction has settled or (as
applicable) the relevant share certificate(s) and/or other document(s) of title
or indemnities satisfactory to new Alliance have been received.
D-3
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED APRIL 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _____TO______
COMMISSION FILE NUMBER 333-19013
ALLIANCE RESOURCES PLC
(Exact name of registrant as specified in its charter)
ENGLAND AND WALES 73-1405081
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4200 EAST SKELLY DRIVE
SUITE 1000
TULSA, OKLAHOMA 74135
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (918) 491-1100
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Title of Each Class Name of Each Exchange on Which Registered
------------------- -----------------------------------------
(NONE) (NONE)
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Ordinary Shares 1p each
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of the Regulation S-K is not contained herein, and will not be contained, to
the best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ X ]
The aggregate market value of the Registrant's voting stock held by non-
affiliates as of August 9, 1999 was approximately $3,858,330.
On August 9, 1999, there were 47,487,142 shares of the Registrant's
ordinary shares outstanding and 10,000,000 shares outstanding of the
Registrant's convertible restricted voting stock.
Documents Incorporated by the Reference
NONE
<PAGE>
ALLIANCE RESOURCES PLC
FORM 10-K
FISCAL YEAR ENDED APRIL 30, 1999
--------------------------------
TABLE OF CONTENTS
PART I
<TABLE>
<S> <C> <C>
Item 1. Business........................................................................................... 1
Item 2. Properties......................................................................................... 3
Item 3. Legal Proceedings.................................................................................. 9
Item 4. Submission of Matters to a Vote of Security Holders................................................ 10
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.............................. 11
Item 6. Selected Financial Data............................................................................ 12
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.............................................................................. 14
Item 8. Financial Statements and Supplementary Data........................................................ 23
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure............................................................................... 23
PART III
Item 10. Directors and Executive Officers of the Registrant................................................. 23
Item 11. Executive Compensation............................................................................. 24
Item 12. Security Ownership of Certain Beneficial Owners and Management..................................... 27
Item 13. Certain Relationship and Related Transactions...................................................... 29
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K................................... 29
Signatures.................................................................................................... 31
</TABLE>
Cautionary Statement Regarding Forward Looking Statements
In the interest of providing the Company's stockholders and potential investors
with certain information regarding the Company's future plans and operations,
certain statements set forth in this Form 10-K relate to management's future
plans and objectives. Such statements are "forward-looking statements" within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. Although any
forward-looking statements contained in this Form 10-K or otherwise expressed by
or on behalf of the Company are, to the knowledge and in the judgement of the
officers and directors of the Company, expected to prove true and to come to
pass, management is not able to predict the future with absolute certainty.
Forward-looking statements involve known and unknown risks and uncertainties
which may cause the Company's actual performance and financial results in future
periods to differ materially from any projection, estimate or forecasted result.
These risks and uncertainties include, among other things, volatility of oil and
gas prices, competition, risks inherent in the Company's oil and gas operations,
the inexact nature of interpretation of seismic and other geological and
geophysical data, imprecision of reserve estimates, the Company's ability to
replace and expand oil and gas reserves, and such other risks and uncertainties
described from time to time in the Company's periodic reports and filing with
the Securities and Exchange Commission. Accordingly, stockholders and potential
investors are cautioned that certain events or circumstances could cause actual
results to differ materially from those projected, estimated, or predicted.
i
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PART I
ITEM 1. BUSINESS
Alliance Resources PLC (the "Company" or "Alliance") is organized as a
public limited company under the laws of England and Wales. Alliance is a
London-based holding company of a group ("the Group") whose principal activities
are the acquisition, exploration, development and production of oil and gas
properties.
All financial data (and, consequently, all oil and gas reserve
information, descriptions of properties and business and all information
associated with financial or reserve information ) prior to the Company's merger
with LaTex Resources, Inc. ("LaTex") on May 1, 1997, described below, has been
restated to reflect LaTex as the predecessor company to the Company. For
financial, reserve and associated information concerning Alliance prior to its
May 1, 1997 merger with LaTex, reference should be made to the Company's
Registration Statement on Form F-4 (which was filed in its final form with the
Securities Exchange Commission on April 9, 1997 and which contains information
regarding Alliance through January 31, 1997) and to the Company's filing on Form
20-F (which was filed in its final form with the Securities and Exchange
Commission on June 18, 1998).
Because for corporate law purposes (but not financial accounting
purposes) Alliance is the surviving corporation of the May 1, 1997 merger, all
references to the "Company" both prior and subsequent to May 1, 1997 refer to
Alliance Resources PLC and its subsidiaries unless otherwise indicated. Unless
the context requires otherwise, all references to "LaTex" include LaTex
Resources, Inc., and its consolidated subsidiaries.
Alliance was incorporated and registered under the laws of England and
Wales on August 20, 1990. Alliance's corporate headquarters are at 4200 East
Skelly Drive, Suite 1000, Tulsa, Oklahoma 74135.
RECENT DEVELOPMENTS
On October 30, 1998, Alliance completed its acquisition (the
"Acquisition") of Difco Limited ("Difco"). Alliance acquired all of the capital
stock of Difco and, indirectly a contract to acquire 10% of Burlington Resources
(Irish Sea) Limited's ("Burlington") interest in the East Irish Sea Properties
("U.K. Interests"). The Difco shareholders received approximately 8.7% of the
outstanding shares of the Company and could receive up to 29.6% of the
outstanding shares of the Company based upon the production from, or reserves
attributable to, the U.K. Interests.
The Company acquired, through Difco, 10% of Burlington's interest in
the East Irish Sea Properties for cash consideration of approximately
$17,800,000. In addition, the Company issued to one of its lenders 15,000,000
ordinary shares and loan notes with a face value of $9,750,000 for a total
consideration of $10,000,000 and 545,454 ordinary shares in payment of a fee of
$292,000. The Company paid another lender a cash fee of $700,000 and granted
the lender warrants to purchase 3,275,000 ordinary shares at a price of 1p per
share and an overriding royalty interest in the U.K. Interests of 0.3% beginning
January 1, 2001. The overriding royalty interest will entitle the lender to
receive a payment equal to the specified percentage of the net revenues
generated by the U.K. Interests. The overriding royalty interest would have the
effect of reducing the Company's revenues from the U.K. Interests. The Company
also issued to its financial advisors 615,385 ordinary shares in payment of a
fee of $330,000.
On April 23, 1999, the Company announced the successful drilling and
testing of the 110/2b - R1 well. The well was the first to be drilled on the
Company's recently acquired East Irish Sea assets and is located in the Dalton
Field. The well was spudded on February 26, 1999, drilled to 4,222 feet, and
suspended on April 12, 1999. Log analysis estimates 605 feet of gross gas
column to be present in the well. Production testing from gross perforations
between 3,395 - 3,700 feet achieved flow rates up to 78 MMCFG/D at 730 psig
flowing tubing pressure.
Also, on April 23, 1999 the Company announced that it had recommended its
recompletion program on its U.S. properties, yielding early success. Notably,
the Ernest Roberts No. 1 Gas Unit in Hinds County, Mississippi was recompleted
in March 1999. The well is currently producing at a rate of 1,626 MCFG/D with
35 BOPD. In addition, the Millie 2-20 well located in Dewey County, Oklahoma,
was recompleted in February, 1999 and is currently producing 560 MCFG/D and 2
BOPD.
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On July 23, 1999 the Company announced that the Dalton R2 well has been
successfully reentered and recompleted. The R2 well tested at a maximum flow
rate of approximately 54 MMSCF/D on a 120/64 inch choke at 772 psig flowing
tubing pressure. In the East Millom Field, the Millom Q1 well has been
successfully reentered and recompleted. The Q1 well tested at a maximum flow
rate of 18 MMSCF/D on a 68/64 inch choke at 725 psig flowing tubing pressure.
The Dalton R1, R2 and Millom Q1 wells are in the process of being tied back to
the North Morecambe Bay Platform. First production is anticipated in August,
1999.
Effective July 30, 1999, the Company and its principal lender agreed to
amend the terms of its credit agreement to allow for additional immediate
borrowings of $5,000,000, to defer the date of the borrowing base
redetermination from July 31, 1999 to December 31, 1999, and to defer the
repayment date of a portion of the indebtedness from January 31, 2001 to July
31, 2001.
American Rivers Oil Company ("AROC") and Alliance announced that on July
22, 1999, they entered into a preliminary agreement, under which subject to the
satisfaction of certain of various pre-conditions a new subsidiary of AROC would
make a share for share offer for Alliance. The principal conditions to the
making of the offer are the filing of a registration statement with the
Securities and Exchange Commission and due diligence conducted by both parties.
If the share offer is completed, it is expected that the shares of the new
company will be quoted on the U.S. OTC Bulletin Board and will not be listed on
the London Stock Exchange. If the transaction is completed and all the Alliance
shareholders accept the offer, the shareholders of Alliance would hold 98% and
the shareholders of AROC would hold 2% of the enlarged group.
COMPETITION
The oil and natural gas industry is highly competitive in all its
phases. Alliance encounters strong competition from many other energy companies
in acquiring economically desirable producing properties and drilling prospects
and in obtaining equipment and labor to operate and maintain its properties. In
addition, many energy companies possess greater resources than Alliance.
GOVERNMENTAL AND ENVIRONMENTAL REGULATION
Oil and gas production is subject to regulation under many international
and U.S. Federal and State statutes, rules, orders and regulation. Permits for
drilling, reworking and recompletion operations, drilling bonds and reports
concerning operations are required. Most jurisdictions have regulations
governing conservation matters, establishing maximum rates of production and the
regulation of the spacing, plugging and abandonment of wells.
Environmental laws and regulations may affect the Company's operations
and costs. In particular, production and saltwater disposal operations and use
of facilities from treating, processing or otherwise handling hydrocarbons and
wastes therefrom are subject to stringent environmental regulations.
Environmental regulations are subject to frequent change and the Company cannot
predict ongoing costs of compliance or the future impact of such regulations on
operations.
OPERATIONS HAZARDS AND INSURANCE
The operations of the Company are subject to all risks inherent in the
exploration for and production of oil and gas, including such natural hazards as
blowouts, cratering and fires, which could result in damage or injury to, or
destruction of, drilling rigs and equipment, formation, producing facilities or
other property, or could result in personal injury, loss of life or pollution of
the environment. Any such event could result in substantial expense to the
Company which could have a material adverse effect upon the financial condition
of the Company to the extent it is not fully insured against such risks but, in
accordance with standard industry practice, the Company is not fully insured for
all risks, either because such insurance is unavailable or because the Company
elects not to obtain insurance coverage because of cost. Although such
operational risks and hazards may to some extent be minimized, no combination of
experience, knowledge and scientific evaluation can eliminate the risk of
investment or assure a profit to any company engaged in oil and gas operations.
2
<PAGE>
EMPLOYEES
At April 30, 1999, Alliance had 15 management and administrative
employees and 9 technical and operating employees, none of whom belonged to a
union. The employees include 15 people located in its Tulsa, Oklahoma office, 8
people in the Tensaw, Alabama office who conduct lease operations in the
Company's South Carlton Field, and 1 field person in Louisiana. The Company's
other field activities are accomplished through independent contractors. The
Company believes its relations with its employees and contractors are excellent.
MARKETING
Alliance's production is primarily from developed fields close to
major pipelines or refineries and established infrastructure. As a result,
Alliance has not experienced any difficulty in finding a market for its product
as it becomes available or in transporting its product to those markets.
Oil Marketing
Alliance markets its oil to a variety of purchasers, most of which are
large, established companies. The oil is generally sold under short-term
contracts with the sales price based on an applicable posted price, plus a
negotiated premium. This price is determined on a well-by-well basis and the
purchaser generally takes delivery at the wellhead.
Gas Marketing
Virtually all of Alliance's gas production is close to existing pipelines
and, consequently, Alliance generally has a variety of options to market its
gas. Alliance sells the majority of its gas on the spot market, with prices
fluctuating month-to-month based on published pipeline indices with slight
premiums or discounts to the applicable index.
ITEM 2. PROPERTIES
PRODUCTION
Alliance owns producing properties located in 10 states in the U.S.,
with proved reserves located primarily in the states of Alabama, Louisiana,
Mississippi, Oklahoma, and Texas. Alliance continuously evaluates the
profitability of its oil, gas and related activities and has a policy of
divesting itself of unprofitable oil and gas properties or areas of operation
that are not consistent with its operating philosophy.
Alliance operates 144 producing wells (119.6 net) in these areas and
also owns non-operated interests in a further 122 active producing wells and
units (21.9 net). These properties produced at a gross average rate of 4,300.9
Bbls of oil per day and 59,749.8 Mcf of gas per day (802.6 BBls of oil per day
and 4,353.2 Mcf of gas per day net to the Company's interest) for the year ended
April 30, 1999. Oil and gas sales from Alliance's producing oil and gas
properties accounted for substantially all of Alliance's revenues for the year
ended April 30, 1999.
The following summarizes Alliance's principal areas of oil and gas
production activity as of April 30, 1999.
South Carlton Field, Alabama. The South Carlton Field is located in
Clarke and Baldwin Counties in southwest Alabama, approximately 50 miles north
of Mobile, Alabama. The field is situated on the Alabama River, and all crude
oil produced is exported from the field by barge. Alliance operates 56 active
producing oil wells and three saltwater disposal wells. Production is from the
Massive and Pilot Sands of the Tuscaloosa Formation at a depth of approximately
6,000 ft. The field produced at a gross average daily rate of 301.8 Bbls of oil
per day (249.6 Bbls of oil per day net to the Company's interest) for the
duration of the year ended April 30, 1999. Production from the field was
allowed to fall during the course of 1998 in order to minimize the impact of low
oil prices on the overall profitability of operations and reached a gross
average daily low of 206 Bbls of oil per day in the month of December 1998.
Workover activities which were kept to a minimum in 1998 were stepped up in
early 1999, and many
3
<PAGE>
temporarily shut-in wells were returned to production. The field is now
producing consistently at gross daily rates in excess of 400 Bbls of oil per day
and in July 1999 again reached gross production levels of over 500 Bbls of oil
per day.
Additional infill drilling has been identified in the field, and the
Company believes that the application of horizontal drilling techniques has the
potential to significantly improve recovery per well in view of the heavy
gravity of the oil (12-14/0/ API). Alliance's working interest in this field is
100%. Net proved reserves to Alliance as of April 30, 1999 were 5,864.6 MBbls of
oil.
Bolton Field, Mississippi. The Bolton Field is located in Hinds
County, Mississippi and approximately 18 miles west of Jackson, Mississippi.
Alliance operates 1 active producing well in this field, the Ernest Roberts #1
Gas Unit. Production is from the Cotton Valley Sands at a depth of over 15,500
ft. This property produced at a gross average daily rate of 527 Mcf of gas per
day and 14.2 Bbls of oil per day (372.1 Mcf of gas per day and 10.1 Bbls of oil
per day net to the Company's interest) for the duration of the year ended April
30, 1999.
The well was recompleted in March 1999 in several Cotton Valley Sands
at depths of between 15,590 and 15,916 ft. The well is currently producing at a
stabilized gross rate of approximately 1,620 Mcf of gas per day and 40 Bbls of
oil per day. Alliance's working interest in this field is currently 91%.
Additional proved behind pipe potential has been identified in the well and net
proved reserves to Alliance as of April 30, 1999 were 3,619 MMcf of gas and
132.3 MBbls of oil.
Black Warrior Basin, Mississippi and Alabama. Alliance owns operated
and non-operated working interests in 51 wells (38 operated and 13 non-operated)
in Lamar, Fayette and Pickens Counties, Alabama and Lee and Chickasaw Counties,
Mississippi. Production from these wells and units is from multiple sandstones
of Mississippian (Carter, Lewis and Millerella) and Pennsylvanian (Benton and
Coats) age at depths of 1,900 to 4,600 ft. These properties produced at a gross
average daily rate of 4,046.8 Mcf of gas per day and 318.4 Bbls of oil per day
(1,450.5 Mcf of gas per day and 11.8 Bbls of oil per day net to the Company's
interest) for the duration of the year ended April 30, 1999. Alliance's working
interest in these properties varies from between 1.8% to 100%. Significant
proved behind pipe reserves have been identified in the properties and the
majority are scheduled for recompletion over the next few years with the
potential to add significantly to net cash flow. Net proved reserves to
Alliance as of April 30, 1999 were 14.2 MBbls of oil and 9,698.4 MMcf of gas.
War-Wink South/East Quito Fields, Texas. Alliance owns non-operated
working interests in 41 active wells operated by Texaco and Chevron in the War-
Wink South and East Quito Fields in Ward County, Texas. These fields currently
produce from multiple reservoirs in the Fusselman dolomite (Middle Silurian),
Atoka limestone (Middle Pennsylvanian), and the Wolfcamp and Cherry Canyon
(Lower and Middle Permian) Sands at depths of 6,200 feet to 17,500 feet. These
properties produced at a gross average daily rate of 9,253.7 Mcf of gas per day
and 548.6 Bbls of oil per day (753.8 Mcf of gas per day and 46.1 Bbls of oil per
day net to the Company's interest) for the duration of the year ended April 30,
1999. The University 10-18-1U well which was completed in the Fusselman
dolomite produced at a gross average daily rate of 6,175 Mcf of gas per day
throughout the year. This amounts to approximately 67% of the gross gas
produced from the properties in which Alliance has an interest in these fields.
A number of proved undeveloped drilling locations have been identified on these
properties. Net proved reserves to Alliance as of April 30, 1999 were 94.7
MBbls of oil and 1,697.2 MMcf of gas.
Jefferson Island Field, Louisiana. The Jefferson Island field is
located approximately 12 miles southwest of the town of New Iberia in Iberia
Parish, Louisiana. Alliance has a working interest in a 525-acre lease on the
south side of Lake Peigner, which is currently being maintained by production
from the Will Drill Resources (Texaco) JISMC #4 well. This well is now owned by
Continental Resources Limited ("Continental"). Production intervals are known
to exist in the Siphoni Davisi and Discorbis B sandstone reservoirs at depths of
approximately 8,000 to 9,000 ft. The reservoir traps are combination
structural-stratigraphic traps in a piercement salt dome setting. However,
Alliance has not yet established production from the property. A number of
proved undeveloped drilling locations have been identified on the property and
the Company's working interest in this property is currently 100%. Net proved
reserves to Alliance as of April 30, 1999 were 431.7 MBbls of oil and 1,230.2
Mcf of gas.
4
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The Company entered into a farm-out agreement with Continental on this
property, whereby Continental, at its sole risk and expense, has conducted a 3D
seismic survey and is to drill and complete two wells on the lease to earn a
two-thirds working interest. Continental completed the 3-D seismic survey in
late 1998 and spudded the first well under the farm-out agreement in June 1999.
This well was drilled to a total depth of approximately 10,000 ft. and several
potentially productive pay zones were identified on electric logs in Siphoni
Davisi Sands at depths of 8,500 to 9,000 ft. Continental is currently
attempting to complete the well in the lowermost potentially productive sand at
a depth of approximately 9,000 ft.
Tinsley Field, Mississippi. The Tinsley Field is located in Yazoo
County, Mississippi, and approximately 34 miles northwest of the town of
Jackson, Mississippi. Alliance operates 5 active producing wells and 2
saltwater disposal wells. Production is from upper Cretaceous age Eutaw Sands
at depths of around 4,500 ft. This property produced at a gross average daily
rate of 55.4 Bbls of oil per day (45.4 Bbls of oil per day net to the Company's
interest) for the duration of the year ended April 30, 1999. The Company has a
working interest in the property of 100%. One proved undeveloped drilling
location has been identified on the property. Net proved reserves to Alliance
as of April 30, 1999 were 360.3 MBbls of oil.
South Elton Field, Louisiana. The South Elton Field is located
approximately 19 miles north of the town of Jennings in Jefferson Davis Parish,
Louisiana. Alliance operates 4 active producing oil and gas wells and 2
saltwater disposal wells. Production is primarily from the Oligocene age sands
of the Homeseekers D Formation at a depth of approximately 9,000 ft. This
property produced at a gross average daily rate of 140 Bbls of oil per day and
76.7 Mcf of gas per day (99.0 Bbls of oil per day and 45.6 Mcf of gas per day
net to the Company's interest) for the duration of the year ended April 30,
1999. The Company has a working interest in the property of between 65.3% and
99.6%. Another operator is currently acquiring a 3-D seismic survey over the
area and Alliance will receive copies of the data acquired over its property
within two months of completion of processing of the data. One proved
undeveloped drilling location has been identified on the property. Net proved
reserves to Alliance as of April 30, 1999 were 259.8 MBbls of oil and 86.4 Mcf
of gas.
Perkins Field, Louisiana. The Perkins Field is located approximately
4 miles south of the town of De Quincy in Calcasieu Parish, Louisiana. Alliance
operates 7 active producing wells and 1 saltwater disposal well. Production is
from various Miocene age sands at depths of 5,000 to 7,500 ft. The property
produced at a gross average daily rate of 75.1 Bbls of oil per day (58.6 Bbls of
oil per day net to the Company's interest) for the duration of the year ended
April 30, 1999. The Company has a working interest in the property of 100%.
Net proved reserves to Alliance as of April 30, 1999 were 221.7 MBbls of oil.
In addition to these properties, the Company has other producing oil
and gas properties located in Alabama, Arkansas, Colorado, Kansas, Louisiana,
Michigan, Mississippi, Montana, Oklahoma and Texas. These properties produced
at a gross daily rate of 2,847.4 Bbls of oil per day and 45,845.7 Mcf of gas per
day (281.9 Bbls of oil per day and 1,731.1 Mcf of gas per day net to the
Company's interest) for the duration of the year ended April 30, 1999. Net
proved reserves to Alliance, as of April 30, 1999, from these other properties
were 1,328.0 MBbls of oil and 6,520.2 Mcf of gas.
RESERVES
Lee Keeling and Associates, Inc. ("LKA"), Alliance's independent
petroleum engineering consulting firm, has made estimates of Alliance's oil and
gas reserves at April 30, 1999. LKA's report covers the estimated present value
of future net cash flows before income taxes (discounted at 10%) attributable to
Alliance's estimated future net cash flows therefrom.
The quantities of Alliance's proved reserves of oil and natural gas
presented below include only those amounts which Alliance reasonably expects to
recover in the future from known oil and gas reservoirs under existing economic
and operating conditions. Proved developed reserves are limited to those
quantities which are recoverable commercially at current prices and costs, under
existing regulatory practices and with existing technology. Accordingly, any
changes in prices, operating and development costs, regulations, technology or
other factors could significantly increase or decrease estimates of Alliance's
proved developed reserves. Alliance's proved undeveloped reserves include only
those quantities which Alliance reasonably expects to recover from the drilling
of new wells
5
<PAGE>
based on geological evidence from offsetting wells. The risks of recovering
these reserves are higher from both geological and mechanical perspective than
the risks of recovering proved developed reserves.
As required by the Securities and Exchange Commission, the estimates
of net proved reserves and proved developed reserves and the estimated future
net revenues from such reserves set forth below, have been made in accordance
with the provisions of Statement of Financial Accounting Standards No. 69,
"Disclosures about Oil and Gas Producing Activities." Estimated future net cash
flows from proved reserves are determined by using estimated quantities of
proved reserves and the periods in which they are expected to be developed and
produced based on economic conditions at the date of the report. The estimated
future production is priced at current prices at the date of the report. The
resulting estimated future cash inflows are then reduced by estimated future
costs to develop and produce reserves based on cost levels at the date of the
report. No deduction has been made for depletion, depreciation or for indirect
costs, such as general corporate overhead. The discounted value was computed by
discounting future net revenues at 10% per annum, without deduction for income
taxes.
The following table sets forth estimates of the proved oil and natural
gas reserves of Alliance at April 30, 1999, as evaluated by LKA.
<TABLE>
<CAPTION>
Oil (MBbls) Gas (Mmcf)
------------------------------------------- ----------------------------------------------
Developed Undeveloped Total Developed Undeveloped Total
------------ ---------------- ----------- ------------- ------------------ -----------
<S> <C> <C> <C> <C> <C> <C>
U.S. Reserves
-------------
Alabama 3,855 2,030 5,885 6,429 - 6,429
Louisiana 753 520 1,273 766 2,458 3,224
Mississippi 487 144 631 7,228 - 7,228
Oklahoma 61 - 61 2,373 548 2,921
Texas 406 13 419 2,463 83 2,546
Other 439 - 439 260 243 503
----- ----- ----- ------ ----- ------
Total 6,001 2,707 8,708 19,519 3,332 22,851
===== ===== ===== ====== ===== ======
</TABLE>
<TABLE>
<CAPTION>
Oil (MBbls) Gas (Mmcf)
--------------------------------------------- ------------------------------------------------
Developed Undeveloped Total Developed Undeveloped Total
------------ ---------------- ----------- ------------- ------------------ -----------
<S> <C> <C> <C> <C> <C> <C>
U.K. Reserves
-------------
Dalton Sweet
Field - - - - 9,733 9,733
============ ================ =========== ============= =============== ==========
</TABLE>
The following table sets forth amounts as of April 30, 1999 determined in
accordance with the requirements of the applicable accounting standards
pertaining to the estimated future net cash flows from production and sale of
the proved reserves attributable to Alliance's oil and gas properties before
income taxes and the present value thereof. Nymex benchmark prices used in
determining the future U.S. net cash flow estimates at April 30, 1999 were
$18.66 per barrel for oil and $2.35 per MMBtu for gas. A delivery price of 9.05
pence per therm, equivalent to $1.54 per MMBtu for gas was used in determining
the future U.K. net cash flow estimates at April 30, 1999.
<TABLE>
<CAPTION>
Proved Proved Total
Developed Undeveloped Proved
Reserves Reserves Reserves
------------- ------------- -------------
(in thousands)
<S> <C> <C> <C>
U.S. Reserves
-------------
Estimated future net cash flows from proved
reserves before income taxes $ 68,142 $ 25,042 $ 93,184
========== ========== ==========
Present value of estimated future net cash flows
from proved reserves before income taxes
(discounted at 10%) $ 32,224 $ 11,615 $ 43,838
========== ========== ==========
Standardized Measure $ 25,781 $ 9,088 $ 34,869
========== ========== ==========
</TABLE>
6
<PAGE>
<TABLE>
<S> <C> <C> <C>
U.K. Reserves
-------------
Estimated future net cash flows from proved
reserves before income taxes $ - $ 3,926 $ 3,926
========== ========== ==========
Present value of estimated future net cash flows
from proved reserves before income taxes
(discounted at 10%) $ - $ 2,794 $ 2,794
========== ========== ==========
Standardized Measure $ - $ 2,794 $ 2,794
========== ========== ==========
</TABLE>
The estimation of oil and gas reserves is a complex and subjective
process which is subject to continued revisions as additional information
becomes available. Reserve estimates prepared by different engineers from the
same data can vary widely. Assumptions have to be made regarding the timing of
future production and the timing and amount of future development and production
costs. The calculations assume that economic conditions existing at the end of
the reporting period will continue. Other, but equally valid, assumptions might
lead to a significantly different final result. Therefore, the reserve data
presented herein should not be construed as being exact. Any reserve estimate
presented herein should not be construed as being exact. Any reserve estimate
depends in part on the quality of available data, engineering and geologic
interpretation, and thus represents only an informed professional judgment.
Subsequent reservoir performance may justify upward or downward revision of such
estimate. The information provided, therefore, does not represent management's
estimate of Alliance's expected future cash flows or value of proved reserves.
Alliance has filed estimates of proved reserves with the London Stock
Exchange. These estimates do not differ materially from those contained in this
document.
For further information on reserves, costs relating to oil and gas
activities, and results of operations from producing activities, see Note 17 to
the Consolidated Financial Statements--Supplementary Financial Information for
Oil and Gas Producing Activities incorporated by reference herein.
The following table sets forth Alliance's producing wells at April 30,
1999.
<TABLE>
<CAPTION>
Productive Wells
Oil Gas Total
--------------------- ---------------------- -----------------------
Gross Net Gross Net Gross Net
----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
U.S. 148 100.1 118 41.3 266 141.4
--- ----- --- ---- --- -----
U.K. - - 2 0.2 2 0.2
--- ----- --- ---- --- -----
Total 148 100.1 120 41.5 268 141.6
=== ===== === ==== === =====
</TABLE>
Productive wells consist of producing wells and wells capable of
production, including gas wells awaiting pipeline connections to commence
deliveries and oil wells awaiting connection to production facilities. Wells
that are completed in more than one producing horizon are counted as one well.
Of the gross wells reported above, 12 had multiple completions.
Developed and Undeveloped Acreage
The following table sets forth the developed and undeveloped leasehold
acreage held by Alliance at April 30, 1999. Developed acres are acres that are
spaced or assignable to productive wells. Undeveloped acres are acres on which
wells have not been drilled or completed to a point that would permit the
production of commercial quantities of oil and gas, regardless of whether or not
such acreage contains proved reserves. Gross acres are the total number of
acres in which Alliance has a working interest. Net acres are the sum of
Alliance's fractional interests owned in the gross acres.
States in which Alliance held developed and undeveloped acreage at
April 30, 1999 include Alabama, Arkansas, Colorado, Kansas, Louisiana,
Mississippi, Montana, New Mexico, North Dakota, Oklahoma, Texas and Wyoming.
7
<PAGE>
<TABLE>
<CAPTION>
Gross Net
--------- --------
U.S.
----
<S> <C> <C>
Developed acreage......................................... 27,011.9 20,102.7
Undeveloped acreage....................................... 10,956.6 8,428.5
--------- --------
Total..................................................... 37,968.5 28,531.2
========= ========
Gross Net
--------- --------
U.K.
----
Developed acreage......................................... 1,462.0 146.2
Undeveloped acreage....................................... 206,658.0 20,665.8
--------- --------
Total..................................................... 208,120.0 20,812.0
========= ========
</TABLE>
PRODUCTION, UNIT PRICES AND COSTS
The following table sets forth information with respect to sales of
production and average unit prices and costs for the periods indicated.
<TABLE>
<CAPTION>
Nine months
Year ended April 30 ended April 30,
------------------------- ---------------
1999 (2) 1998 1997
---------- ---------- ---------------
<S> <C> <C> <C>
Production:
Gas (Mmcf) 1,402 1,689 1,640
Oil (MBbls) 278 396 190
Average sales prices (1)
Gas (per Mcf) $ 1.79 $ 2.36 $ 1.70
Oil (per Bbl) $ 13.20 $ 15.75 $ 15.34
Average production costs per BOE (3) $ 6.05 $ 8.13 $ 6.77
</TABLE>
(1) After giving effect to the impact of Alliance's price hedging arrangements
with Alliance's principal bank. Without such hedging arrangements, the
average sales prices for the years ended April 30, 1999 and 1998 would have
been $10.11 and $15.14 for oil and $1.92 and $2.34 for gas, respectively,
and $19.15 for oil and $2.40 for gas for the nine months ended April 30,
1997.
(2) No figures are included for U.K. production activities since first
production is not anticipated until mid-August 1999.
(3) The components of production costs may vary substantially among wells
depending on the methods of recovery employed and other factors, but
generally include production taxes, lease overhead, maintenance and repair,
labor and utilities.
8
<PAGE>
(4) DRILLING ACTIVITY
During the periods indicated, Alliance drilled or participated in the
drilling of the following exploratory and development wells. The information
excludes wells in which Alliance has only an overriding interest.
<TABLE>
<CAPTION>
Year ended April 30 Nine months ended April 30
------------------------------------------------- ----------------------------
1999 1998 1997
-------------------------- --------------------- ----------------------------
Gross Net Gross Net Gross Net
----------- ------------- --------- ---------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
U.S.
- ------
Exploratory:
Productive - - - - - -
Non-Productive - - 1 0.10 - -
----------- ------------- --------- ---------- ------------- -----------
Total - - 1 0.10 - -
=========== ============= ========= ========== ============= ===========
Development:
Productive - - 7 0.53 2 .20
Non-Productive - - - - - -
----------- ------------- --------- ---------- ------------- -----------
Total - - 7 0.53 2 .20
=========== ============= ========= ========== ============= ===========
Total:
Productive - - 8 0.53 2 .20
Non-Productive - - 1 0.10 - -
----------- ------------- --------- ---------- ------------- -----------
Total - - 9 0.63 2 .20
=========== ============= ========= ========== ============= ===========
U.K.
- ------
Development:
Productive 1 0.1 - - - -
Non-Productive - 0.0 - - - -
----------- ------------- --------- ---------- ------------- -----------
Total 1 0.1 - - - -
=========== ============= ========= ========== ============= ===========
</TABLE>
At April 30, 1999, Alliance was not participating in the drilling of any oil and
gas wells.
All of Alliance's drilling activities are conducted with independent
contractors. Alliance owns no drilling equipment.
TITLE TO PROPERTIES
As is customary in the oil and gas industry, Alliance conducts only a
perfunctory title examination at the time properties believed to be suitable for
drilling operations are first acquired. Prior to commencement of drilling
operations, a thorough drill site title examination is normally conducted and
curative work is performed with respect to significant defects. During
acquisitions, title reviews are performed on all material properties being
acquired.
ITEM 3. LEGAL PROCEEDINGS
The Group is a named defendant in lawsuits, and is subject to claims of
third parties from time to time arising in the ordinary course of business.
While the outcome of lawsuits or other proceedings and claims against the Group
cannot be predicted with certainty, management does not expect these additional
matters to have material adverse effect on the financial position or results of
operations or liquidity of the Group.
9
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On October 30, 1998, Alliance held an Extraordinary General Meeting in
which it adopted resolutions approving the following items:
(a) the acquisition by Alliance of all of the issued share capital of
Difco Limited ("Difco") in exchange for 10 million newly created
convertible restricted voting shares of 1p each (the "Convertible
Restricted Voting Shares") and a contingent right to receive
additional shares, subject to the sales of production actually
achieved from the U.K. Interests (as defined below);
(b) the acquisition through Difco of an undivided ten percent (10%) of
the interest of Burlington Resources (Irish Sea) Limited in and to 13
blocks in the East Irish Sea and Liverpool Bay areas off the West
Coast of the United Kingdom (the "U.K. Interests") for a cash
consideration of approximately $17.8 million;
(c) the creation of the Convertible Restricted Voting Shares and the
allotment of the Convertible Restricted Voting Shares and the
additional shares issuable under the terms of the acquisition
agreement between Alliance and the Difco shareholders;
(d) the allotment of certain ordinary shares and warrants to the lenders
of Alliance and the allotment of equity securities in other specified
instances;
(e) the increase of the borrowing powers of the Directors;
(f) a reduction in the par value of the ordinary shares of the Company;
(g) the adoption of certain amendments to the Articles of Association of
the Company; and
(h) other matters relating to the foregoing.
10
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER
MARKET INFORMATION AND DIVIDENDS
The Company's Ordinary Shares are traded on the London Stock Exchange
under the symbol "ARS."
The following table sets forth in pounds, for the calendar quarter
indicated, the high and low sales prices for the Alliance Shares on the London
Stock Exchange (in pence) for the periods indicated derived from the official
list of the London Stock Exchange. Bid quotations represent quotations between
dealers without adjustment for retail mark-ups, mark-downs or commissions and
may not necessarily represent actual transactions.
<TABLE>
<CAPTION>
Prices
Alliance Ordinary Shares
----------------------------
High Low
<S> <C> <C>
Fiscal year ended April 30, 1998
First Quarter 60 23.5
Second Quarter 35.5 25
Third Quarter 29.5 23
Fourth Quarter 32.5 21
Fiscal year ended April 30, 1999
First Quarter 32.5 32.5
Second Quarter 32.5 32.5
Third Quarter 19 8
Fourth Quarter 8 4.5
</TABLE>
As of April 30, 1999, the approximate number of record holders of the
Alliance Ordinary Shares was 2,300.
Quotations for shares listed on the London Stock Exchange are not
generally readily available in newspapers or other publication in the United
States, but are available in the daily U.S. edition of the Financial Times.
However, investors may place orders for the purchase or sale of shares traded on
the London Stock Exchange through most licensed broker dealers in the United
States. Under current U.K. law, the transfer of Alliance Shares will generally
give rise to a liability to U.K. stamp duty, normally at the rate of 50p for
every (Pounds)100 (or part thereof) of the actual consideration paid.
Alliance has not paid any cash dividends on the Alliance Shares for at
lease the last two complete fiscal years. In addition, Alliance is now
restricted from paying dividends under the Company's credit agreement with the
Bank of America.
EXCHANGE RATES
The table below sets forth, for the periods and dates indicated,
certain information regarding the US dollar/pound sterling exchange rate, based
on the Noon Buying Rate, expressed in US dollars per (Pounds)1.00.
<TABLE>
<CAPTION>
Calendar Year Period End Average Rate High Low
------------- ------------ ------------ ---------- ---------
<S> <C> <C> <C> <C>
1996 1.71 1.56 1.72 1.49
1997 1.64 1.64 1.70 1.58
1998 1.66 1.66 1.71 1.61
1999 (1) 1.61 1.63 1.66 1.59
</TABLE>
(1) 1999 exchange rates are for the period from January 1, 1999 to April
30, 1999 only.
11
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
On May 1, 1997, Alliance completed its acquisition of LaTex. The
acquisition resulted in the issuance of 21,448,747 shares to the former
shareholders of LaTex compared to the 8,103,816 shares then outstanding. As a
result, the former LaTex shareholders had a controlling interest in the combined
group and so for accounting and financial reporting purposes, LaTex is treated
as having acquired Alliance ("Reverse Acquisition"). The historical financial
information for all financial periods to April 30, 1997 reflect the results of
operations and assets and liabilities of LaTex. LaTex's fiscal year end was
July 31, whereas that of Alliance is April 30.
On October 30, 1998, Alliance completed its acquisition of Difco and
indirectly a contract to acquire an interest in the U.K. Interests. The results
of operations and assets and liabilities of Difco have been included since the
date of acquisition.
12
<PAGE>
The selected financial information presented below should be read in conjunction
with the Company's audited financial statements and the notes thereto included
under Item 8 and Management's Discussion and Analysis of financial Condition and
Results of Operations at item 7.
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
(in thousands, except per share amounts and average sales data)
<TABLE>
<CAPTION>
Nine months ended
Year ended April 30 April 30 Years ended July 31
Income Statement Data: 1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Revenues:
Oil and gas sales $ 6,234 $ 10,210 $ 5,699 $ 11,980 $ 8,586
Crude oil and gas marketing -- -- 146 540 1,223
-------- -------- -------- -------- --------
Total revenues 6,234 10,210 5,845 12,520 9,809
-------- -------- -------- -------- --------
Operating expenses:
Lease operating expense 3,096 5,506 3,117 5,472 4,643
Cost of crude oil and gas marketing -- -- 16 133 744
Cessation of overseas exploration (1) -- -- -- 3,447 --
General and administrative 3,486 3,364 3,481 2,893 2,736
Depreciation, depletion and amortization 1,671 2,598 1,542 3,511 3,364
Impairment of oil and gas properties 28,260 -- -- -- --
Loss on termination of derivative contract (2) -- 1,128 -- -- --
-------- -------- -------- -------- --------
Total operating expenses 36,513 12,596 8,156 15,456 11,487
-------- -------- -------- -------- --------
Loss from operations (30,279) (2,386) (2,311) (2,936) (1,678)
-------- -------- -------- -------- --------
Other income(expense):
Equity in losses and write-offs of investments
in affiliates -- -- (20) (4,034) (235)
Write-off deferred loan costs (870) -- -- -- --
Gain(loss) on sale of assets (9) 35 -- -- --
Interest income 26 62 52 280 58
Interest expense (3,355) (2,573) (2,102) (2,830) (1,416)
Miscellaneous income(expense) (3) 23 133 (8) (1,810) --
-------- -------- -------- -------- --------
Net loss before income taxes (34,464) (4,729) (4,389) (11,330) (3,271)
Income tax expense -- -- -- -- (35)
-------- -------- -------- -------- --------
Net loss (34,464) (4,729) (4,389) (11,330) (3,306)
Preferred stock dividends -- -- 518 571 133
-------- -------- -------- -------- --------
Net loss for ordinary shareholders $(34,464) $ (4,729) $ (4,907) $(11,901) $ (3,439)
======== ======== ======== ======== ========
Income(loss) per share $ (0.82) $ (0.15) $ (0.30) $ (0.77) $ (0.22)
======== ======== ======== ======== ========
Weighted average shares outstanding (4) 41,936 31,126 16,585 15,508 15,317
======== ======== ======== ======== ========
Balance Sheet Data (end of period):
Total assets $ 36,162 $ 34,760 $ 30,858 $ 36,493 $ 46,549
Net property, plant and equipment 30,355 29,808 26,708 29,473 36,336
Working capital(deficit) (5,621) (9,480) (9,620) (27,970) (7,264)
Long term debt 43,177 18,792 18,095 -- 20,635
Stockholders' equity (deficit) (16,637) 2,183 85 3,846 14,628
Reserve and Production Data:
Production:
Oil (MBbls) 278 396 190 405 359
Gas (MMcf) 1,402 1,689 1,640 3,481 2,612
Average sales prices:
Oil (per Bbl) $ 13.20 $ 15.75 $ 15.34 $ 15.24 $ 12.86
Gas (per Mcf) 1.79 2.36 1.70 1.67 1.48
Proved reserves (end of period):
Oil (MBbls) 8,708 6,494 6,581 6,353 5,432
Gas (MMcf) 32,584 26,321 25,955 28,172 28,113
Present value of estimated future oil and gas net
revenues before income taxes (discounted 10%) $ 46,642 $ 48,600 $ 39,631 $ 53,499 $ 32,912
Standardized Measure $ 37,663 $ 45,106 $ 35,368 $ 43,889 $ 28,802
</TABLE>
<PAGE>
1) During the year ended July 31, 1996, the Company ceased its overseas
exploration activities in both Tunisia and Kazakhstan and wrote off its
costs relating to these activities of $3,447.
2) On May 15, 1997, the existing commodity price hedging agreements were
terminated through a buyout. On October 23, 1997, new commodity price
hedging agreements were initiated. The loss relating to the buy-out, $1,128
has been recognized in its entirety in the year ended April 30, 1998.
3) The miscellaneous expenses in the year ended July 31, 1996 arose from
litigation in connection with the sale in July 1993 of a subsidiary of the
Company.
4) For periods ending on or before April 30, 1997, the weighted average number
of shares outstanding has been based on the number of Alliance shares
issued on May 1, 1997, which represent the number of LaTex shares
outstanding in each of the relevant periods based on the exchange ratio in
the acquisition of LaTex. The loss for each period is stated after
deducting dividends on the LaTex preferred stock.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The Company's acquisition of LaTex on May 1, 1997 has been accounted for as
a "reverse acquisition" of the Company by LaTex. As such, the historical
financial statements and financial information as of and for each of the years
in the two-year period ended July 31, 1996 and for the nine-month period ended
April 30, 1997 are for the business of LaTex alone and include no information
for the Company.
The information in this "Management's Discussion and Analysis of Financial
Condition and Results of Operations" refers to the Consolidated Financial
Statements of Alliance included in this Form 10-K which are presented in
accordance with U.S. GAAP.
Unless otherwise indicated, the financial information in this Form 10-K has
been prepared in accordance with U.S. generally accepted accounting principles
("U.S. GAAP"). U.S. GAAP differs in certain respects from generally accepted
accounting principles in the U.K. ("U.K. GAAP"). As a result of the Company's
listing on the London Stock Exchange, the Company is required to file reports
with the London Stock Exchange prepared in accordance with U.K. GAAP.
RESULTS OF OPERATIONS
The factors which most significantly affect results of operations are (i)
the sale prices of crude oil and gas, (ii) the level of total sales volumes,
(iii) the level of lease operating expenses and (iv) the level of and interest
rates on borrowings. Total sales volumes and the level of borrowings are
significantly impacted by the degree of success in efforts to acquire oil and
gas properties and in the ability to maintain or increase production from
existing oil and gas properties through development activities.
The following table reflects certain historical operating data for the
periods presented.
14
<PAGE>
<TABLE>
<CAPTION>
Nine Months
Year ended April 30 ended April 30
---------------------- ----------------
1999 1998 1997
---------------------- ----------------
<S> <C> <C> <C> <C>
Net sales volumes
Oil (Mbbls) 278 396 190
Natural gas (Mmcf) 1,402 1,689 1,640
Oil equivalent (MBOE) 512 678 463
Average sales prices
Oil (per Bbl) $13.20 $15.75 $15.34
Natural gas (per Mcf) $ 1.79 $ 2.36 $ 1.70
Operating expenses per BOE of net sales
Lease operating $ 5.41 $ 7.16 $ 5.55
Severance tax $ 0.64 $ 0.97 $ 1.22
Depreciation, depletion and amortization $ 3.27 $ 3.84 $ 3.33
General and administrative $ 6.81 $ 4.97 $ 7.52
Loss on termination of commodity
derivative contract $ - $ 1.67 $ -
</TABLE>
YEAR ENDED APRIL 30, 1999 COMPARED TO THE YEAR ENDED APRIL 30, 1998
Total revenues for the year ended April 30, 1999 were $6,234,477 compared
to $10,209,881 for the year ended April 30, 1998. This 39% decrease in total
revenue can be attributed to a 30% decrease in oil sales volumes (primarily at
the South Carlton Alabama field), and a 17% decrease in natural gas sales
volumes. A portion of the decreased sales volumes is due to the sale of non-
operated, non-strategic properties. Additionally there was a 16% decrease in the
average sales price received for oil, and a 24% decrease in the average sales
price received for natural gas. Crude oil contributed 56% and natural gas
contributed 44% of oil and gas production revenues during the year ended April
30, 1999. For the year ended April 30, 1998, crude oil contributed 61% and
natural gas contributed 39% of oil and gas production revenues, respectively.
Lease operating expenses decreased 44% to $3,096,468 for the year ended
April 30, 1999, compared to $5,505,826 for the year ended April 30, 1998. The
reduction in operating expenses is a result of a reduced property base, lower
expenses in the Alabama operations, and the shutting-in of marginal operated
wells. On an equivalent barrel basis, lease operating expenses decreased by
$1.75 to $5.41 for the year ended April 30, 1999, compared to $7.16 for the year
ended April 30, 1998.
Depreciation, depletion and amortization expense decreased 36% from
$2,598,066 for the year ended April 30, 1998 to $1,670,711 for the year ended
April 30, 1999. This was due primarily to lower production volumes and reserve
revisions resulting from price declines. On an equivalent barrel basis
depreciation, depletion, and amortization decreased $0.57 to $3.27 for the year
ended April 30, 1999, compared to $3.84 for the year ended April 30, 1998.
Alliance limits, on a country-by-country basis, the net capitalized cost of
proved oil and gas properties, to estimated future net cash flows from proved
oil and gas reserves discounted at 10 percent, net of related tax effects, plus
the lower of cost or fair value of unproved properties included in the costs
being amortized. Since the acquisition of the U.K. Interests on October 30,
1998, developments plans have become firmer, drilling and well re-entry and
recompletion result on 3 wells have been reviewed and significant progress has
been made on the development of the Dalton and Millom Fields. This additional
information indicates that, while the aggregate reserves estimates at the time
of acquisition are confirmed, the reserves are likely to be produced at a slower
rate than originally anticipated and that development costs are likely to be in
excess of those originally anticipated. These factors have led to an impairment
in value of the U.K. Interests. The Company intends to sell a significant
portion of its production from the U.K. Interests
15
<PAGE>
under a term contract which will achieve prices significantly greater than the
spot price of gas at April 30, 1999 (9.05 pence per therm). The Directors are
confident of achieving a price of between 13 and 15 pence per therm. (This is a
forward-looking statement; refer to the Cautionary Statement Regarding Forward
Looking Statements). However, as no contract is yet in place, the Group has
utilized the spot price at April 30, 1999 in calculating the carrying cost limit
resulting in an impairment charge of some $28 million. The charge has no impact
on cash flows from operating activities.
Interest costs for 1999 increased $780,981, or 25%, from 1998 primarily due
to the revised credit facility put in place to fund the East Irish Sea
acquisition and development. In 1999, Alliance wrote off $869,906 in deferred
loan costs related to the Company's previous credit facility.
General and administrative expenses for the year ended April 30, 1999 were
$3,486,007 which represents an increase of 3.6% over the $3,363,885 incurred in
the prior fiscal year. On an equivalent barrel basis general and administrative
expenses rose by $1.84 to $6.81 for the year ended April 30, 1999 compared to
$4.97 for the year ended April 30, 1998.
The net loss for the year ended April 30, 1999 was $34,463,502 ($0.82 per
ordinary share) compared to a net loss of $4,728,923 ($0.15 per ordinary share)
for the year ended April 30, 1998.
YEAR ENDED APRIL 30, 1998 COMPARED TO NINE MONTHS ENDED APRIL 30, 1997
Total revenues from the Company's operations for the year ended April 30,
1998 were $10,209,881 compared to $5,844,871 for the nine months ended April 30,
1997. Revenues increased proportionately over the comparable period a year
earlier due principally to the beneficial effect of higher realized gas and
higher oil volumes, offset partially by the absence of marketing margins in the
revenue category. The higher oil volumes were partially attributable to the
inclusion of Alliance's sales volumes and additional volumes attributable to the
acquisition of the BoA ORRI in the 1998 period following the LaTex Merger.
Although sales volumes for the year ended April 30, 1998, were adversely
affected by a continuing decline in volumes from the LaTex properties during the
initial three months of the period, the remedial work program had a beneficial
impact on volumes from the LaTex properties (discussed below). In addition, the
inclusion of Alliance's sales volumes from the start of the current reporting
period more than compensated for the initial decline in the LaTex properties.
The Company concentrated its efforts immediately after the LaTex Merger on
increasing production from eleven existing producing fields operated by LaTex in
the states of Alabama, Mississippi, Oklahoma, Texas and Louisiana. Workover
operations on these fields commenced in early May 1997 and comprised mainly
returning shut-in wells to production. Gross production from these eleven
fields was increased from an average of 244 BOE per day in April 1997 to an
average of 980 BOE per day by October 1997. Most of the production increase
came from remedial workover operations in the South Carlton field in Alabama.
Gross production from this field alone increased from an average of 89 BOE per
day in April 1997 to an average of 575 BOE per day in September 1997.
Total operating expenses increased proportionately to $12,595,777 for the
year ended April 30, 1998 compared to $8,155,557 for the nine months ended April
30, 1997. On May 15, 1997, the existing commodity price hedging arrangements
were bought out with a loss of $1,128,000 recognized in its entirety in the year
ended April 30, 1998 as a result of new agreements being initiated on October
23, 1997. Lease operating expenses increased to $5,505,826 for the year ended
April 30, 1998 compared to $3,117,341 for the nine months ended April 30, 1997.
The year ended April 30, 1998 was impacted by the remedial work program
mentioned above and the inclusion of the Alliance properties partially offset by
lower operating costs due to the sale of non-operated, non-strategic wells.
Depreciation, depletion and amortization increased to $2,598,066 for the 1998
period compared to $1,541,415 due to higher volumes resulting from the inclusion
of Alliance. General and administrative expenses decreased marginally from
$3,481,003 during the nine months ended April 30, 1997 to $3,363,885 for the
year ended April 30, 1998 primarily due to an employee stock award of $528,125
in the 1997 period.
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<PAGE>
In addition to the marginal increase in the net operating loss to
$2,385,896 for the year ended April 30, 1998 from $2,310,686 for the nine months
ended April 30, 1997, there was also a proportionate decrease in other
income/expense. This was the result of higher interest expense taking into
account the additional quarterly payment.
In summary, due to the above factors, the net loss for the ordinary
shareholders for the year ended April 30, 1998 decreased to $4,728,923 ($0.15
per ordinary share) compared to a net loss of $4,906,946 ($0.30 per ordinary
share) for the nine months ended April 30, 1997.
CAPITAL RESOURCES AND LIQUIDITY
The Company's capital requirements relate primarily to the acquisition of
developed oil and gas properties and undeveloped leasehold acreage and
exploration and development activities, and the servicing of the Company's debt.
In general, because the Company's oil and gas reserves are depleted by
production, the success of its business strategy is dependent upon a continuous
acquisition and exploration and development program and the acquisition of
additional reserves.
CASH FLOWS AND LIQUIDITY
At April 30, 1999, Alliance reported current assets of $2,451,077 and
current liabilities of $8,072,252, which resulted in a net current deficit of
$5,621,175.
For the year ended April 30, 1999 and April 30, 1998, Alliance's operating
activities resulted in negative cash flow of $3,991,251 and $5,184,000,
respectively. The Company had a positive cash flow of $2,098,566 for the nine
months ended April 30, 1997.
Investing activities of Alliance used $24,174,756 as compared to providing
$3,084,970 in net cash flow for the years ended April 30, 1999 and April 30,
1998, respectively. The 1999 increase was a result of the acquisition of Difco
and the U.K. Interests as well as the capital expenditures for oil and gas
development activities.
Financing activities provided $28,043,726 for the year ended April 30,
1999, compared to $2,434,660 for the year ended April 30, 1998. The increase
was due primarily to the issuance of long-term debt of $45,464,123, the issuance
of common stock for $6,360,000, the refinancing of long-term debt of $22,566,762
and the payment of loan acquisition costs of $1,213,635, all in connection with
the Difco and U.K. Interests acquisitions.
The domestic spot prices of oil and gas have traded, in a volatile manner
over various periods in recent years. To the extent that oil and gas prices are
volatile, material fluctuations in revenues from quarter to quarter can be
expected which, in turn, could adversely affect the Company's ability to service
its debt with its principal bank in a timely manner and to fund its ongoing
operations and could, under certain circumstances, require a write-down of the
book value of the Company's oil and gas reserves.
The Company continues to experience net losses and working capital
deficits. These factors may indicate the Company will be unable to continue as a
going concern for a reasonable period of time. Despite its negative cash flow,
the Company has been able to secure financing to support its operations to date.
The Company was not in compliance with certain covenants of its loan agreements
at April 30, 1999, however, a waiver has been obtained for such violations.
Agreement has been reached with the Company's principal lender to amend the
terms of its credit agreement to allow for additional immediate borrowings of
$5,000,000, to defer the date of the repayment of a portion of its indebtedness
from January 31, 2001 to July 31, 2001 and to defer the date of the borrowing
base redetermination from July 31, 1999 to December 31, 1999. The amendment does
not change the scheduled repayment dates of other portions of its debt, the
first payment of which is due July 31, 2000.
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<PAGE>
The Company's continuation as a going concern is dependent upon its ability to
generate sufficient cash flow to meet its obligations on a timely basis, to
continue to comply with the terms of its borrowing agreements, to obtain
additional financing or refinancing as will be required and ultimately to attain
profitability. Management believes it has a business plan that, if successfully
executed, will achieve these objectives.
CAPITAL EXPENDITURES
The timing of most of the Company's U.S. capital expenditures is
discretionary. Currently, there are no material long-term commitments
associated with the Company's U.S. capital expenditure plans. Consequently, the
Company has a significant degree of flexibility to adjust the level of such
expenditures as circumstances warrant. The Company primarily uses funds
available under its credit facility and proceeds from the sale of oil and gas
properties to fund capital expenditures, other than significant acquisitions,
and to fund its working capital deficit. If the Company's internally generated
cash flows should be insufficient to meet its banking or other obligations, the
Company may reduce the level of discretionary U.S. capital expenditures or
increase the sale of non-strategic oil and gas properties in order to meet such
obligations.
The timing of the Company's U.K. capital expenditures is determined annually
by a budget prepared by Burlington and approved by Alliance. Currently, there
are material commitments for the 2000 fiscal year. These commitments will be
met by funds available under the Company's credit facility and internally
generated cash flow.
The level of the Company's capital expenditures will vary in future periods
depending on energy market conditions and other related economic factors. As a
result, the Company will continue its current policy of funding capital
expenditures with funds available under its credit facility and internally
generated cash flow. (This is a forward-looking statement; refer to the
Cautionary Statement Regarding Forward Looking Statements).
FINANCING ARRANGEMENTS
Alliance entered into a Credit Agreement (the "Alliance Credit Agreement")
with the Bank of America effective May 1, 1997, amending and restating the
Group's previous credit agreement. A portion of the borrowings under the
Alliance Credit Agreement bore interest, payable monthly, at a rate equal to the
higher of the Bank of America Reference Rate plus 1% and the Federal Funds Rate
plus 1-1/4%. Another portion of the borrowings bore interest, payable monthly,
at a rate equal to the London Interbank Offered Rate plus 2%. The rate at April
30, 1998 was 7.875%. Principal payments were scheduled to commence on October
31, 1998. The note was scheduled to mature on March 31, 2000. Amounts
outstanding were secured by mortgages which cover the majority of the Group's
oil and gas properties.
In connection with the Difco Acquisition, the Company entered into agreements
with Bank of America National Trust & Savings Association ("BoA"), Alliance's
principal lender and EnCap Equity 1996 Limited Partnership and EnCap Capital
Investment Company PLC (collectively "EnCap") providing up to $64,750,000 in
debt, as follows:
BoA:
Tranche A $30,000,000
Tranche B 20,000,000
Tranche C 5,000,000
-----------
55,000,000
EnCap 9,750,000
-----------
$64,750,000
===========
Tranche A consists of a revolving credit facility secured by a first priority
lien and security interest in all of the oil and gas properties of the Company.
The Company's initial borrowing base is $18,500,000 and is redetermined
semiannually on January 31 and July 31. Interest is at a rate determined by the
Company from time to time, of either
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<PAGE>
(i) the greater of BoA's refernce rate and the federal funds effective rate plus
0.5%, or (ii) 2.0% above the current Interbank rate (7.5% at April 30, 1999).
While any Tranche B loan is outstanding, the preceding margins will be increased
by an additional 0.5% semi-annually on April 26 and on October 26 of each year.
Interest is payable quarterly and principal is due in equal quarterly payments
beginning October 30, 2000 and ending on October 30, 2003.
Tranche B consists of a credit facility secured by a first priority lien and
security interest in all of the oil and gas properties of the Company. Interest
is at a rate determined by the Company from time to time, of either (i) BoA's
Tranche B reference rate plus 2.0%, or (ii) 4.0% above the current Interbank
rate (9.0% at April 30, 1999). The margins for all Tranche B loans will be
increased by an additional 0.5% semi-annually on April 26 and on October 26 of
each year. Interest is payable quarterly and principal is due in full on
January 31, 2001.
Tranche C consists of a credit facility secured by a first priority lien and
security interest in all of the oil and gas properties of the Company. Interest
is at a rate determined by the Company from time to time, of either (i) BoA's
reference rate plus 5.0%, or (ii) 7.0% above the current Interbank rate (12.0%
at April 30, 1999). Interest is payable quarterly and principal is due in equal
quarterly payments beginning January 31, 2001 and ending on October 30, 2004.
The BoA debt facility contains various covenants, including, but not limited to,
maintenance of minimum current and interest coverage ratios, as defined in the
agreement.
EnCap debt is unsecured and bears interest at 10%. Interest is payable
quarterly and principal is due in full on October 30, 2005. Until October 30,
2001, the Company has the option, in lieu of paying cash, of increasing the
principal amount of the debt by the interest due.
The Company paid BoA a cash fee of $700,000 and granted BoA warrants to
purchase 3,275,000 ordinary shares at a price of 1p per share. The fair value
of the warrants $1,335,000 attaching to the debt was treated as a discount. In
addition, the Company will grant BoA an overriding royalty interest, valued at
the value of the underlying oil and gas reserves, in the U.K. Interests of 0.3%
beginning January 1, 2001. The overriding royalty interest will entitle BoA to
receive payment equal to the specified percentage of the net revenues generated
by the U.K. Interests and has the effect of reducing the Company's revenues
from the U.K. Interests. In connection with obtaining the debt financing from
BoA, the Company was required to enter into commodity price risk management
contract on terms that are mutually agreeable to BoA and the Company for a
period not less than two years with respect to at least 50% of the Company's
estimated producing reserves as of October 31, 1998. BoA also required the
Company to enter into interest rate risk management contracts providing for a
maximum interest rate of 9.0% on the notional amount projected to be outstanding
on the revolving credit facility.
The Company was not in compliance with certain covenants of the loan
agreements, which included but were not limited to the maintenance of minimum
levels of working capital and interest coverage. Prior to these violations
causing an event of default, which would have resulted in an acceleration of the
repayment of the loans, the Company obtained waivers from the lenders for all
covenant violations. Effective July 30, 1999 the loan agreement was amended to
revise the borrowing limit of Tranche B to $25,000,000 and reduce the limit of
Tranche A to a similar amount. This enabled the Company to borrow an additional
$5,000,000 as of July 30, 1999. The due date of Tranche B was extended from
January 31, 2001 to July 31, 2001. In addition, the date of the borrowing base
and collateral value redetermination scheduled to occur on July 31, 1999 was
deferred until December 31, 1999.
SEASONALITY
The results of operations of the Company are somewhat seasonal due to
fluctuations in the price for crude oil and natural gas. Recently, crude oil
prices have been generally higher in the third calendar quarter, and natural gas
prices have been generally higher in the first calendar quarter. Due to these
seasonal fluctuations, results of operations for individual quarterly periods
may not be indicative of results, which may be realized on an annual basis.
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<PAGE>
INFLATION AND PRICES
In recent years, inflation has not had a significant impact on the
operations or financial condition of the Company. The generally downward
pressure on oil and gas prices during most of such periods has been accompanied
by a corresponding downward pressure on costs incurred to acquire, develop, and
operate oil and gas properties as well as the costs of drilling and completing
wells on properties.
Prices obtained for oil and gas production depend upon numerous factors
that are beyond the control of the Company including the extent of domestic and
foreign production, imports of foreign oil, market demand, domestic and world-
wide economic and political conditions, and government regulations and tax laws.
Prices for oil and gas have fluctuated significantly in recent years.
The following table sets forth the average price received by the Company.
Oil Gas
--------- ----------
Year ended April 30, 1999 $13.20 $1.79
Year ended April 30, 1998 $15.75 $2.36
Nine months ended April 30, 1997 $15.34 $1.70
On October 31, 1998, the Company's commodity price hedge agreements
expired. During February 1999 the Company completed a transaction to hedge
approximately 65% of its existing monthly gas production by installing a floor
of $1.60/MMBTU and a cap of $2.07/MMBTU. This will protect the Company from any
severe declines in natural gas prices over the next six months and conversely
limit the benefit of prices in excess of the cap. During April 1999 the Company
completed a transaction to hedge approximately 40% of its existing monthly oil
production by installing a floor of $12.00/barrel. This will protect the
Company from any severe declines in oil prices over the next six months.
ISSUES RELATED TO THE YEAR 2000
GENERAL
The following Year 2000 statements constitute a Year 2000 Readiness
Disclosure within the meaning of the Year 2000 Information and Readiness
Disclosure Act of 1998. The Year 2000 problem has arisen because many existing
computer programs use only the last two digits to refer to a year. Therefore,
these computer programs do not properly recognize and process date-sensitive
information beyond 1999. In general, there are two areas where Year 2000
problems may exist for the Company: information technology such as computers,
programs and related systems ("IT") and non-information technology systems such
as embedded technology on a silicon chip ("Non IT").
THE PLAN
Alliance's Year 2000 Plan (the "Plan") has four phases: (i) assessment,
(ii) inventory, (iii) remediation, testing and implementation and (iv)
contingency plans. Approximately twelve months ago, the Company began its phase
one assessment of its particular exposure to problems that might arise as a
result of the new millennium. The assessment and inventory phases have been
substantially completed and have identified Alliance's IT systems that must be
updated or replaced in order to be Year 2000 compliant. Remediation, testing and
implementation are scheduled to be completed by September 30, 1999, and the
contingency plan phase of the Plan is scheduled to be completed by October 31,
1999. Alliance's assessment of the readiness of third parties whose IT systems
might have an impact on Alliance's business has thus far not indicated any
material problems.
20
<PAGE>
With regard to Alliance's Non IT systems, the Company believes that most of
these systems can be brought into compliance on schedule. Alliance's assessment
of third party readiness is not yet completed. Because the potential problem
with Non IT systems involves embedded chips, it is difficult to determine with
complete accuracy where all such systems are located. As part of its Plan, the
Company is making formal and informal inquiries of its vendors, customers and
transporters in an effort to determine the third party systems that might have
embedded technology requiring remediation.
ESTIMATED COSTS
Although it is difficult to estimate the total costs of implementing the
Plan through January 1, 2000 and beyond, Alliance's preliminary estimate is that
such costs will not be material. To date, the Company has determined that its IT
systems are either compliant or can be made compliant for less than $50,000.
However, although management believes that its estimates are reasonable, there
can be no assurance, for the reasons stated in the next paragraph, that the
actual cost of implementing the Plan would not differ materially from the
estimated costs.
POTENTIAL RISKS
The failure to correct a material Year 2000 problem could result in an
interruption in, or a failure of, certain normal business activities or
operations. This risk exists both as to Alliance's IT and Non IT systems, as
well as to the systems of third parties. Such failures could materially and
adversely affect Alliance's results of operations, cash flow and financial
condition. Due to the general uncertainty inherent in the Year 2000 problem,
resulting in part from the uncertainty of the Year 2000 readiness of third party
suppliers, vendors and transporters, the Company is unable to determine at this
time whether the consequences of Year 2000 failures will have a material impact
on Alliance's results of operations, cash flow or financial condition. Although
the Company is not currently able to determine the consequences of Year 2000
failures, its current assessment is that its area of greatest potential risk in
its third party relationships is in connection with the transporting and
marketing of the oil and gas produced by the Company. The Company is contacting
the various purchasers and pipelines with which it regularly does business to
determine their state of readiness for the Year 2000. Although the purchasers
and pipelines will not guaranty their state of readiness, the responses received
to date have indicated no material problems. The Company believes that in a
worst case scenario, the failure of its purchasers and transporters to conduct
business in a normal fashion could have a material adverse effect on cash flow
for a period of six to nine months. Alliance's Year 2000 Plan is expected to
significantly reduce Alliance's level of uncertainty about the compliance and
readiness of these material third parties. The evaluation of third party
readiness will be followed by Alliance's development of contingency plans.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
In addition, the dates for completion of the phases of the Year 2000 Plan
are based on Alliance's best estimates, which were derived using numerous
assumptions of future events. Due to the general uncertainty inherent in the
Year 2000 problem, resulting in part from the uncertainty of the Year 2000
readiness of third-parties and the interconnection of computer systems, the
Company cannot ensure its ability to timely and cost-effectively resolve
problems associated with the Year 2000 issue that may affect its operations and
business. Accordingly, shareholders and potential investors are cautioned that
certain events or circumstances could cause actual results to differ materially
from those projected, estimated or predicted.
QUANTITATIVE AND QUALITATIVE ANALYSIS ON MARKET RISK
The Company's primary market risks relate to changes in interest rates and
in the prices received from sales of oil and natural gas. The Company's primary
risk management strategy is to partially mitigate the risk of adverse changes in
its cash flows caused by increases in interest rates on its variable rate debt,
and decreases in oil and natural
21
<PAGE>
gas prices, by entering into derivative financial and commodity instruments,
including swaps, collars and participating commodity hedges. By hedging only a
portion of its market risk exposures, the Company is able to participate in the
increased earnings and cash flows associated with decreases in interest rates
and increases in oil and natural gas prices; however, it is exposed to risk on
the unhedged portion of its variable rate debt and oil and natural gas
production.
Historically, the Company has attempted to hedge the exposure related to its
variable rate debt and its forecasted oil and natural gas production in amounts
which it believes are prudent based on the prices of available derivatives and,
in the case of production hedges, the Company's deliverable volumes. The
Company attempts to manage the exposure to adverse changes in the fair value of
its fixed rate debt agreements by issuing fixed rate debt only when business
conditions and market conditions are favorable.
The Company does not use or hold derivative instruments for trading purposes
nor does it use derivative instruments with leveraged features. The Company's
derivative instruments are designated and effective as hedges against its
identified risks, and do not of themselves expose the Company to market risk
because any adverse change in the cash flows associated with the derivative
instrument is accompanied by an offsetting change in the cash flows of the
hedged transaction.
Personnel who have appropriate skills, experience and supervision carry out
all derivative activity. The personnel involved in derivative activity must
follow prescribed trading limits and parameters that are regularly reviewed by
senior management. The Company uses only well-known, conventional derivative
instruments and attempts to manage its credit risk by entering into financial
contracts with reputable financial institutions.
Following are disclosures regarding the Company's market risk sensitive
instruments by major category. Investors and other users are cautioned to avoid
simplistic use of these disclosures. Users should realize that the actual
impact of future interest rate and commodity price movements will likely differ
from the amounts disclosed below due to ongoing changes in risk exposure levels
and concurrent adjustments to hedging positions. It is not possible to
accurately predict future movements in interest rates and oil and natural gas
prices.
Interest Rate Risks (non-trading) - the Company uses both fixed and variable
rate debts to partially finance operations and capital expenditures. As of
April 30, 1999, the Company's debt consists of $39,830,348 in borrowings under
its Credit Agreement which bear interest at a variable rate, and $10,243,775 in
borrowings under its 10% Senior Subordinated Notes which bear interest at a
fixed rate. The Company hedges a portion of the risk associated with its
variable rate debt through derivative instruments which consist of interest rate
swaps and collars. Under the swap contracts, the Company makes interest
payments on its Credit Agreement as scheduled and receives or makes payments
based on the differential between the fixed rate of the swap and a floating rate
plus a defined differential. These instruments reduce the Company's exposure to
increases in interest rates on the hedged portion of its debt by enabling it to
effectively pay a fixed rate of interest or a rate, which only fluctuates within
a predetermined ceiling and floor. A hypothetical increase in interest rates of
two percentage points would cause a loss in income and cash flows of $800,000
during 1999, assuming that outstanding borrowings under the Credit Agreement
remain at current levels. This loss in income and cash flows would be offset by
a $0 increase in income and cash flows associated with the interest rate swap
and collar agreements that are in effect for 1999. A hypothetical decrease in
interest rates of two percentage points would cause an increase in the fair
value of $0 in the Company's Senior Subordinated Notes from their fair value at
April 30, 1999.
Commodity Price Risk (non trading) - The Company hedges a portion of the price
risk associated with the sale of its oil and natural gas production through the
use of derivative commodity instruments, which consist of collars and
participating hedges. These instruments reduce the Company's exposure to
decreases in oil and natural gas prices on the hedged portion of its production
by enabling it to effectively receive a fixed price on its oil and natural gas
sales or a price that only fluctuates between a predetermined floor and ceiling.
As of July 1, 1999, the Company had entered into derivative commodity hedges
covering an aggregate of 40,000 barrels of oil and 320,000 MMbtu's of
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<PAGE>
gas that extend through October 1999. Under these contracts, the Company sells
its oil and natural gas production at spot market prices and receives or makes
payments based on the differential between the contract price and a floating
price which is based on spot market indices. The amount received or paid upon
settlement of these contracts is recognized as oil or natural gas revenues at
the time the hedged volumes are sold. A hypothetical decrease in oil and natural
gas prices of 10% from the price in effect as of April 30, 1999, would cause a
loss in income and cash flows of $383,250 during 1999, assuming that oil and gas
production remain at current levels. This loss in income and cash flows would be
offset by a $0 increase in income and cash flows associated with the oil and
natural gas derivative contracts that are in effect.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Page
----
Independent Auditors' Report.............................................. F-2
Consolidated Balance Sheets............................................... F-3
Consolidated Statements of Operations..................................... F-5
Consolidated Statements of Changes in Stockholders' Equity................ F-6
Consolidated Statements of Cash Flows..................................... F-7
Notes to the Consolidated Financial Statements............................ F-8
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
John A. "Jak" Keenan, aged 45, is the Chairman and Managing Director
of Alliance. He has worked in the oil industry since 1976 and was successively
first vice president of corporate development, chief operating officer and
director and president of the oil and gas division of Great Western Resources,
Inc. He resigned his position at Great Western Resources, Inc. in August 1995
and accepted a position at the law firm of Jenkens & Gilchrist in Houston,
Texas, where he specialized in oil and gas transactions. He joined the Board of
Alliance in April 1996.
Michael E. Humphries, aged 42, is the Interim Finance Director of
Alliance. Having begun his career at Britoil Plc, he has spent 16 years working
in the international oil and gas arena and is currently Senior Vice President of
Rothschild Natural Resources, LLC, based in Washington DC, where he has
responsibility for Rothschild's oil and gas activities in North America. He
joined the Board of Alliance in December 1997.
Paul R. Fenemore, aged 43, is the Operations and Business Development
Director of Alliance. He has a B.Sc. degree in combined science obtained in
1975 and a M.Sc. degree in marine geotechnics. He has extensive experience in
detailed technical and economic evaluations of exploration and oil field
appraisal and development projects and project management and has held several
technical and senior management positions with Gulf Oil Corporation, Amoco
Europe and West Africa Limited, Amerada-Hess UK Limited, Hamilton Brothers (UK)
Limited, CSX Oil and Gas Corporation, Cairn Energy PLC and Hunting Surveys
Limited. From 1991 until 1995, he was managing director of Petroleum Ventures
International and Spectron Petroleum Limited and became a fellow of the
Geological Society in 1992. He joined the Board of Alliance in May 1996.
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<PAGE>
Phillip Douglas, aged 60, is a non-executive Director of Alliance. He was
a director and head of international investment at Morgan Grenfell for 16 years
and was a director of G T Management. He also has a number of other non-
executive directorships in public and private companies. He joined the Board of
Alliance in November 1993.
William J. A. Kennedy, aged 60, is a non-executive Director of Alliance.
After 25 years experience in the investment industry, he became vice president
of a major conglomerate, Crownx, Inc. For the past nine years, he has operated
a management consulting service and sits on the board of two public Canadian
companies. He joined the Board of Alliance in January 1994.
John R. Martinson, aged 63, is a non-executive Director of Alliance. He has
a B.Sc. degree in engineering and a masters degree in business administration.
He became a director of LaTex in May 1995, having served as a consultant to that
company since 1994. He is Managing Director of Wood Roberts, LLC, where he has
been engaged in financial consulting since January 1989. From 1973 to 1988, Mr.
Martinson was an independent oil and gas entrepreneur. Previously, he was with
Kidder Peabody & Co., Oppenheimer & Co. and Mobil Corporation. He joined the
Board of Alliance in May 1997.
Other Key Employees and their Business Histories
In addition to the Executive Directors, the Company employs two senior
executives. The names, current ages and positions of these other key employees
are as follows:
Name Age Position
---- --- --------
Francis M. Munchinski 45 General Counsel
Robert E. Schulte 41 Controller
Francis M. Munchinski is the General Counsel of Alliance. He is a U.S.
citizen and a doctor of law. Prior to joining the Company in June 1998, he was
a shareholder at the law firm of Jenkens & Gilchrist in Dallas, Texas where he
specialized in oil and gas law for over 13 years. Mr. Munchinski has been
involved in the oil and gas business for over 18 years.
Robert E. Schulte is the Controller of Alliance. He is a U.S. citizen and
has a B.S. degree in accounting. He has worked in the oil and gas industry
since 1981 in both domestic and international arenas. He has held management
positions with Bow Valley Petroleum, Kelt Energy, Great Western Resources and
Apache Corporation before joining Alliance in September 1997.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth certain information regarding compensation
paid or accrued during each of the Company's last three fiscal years to the
Company's Managing Director, John A. Keenan and each of the other most highly
compensated executive officers who earned at least $100,000 in salary and bonus
in fiscal 1999 (the "Named Executives"):
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<PAGE>
Summary Compensation Table
<TABLE>
<CAPTION>
Long Term
Annual Compensation Compensation
----------------------------- ----------------------
Securities
Underlying All Other
Name and Principal Position Fiscal Year Salary ($) Bonus ($) Options/SARs (#) Compensation ($)
- -------------------------------- --------------- -------------- ------------- ---------------------- ----------------------
<S> <C> <C> <C> <C> <C>
John A. Keenan.................. 1999 162,000 75,000 890,000 22,500
Managing Director(1) 1998 174,500 30,000 400,000 107,103
1997 150,333 -- 150,000 5,061
Paul R. Fenemore................ 1999 172,000 45,000 670,000 10,000
Operations and Business 1998 164,990 20,000 200,000 8,361
Development Director(2) 1997 142,789 -- 25,000 --
Francis M. Munchinski........... 1999 75,833 42,000 520,000 8,526
General Counsel(3) 1998 -- -- -- --
1997 -- -- -- --
Robert E. Schulte............... 1999 82,083 42,000 285,000 10,321
Controller(4) 1998 45,569 4,000 25,000 4,208
1997 -- -- -- --
</TABLE>
(1) Mr. Keenan assumed his position with Alliance on May 22, 1996. Amounts
shown under All Other Compensation in 1999 represent pension and benefits.
Amounts shown under All Other Compensation in 1998 represent relocation
expenses.
(2) Mr. Fenemore assumed his position with Alliance on May 21, 1996. Amounts
shown under All Other Compensation in 1999 represent pension.
(3) Mr. Munchinski assumed his position with Alliance on June 16, 1998.
Amounts shown under All Other Compensation in 1999 represent relocation
expenses and benefits.
(4) Mr. Schulte assumed his position with Alliance on September 17, 1997.
Amounts shown under All Other Compensation in 1999 represent relocation
expenses and benefits.
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<PAGE>
Options Grants in Last Fiscal Year
The following table sets forth all individual grants of options to the
Named Executives of the Company during the fiscal year ended April 30, 1999.
<TABLE>
<CAPTION>
Individual Grants Potential Realizable
- ----------------- Value at Assumed
Annual Rates of Stock
Price Appreciation
For Option Term
-----------------------
% Of Total
Securities Options
Underlying Granted to Exercise or
Options Employees in Base Expiration
Name Granted(#) Fiscal Year Price(1)($) Date 5% ($) 10% ($)
---- ---------- ---------------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
John A. Keenan.................. 890,000 37.6 13.5p 11/29/08 195,844.50 311,188.50
Managing Director
Paul R. Fenemore................ 670,000 28.3 13.5p 11/29/08 147,433.50 234,265.50
Operations and Business
Development Director
Francis M. Munchinski........... 520,000 22.0 13.5p 11/29/08 114,426.00 181,818.00
General Counsel
Robert E. Schulte............... 285,000 12.1 13.5p 11/29/08 62,714.25 99,650.25
Controller
</TABLE>
(1) Represents the closing mid-market price of the ordinary shares on the London
Stock Exchange on November 27, 1998.
Fiscal Year End Option Values
Shown below is information with respect to the Named Executives of the
Company regarding option exercises during the fiscal year ended April 30, 1999,
and the value of unexercised options held as of April 30, 1999.
<TABLE>
<CAPTION>
Number of Securities Underlying Value of Unexercised
Unexercised Options In-the-Money
at April 30, 1999 Options at April 30, 1999
-------------------------------------- -------------------------------------
Name Unexercisable Exercisable Unexercisable Exercisable
---- ------------------ ------------------ ----------------- ------------------
<S> <C> <C> <C> <C>
John A. Keenan.......................... 1,290,000 -- -- --
Managing Director
Paul R. Fenemore........................ 870,000 -- -- --
Operations and Business
Development Director
Francis M. Munchinski................... 520,000 -- -- --
General Counsel
Robert E. Schulte....................... 310,000 -- -- --
Controller
</TABLE>
26
<PAGE>
Employment Agreements
Each of Messrs. Keenan, Fenemore, Munchinski, and Schulte have entered into
Executive Service Agreements with Alliance providing for his employment in his
current capacity for an initial fixed term of two years beginning October 15,
1996, September 20, 1996, January 1, 1999 and January 1, 1999, respectively, and
having automatic extensions of the initial term for additional two-year periods
unless written notice of either party's intention not to extend has been given
to the other party at least three months prior to the expiration of the then
effective two-year period of employment, provided that the executive may at any
time terminate his employment by giving a minimum of three months notice. If the
executive's employment terminates for any reason other than the executive's
breach of the agreement, disability or malfeasance, Alliance must pay the
executive an amount equal to twice the annual salary, bonuses and benefits paid
to the executive. Upon the involuntary termination of the executive's employment
without cause or voluntary termination by the executive after a change in his
office location, his responsibilities or reduction in compensation following a
change in control of Alliance, the executive is entitled to the payment of one
lump sum of cash in an amount equal to two and a half times the annual salary,
bonus and benefits paid to the executive.
The annual salary under each agreement is $180,000 for Mr. Keenan,
(pounds)100,000 for Mr. Fenemore, $140,000 for Mr. Munchinski and $100,000 for
Mr. Schulte, plus any bonuses or other compensation determined by Alliance's
Board of Directors in its discretion.
Compensation of Directors
The compensation of the non-executive directors is reviewed by the Board of
Directors from time to time to ensure that this compensation is in line with
current market practice. Under Alliance's Articles of Association, shareholders
determine the maximum aggregate amount payable by way of fees to directors and
this maximum amount is currently fixed at (Pounds)100,000 per year. During the
twelve months ended April 30, 1999, the following directors were paid the
indicated fees for their services as directors: Mr. Douglas $16,000, Mr. Kennedy
$16,000, Mr. Samuelson $12,000, Mr. Martinson $12,000 and Mr. Humphries $12,525.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information, as of April 30, 1999, with
respect to the beneficial ownership of Shares (i) by any person or "group," as
that term is used in Section 13(d)(3) of the Securities Exchange Act of 1934,
known to the Company to own beneficially more than 5% of the outstanding Shares,
(ii) by each director, including executive directors, and each other key
employee of the Company named in the Summary Compensation Table, and (iii) by
all directors, including executive directors, and all key employees of the
Company as a group. Except as otherwise indicated, each of the persons named
below is believed by the Company to possess sole voting and investment power
with respect to the Shares beneficially owned by such person.
<TABLE>
<CAPTION>
Name and Address of Shares Owned Percent Owned
Beneficial Owner(1) Beneficially Beneficially
- ------------------- ------------ -----------
<S> <C> <C>
John A. Keenan........................................... 1,390,000(2) 2.6%
Paul R. Fenemore......................................... 870,000(3) 1.7%
Francis M. Munchinski.................................... 520,000(4) 1.0%
Robert E. Schulte........................................ 310,000(5) *
Michael E. Humphries..................................... - -
</TABLE>
27
<PAGE>
<TABLE>
<S> <C> <C>
William J.A. Kennedy..................................... 4,125 *
Philip Douglas........................................... 99,583 *
John R. Martinson........................................ 778,987(6) 1.5%
Enron Reserve Acquisition Corp. (7)...................... 3,239,708 6.2%
LaSalle Street Natural Resources Corporation(8).......... 7,179,519 12.3%
EnCap Equity 1996 Limited Partnership(9)................. 11,250,000 21.4%
Energy Capital Investment Company PLC(10)................ 3,750,000 7.1%
EnCap Investments L.C.(11)............................... 15,545,454 29.6%
All Directors, including executive directors, and all
key employees of Alliance as a group
(8 persons) (2), (3), (4), (5), (6)................... 3,972,695 5.7%
</TABLE>
- --------------------------------
* Less than 1%
(1) All of the Company's directors may be contacted at 12 St. James's Square,
London SW1Y 4RB.
(2) Includes options to purchase 1,290,000 Shares granted pursuant to the
Company's executive share option plans.
(3) Consists of options to purchase 870,000 Shares granted pursuant to the
Company's executive share option plans.
(4) Consists of options to purchase 520,000 Shares granted pursuant to the
Company's executive share option plans.
(5) Consists of options to purchase 310,000 Shares granted pursuant to the
Company's executive share option plans.
(6) Includes presently exercisable warrants to purchase 374,877 Shares held by
Wood Roberts, Inc., a corporation under the control of Mr. Martinson and
presently exercisable warrants to purchase 218,334 Shares held by Wood
Roberts, LLC, a Texas limited liability company 50% owned by Mr. Martinson.
(7) The address of Enron Reserve Acquisition Corp. is 1400 Smith Street,
Houston, Texas 77002. After April 30, 1999, Enron Reserve Acquisition
Corp. advised the Company that it sold all of its shares.
(8) Consists of 1,500,000 Shares, convertible loan notes and immediately
exercisable warrants convertible into or exercisable for 2,404,519 Shares
issued to an affiliate of Bank of America and warrants to purchase
3,275,000 Shares at a price of 1p per share. The address of LaSalle Street
Natural Resources is 231 S. LaSalle Street, Chicago, Illinois 60697.
(9) The address of EnCap Equity 1996 Limited Partnership is 1100 Louisiana,
Suite 3150, Houston, Texas 77002. EnCap Equity 1996 Limited Partnership
shares voting and dispositive power with EnCap Investments L.C., its
general partner.
28
<PAGE>
(10) The address of Energy Capital Investment Company PLC is c/o Aberdeen Asset
Management, 1 Bow Churchyard, Cheapside, London EC4M 9HH, England. Energy
Capital Investment Company PLC shares dispositive and voting power over
these shares with EnCap Investments L.C.
(11) The address of EnCap Investments L.C. is 1100 Louisiana, Suite 3150,
Houston, Texas 77002. EnCap Investments L.C. shares dispositive and voting
power over 15,000,000 of these shares with EnCap Equity 1996 Limited
Partnership and Energy Capital Investment Company PLC.
(12) In addition to the interests set out above, John A. Keenan is interested in
45,000 Shares held in the name of Diamond Securities Limited and 102,500
Shares held in the name of Havensworth Limited by virtue of having proxy
over the voting rights attached to these Shares pending their sale, as
required by a settlement of legal proceedings with the former Managing
Director of the Company in August 1996.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Financial Statements (included at Item 8. Financial Statements and
Supplementary Data)
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company with the Securities and
Exchange Commission during the fourth quarter of the Company's fiscal year
ended April 30, 1999.
(c) Exhibits.
Exhibit Description
- ------- -----------
3.1(3) Memorandum of Association of Alliance Resources Plc (3.1)
3.2(3) Articles of Association of Alliance Resources Plc (3.7)
3.3(2) Form of Warrant Agreement relating to Warrants issued to Society
National Bank as Warrant Agent for holders of certain LaTex Warrants
(3.3)
3.4(2) Warrant Agreement and form of Warrant issued to all other holders of
LaTex Warrants (3.4)
3.5(2) Form of Convertible Loan Note Instrument entered into between
Alliance Resources Plc and Bank of America NT & SA (3.5)
3.6(2) Registration Rights Agreement between Alliance Resources Plc and
affiliate of Bank of America NT & SA (3.6)
10.1(1)(2) Executive Service Agreement between Alliance Resources Plc and John
A. Keenan dated October 15, 1996 as amended by Supplemental
Agreement dated April 7, 1998 and Second Supplemental Agreement
dated as of December 1, 1998 (10.1)
10.2(1)(2) Executive Service Agreement between Alliance Resources Plc and Paul
R. Fenemore dated September 20, 1996 as amended by Supplemental
Agreement dated April 16, 1998 and Second Supplemental Agreement
dated as of December 1, 1998 (10.2)
10.3(1) Executive Service Agreement between Alliance Resources Plc and
Francis M. Munchinski dated as of December 1, 1998.
29
<PAGE>
10.4(1) Executive Service Agreement between Alliance Resources Plc and
Robert E. Schulte dated as of December 1, 1998.
10.5(3) Purchase Agreement dated October 27, 1998, by and between Alliance
Resources PLC and EnCap Equity 1996 Limited Partnership and Energy
Capital Investment Company Plc.
10.6 First Amendment to the Purchase Agreement, dated effective as of
July 30, 1999.
10.7(3) Registration Rights Agreement dated as of October 30, 1998 by and
between Alliance Resources PLC, EnCap Equity 1996 Limited
Partnership, Energy Capital Investment Company Plc and EnCap
Investments, L.C.
10.8(3) Third Amended and Restated Credit Agreement dated as of October 27,
1998, among Alliance Resources PLC and certain of its subsidiaries
and Bank of America National Trust and Savings Association.
10.9 First Amendment to the Third Amended and Restated Credit Agreement,
dated effective as of July 30, 1999.
10.10(3) Registration Rights Agreement dated as of October 30, 1998 between
the Company and LaSalle Street Natural Resources Corporation.
10.11(3) Registration Rights Agreement dated as of October 30, 1998, among
Alliance Resources PLC and F. Fox Benton and certain members of his
family.
10.12 Exchange and Merger Agreement by and among American Rivers Oil
Company, a Wyoming corporation, American Rivers Oil Company, a
Delaware corporation, and Alliance Resources Plc, dated July 22,
1999.
22.1 Subsidiaries
- -------------
(1) Constitutes compensation plan or arrangement
(2) Incorporated by reference from the indicated exhibit filed with Alliance's
Registration Statement on Form F-4 (No. 333-19013).
(3) Incorporated by reference from the indicated exhibit filed with Alliance's
Form 8-K filed November 16, 1998.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Alliance Resources PLC
Date: August 12, 1999 /s/ John A. Keenan
---------------------
John A. Keenan, Chairman
and Managing Director
Pursuant to the requirements of the Securities Act of 1934, this Report has been
signed below by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated:
Signature Title Date
--------- ----- ----
/s/ John A. Keenan Chairman and Managing Director August 12, 1999
- -------------------------
John A. Keenan
/s/ Paul R Fenemore Operations and Business Development August 12, 1999
- ------------------------- Director
Paul R Fenemore
30
<PAGE>
/s/ Phillip Douglas Director August 12, 1999
- -------------------------
Phillip Douglas
/s/ William J A Kennedy Director August 12, 1999
- -------------------------
William J A Kennedy
/s/ Michael E Humphries Director August 12, 1999
- -------------------------
Michael E Humphries
/s/ John R Martinson Director August 12, 1999
- -------------------------
John R Martinson
31
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Page
----
Independent Auditors' Report.............................................. F-2
Consolidated Balance Sheets............................................... F-3
Consolidated Statements of Operations..................................... F-5
Consolidated Statements of Changes in Stockholders' Equity................ F-6
Consolidated Statements of Cash Flows..................................... F-7
Notes to the Consolidated Financial Statements............................ F-8
F-1
<PAGE>
Independent Auditors' Report
Board of Directors
Alliance Resources PLC and Subsidiaries
We have audited the consolidated balance sheets of Alliance Resources PLC and
subsidiaries as of April 30, 1998 and 1999 and the related consolidated
statements of operations, stockholders' equity, and cash flows for the nine
months ended April 30, 1997 and the years ended April 30, 1998 and 1999. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards
in the United States. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Alliance Resources PLC and subsidiaries as of April 30, 1998 and 1999, and the
results of their operations and their cash flows for the nine months ended April
30, 1997 and the years ended April 30, 1998 and 1999, in conformity with
generally accepted accounting principles in the United States.
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. As discussed in Note 1 to the consolidated
financial statements, the Company has suffered recurring losses from operations,
has a net capital deficiency and is obliged to commence repayments on its
borrowings on October 30, 2000. These matters raise substantial doubt about the
Company's ability to continue as a going concern. Management's plans in regard
to these matters are also described in Note 1. The consolidated financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
KPMG Audit Plc
London, United Kingdom
August 12, 1999
F-2
<PAGE>
ALLIANCE RESOURCES PLC AND SUBSIDIARIES
Consolidated Balance Sheets
April 30, 1998 and 1999
<TABLE>
<CAPTION>
Assets 1998 1999
------ ------------ ------------
<S> <C> <C>
Current assets:
Cash $ 408,439 $ 286,158
Accounts receivable 2,132,654 2,105,082
Other current assets 73,977 59,837
------------ ------------
Total current assets 2,615,070 2,451,077
------------ ------------
Property and equipment, at cost
Oil and gas properties, full cost method:
United States 43,200,388 42,901,608
United Kingdom - 31,054,083
Other depreciable assets 1,029,118 1,095,147
------------ ------------
44,229,506 75,050,838
Less accumulated depreciation, depletion, and (14,421,400) (44,695,726)
impairments ------------ ------------
Net property, plant and equipment 29,808,106 30,355,112
------------ ------------
Other assets:
Deposits and other assets 144,989 141,422
Deferred acquisition costs 970,305 -
Deferred loan costs, less accumulated amortization 1,221,650 3,215,384
------------ ------------
$ 34,760,120 $ 36,162,995
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
ALLIANCE RESOURCES PLC AND SUBSIDIARIES
Consolidated Balance Sheets
April 30, 1998 and 1999
(continued)
<TABLE>
<CAPTION>
Liabilities and Stockholders' Equity 1998 1999
------------------------------------ ------------ ------------
<S> <C> <C>
Current liabilities:
Accounts payable - trade $ 8,972,704 $ 7,238,502
Accrued expenses payable 847,190 833,750
Current portion of long-term debt 2,275,000 -
------------ ------------
Total current liabilities 12,094,894 8,072,252
Long-term liabilities:
Long-term debt, less current portion 18,791,762 43,176,621
Other liabilities 139,626 -
Convertible subordinated unsecured loan notes 1,550,700 1,550,700
------------ ------------
Total liabilities 32,576,982 52,799,573
------------ ------------
Stockholders' equity:
Ordinary Shares-par value 40 pence;
46,000,000 shares authorized; 31,209,408 issued and outstanding
at April 30, 1998 20,114,634 -
Ordinary Shares - par value 1 pence;
415,001,376 authorized; 47,487,142 issued and outstanding
at April 30, 1999 - 768,823
Deferred Shares - par value 1 pence;
1,414,998,624 authorized; 1,217,155,912 issued and
outstanding at April 30, 1999 - 19,611,767
Convertible Shares - par value 1 pence;
10,000,000 authorized; 10,000,000 issued and outstanding
at April 30, 1999 - 278,000
Additional paid-in capital 5,911,050 21,042,094
Accumulated other comprehensive income(loss) 13,823 (17,391)
Accumulated deficit (23,856,369) (58,319,871)
------------ ------------
Total stockholders' equity(deficit) 2,183,138 (16,636,578)
------------ ------------
Commitments (Note 13)
$ 34,760,120 $ 36,162,995
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
ALLIANCE RESOURCES PLC AND SUBSIDIARIES
Consolidated Statements of Operations
Nine Months Ended April 30, 1997
and Years Ended April 30, 1998 and 1999
<TABLE>
<CAPTION>
Nine months
ended Year ended Year ended
April 30, 1997 April 30, 1998 April 30, 1999
-------------- -------------- --------------
<S> <C> <C> <C>
Revenues
Oil and gas revenue $ 5,698,490 $10,209,881 $ 6,234,477
Crude oil and gas marketing 146,381 - -
----------- ----------- ------------
Total revenues 5,844,871 10,209,881 6,234,477
----------- ----------- ------------
Operating expenses
Lease operating expenses 3,117,341 5,505,826 3,096,468
Cost of crude oil and gas marketing 15,798 - -
General and administrative expenses 3,481,003 3,363,885 3,486,007
Depreciation, depletion, and amortization 1,541,415 2,598,066 1,670,711
Impairment of oil and gas properties - - 28,260,037
Loss on termination of derivative contracts - 1,128,000 -
----------- ----------- ------------
Total operating expenses 8,155,557 12,595,777 36,513,223
----------- ----------- ------------
Loss from operations (2,310,686) (2,385,896) (30,278,746)
----------- ----------- ------------
Other income (expense):
Write-off of deferred loan costs - - (869,906)
Interest expense (2,102,933) (2,573,646) (3,354,627)
Interest income 52,038 62,226 26,299
Miscellaneous income (expense) ( 27,752) 132,951 22,662
Gain (loss) on sale of assets - 35,442 (9,184)
----------- ----------- ------------
Total other income (expense) (2,078,647) (2,343,027) (4,184,756)
----------- ----------- ------------
Net loss (4,389,333) (4,728,923) (34,463,502)
Preferred stock dividends (517,613) - -
----------- ----------- ------------
Net loss for ordinary
shareholders $(4,906,946) $(4,728,923) $(34,463,502)
=========== =========== ============
Basic loss per ordinary share $ (0.30) $ (0.15) $ (0.82)
=========== =========== ============
Weighted average number of shares outstanding 16,585,113 31,125,689 41,935,718
=========== =========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
Alliance Resources PLC and Subsidiaries
Consolidated Statements of Stockholders'
Equity (Deficit) and Comprehensive Income
Nine Months Ended April 30, 1997
and Years Ended April 30, 1998 and 1999
<TABLE>
<CAPTION>
Additional
Preferred Ordinary Deferred Convertible Paid-in
Stock Shares Shares Shares Capital
------------ ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
Balance at July 31, 1996 $ 2,680,411 $ 10,681,373 $ -- $ -- $ 5,193,888
Issuance of 85,986 shares for services -- 55,857 -- -- 44,143
Issuance of 1,453,079 shares for
employee bonuses -- 943,920 -- -- (415,795)
Issuance of 51,735 shares for dividends 190,703 -- -- -- 326,910
Net loss -- -- -- -- --
------------ ------------ ------------ ------------ ------------
Balance at April 30, 1997 2,871,114 11,681,150 -- -- 5,149,146
Issuance of 4,419,818 shares for
preferred shares (2,871,114) 2,871,114 -- -- --
Issuance of 8,103,816 shares to Alliance
shareholders -- 5,105,550 -- -- (1,066,211)
Issuance of 1,343,750 shares for acquisition
of overriding royalty interest -- 872,900 -- -- 1,498,400
Issuance of 256,250 shares for settlement
of various advisory and banking fees -- 165,904 -- -- 187,096
Issuance of 56,805 shares for warrants -- 37,148 -- -- 12,852
Cancellation of 953,099 treasury shares -- (619,132) -- -- 129,767
Comprehensive income:
Foreign exchange adjustment -- -- -- -- --
Net loss -- -- -- -- --
Total comprehensive loss
------------ ------------ ------------ ------------ ------------
Balance at April 30, 1998 -- 20,114,634 -- -- 5,911,050
Capital reorganization -- (19,611,767) 19,611,767 -- --
Issuance of 10,000,000 shares for Difco Limited -- -- -- 278,000 6,930,000
Issuance of 15,545,454 shares to lender -- 254,000 -- -- 6,398,000
Warrants issued to principal lender -- -- -- -- 1,335,000
Issuance of 732,280 shares for services -- 11,956 -- -- 468,044
Comprehensive income:
Foreign exchange adjustment -- -- -- -- --
Net loss -- -- -- -- --
Total comprehensive loss
------------ ------------ ------------ ------------ ------------
Balance at April 30, 1999 $ -- $ 768,823 $ 19,611,767 $ 278,000 $ 21,042,094
------------ ------------ ------------ ------------ ------------
<CAPTION>
Accumulated
Other
Comprehensive Accumulated Treasury
Income (Loss) Deficit Stock Total
------------- ------------- ------------ ------------
<S> <C> <C> <C> <C>
Balance at July 31, 1996 $ -- $(14,220,500) $ (489,365) $ 3,845,807
Issuance of 85,986 shares for services -- -- -- 100,000
Issuance of 1,453,079 shares for
employee bonuses -- -- -- 528,125
Issuance of 51,735 shares for dividends -- (517,613) -- --
Net loss -- (4,389,333) -- (4,389,333)
------------ ------------ ------------ ------------
Balance at April 30, 1997 -- (19,127,446) (489,365) 84,599
Issuance of 4,419,818 shares for
preferred shares -- -- -- --
Issuance of 8,103,816 shares to Alliance
shareholders -- -- -- 4,039,339
Issuance of 1,343,750 shares for acquisition
of overriding royalty interest -- -- -- 2,371,300
Issuance of 256,250 shares for settlement
of various advisory and banking fees -- -- -- 353,000
Issuance of 56,805 shares for warrants -- -- -- 50,000
Cancellation of 953,099 treasury shares -- -- 489,365 --
Comprehensive income:
Foreign exchange adjustment 13,823 -- -- 13,823
Net loss -- (4,728,923) -- (4,728,923)
------------
Total comprehensive loss (4,715,100)
------------ ------------ ------------ ------------
Balance at April 30, 1998 13,823 (23,856,369) -- 2,183,138
Capital reorganization -- -- -- --
Issuance of 10,000,000 shares for Difco Limited -- -- -- 7,208,000
Issuance of 15,545,454 shares to lender -- -- -- 6,652,000
Warrants issued to principal lender -- -- -- 1,335,000
Issuance of 732,280 shares for services -- -- -- 480,000
Comprehensive income:
Foreign exchange adjustment (31,214) -- -- (31,214)
Net loss -- (34,463,502) -- (34,463,502)
------------
Total comprehensive loss (34,494,716)
------------ ------------ ------------ ------------
Balance at April 30, 1999 $ (17,391) $(58,319,871) $ -- $(16,636,578)
------------ ------------ ------------ ------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
ALLIANCE RESOURCES PLC AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Nine Months Ended April 30, 1997
and Years Ended April 30, 1998 and 1999
<TABLE>
<CAPTION>
Nine months
ended Year ended Year ended
April 30, April 30, April 30,
1997 1998 1999
----------- ----------- ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $(4,389,333) $(4,728,923) $(34,463,502)
Adjustments to reconcile net loss to net
cash provided by (used in) operating activities:
Depreciation, depletion and amortization 1,541,415 2,598,066 1,670,711
Write-off of deferred loan costs - - 869,906
Impairment of oil and gas properties - - 28,260,037
Other amortization 394,000 813,096 1,289,493
Employee bonus 528,125 - -
(Gain)loss on sale of assets - (35,442) 9,184
Changes in assets and liabilities, net of
effects from acquisition:
Accounts receivable 1,204,903 487,427 27,572
Due from related parties 392,297 - -
Other assets 161,530 97,500 17,707
Accounts payable 2,239,165 (4,032,763) (1,519,293)
Accrued expenses payable (169,319) 409,454 (13,440)
Other liabilities 195,783 (792,554) (139,626)
----------- ----------- ------------
Net cash provided by (used in) operating 2,098,566 (5,184,139) (3,991,251)
activities ----------- ----------- ------------
Cash flows from investing activities:
Proceeds from sale of property and equipment 1,573,625 5,729,300 1,742,336
Purchases of property and equipment, including (350,322) (2,407,162) (3,829,425)
interest capitalized
Acquisition of Difco - (221,987) (22,087,667)
Decrease in accounts and notes receivable-other 1,273,320 - -
Effect of LaTex acquisition - (15,181) -
----------- ----------- ------------
Net cash provided by (used in) investing activities $ 2,496,623 $ 3,084,970 $(24,174,756)
----------- ----------- ------------
Cash flows from financing activities:
Deferred loan and reorganization costs $ (401,208) $ (385,680) $ (1,213,635)
Proceeds from issuance of long-term debt - 2,770,340 45,464,123
Exercise of warrants - 50,000 -
Payments of long-term debt (4,140,370) - (22,566,762)
Proceeds from issuance of stock - - 6,360,000
----------- ----------- ------------
Net cash provided by (used in) financing activities (4,541,578) 2,434,660 28,043,726
----------- ----------- ------------
Net increase (decrease) in cash 53,611 335,491 (122,281)
Cash at beginning of period 19,337 72,948 408,439
----------- ----------- ------------
Cash at end of period $ 72,948 $ 408,439 $ 286,158
=========== =========== ============
Supplemental disclosures of cash flow information-
Cash paid during the period for interest $ 1,623,985 $ 1,634,360 $ 2,910,000
=========== =========== ============
Supplemental disclosure of noncash investing and
financing activities:
Common stock issued for services and bonus $ 100,000 $ 353,000 $ 772,000
Shares issued for employee bonus 462,500 - -
Issuance of convertible loan notes - 150,000 -
Common stock issued on acquisition of LaTex - 4,039,339 -
Common stock issued for overriding royalty - 2,371,300 -
Convertible loan notes issued for overriding royalty - 1,400,700 -
Convertible shares issued to Difco shareholders - - 7,208,000
Overriding royalty interest conveyed to bank - - (2,100,000)
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
ALLIANCE RESOURCES PLC AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(1) Organization and Summary of Significant Accounting Policies
Organization and basis of presentation
Alliance Resources PLC ("Alliance" or "the Company") and its subsidiaries
are engaged in the exploration, development and production of oil and gas
and, until April 30, 1997, oil and gas marketing. Oil and gas production
operations are currently conducted principally in Oklahoma, Texas,
Louisiana, Mississippi and Alabama. The Company acquired proved
undeveloped oil and gas interests in the East Irish Sea effective October
30, 1998 (See Note 2). Included in oil and gas revenue are sales from 10
significant producing properties which aggregated approximately $2,700,000,
$2,210,000, and $2,155,000 for the nine months ended April 30, 1997, and
years ended April 30, 1998 and 1999, respectively.
Alliance is a London-based public limited company organized under the laws
of England and Wales and its shares are listed on the London Stock
Exchange. The Company prepares its statutory financial statements in
accordance with U.K. law and U.K. generally accepted accounting principles.
These financial statements are prepared in accordance with generally
accepted accounting principles in the United States.
On May 1, 1997, Alliance completed its acquisition of LaTex Resources, Inc.
("LaTex"), a US independent oil and gas exploration and production company.
As the LaTex shareholders had a controlling interest in the combined group,
LaTex was treated as having acquired Alliance ("Reverse Acquisition").
Accordingly, in the consolidated financial statements for the period
beginning May 1, 1997, the assets and liabilities of Alliance are recorded
at fair values while the assets and liabilities of LaTex and its
subsidiaries are recorded at their historical costs. The consolidated
financial statements of the Company for the nine months ended April 30,
1997, reflect the results of operations and assets and liabilities of LaTex
and its subsidiaries. Adjustments have been made to reflect, in that
period, the changes in the capital structure resulting from the
acquisition. Earnings per share have been restated on the basis of the
number of Alliance shares which, based on the exchange ratio used in the
acquisition, represents the weighted average number of LaTex common shares
outstanding in the relevant period.
In these financial statements the "Group" refers to Alliance and its
subsidiaries for periods ending on or after May 1, 1997 and to LaTex
Resources, Inc. and its subsidiaries for periods ending on or before April
30, 1997.
Financial Condition
The accompanying financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and satisfaction of
liabilities in the normal course of business. As shown in the financial
statements during the nine months ended April 30, 1997 and the years ended
April 30, 1998 and 1999, the Company incurred losses of $4,389,333;
$4,728,923; and $34,463,502, respectively, continues to experience working
capital deficits and is obliged to commence repayments on the borrowings on
October 30, 2000. These factors among others may indicate the Company will
be unable to continue as a going concern for a reasonable period of time.
The financial statements do not include any adjustments relating to the
recoverability and classification of liabilities that might be necessary
should the Company be unable to continue as a going concern. Despite its
negative cash flow, the Company has been able to secure financing to
support its operations to date. As described in note 7, the Company was
not in compliance with certain covenants of its loan agreements at April
30, 1999, but a waiver was obtained for such violations. The Company has
also reached agreement with its principal bank to amend certain provisions
of the loan agreement to allow for additional borrowing capacity under
Tranche B, to defer the borrowing base redetermination date from July 31,
1999 to December 31, 1999 and extend the repayment due date to July 31,
2001. The amendment does not, however, change the scheduled repayment
dates of Tranche A which commence on October 30, 2000.
F-8
<PAGE>
ALLIANCE RESOURCES PLC AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
The Company's continuation as a going concern is dependent upon its ability
to generate sufficient cash flow to meet is obligations on a timely basis,
to continue to comply with the terms of its borrowing agreements, to obtain
additional financing or refinancing as will be required and ultimately to
attain profitability. Management believes it has a business plan that, if
successfully executed, will achieve these objectives.
Reporting Currency
The current operations are in the oil and gas industry in the United States
and the United Kingdom and are conducted through subsidiaries, LaTex
Petroleum Corporation, Alliance Resources (USA) Inc., Germany Oil Company,
Difco Limited, and Source Petroleum Inc. Transactions are conducted
primarily in U.K. Sterling and US dollars. The directors consider that the
US dollar is the functional currency of the Group and the Group's
consolidated financial statements have been prepared in US dollars.
Consolidation
The consolidated financial statements comprise the financial statements of
the Company and all other companies in which the Group's holding exceeds 50
percent. Transactions and balances between group companies are eliminated
on consolidation.
Earnings Per Share
Basic loss per share has been computed by dividing the net loss
attributable to ordinary shareholders by the weighted average number of
ordinary shares outstanding during the period.
The effect of potential common shares (warrants, options and convertible
subordinated unsecured loan notes) is anti-dilutive. Accordingly, diluted
loss per share is not presented.
Foreign Currency Translation
The financial statements of companies of the Group whose functional
currency is not US dollars are translated for consolidation purposes at the
rate of exchange ruling at the balance sheet date. Exchange differences
arising on the retranslation of net assets are reported as a component of
stockholders' equity(deficit) in accumulated other comprehensive loss. In
the underlying financial statements, transactions with third parties are
translated into the functional currency at the exchange rate prevailing at
the date of each transaction. Monetary assets and liabilities denominated
in currencies other than the functional currency are translated into US
dollars at the exchange rate prevailing at the balance sheet date. Any
exchange gain or loss is dealt with through the consolidated statement of
operations.
The Group's share capital is denominated in sterling and for the purposes
of the consolidated financial statements, is translated into US dollars at
the rate of exchange at the time of its issue.
Revenues
Revenues represents income from production and delivery of oil and gas,
recorded net of royalties in kind. The Group follows the sales method of
accounting for gas imbalances. A liability is recorded only if the Group's
excess takes of gas volumes exceed its estimated recoverable reserves from
the relevant well and no receivable is recorded where the Group has taken
less than its entitlement to gas production.
F-9
<PAGE>
ALLIANCE RESOURCES PLC AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
Oil and Gas Interests
The Group follows the full cost method of accounting for oil and gas
operations whereby all costs of exploring for and developing oil and gas
reserves are capitalized as tangible fixed assets. Such costs include
lease acquisition costs, geological costs, the costs of drilling both
productive and non-productive wells, capitalized interest, production
equipment and related overhead costs. Capitalized costs, plus estimated
future development costs, are accumulated in pools on a country-by-country
basis and depleted using the unit-of-production method based upon estimated
net proved reserve volumes. Reserve volumes are combined into equivalent
units using approximate relative energy content.
Costs of acquiring and evaluating unproved properties and major development
projects are excluded from the depletion calculation until it is determined
whether or not proved reserves are attributable to the properties, the
major development projects are completed, or impairment occurs, at which
point such costs are transferred into the pool.
Proceeds from the sale or disposal of properties are deducted from the
relevant cost pool except for sales involving significant reserves where a
gain or loss is recognized.
The Group performs a "ceiling test" calculation in line with industry
practice. Costs permitted to be accumulated in respect of each cost pool
are limited to the future estimated net recoverable amount from estimated
production of proved reserves. Future estimated net recoverable amounts
are determined after income taxes, discounting and using prices and cost
levels at the balance sheet date.
Provision is made for abandonment costs net of estimated salvage values, on
a unit-of-production basis, where appropriate.
Depreciation of Other Fixed Assets
Other tangible fixed assets are stated at cost less accumulated
depreciation. Depreciation is provided on a straight line basis to write
off the cost of assets, net of estimated residual values, over their
estimated useful lives as follows:
Fixtures and equipment - 3 to 7 years
Buildings - 30 years
Deferred Taxation
Deferred tax assets and liabilities are recognized for the estimated future
tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates in effect for the year in which those temporary
differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is recognized
in the consolidated statement of operations in the period that includes the
enactment date.
Joint Ventures
The Group's exploration, development and production activities are
generally conducted in joint ventures with other companies. The
consolidated financial statements reflect the relevant proportions of
turnover, production, capital expenditure and operating costs applicable to
the Group's interests.
F-10
<PAGE>
ALLIANCE RESOURCES PLC AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
The effects of redeterminations of equity interests in joint ventures are
accounted for when the outcome of the redetermination is known.
Leases
Rentals under operating leases are charged to the consolidated statement of
operations on a straight line basis over the lease term.
Debt Issuance Costs
Debt issuance costs are initially capitalized as intangible assets and are
amortized over the term of the debt to which they relate.
Derivatives
Changes in value of financial instruments, utilized to hedge commodity
price and interest rate risk are recognized in the consolidated statement
of operations when the underlying transactions are recognized. Changes in
value of financial instruments which do not meet the criteria to be treated
as a hedge of an underlying risk are recognized in the consolidated
statement of operations as they occur.
The Group's criteria for a derivative instrument to qualify for hedge
accounting treatment are as follows:
--the timing or duration, quantum and characteristics of the underlying
exposure must have been identified with reasonable certainty;
--changes in the value of the derivative must correlate to a high degree
with changes in the present value of the exposure under a wide range of
possible circumstances;
--the derivative has been designated as a hedge or is a synthetic
alteration of a specific asset, liability or anticipated transaction;
and
--the derivative instrument either: (a) reduces exposure of net income or
cash flow to fluctuations caused by movements in commodity prices,
currency exchange rates or interest rates, including fixing the cost of
anticipated debt issuance; or (b) alters the profile of the group's
interest rate or currency exposures, or changes the maturity profile of
the investment portfolio, to achieve a resulting overall exposure in
line with policy guidelines.
For any termination of derivatives receiving hedge accounting treatment,
gains and losses are deferred when the relating underlying exposures remain
outstanding and are included in the measurement of the related transaction
or balance. In addition, upon any termination of the underlying exposures,
the derivative is marked-to-market and the resulting gain or loss is
included with the gain or loss on the terminated transaction. The Group
may re-designate the remaining derivative instruments to other underlying
exposures provided the normal criteria are all met.
Cash Flow Statement
For the purposes of the consolidated statement of cash flows, the Group
treats all investments with an original maturity of three months or less to
be cash equivalents.
Stock Option Plan
The Company has adopted Statement of Financial Accounting Standards (SFAS)
No. 123, Accounting for Stock-Based Compensation, which permits entities to
recognize as expense over the vesting period the fair value of all stock-
based awards on the date of grant. Alternatively, SFAS No. 123 also allows
entities to continue to apply the provisions of Accounting Principles Board
(APB) Opinion No. 25, Accounting for Stock-Based
F-11
<PAGE>
ALLIANCE RESOURCES PLC AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
Compensation, and provide pro forma net income and pro forma earnings per
share disclosures for employee stock option grants made in future years if
the fair-value-based method defined in SFAS No. 123 had been applied. The
Company has elected to apply the provisions of APB Opinion No. 25 and
provide the pro forma disclosure provisions of SFAS No. 123.
Accounting Estimates
In the course of preparing financial statements, management makes various
assumptions and estimates to determine the reported amounts of assets,
liabilities, revenue and expenses and in relation to the disclosure of
commitments and contingencies. Changes in these assumptions and estimates
will occur as a result of the passage of time and the occurrence of future
events and, accordingly, the actual results could differ from the amounts
estimated.
Business Segments
The Group adopted Financial Accounting Standard (FAS) 131 "Segment
Disclosures and Related Information" during the year ended April 30, 1998.
Prior to April 30, 1997, the Group sold a portion of its oil and gas
production volumes through its oil and gas marketing subsidiary although
the operations and net assets of that subsidiary were not separately
managed. The Group considers itself to be involved in one business
activity and does not meet the criteria established by FAS 131.
Accordingly, information regarding marketing activities has not been
included for any periods presented.
Comprehensive Income (Loss)
The Company has adopted Financial Accounting Standards Board issued
Statement of Financial Standards No. 130, "Reporting Comprehensive Income"
(Statement No. 130). Statement No. 130 establishes standards for reporting
and display of comprehensive income and its components in a full set of
general-purpose financial statements. The Company has reported accumulated
other comprehensive loss as a separate line item in consolidated balance
sheets. The components of total comprehensive income (loss) for the
periods consist of net losses and foreign currency translation.
Significant Differences between U.S. and U.K. Accounting Principles
The accounting policies used in the preparation of these financial
statements conform with U.S. generally accepted accounting principles
("U.S. GAAP") which differ in certain respects from U.K. generally accepted
accounting principles ("U.K. GAAP"). Differences which may have a
significant effect on net loss and shareholders' deficit are set out below.
<TABLE>
<CAPTION>
Nine months ended Year ended Year ended
April 30, 1997 April 30, 1998 April 30, 1999
(in thousands) (in thousands) (in thousands)
----------------- ----------------- -----------------
<S> <C> <C> <C>
Effect on net loss--
Net loss under U.S. GAAP $(4,389) $(4,729) $(34,464)
Ceiling test adjustment (a) - - 23,481
------- ------- --------
Approximate net loss under U.K.
GAAP $(4,389) $(4,729) $(10,983)
======= ======= ========
</TABLE>
F-12
<PAGE>
ALLIANCE RESOURCES PLC AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
<TABLE>
<CAPTION>
April 30
------------------------------
1998 1999
(in thousands) (in thousands)
-------------- --------------
<S> <C> <C>
Effect on shareholders deficit--
Stockholders' equity under U.S. GAAP $2,183 $(16,637)
Adjustments:
Ceiling test (a) - 23,481
Convertible subordinated unsecured loan notes (b) 1,551 1,551
Acquisition of Difco (c) - 1,272
------ --------
$3,734 $ 9,667
====== ========
</TABLE>
(a) Under U.S. GAAP, ceiling tests are calculated using prices prevailing
at the year end. Under U.K. GAAP, a reasonable assessment of future
prices is used. At April 30, 1999, the spot price for gas in the U.K.
was significantly below management's reasonable expectation of future
prices resulting in a significantly greater charge under U.S. GAAP
than under U.K. GAAP.
(b) Under U.S. GAAP, the convertible subordinated unsecured loan notes are
treated as a liability. Under U.K. GAAP, the convertible subordinated
unsecured loan notes are included as part of shareholders' equity as
in substance their terms are economically equivalent to warrants with
a zero strike price and Alliance has no obligation to transfer future
economic benefit to the holder of the loan notes.
(c) Under U.S. GAAP, the shares issued to the vendors of Difco are
recorded at the more readily determinable value. Under U.K. GAAP, the
shares are recorded at the value of the underlying interest in the
East Irish Sea Interests.
In addition there are a number of other classification and disclosure
differences which do not impact net loss or shareholders' deficit.
(2) Acquisition of Difco Limited and U.K. Interests
On October 30, 1998, Alliance completed its acquisition of Difco Limited
("Difco"). Alliance acquired all of the capital stock of Difco and,
indirectly, a contract to acquire 10% of Burlington Resources (Irish Sea)
Limited's ("Burlington") interest in the East Irish Sea Properties ("U.K.
Interests"). The Difco shareholders received 10,000,000 convertible shares
valued at $7,208,000. Such value was derived based on the value of the
underlying market value of the shares issued. The shares issued represented
approximately 8.7% of the outstanding shares of the Company. The former
Difco shareholders could receive up to 29.6% of the outstanding shares of
the Company based upon the production from, or reserves attributable to,
the U.K. Interests. The Company acquired, through Difco, 10% of
Burlington's interest in the East Irish Sea Properties for cash
consideration of approximately $17,800,000. The Company issued to its
financial advisor 615,385 ordinary shares in payment of a fee of $330,000
incurred in connection with the transactions. The total acquisition cost,
including transaction costs, was allocated to oil and gas properties.
F-13
<PAGE>
ALLIANCE RESOURCES PLC AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
The following unaudited pro forma financial information presents the
combined results of operations of the Company and Difco as if the
acquisition had occurred as of the beginning of fiscal years 1998 and 1999,
after giving effect to certain adjustments, including increased interest
expense on debt related to the acquisition and amortization of deferred
loan costs and debt discount. The pro forma financial information does not
necessarily reflect the results of operations that would have occurred had
the Company and Difco constituted a single entity during such periods.
(Unaudited)
--------------------------------
Year ended April 30
--------------------------------
1998 1999
----------- ------------
Revenues $10,209,881 $ 6,234,477
=========== ============
Net loss $(7,760,657) $(36,497,108)
=========== ============
Loss per share $ (0.15) $ (0.77)
=========== ============
(3) Acquisition of LaTex
On May 1, 1997, Alliance, completed its acquisition of LaTex, whereby a
newly formed wholly-owned subsidiary of Alliance merged with and into LaTex
with LaTex being the surviving corporation for accounting purposes. In
consideration the shareholders and warrant holders of LaTex received an
aggregate of 21,448,787 shares of Alliance (the "New Alliance Shares") and
warrants to purchase an additional 1,927,908 New Alliance Shares.
As a result, after giving effect to a 40-to-1 reverse stock split of the
Alliance ordinary shares, each shareholder of LaTex on May 1, 1997,
received 0.85981 ordinary shares for each share of LaTex common stock,
2.58201 ordinary shares for each share of the LaTex Series A preferred
stock then held, 6.17632 ordinary shares for each share of LaTex Series B
preferred stock then held, and a warrant to purchase 0.85981 share for each
share of LaTex Common Stock subject to warrants.
The purchase price was arrived at as follows:
Value of 8,103,816 Alliance shares outstanding $4,039,339
Acquisition costs 871,000
----------
$4,910,339
==========
The value of the Alliance shares outstanding was arrived at by using the
share price of LaTex at the time of announcement of the acquisition
adjusted by the exchange ratio.
Transaction costs incurred by Alliance reduced the fair value of Alliance's
monetary assets and liabilities at the date of the acquisition.
The fair value of the assets and liabilities of the acquired business at
the effective date of acquisition is as follows:
Cash $ 1,460,555
Other current assets 480,045
Other assets 202,253
Oil and gas assets 5,268,929
Other fixed assets 253,386
Debt (85,420)
Other liabilities and provisions (2,669,409)
-----------
$ 4,910,339
===========
F-14
<PAGE>
ALLIANCE RESOURCES PLC AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
In connection with the acquisition, Alliance issued to Bank of America, the
Company's principal lender, 156,250 ordinary shares and convertible
subordinated unsecured loan notes convertible into 115,456 ordinary shares
to settle fees of $200,000 and $150,000 payable upon restructuring of
LaTex's bank debt. In addition the Company agreed to issue 116,895 ordinary
shares to Rothschild Natural Resources, LLC in settlement of outstanding
fees of $150,000.
Alliance has also issued 1,343,750 ordinary shares, convertible
subordinated unsecured loan notes convertible into 1,078,125 ordinary
shares and 1,210,938 warrants to Bank of America in exchange for an
overriding royalty interest in most of LaTex's properties held by Bank of
America.
The purchase price was allocated to oil and gas properties and has been
arrived at as follows:
Value of 1,343,750 ordinary shares and warrants issued $2,371,300
Value of convertible subordinated unsecured loan
note issued 1,400,700
----------
$3,772,000
==========
(4) Impairment of U.K. Interests
As discussed in Note 1, the Company utilizes the full cost method of
accounting for its oil and gas operations and performs a "ceiling test."
The ceiling test limits the costs accumulated in respect of each cost pool
to net amounts that can be recovered from the estimated production of
proved reserves. The net amounts recovered are determined utilizing a 10%
discount factor and pricing and cost levels at the balance sheet date.
The U.K. Interests consist of proven reserves and the current development
program is being conducted to produce these reserves. Although the Company
intends to enter into term gas delivery contracts which would be expected
to be at prices above the spot price at April 30, 1999, the Group does not
have contracts in place at April 30, 1999 with purchasers and, accordingly,
has utilized the spot market price to value such interests. The utilization
of these factors has resulted in a ceiling test write-down of approximately
$28,000,000 for U.S. GAAP purposes.
(5) Financial Instruments
The carrying value of cash and cash equivalents, accounts receivables and
accounts payable approximate the estimated fair value of those financial
instruments due to their short maturities. The estimated fair value of the
interest rate swap agreement, based on current market rates, approximated a
net payable of $445,767 and $248,884 at April 30, 1998 and 1999,
respectively. The estimated fair value of the commodity derivative
instruments approximates a net receivable of $409,395 at April 30, 1998 and
a net payable of $128,479 at April 30, 1999. The carrying value of long-
term debt approximates to the fair value, as advised by the Group's
bankers. See note 15.
Fair value is defined as the amount at which the instrument could be
exchanged in a current transaction between willing parties.
F-15
<PAGE>
ALLIANCE RESOURCES PLC AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(6) Income Taxes
Income taxes different from the amounts computed by applying the U.S.
federal tax rate of 34% as a result of the following (in thousands):
<TABLE>
<CAPTION>
Nine months
ended Year ended Year ended
April 30, April 30, April 30,
1997 1998 1999
--------------- ----------------- -----------------
<S> <C> <C> <C>
Computed expected tax benefit $ (1,492) $ (1,608) $ (11,718)
Increase in valuation allowance for 1,301 6,792 11,296
deferred tax, assets
Net operating losses acquired - (5,513) -
Other 191 329 422
------- ------- --------
Actual income tax benefit $ - $ - $ -
======= ======= ========
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities are presented below in
thousands:
<TABLE>
<CAPTION>
1998 1999
----------------- ------------------
<S> <C> <C>
Total deferred tax liabilities -
Property and equipment $ 1,754 $ -
-------- --------
Deferred tax assets:
Net operating and other loss carryovers 15,473 15,238
Property and equipment - 10,034
Investment write-downs 917 917
Percentage depletion carryforward 390 267
Accrued expenses not deductible until paid 219 85
-------- --------
Total deferred tax assets 16,999 26,541
Valuation allowance (15,245) (26,541)
-------- --------
Net deferred tax assets 1,754 -
-------- --------
Net deferred tax asset (liability) $ - $ -
======== ========
</TABLE>
A valuation allowance is required when it is more likely than not that all
or a portion of the deferred tax assets will not be realized. The ultimate
realization of the deferred tax assets is dependent upon future
profitability. Accordingly, a valuation allowance has been established to
reduce the deferred tax assets to a level which, more likely than not, will
be realized.
The Group has net operating loss carryovers to offset future taxable
earnings of approximately $44,000,000, including approximately $36,000,000
of losses limited under Section 382 of the Internal Revenue Code. If not
previously utilized or limited, the net operating losses will expire in
varying amounts from 2004 to 2019.
F-16
<PAGE>
ALLIANCE RESOURCES PLC AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(7) Long-Term Debt
Long-term debt at April 30, 1998 and 1999 consists of the following:
<TABLE>
<CAPTION>
1998 1999
------------ -----------
<S> <C> <C>
BoA:
Tranche A $ - $18,500,000
Tranche B - 16,330,348
Tranche C - 5,000,000
EnCap - 10,243,775
Alliance Credit Agreement 21,066,762 -
----------- -----------
21,066,762 50,074,123
Less unamortized discount - 6,897,502
----------- -----------
Long-term debt 21,066,762 43,176,621
Less current portion 2,275,000 -
----------- -----------
Long-term debt less current portion $18,791,762 $43,176,621
=========== ===========
</TABLE>
Alliance entered into a Credit Agreement (the "Alliance Credit Agreement")
with the Bank of America effective May 1, 1997, amending and restating the
Group's previous credit agreement. A portion of the borrowings under the
Alliance Credit Agreement bore interest, payable monthly, at a rate equal
to the higher of the Bank of America Reference Rate plus 1% and the Federal
Funds Rate plus 1-1/4%. Another portion of the borrowings bore interest,
payable monthly, at a rate equal to the London Interbank Offered Rate plus
2%. The rate at April 30, 1998 was 7.875%. Principal payments were
scheduled to commence on October 31, 1998. The note was scheduled to
mature on March 31, 2000. Amounts outstanding were secured by mortgages
which cover the majority of the Group's oil and gas properties.
In connection with the Difco Acquisition (See Note 2), the Company entered
into agreements with Bank of America National Trust & Savings Association
("BoA"), Alliance's principal lender and EnCap Equity 1996 Limited
Partnership and EnCap Capital Investment Company PLC (collectively "EnCap")
providing up to $64,750,000 in debt, as follows:
BoA:
Tranche A $30,000,000
Tranche B 20,000,000
Tranche C 5,000,000
-----------
55,000,000
EnCap 9,750,000
-----------
$64,750,000
===========
Tranche A consists of a revolving credit facility secured by a first
priority lien and security interest in all of the oil and gas properties of
the Company. The Company's initial borrowing base is $18,500,000 and is
redetermined semiannually on January 31 and July 31. Interest is at a rate
determined by the Company from time to time, of either (i) the greater of
BoA's reference rate and the federal funds effective rate plus 0.5%, or
(ii) 2.0% above the current Interbank rate (7.5% at April 30, 1999).
While any Tranche B loan is outstanding, the preceding margins will be
increased by an additional 0.5% semi-annually on April 26 and on October 26
of each year. Interest is payable quarterly and principal is due in equal
quarterly payments beginning October 30, 2000 and ending on October 30,
2003.
F-17
<PAGE>
ALLIANCE RESOURCES PLC AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
Tranche B consists of a credit facility secured by a first priority lien
and security interest in all of the oil and gas properties of the Company.
Interest is at a rate determined by the Company from time to time, of
either (i) BoA's Tranche B reference rate plus 2.0%, or (ii) 4.0% above the
current Interbank rate (9.0% at April 30, 1999). The margins for all
Tranche B loans will be increased by an additional 0.5% semi-annually on
April 26 and on October 26 of each year. Interest is payable quarterly and
principal is due in full on January 31, 2001.
Tranche C consists of a credit facility secured by a first priority lien
and security interest in all of the oil and gas properties of the Company.
Interest is at a rate determined by the Company from time to time, of
either (i) BoA's reference rate plus 5.0%, or (ii) 7.0% above the current
Interbank rate (12.0% at April 30, 1999). Interest is payable quarterly
and principal is due in equal quarterly payments beginning January 31, 2001
and ending on October 30, 2004. The BoA debt facility contains various
covenants, including, but not limited to, maintenance of minimum current
and interest coverage ratios, as defined in the agreement.
EnCap debt is unsecured and bears interest at 10%. Interest is payable
quarterly and principal is due in full on October 30, 2005. Until October
30, 2001, the Company has the option, in lieu of paying cash, of increasing
the principal amount of the debt by the interest due.
The Company paid BoA a cash fee of $700,000 and granted BoA warrants to
purchase 3,275,000 ordinary shares at a price of 1p per share. The fair
value of the warrants, $1,335,000, attaching to the debt was treated as a
discount. In addition, the Company granted BoA an overriding royalty
interest, valued at the value of the underlying oil and gas reserves, in
the U.K. Interests of 0.3% beginning January 1, 2001. The overriding
royalty interest will entitle BoA to receive payment equal to the specified
percentage of the net revenues generated by the U.K. Interests. In
connection with obtaining the debt financing from BoA, the Company was
required to enter into commodity price risk management contract on terms
that are mutually agreeable to BoA and the Company for a period not less
than two years with respect to at least 50% of the Company's estimated
producing reserves as of October 31, 1998. BoA also required the Company
to enter into interest rate risk management contracts providing for a
maximum interest rate of 9.0% on the notional amount projected to be
outstanding on the revolving credit facility (See Note 2).
In connection with the issuance of the EnCap debt, the Company sold EnCap
15,000,000 ordinary shares with a fair value of $6,360,000 for cash
consideration. The difference was treated as a discount on the debt. The
Company also issued EnCap Investments L.C. 545,454 shares in consideration
of a fee of $292,000.
The Company was not in compliance with certain covenants of the loan
agreements, which included but were not limited to the maintenance of
minimum levels of working capital and interest coverage. Prior to these
violations causing an event of default, which would have resulted in an
acceleration of the repayment of the loans, the Company obtained waivers
from the lenders for all covenant violations. Effective July 30, 1999, the
loan agreement was amended to revise the borrowing limit of Tranche B to
$25,000,000 and reduce the limit of Tranche A to a similar amount. The due
date of Tranche B was extended from January 31, 2001 to July 31, 2001. In
addition, the date of the borrowing base and collateral value
redetermination, scheduled to occur on July 31, 1999, was deferred until
December 31, 1999.
The revised schedule of contractual maturities of long-term debt at April
30, 1999 are as follows and do not include $5,000,000 borrowed under
Tranche B subsequent to year end which is repayable during the year ending
April 30, 2002:
Year ending April 30, 2000 $ -
2001 5,245,775
2002 23,740,348
2003 7,410,000
2004 2,810,000
Thereafter 10,868,000
F-18
<PAGE>
ALLIANCE RESOURCES PLC AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
The Group capitalizes interest cost as a component of the North Sea U.K.
Interests development program. The following is a summary of interest cost
incurred:
<TABLE>
<CAPTION>
Nine Months ended Year ended April 30
April 30
------------------- ---------------------------------------
1997 1998 1999
------------------- ------------------ -------------
<S> <C> <C> <C>
Interest cost capitalized $ - $ - $1,170,235
Interest cost charged to income 2,102,933 2,573,646 3,354,627
---------- ---------- ----------
Total interest cost incurred $2,102,933 $2,573,646 $4,524,862
========== ========== ==========
</TABLE>
(8) Savings and Profit Sharing Plan
The Group maintains an employee savings and profit sharing plan (the Plan)
which covers substantially all of its employees. The Plan is comprised of
a 401(k) saving portion and a noncontributory defined contribution portion.
Employees are qualified to participate after approximately one year of
service. Participating in the 401(k) plan is voluntary, and the Group
matches contributions up to six percent of the employees' salary at a rate
of 50 percent of the employee's contribution. The Group contributed
$8,481, $9,243, and $17,523 to the plan during the nine months ended April
30, 1997, and the years ended April 30, 1998 and 1999, respectively.
The noncontributory portion of the Plan allows the Group to share annual
profits with employees. Annual payments to the Plan are elective.
Management elected to make no contributions to the Plan for the nine months
ended April 30, 1997 and the years ended April 30, 1998 and 1999. The
Group is under no obligation to make contributions to the Plan in the
future.
(9) Capital Stock
On May 1, 1997, the Company's share capital was consolidated such that
every 40 ordinary shares of 1 pence each were consolidated into 1 ordinary
share of 40 pence. All prior capital stock amounts have been restated to
reflect this reverse stock split. At the same date, the Company issued
21,448,747 ordinary shares of 40 pence each to the holders of the issued
ordinary shares and preference shares of LaTex outstanding at that date.
On October 30, 1998, the Company entered into a capital reorganization plan
that subdivided each ordinary share into one new ordinary share with a par
value of 1 pence and 39 deferred shares with a par value of 1 pence each.
The resulting ordinary shares have the same rights as the ordinary shares
at 40 pence each. The deferred shares have no substantive rights, are not
represented by certificates issued to shareholders, and may be redeemed by
the Company by the payment of a total of 1 pence for all of the deferred
shares.
(10) Stock Option Plans
Effective October 21, 1996, each holder of options granted under the
Group's 1993 Incentive Stock Plan agreed to terminate all options held and
receive grants of 1,690,000 Restricted shares of LaTex Common Stock which,
on May 1, 1997, was exchanged for Alliance shares. The Group recognized an
employee bonus of $528,125 related to this transaction based on the market
value of LaTex's stock on the date of grant. No tax gross up rights were
granted in connection with the issue of the Restricted Stock.
F-19
<PAGE>
ALLIANCE RESOURCES PLC AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
Since May 1, 1997, the Group operates two employee share option schemes.
Both schemes have similar terms, the principal terms being:
-- any director or employee may be granted options over Shares;
-- the subscription price will be no less than market price at the date
of grant;
-- options granted to an individual are limited such that the aggregate
market value of shares subject to option taken together with the
aggregate market value of shares which have been acquired under rights
granted under the schemes in the previous ten years does not exceed
four times cash salary;
-- the exercise of options may be subject to performance tests. Long term
options (exercisable after 5 years) may be subject to growth in
earnings per share over the immediately preceding five years matching,
exceeding growth in earnings per share of the companies ranked in the
top 25 of the FTSE-100 share index, or growth in the Company's share
price during the five year exercise period.
A summary of the status of the share option schemes is as follows:
Shares Weighted average
service price
--------- ----------------------
As at May 1, 1997 - -
Granted 675,000 24.5 pence
On acquisition of LaTex 237,500 80 pence
---------
As at April 30, 1998 912,500 38.9 pence
Granted 2,365,000 13.5 pence
Cancelled (175,000) 80 pence
---------
As at April 30, 1999 3,102,500 17.2 pence
=========
Included in the options granted during the year ended April 30, 1999 were
1,700,000 long-term options which were subject to the Company's share price
increasing three-fold during the five year exercise period of the options.
The Group's accounting policy for compensation cost is in line with
Accounting Principles Board Opinion 25. Accordingly, compensation cost has
not been recognized for share option plans except to deal with any
discounts on option exercise prices, compared with market prices at the
measurement date. For the year ended April 30, 1998, had compensation
costs been charged against income based on the fair value at the grant-
dates for awards under the share option plans, consistent with Statement of
Financial Accounting Standards No. 123, the net loss and net loss per share
would not have been materially different. This was determined using the
Black Scholes option pricing model utilizing the following assumptions:
Risk free interest rate 5.3%
Expected life 10 years
Volatility 5.93%
At April 30, 1999, the Company also had outstanding 50,000 options to
purchase shares at 300 pence per share which have been issued other than
pursuant to the employee share options schemes.
F-20
<PAGE>
ALLIANCE RESOURCES PLC AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(11) Warrants
On May 1, 1997 the Company issued warrants to subscribe for 1,927,908
ordinary shares of 40 pence each in exchange for the then outstanding
warrants to subscribe for ordinary shares in LaTex. For periods ended on
or before April 30, 1997, the warrants outstanding reflect the Alliance
warrants issued on May 1, 1997, as though issued at the date of issue of
the LaTex warrants for which the Alliance warrants were exchanged.
Warrants to subscribe for 1,210,938 ordinary shares were issued to Bank of
America as part consideration for the acquisition of the overriding royalty
interest (see note 3). At April 30, 1998, the Company had outstanding
2,916,527 warrants.
Warrants to subscribe to 3,275,000 common shares at a price of 1 pence per
share were issued to Bank of America in connection with the Difco
acquisition (see Note 7).
In November, 1998, warrants to purchase 1,112,378 Ordinary Shares at a
price equal to the sterling equivalent of $4.94 expired.
<TABLE>
<CAPTION>
Warrant series Strike price Last date for exercise No. of shares
<S> <C> <C> <C>
Series "D" $0.87 March 31, 2001 287,119
Series "E" $0.87 October 31, 2001 30,953
Series "F" $1.40 December 16, 2002 275,139
Series "G" (BOA) (Pounds) 1.00 April 30, 2007 1,210,938
Series "H" 1 p. October 31, 2009 3,275,000
---------
5,079,149
---------
</TABLE>
(12) Convertible Subordinated Unsecured Loan Notes
At April 30, 1998 and 1999 the Group had outstanding loan notes convertible
into 1,193,581 ordinary shares of which loan notes convertible into
1,078,125 ordinary shares were issued in part consideration for the
acquisition of the overriding royalty interest amounting to $1,400,700 (see
note 3) and loan notes convertible into 115,456 ordinary shares were issued
to settle restructuring and arrangement fees of $150,000 in connection with
the LaTex acquisition. The loan notes, which are non-interest bearing, are
convertible by the holders (on the payment of a nominal cash consideration)
any time up to ten years following their date of issue. They are
convertible in the following six months on like terms at the option of the
Company. Any loan notes not converted prior to the date ten years and six
months from issue will be repaid on that date at an amount equal to twice
the amount paid up on the notes.
(13) Contingencies and Commitments
The Group is a named defendant in lawsuits, and is subject to claims of
third parties from time to time arising in the ordinary course of business.
While the outcome of lawsuits or other proceedings and claims against the
Group cannot be predicted with certainty, management does not expect these
additional matters to have material adverse effect on the financial
position or results of operations or liquidity of the Group.
F-21
<PAGE>
ALLIANCE RESOURCES PLC AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
The Group leases office space and certain property and equipment under
various lease agreements. As of April 30, 1999, future minimum lease
commitments were approximately as follows:
Year Ending April 30
--------------------
2000 $ 193,701
2001 196,905
2002 200,098
2003 203,301
2004 16,964
Rent expense under all operating leases was $160,780, $252,627, and
$251,447 during the nine months ended April 30, 1997, and the years ended
April 30, 1998 and 1999, respectively.
(14) Related Party Transactions
The Group, prior to May 1, 1997, has made loans to certain officers,
directors and stockholders. During the nine months ended April 30, 1997,
the board of directors forgave $391,218, of notes and accrued interest, due
from directors and former officers of the Group. This amount is included
in general and administrative expenses.
During the year ended April 30, 1998, the Company received $123,000 of
proceeds from the sale of 10,351,966 shares in the Company which had
previously been owned by the former Chief Executive of the Company. The
right to receive the proceeds from the sale of the shares arose from a
settlement agreed between the Company and Mr. O'Brien following the
discovery that the Company had suffered a financial loss as a result of a
number of transactions involving Mr. O'Brien or parties connected with him.
(15) Derivatives
Oil and Gas
Effective May 15, 1997, the Group terminated a previously existing oil and
gas pricing derivative at a cost of $1,128,000 settled by an increase in
the Bank of America loan. The loss relating to the buy-out was recognized
in its entirety during the year ended April 30, 1998, consequent upon the
Group entering into a new price protection agreement.
On October 23, 1997, the Group entered into commodity price hedge
agreements to protect against price declines which may be associated with
the volatility in oil and gas spot prices. The commodity price hedges were
achieved through the purchase of put options (floors) by the Group, and the
associated premium cost was funded by additional drawdowns under the
current credit agreement. The commodity price hedges covered 32,000 bbls
and 100,000 MMBTUs per month for the year to October 31, 1998, and covered
in excess of 90% of the Group's current monthly sales volumes. The floors
equated to approximately $18.50/bbl Nymex WTI contract and $2.20/MMBTU
Nymex Natural Gas contract. On October 31, 1998, the Group's commodity
price hedge agreements expired.
During February 1999, the Company completed a transaction to hedge
approximately 65% of its existing monthly gas production by installing a
floor of $1.60/MMBTU and a cap of $2.07/MMBTU (NYMEX Natural Gas). During
April 1999, the Company completed a transaction to hedge approximately 40%
of its existing monthly oil production by installing a floor of
$12.00/barrel (NYMEX WTI). This commodity price hedge agreement will
protect the Company from any severe declines in oil and gas prices until
expiration on October 31, 1999.
F-22
<PAGE>
ALLIANCE RESOURCES PLC AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
Interest
The Group is required, by agreement with its primary lender (see Note 7) to
participate in an interest rate protection program, for interest on the
debt payable to the primary lender until March 31, 2000. Interest is
hedged to achieve a fixed rate of 7.49% calculated on a monthly basis
based on a fixed amortization schedule determined on loan origination. The
notional principal is reduced each month by $365,000. The notional
principal outstanding at April 30, 1999 was $13,784,000 and this will have
reduced at termination to $9,769,000. The hedging gains/losses are
included in interest expense.
(16) Disposition of Oil and Gas Properties
During the nine months ended April 30, 1997 and the years ended April 30,
1998 and 1999, the Group sold oil and gas properties for approximately
$1,500,000, $5,600,000 and $1,742,000, respectively. Proceeds of such
sales were credited to the full cost pool.
(17) Supplemental Financial Information for Oil and Gas Producing Activities
(Unaudited)
Results of Operations from Oil and Gas Producing Activities
The following sets forth certain information with respect to the Group's
results of operations from oil and gas producing activities for the nine
months ended April 30, 1997 and the years ended April 30, 1998 and 1999.
All of the Group's oil and gas producing activities are located within the
United States.
<TABLE>
<CAPTION>
1997 1998 1999
(in thousands) (in thousands) (in thousands)
-------------- -------------- --------------
<S> <C> <C> <C>
Revenues $ 5,698 $ 10,210 $ 6,234
Production costs (2,550) (4,849) (2,770)
Gross production taxes (567) (657) (326)
Depreciation, depletion and impairments (1,457) (2,571) (29,931)
Loss on termination of derivative contract - (1,128) -
----------- ----------- ----------
Income (loss) from operations before income taxes 1,124 1,005 (26,793)
Income tax expense - - -
----------- ----------- ----------
Results of operations (excluding corporate $ 1,124 $ 1,005 $ (26,793)
overhead and interest costs) =========== =========== ==========
</TABLE>
F-23
<PAGE>
ALLIANCE RESOURCES PLC AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
Capitalized Costs and Cost Incurred Relating to Oil and Gas Activities
<TABLE>
<CAPTION>
1997 1998 1999
(in thousands) (in thousands) (in thousands)
------------------- ------------------ -------------------
<S> <C> <C> <C>
United States $ 36,107 $ 43,200 $ 42,902
United Kingdom - - 31,054
--------- --------- ---------
Total capitalized costs 36,107 43,200 73,956
Less accumulated depreciation, 9,432 13,571 43,842
depletion and impairments --------- --------- ---------
Net capitalized costs $ 26,675 $ 29,629 $ 30,114
========= ========= =========
Costs incurred during the year:
Exploration costs:
United States $ - $ - $ -
United Kingdom - - -
--------- --------- ---------
$ - $ - $ -
========= ========= =========
Development costs:
United States $ 348 $ 1,821 $ 974
- 276 3,535
--------- --------- ---------
United Kingdom $ 348 $ 2,097 $ 4,509
========= ========= =========
Purchase of minerals in place:
United States $ - $ 9,041 $ 125
United Kingdom - - 29,625
--------- --------- ---------
$ - $ 9,041 $ 29,750
========= ========= =========
</TABLE>
F-24
<PAGE>
ALLIANCE RESOURCES PLC AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
Estimated Quantities of Proved Oil and Gas Reserves
The estimates of proved oil and gas reserves were prepared by independent
petroleum engineers. The Group emphasizes that reserve estimates are
inherently imprecise. Accordingly, the estimates are expected to change as
more current information becomes available. In addition, a portion of the
Group's proved reserves are undeveloped, which increases the imprecision
inherent in estimating reserves which may ultimately be produced.
Proved reserves are estimated quantities of crude oil, natural gas, and
natural gas liquids which geological and engineering data demonstrate with
reasonable certainty to be recoverable in future years from known
reservoirs under existing economic and operating conditions. Proved
developed reserves are those which are expected to be recovered through
existing wells with existing equipment and operating methods.
The following is an analysis of the Group's proved oil and gas reserves.
<TABLE>
<CAPTION>
United States United Kingdom
--------------------------------------- --------------------
Oil (Mbbls) Gas (MMcf) Gas (MMcf)
------------------- ------------------ --------------------
<S> <C> <C> <C>
Proved reserves at July 31, 1996 6,353.0 28,172 -
Revisions of previous estimates 417.7 (577) -
Production (190.0) (1,640) -
--------- -------- ----------
Proved reserves at April 30, 1997 6,580.7 25,955 -
Revisions of previous estimates (735.5) 2,149 -
Production (396.2) (1,689) -
Purchases of reserves-in-place 1,335.7 4,173 -
Sales of reserves-in-place (290.4) (4,266) -
--------- -------- ----------
Proved reserves at April 30, 1998 6,494.3 26,322 -
Purchase of reserves-in-place - - 73,870
Revisions of previous estimates 2,624.7 (1,125) (64,137)
Production (278.1) (1,402) -
Sales of reserves-in-place (133.6) (943) -
--------- -------- ----------
Proved reserves at April 30, 1999 8,707.3 22,852 9,733
========= ======== ==========
Proved developed reserves at:
April 30, 1997 5,166.9 25,461 -
========= ======== ==========
April 30, 1998 3,773.7 22,632 -
========= ======== ==========
April 30, 1999 6,000.7 19,519 -
========= ======== ==========
</TABLE>
During the nine months ended April 30, 1997, the Group sold oil and gas
properties for approximately $1,500,000. The Group chose not to include
those properties in its reserve appraisal at July 31, 1996.
F-25
<PAGE>
ALLIANCE RESOURCES PLC AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
Discounted Future Net Cash Flows
In accordance with Statement of Financial Accounting Standards No. 69,
estimates of the standardized measure of discounted future cash flows were
determined by applying period-end prices, adjusted for fixed and
determinable escalations, to the estimated future production of year-end
proved reserves. Future cash inflows were reduced by the estimated future
production and development costs based on period-end costs to determine
pre-tax cash inflows over the Group's tax basis in the associated proved
oil and gas properties. Net operating losses, credits and permanent
differences were also considered in the future income tax calculation.
Future net cash inflows after income taxes were discounted using a 10%
annual discount rate to arrive at the Standardized Measure.
Future income tax expenses are estimated using the statutory tax rate of
34% and 30% in the United States and United Kingdom, respectively.
Estimates for future general and administrative and interest expense have
not been considered.
The estimated standardized measure of discounted future cash flows (in
thousands) follows:
<TABLE>
<CAPTION>
U.S. U.K.
-------------------------------------------- -------------
1997 1998 1999 1999
------------ ------------ ------------ -------------
<S> <C> <C> <C> <C>
Future cash inflows $ 139,587 $ 131,858 $ 167,154 $ 13,981
Future production and (64,086) (48,683) (73,970) (10,055)
development costs ------------ ------------ ------------ -------------
Future net cash inflows before 75,501 83,175 93,184 3,926
income tax expense
Future income tax expense (11,477) (10,444) (18,416) -
------------ ------------ ------------ -------------
Future net cash flows 64,024 72,731 74,768 3,926
10% annual discount for estimated (28,656) (27,625) (39,899) (1,132)
timing of cash flows ------------ ------------ ------------ -------------
Standardized measure of discounted $ 35,368 $ 45,106 $ 34,869 $ 2,794
future net cash flows ============ ============ ============ =============
</TABLE>
The changes in standardized measure of discounted future net cash flows
(in thousands) follows:
<TABLE>
U.S. U.K.
------------------------------------------------ --------------
Nine months
ended Year ended Year ended Year ended
April 30, 1997 April 30, 1998 April 30, 1999 April 30, 1999
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Beginning of period $ 43,889 $ 35,368 $ 45,106 $ -
Increases (decreases)
Sales, net of production costs (4,074) (4,338) (2,765) -
Net change in sales prices, net of
production costs (12,690) 7,671 (1,903) (10,205)
Changes in estimated future
development costs (280) (1,161) (924) (134)
Revisions of previous quantity estimates 1,282 (1,778) 12,115 (4,254)
Accretion of discount 5,350 3,963 4,856 827
Net change income taxes 5,345 813 (2,700) -
Purchases of reserves-in-place - 12,720 - 16,560
Sales of reserves-in-place - (4,975) (1,875) -
Changes of production rates
(timing) and other (3,454) (3,177) (17,041) -
-------------- -------------- -------------- ---------------
End of period $ 35,368 $ 45,106 $ 34,869 $ 2,794
============== ============== ============== ===============
</TABLE>
F-26
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
XX SECURITIES EXCHANGE OF 1934
----
For the quarterly period ended July 31, 1999
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
---- SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________to ______________
Commission file number : 333-19013
Alliance Resources PLC
(Exact name of registrant as specified in its charter)
England and Wales 73-1405081
(State or other jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or organization)
4200 East Skelly Drive, Suite 1000, Tulsa, Oklahoma 74135
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (918) 491-1100
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Act of 1934 during the
preceding 12 months (or for such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
---- ----
As of August 31, 1999, there were 47,487,142 shares of the Registrant's
ordinary shares outstanding and 10,000,000 shares outstanding of the
Registrant's convertible restricted voting stock.
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements Page
Consolidated Condensed Balance Sheets as of
July 31, 1999 and April 30, 1999 2
Consolidated Condensed Statements of Operations
for the three months ended July 31, 1999 and 1998 4
Consolidated Condensed Statement of Stockholders' Deficit and
Comprehensive Income for the three months ended July 31, 1999 5
Consolidated Condensed Statements of Cash Flows
for the three months ended July 31, 1999 and 1998 6
Notes to Consolidated Condensed Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Item 3. Quantitative and Qualitative Analysis on Market Risk 13
PART II - OTHER INFORMATION
The information called for by Item 1. Legal Proceedings,
Item 2. Changes in Securities, Item 3. Default Upon Senior
Securities, Item 4. Submission of Matters to a Vote of
Security Holders, Item 5. Other Information has been
omitted as either inapplicable or because the answer
thereto is negative.
Item 6. Exhibit and Reports on Form 8-K 15
SIGNATURES 16
Cautionary Statement Regarding Forward Looking Statements
In the interest of providing the Company's stockholders and potential investors
with certain information regarding the Company's future plans and operations,
certain statements set forth in this Form 10-Q relate to management's future
plans and objectives. Such statements are "forward-looking statements" within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. Although any
forward-looking statements contained in this Form 10-Q or otherwise expressed by
or on behalf of the Company are, to the knowledge and in the judgment of the
officers and directors of the Company, expected to prove true and to come to
pass, management is not able to predict the future with absolute certainty.
Forward looking statements involve known and unknown risks and uncertainties
which may cause the Company's actual performance and financial results in future
periods to differ materially from any projection, estimate or forecasted result.
These risks and uncertainties include, among other things, volatility of oil and
gas prices, competition, risks inherent in the Company's oil and gas operations,
the inexact nature of interpretation of seismic and other geological and
geophysical data, imprecision of reserve estimates, the Company's ability to
replace and expand oil and gas reserves, and such other risks and uncertainties
described from time to time in the Company's periodic reports and filings with
the Securities and Exchange Commission. Accordingly, stockholders and potential
investors are cautioned that certain events or circumstances could cause actual
results to differ materially from those projected, estimated, or predicted.
1
<PAGE>
ITEM 1. Financial Statements
ALLIANCE RESOURCES PLC AND SUBSIDIARIES
Consolidated Condensed Balance Sheets
July 31, 1999 April 30, 1999
ASSETS (unaudited) (audited)
Current assets:
Cash $ 4,289,099 $ 286,158
Accounts receivable 1,277,797 2,105,082
Other current assets 65,071 59,837
----------- -----------
Total current assets 5,631,967 2,451,077
----------- -----------
Property and equipment, at cost:
Oil and gas properties, full cost method
United States 43,008,357 42,901,608
United Kingdom 35,966,677 31,054,083
Other depreciable assets 894,900 1,095,147
----------- -----------
79,869,934 75,050,838
Less accumulated depreciation, depletion and (46,888,367) (44,695,726)
impairments ----------- -----------
Net property and equipment 32,981,567 30,355,112
----------- -----------
Other assets:
Deposits and other assets 168,373 141,422
Deferred loan costs, less accumulated
amortization 3,077,262 3,215,384
----------- -----------
$41,859,169 $36,162,995
=========== ===========
See accompanying notes to consolidated condensed financial statements.
2
<PAGE>
ALLIANCE RESOURCES PLC AND SUBSIDIARIES
Consolidated Condensed Balance Sheets, continued
July 31, 1999 April 30, 1999
(unaudited) (audited)
LIABILITIES AND
STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 7,511,814 $ 7,238,502
Accrued expenses payable 768,531 833,750
----------- -----------
Total current liabilities 8,280,345 8,072,252
Long-term liabilities:
Long-term debt (net of discount of
$6,516,897 and $6,897,502 at
July 31, 1999 and April 30, 1999,
respectively) 52,372,308 43,176,621
Convertible subordinated
unsecured loan notes 1,550,700 1,550,700
----------- -----------
Total liabilities 62,203,353 52,799,573
Stockholders' deficit:
Ordinary Shares - par value 1 pence; 768,823 768,823
415,001,376 authorized; 47,487,142
issued and outstanding at
July 31, 1999 and April 30, 1999
Deferred Shares - par value 1 pence;
1,414,998,624 authorized; 1,217,155,912
issued and outstanding at July 31, 1999
and April 30, 1999 19,611,767 19,611,767
Convertible Shares - par value 1 pence;
10,000,000 authorized; 10,000,000 issued
and outstanding at July 31, 1999 and
April 30, 1999 278,000 278,000
Additional paid-in capital 21,042,094 21,042,094
Accumulated other comprehensive loss (17,553) (17,391)
Accumulated deficit (62,027,315) (58,319,871)
------------ ------------
Total stockholders' deficit (20,344,184) (16,636,578)
------------ ------------
$ 41,859,169 $ 36,162,995
============ ============
See accompanying notes to consolidated condensed financial statements.
3
<PAGE>
ALLIANCE RESOURCES PLC AND SUBSIDIARIES
Consolidated Condensed Statement of Operations
<TABLE>
<CAPTION>
Three Three
Months Ended Months Ended
July 31, 1999 July 31, 1998
(Unaudited) (Unaudited)
<S> <C> <C>
Oil and gas revenue $ 1,486,861 $ 1,917,966
Operating expenses:
Lease operating expense 956,927 859,453
Depreciation, depletion,
and amortization 402,355 509,355
Impairment of oil and gas
properties 1,999,824 -
General and administrative
expense 736,098 750,262
------------ -----------
Total operating expenses 4,095,204 2,119,070
------------ -----------
Net operating loss (2,608,343) (201,104)
Other income (expense):
Loss on sale of assets - (9,184)
Interest expense, net of
interest capitalized (1,119,792) (668,450)
Interest income 6,377 5,259
Miscellaneous income 14,314 22,492
------------ -----------
Net loss from continuing
operations before income taxes (3,707,444) (850,987)
Income tax expense - -
------------ -----------
Net loss $ (3,707,444) $ (850,987)
------------ -----------
Loss per share for ordinary
shareholders $ (0.07) $ (0.03)
============ ===========
Weighted average number of
shares outstanding 52,487,142 31,209,408
=========== ===========
See accompanying notes to consolidated condensed financial statements.
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
ALLIANCE RESOURCES PLC AND SUBSIDIARIES
Consolidated Condensed Statement of Stockholders' Deficit and Comprehensive Income
Three Months Ended July 31, 1999
Accumulated
Additional Other
Ordinary Deferred Convertible Paid-In Comprehensive Accumulated
Shares Shares Shares Capital Income (Loss) Deficit Total
-------- ----------- -------- ----------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at April 30, 1999 $768,823 $19,611,767 $278,000 $21,042,094 $ (17,391) $(58,319,871) $(16,636,578)
Comprehensive income (loss):
Foreign exchange - - - - (162) - (162)
Net loss current period - - - - - (3,707,444) (3,707,444)
------------
Total comprehensive loss (3,707,606)
-------- ----------- -------- ----------- --------- ------------ ------------
Balance July 31, 1999 $768,823 $19,611,767 $278,000 $21,042,094 $ (17,553) $(62,027,315) $(20,344,184)
======== =========== ======== =========== ========= ============ ============
See accompanying notes to consolidated condensed financial statements.
</TABLE>
5
<PAGE>
ALLIANCE RESOURCES PLC AND SUBSIDIARIES
Consolidated Condensed Statement of Cash Flows
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
July 31, 1999 July 31, 1998
(Unaudited) (Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (3,707,444) $ (850,987)
Adjustments to reconcile net loss
to net cash provided by
(used in) operating activities:
Depreciation, depletion and amortization 402,355 509,355
Impairment of oil and gas properties 1,999,824 -
Other amortization 552,412 255,324
Loss on sale of assets - 9,184
Changes in assets and liabilities:
Accounts receivable 827,285 348,061
Accounts payable 512,356 (1,074,397)
Accrued expenses payable (65,219) (11,834)
Other assets (32,185) 62,037
Other liabilities - (136,058)
------------ ----------
Net cash provided by (used in) operating activities 489,384 (889,315)
------------ ----------
Cash flows from investing activities:
Purchases of property and equipment, including interest capitalized (5,269,811) (266,233)
Proceeds from sale of property and equipment 1,971 379,809
Deferred acquisition costs (33,866) (870,652)
------------ ----------
Net cash used in investing activities (5,301,706) (757,076)
------------ ----------
Cash flows from financing activities:
Payments on long-term debt (480,000) -
Proceeds from issuance of long-term debt 9,295,263 1,500,000
------------ ----------
Net cash provided by financing activities 8,815,263 1,500,000
------------ ----------
Net increase (decrease) in cash and cash equivalents 4,002,941 (146,391)
Cash and cash equivalents at beginning of period 286,158 408,439
------------ ----------
Cash and cash equivalents at end of period $ 4,289,099 $ 262,048
============ ==========
Supplemental disclosures of cash flow information-
Cash paid during the period for interest $ 870,238 $ 400,554
============ ==========
See accompanying notes to consolidated condensed financial statements.
</TABLE>
6
<PAGE>
A. Summary of Significant Accounting Policies
Basis of Presentation
- ---------------------
Alliance Resources PLC (the "Company" or "Alliance") is organized as a public
limited company under the laws of England and Wales. Alliance is a holding
company of a group whose principal activities are the exploration, development,
and production of oil and gas and the acquisition of producing oil and gas
properties. Alliance was incorporated and registered under the laws of England
and Wales on August 20, 1990.
The condensed consolidated financial statements of Alliance Resources PLC and
its wholly-owned subsidiaries (the "Company") reflect all adjustments which are,
in the opinion of management, necessary to present fairly the financial
position, results of operations and cash flows of the Company as of July 31,
1999, and for all interim periods presented. All adjustments are normal
recurring accruals.
Certain information and disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted. These condensed consolidated financial statements should
be read in conjunction with the Company's April 30, 1999 audited consolidated
financial statements and notes thereto contained in the Company's Annual Report
to Stockholders for the year ended April 30, 1999. The results of operations
for the period ended July 31, 1999, are not necessarily indicative of the
operating results to be achieved for the full year.
B. Significant Events
The Company continues with its development activities in the East Irish Sea.
During the recent quarter, $4.288 million has been spent on capital expenditures
relating to these properties, financed primarily with drawdowns from the
Company's debt facility. On July 23, 1999 the Company announced that the Dalton
R2 well was successfully reentered and recompleted. The R2 well tested at a
maximum flow rate of approximately 54 MMSCF/D on a 120/64 inch choke at 772 psig
flowing tubing pressure. In the East Millom Field, the Millom Q1 well has been
successfully reentered and recompleted. The Q1 well tested at a maximum flow
rate of 18 MMSCF/D on a 68/64 inch choke at 725 psig flowing tubing pressure.
The Dalton R1, R2 and Millom Q1 wells have been tied back to the North Morecambe
Bay Platform, and first production began on August 10, 1999.
Effective July 30, 1999, the Company and its principal lender agreed to amend
the terms of its credit agreement to allow for additional immediate borrowings
of $5,000,000, to defer the date of the borrowing base redetermination from July
31, 1999 to December 31, 1999, and to defer the repayment date of a portion of
the indebtedness from January 31, 2001 to July 31, 2001.
American Rivers Oil Company ("AROC") and Alliance announced that on July 22,
1999, they entered into a preliminary agreement, under which, subject to the
satisfactory completion of various pre-conditions, a new subsidiary of AROC
would make a share for share offer for Alliance. The principal conditions to
the making of the offer are the filing of a registration statement with the
Securities and Exchange Commission and due diligence conducted by both parties.
If the share offer is completed, it is expected that the shares of the new
company will be quoted on the U.S. OTC Bulletin Board and will not be listed on
the London Stock Exchange. If
7
<PAGE>
the transaction is completed and all the Alliance shareholders accept the offer,
the shareholders of Alliance would hold 98% and the shareholders of AROC would
hold 2% of the enlarged group.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
- ---------------------
The following is a discussion of the results of operations of the Company for
the three months ended July 31, 1999.
The factors which most significantly affect the Company's results of operations
are (i) the sales prices of crude oil and natural gas, (ii) the level of total
sales volumes, (iii) the level of lease operating expenses, and (iv) the level
of and interest rates on borrowings. Total sales volumes and the level of
borrowings are significantly impacted by the degree of success the Company
experiences in its efforts to acquire oil and gas properties and its ability to
maintain or increase production from its existing oil and gas properties through
its development activities. The following table reflects certain historical
operating data for the periods presented.
<TABLE>
<CAPTION>
Three Months Ended July 31
--------------------------
1998 1999
---------- ----------
<S> <C> <C>
Net Sales Volumes:
Oil (Mbbls) 66 67
Natural Gas (MMcf) 430 340
Oil Equivalent (MBOE) 139 124
Average Sales Prices:
Oil (per Bbl) $18.22 $12.07
Natural Gas (per Mcf) $ 1.67 $ 2.02
Operating Expenses per
BOE of Net Sales:
Lease operating $ 5.64 $ 7.01
Severance tax $ 0.54 $ 0.72
Depreciation, depletion, and amortization $ 3.65 $ 3.25
General and administrative $ 5.40 $ 5.95
</TABLE>
Average sales prices received by the Company for oil and gas have historically
fluctuated significantly from period to period. Fluctuations in oil prices
during these periods reflect market uncertainties as well as concerns related to
the global supply and demand for crude oil. Average gas prices received by the
Company fluctuate generally with changes in the spot market for gas. Relatively
modest changes in either oil or gas significantly impact the Company's results
of operations and cash flow and could significantly impact the Company's
borrowing capacity.
8
<PAGE>
Three Months Ended July 31, 1999 compared to the Three Months Ended
- -------------------------------------------------------------------
July 31, 1998
- -------------
Total revenues from the Company's operations for the quarter ended July 31, 1999
were $1,486,861 compared to $1,917,966 for the quarter ended July 31, 1998.
Revenues decreased significantly over the comparable period a year earlier due
principally to lower gas sales volumes and realized oil prices, property
disposals and the depletion of producing reserves.
Net gas sales volumes decreased 11% from the same period in 1998. The remainder
of the volume decrease is attributable to property sales completed during the
quarter ended July 31, 1998.
Total operating expenses increased to $4,095,204 for the quarter ended July 31,
1999 compared to $2,119,070 for the same period in 1998. This increase was
primarily due to impairment of the U.K. properties. Lease operating expenses
were higher at $956,927 for the three month period ending July 31, 1999 compared
to $859,453 for the same period in 1998 due to an increase of $280,000 in
workover expenses from the 1998 period. Depreciation, depletion and amortization
decreased to $402,355 from $509,355 a year earlier primarily as a result of
lower sales volumes. General and administrative expenses decreased from
$750,262 during the quarter ended July 31, 1998 to $736,098 for the quarter
ended July 31, 1999. The decrease is a result of continuing efforts by
management to reduce corporate overhead expenses.
A net operating loss of $3,707,444 was realized for the quarter ended July 31,
1999 compared to a net operating loss of $850,987 for the same period in 1998.
In summary, due to the above factors, the net loss for the quarter ended July
31, 1999 increased to $3,707,444 ($0.07 per share) compared to a net loss of
$850,987 ($0.03 per share) for the same period in 1998.
Capital Resources and Liquidity
- -------------------------------
The Company's capital requirements relate primarily to the development of its
oil and gas properties and undeveloped leasehold acreage, exploration
activities, and the servicing of the Company's debt. In general, because the
Company's oil and gas reserves are depleted by production, the success of its
business strategy is dependent upon a continuous exploration and development
program and the acquisition of additional reserves.
Cash Flows and Liquidity. At July 31, 1999, Alliance has current assets of
- ------------------------
$5.632 million and current liabilities of $8.280 million, which resulted in a
net current deficit of $2.648 million. Since April 30, 1999, the net current
deficit has decreased from $5.621 million. The $2.973 million decrease is
primarily due to additional borrowings of $5.00 million made on July 30, 1999.
Current liabilities at July 31, 1999 increased to $8.28 million compared to
$8.072 million at April 30, 1999.
For the quarter ended July 31, 1999, net cash provided by the Company's
operating activities was $.489 million compared to cash used of $.889 million
for the quarter ended July 31, 1998. This was caused primarily by significant
payments of vendor payables in the quarter ended July 31, 1998.
9
<PAGE>
Investing activities of the Company used $5.302 million in net cash flow for the
quarter ended July 31, 1999 compared to $.757 million used for the quarter ended
July 31, 1998. The increase was principally due to property expenditures of
$5.004 million more than the 1998 period as a result of the U.K. property
development program.
Financing activities provided $8.815 million for the quarter ended July 31, 1999
compared to $1.500 million for the quarter ended July 31, 1998, as a result of
additional borrowings related to the U.K. property development program.
Overall, cash and cash equivalents increased by $4.003 million in the quarter
ended July 31, 1999 compared to an decrease of $.146 million in the 1998 period
as a result of the additional borrowings.
Capital Expenditures. Currently, there are no material long-term commitments
- --------------------
associated with the Company's U.S. capital expenditure plans. Consequently, the
Company has a significant degree of flexibility to adjust the level of such
expenditures as circumstances warrant. The Company primarily uses internally
generated cash flow and proceeds from the sale of oil and gas properties to fund
U.S. capital expenditures, other than significant acquisitions, and to fund its
working capital deficit. If the Company's internally generated cash flows
should be insufficient to meet its banking or other obligations, the Company may
reduce the level of discretionary U.S. capital expenditures or increase the sale
of non-strategic oil and gas properties in order to meet such obligations.
The timing of the Company's U.K. capital expenditures is determined annually by
a budget prepared by the operator of the U.K. properties and approved by
Alliance. Currently, there are material commitments for the 2000 fiscal year.
Management believes that these commitments will be met by funds available under
the Company's credit facility and internally generated cash flow. The level of
the Company's capital expenditures will vary in future periods depending on
energy market conditions and other related economic factors. (This is a forward-
looking statement; refer to the Cautionary Statement Regarding Forward Looking
Statements).
Financing Arrangements. The Company was not in compliance with certain
- ----------------------
covenants of its loan agreements, which included but were not limited to the
maintenance of minimum levels of working capital and interest coverage. Prior
to these violations causing an event of default, which would have resulted in an
acceleration of the repayment of the loans, the Company obtained waivers from
the lenders for all covenant violations. Effective July 30, 1999 the loan
agreement was amended to revise the borrowing limit. This enabled the Company
to borrow an additional $5,000,000 as of July 30, 1999. The due date of the
Tranche B portion of the loan was extended from January 31, 2001 to July 31,
2001. In addition, the date of the borrowing base and collateral value
redetermination scheduled to occur on July 31, 1999 was deferred until December
31, 1999.
Financial Condition. The accompanying financial statements have been prepared on
- -------------------
a going concern basis, which contemplates the realization of assets and
satisfaction of liabilities in the normal course of business. The Company
continues to incur losses, continues to experience working capital deficits and
is obliged to commence repayments on the borrowings on October 30, 2000. These
factors among others may indicate the Company will be unable to continue as a
going concern for a reasonable period of time.
10
<PAGE>
The financial statements do not include any adjustments relating to the
recoverability and classification of liabilities that might be necessary should
the Company be unable to continue as a going concern. Despite its negative cash
flow, the Company has been able to secure financing to support its operations to
date. The Company has reached agreement with its principal bank to amend
certain provisions of the loan agreement to allow for additional borrowing
capacity, to defer the borrowing base redetermination date from July 31, 1999 to
December 31, 1999, and extend the repayment due date of the Tranche B portion of
the loan to July 31, 2001. The amendment does not, however, change the other
scheduled repayment dates which commences on October 30, 2000.
The Company's continuation as a going concern is dependent upon its ability to
generate sufficient cash flow to meet is obligations on a timely basis, to
continue to comply with the terms of its borrowing agreements, to obtain
additional financing or refinancing as will be required and ultimately to attain
profitability. Management believes it has a business plan that, if successfully
executed, will achieve these objectives. (This is a forward-looking statement;
refer to the Cautionary Statement Regarding Forward Looking Statements).
Seasonality. The results of operations of the Company are somewhat seasonal due
- ------------
to fluctuations in the price for crude oil and natural gas. Recently, crude oil
prices have been generally higher in the third calendar quarter, and natural gas
prices have been generally higher in the first calendar quarter. Due to these
seasonal fluctuations, results of operations for individual quarterly periods
may not be indicative of results which may be realized on an annual basis.
Inflation and Prices. In recent years, inflation has not had a significant
- --------------------
impact on the operations or financial condition of the Company. The generally
downward pressure on oil and gas prices during most of such periods has been
accompanied by a corresponding downward pressure on costs incurred to acquire,
develop, and operate oil and gas properties as well as the costs of drilling and
completing wells on properties.
Prices obtained for oil and gas production depend upon numerous factors that are
beyond the control of the Company including the extent of domestic and foreign
production, imports of foreign oil, market demand, domestic and world-wide
economic and political conditions, and government regulations and tax laws.
Prices for oil and gas received by the Company have fluctuated significantly in
recent years, as noted in the following table.
<TABLE>
<CAPTION>
Oil Gas
--------- ---------
<S> <C> <C>
Year ended April 30, 1999 $ 13.20 $ 1.79
Year ended April 30, 1998 $ 15.75 $ 2.36
</TABLE>
During February 1999, the Company completed a transaction to hedge approximately
65% of its existing monthly gas production by installing a floor of $1.60/MMBTU
and a cap of $2.07/MMBTU. This will protect the Company from any severe
declines in natural gas prices until October 31, 1999, and conversely limit the
benefit of prices in excess of the cap. During April 1999, the Company
completed a transaction to hedge approximately 40% of its existing monthly oil
production by installing a floor of $12.00/barrel. This will protect the
Company from any severe declines in oil prices until October 31, 1999.
11
<PAGE>
ISSUES RELATED TO THE YEAR 2000
- -------------------------------
General. The following Year 2000 statements constitute a Year 2000 Readiness
- --------
Disclosure within the meaning of the Year 2000 Information and Readiness
Disclosure Act of 1998. The Year 2000 problem has arisen because many existing
computer programs use only the last two digits to refer to a year. Therefore,
these computer programs do not properly recognize and process date-sensitive
information beyond 1999. In general, there are two areas where Year 2000
problems may exist for the Company: information technology such as computers,
programs and related systems ("IT") and non-information technology systems such
as embedded technology on a silicon chip ("Non IT").
The Plan. Alliance's Year 2000 Plan (the "Plan") has four phases: (i)
- --------
assessment, (ii) inventory, (iii) remediation, testing and implementation and
(iv) contingency plans. Approximately twelve months ago, the Company began its
phase one assessment of its particular exposure to problems that might arise as
a result of the new millennium. The assessment and inventory phases have been
substantially completed and have identified Alliance's IT systems that must be
updated or replaced in order to be Year 2000 compliant. Remediation, testing and
implementation are scheduled to be completed by September 30, 1999, and the
contingency plan phase of the Plan is scheduled to be completed by October 31,
1999. Alliance's assessment of the readiness of third parties whose IT systems
might have an impact on Alliance's business has thus far not indicated any
material problems.
With regard to Alliance's Non IT systems, the Company believes that most of
these systems can be brought into compliance on schedule. Alliance's assessment
of third party readiness is not yet completed. Because the potential problem
with Non IT systems involves embedded chips, it is difficult to determine with
complete accuracy where all such systems are located. As part of its Plan, the
Company is making formal and informal inquiries of its vendors, customers and
transporters in an effort to determine the third party systems that might have
embedded technology requiring remediation.
Estimated Costs. Although it is difficult to estimate the total costs of
- ---------------
implementing the Plan through January 1, 2000 and beyond, Alliance's preliminary
estimate is that such costs will not be material. To date, the Company has
determined that its IT systems are either compliant or can be made compliant for
less than $50,000. However, although management believes that its estimates are
reasonable, there can be no assurance, for the reasons stated in the next
paragraph, that the actual cost of implementing the Plan would not differ
materially from the estimated costs.
Potential Risks. The failure to correct a material Year 2000 problem could
- ----------------
result in an interruption in, or a failure of, certain normal business
activities or operations. This risk exists both as to Alliance's IT and Non IT
systems, as well as to the systems of third parties. Such failures could
materially and adversely affect Alliance's results of operations, cash flow and
financial condition. Due to the general uncertainty inherent in the Year 2000
problem, resulting in part from the uncertainty of the Year 2000 readiness of
third party suppliers, vendors and transporters, the Company is unable to
determine at this time whether the consequences of Year 2000 failures will have
a material impact on Alliance's results of operations, cash flow or financial
condition. Although the Company is not currently able to determine the
consequences of Year 2000 failures, its current assessment is that its area of
greatest potential risk in its third party relationships is in connection with
the transporting and marketing of the oil and gas
12
<PAGE>
produced by the Company. The Company is contacting the various purchasers and
pipelines with which it regularly does business to determine their state of
readiness for the Year 2000. Although the purchasers and pipelines will not
guaranty their state of readiness, the responses received to date have indicated
no material problems. The Company believes that in a worst case scenario, the
failure of its purchasers and transporters to conduct business in a normal
fashion could have a material adverse effect on cash flow for a period of six to
nine months. Alliance's Year 2000 Plan is expected to significantly reduce
Alliance's level of uncertainty about the compliance and readiness of these
material third parties. The evaluation of third party readiness will be followed
by Alliance's development of contingency plans.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
- ---------------------------------------------------------
In addition, the dates for completion of the phases of the Year 2000 Plan are
based on Alliance's best estimates, which were derived using numerous
assumptions of future events. Due to the general uncertainty inherent in the
Year 2000 problem, resulting in part from the uncertainty of the Year 2000
readiness of third-parties and the interconnection of computer systems, the
Company cannot ensure its ability to timely and cost-effectively resolve
problems associated with the Year 2000 issue that may affect its operations and
business. Accordingly, shareholders and potential investors are cautioned that
certain events or circumstances could cause actual results to differ materially
from those projected, estimated or predicted.
Item 3. Quantitative and Qualitative Analysis on Market Risk
The Company's primary market risks relate to changes in interest rates and in
the prices received from sales of oil and natural gas. The Company's primary
risk management strategy is to partially mitigate the risk of adverse changes in
its cash flows caused by increases in interest rates on its variable rate debt,
and decreases in oil and natural gas prices, by entering into derivative
financial and commodity instruments, including swaps, collars and participating
commodity hedges. By hedging only a portion of its market risk exposures, the
Company is able to participate in the increased earnings and cash flows
associated with decreases in interest rates and increases in oil and natural gas
prices; however, it is exposed to risk on the unhedged portion of its variable
rate debt and oil and natural gas production.
Historically, the Company has attempted to hedge the exposure related to its
variable rate debt and its forecasted oil and natural gas production in amounts
which it believes are prudent based on the prices of available derivatives and,
in the case of production hedges, the Company's deliverable volumes. The
Company attempts to manage the exposure to adverse changes in the fair value of
its fixed rate debt agreements by issuing fixed rate debt only when business
conditions and market conditions are favorable.
The Company does not use or hold derivative instruments for trading purposes nor
does it use derivative instruments with leveraged features. The Company's
derivative instruments are designated and effective as hedges against its
identified risks, and do not of themselves expose the Company to market risk
because any adverse change in the cash flows associated with the derivative
instrument is accompanied by an offsetting change in the cash flows of the
hedged transaction.
Personnel who have appropriate skills, experience and supervision carry out all
derivative activity. The personnel involved in derivative activity must follow
prescribed trading limits and
13
<PAGE>
parameters that are regularly reviewed by senior management. The Company uses
only well-known, conventional derivative instruments and attempts to manage its
credit risk by entering into financial contracts with reputable financial
institutions.
Following are disclosures regarding the Company's market risk sensitive
instruments by major category. Investors and other users are cautioned to avoid
simplistic use of these disclosures. Users should realize that the actual
impact of future interest rate and commodity price movements will likely differ
from the amounts disclosed below due to ongoing changes in risk exposure levels
and concurrent adjustments to hedging positions. It is not possible to
accurately predict future movements in interest rates and oil and natural gas
prices.
Interest Rate Risks (non-trading). the Company uses both fixed and variable rate
- ---------------------------------
debts to partially finance operations and capital expenditures. As of July 31,
1999, the Company's debt consists of $48,389,521 in borrowings under its Credit
Agreement which bear interest at a variable rate, and $10,499,684 in borrowings
under its 10% Senior Subordinated Notes which bear interest at a fixed rate.
The Company hedges a portion of the risk associated with its variable rate debt
through derivative instruments which consist of interest rate swaps and collars.
Under the swap contracts, the Company makes interest payments on its Credit
Agreement as scheduled and receives or makes payments based on the differential
between the fixed rate of the swap and a floating rate plus a defined
differential. These instruments reduce the Company's exposure to increases in
interest rates on the hedged portion of its debt by enabling it to effectively
pay a fixed rate of interest or a rate, which only fluctuates within a
predetermined ceiling and floor. A hypothetical increase in interest rates of
two percentage points would cause a loss in income and cash flows of $725,000
during the current fiscal year, assuming that outstanding borrowings under the
Credit Agreement remain at current levels. This loss in income and cash flows
would not be offset by any increase in income and cash flows associated with the
interest rate swap and collar agreements that are in effect for the current
fiscal year. A hypothetical decrease in interest rates of two percentage points
would cause an increase in the fair value of $0 in the Company's Senior
Subordinated Notes from their fair value at July 31, 1999.
Commodity Price Risk (non trading). The Company hedges a portion of the price
- -----------------------------------
risk associated with the sale of its oil and natural gas production through the
use of derivative commodity instruments, which consist of collars and
participating hedges. These instruments reduce the Company's exposure to
decreases in oil and natural gas prices on the hedged portion of its production
by enabling it to effectively receive a fixed price on its oil and natural gas
sales or a price that only fluctuates between a predetermined floor and ceiling.
As of August 1, 1999, the Company had entered into derivative commodity hedges
covering an aggregate of 30,000 barrels of oil and 240,000 MMbtu's of gas that
extend through October 1999. Under these contracts, the Company sells its oil
and natural gas production at spot market prices and receives or makes payments
based on the differential between the contract price and a floating price which
is based on spot market indices. The amount received or paid upon settlement of
these contracts is recognized as oil or natural gas revenues at the time the
hedged volumes are sold. A hypothetical decrease in oil and natural gas prices
of 10% from the price in effect as of July 31, 1999, would cause a loss in
income and cash flows of $342,992 during 1999, assuming that oil and gas
production remain at current levels. This loss in income and cash flows would
not be offset by any increase in income and cash flows associated with the oil
and natural gas derivative contracts that are in effect.
14
<PAGE>
PART II - OTHER INFORMATION
- ---------------------------
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
SEC
Exhibit
No. Description of Exhibits
------- -----------------------
(27) Financial Data Schedule
-----------------------
*27.1 Financial Data Schedule of Alliance Resources PLC
*Filed Herewith.
(b) Reports on Form 8-K
-------------------
None
15
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Alliance Resources PLC
/s/M. Humphries
---------------
Michael Humphries, Finance Director
Date: September 14, 1999
16
<PAGE>
U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-KSB
(Mark One)
[X] Annual report under section 13 or 15(d) of the Securities Exchange Act of
1934 for the fiscal year ended March 31, 1999
[ ] Transition report under section 13 or 15(d) of the Securities Exchange Act
of 1934 for the transition period from _____________ to _____________
Commission file number: 0-10006
AMERICAN RIVERS OIL COMPANY
---------------------------
(Name of small business issuer in its charter)
Wyoming 84-0839926
------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
700 East 9th Avenue, Suite 106, Denver, CO 80203
- ------------------------------------------ -----
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (303) 832-1117
Securities registered under Section 12(b) of the Act: None
Securities registered under Section 12 (g) of the Act:
Common Stock, $.01 Par Value
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act during the past 12 months, and (2)
has been subject to such filing requirements for the past 90 days. Yes X No
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]
Issuer's revenues for fiscal year ended March 31, 1999 were $17,968
The aggregate market value of the voting Common Stock held by non-affiliates
based on the last sale price in the over the counter market as quoted on the OTC
Bulletin Board as of June 11, 1999 was $ 359,203. The number of shares
outstanding of the issuer's Common Stock as of March 31, 1999 was 3,565,770. The
number of shares outstanding of the issuer's Class B Common Stock as of March
31, 1999 was 7,267,820.
Documents incorporated by reference: None
Transitional Small Business Disclosure Format (Check one):
Yes No X
<PAGE>
PART I
------
This report contains certain forward-looking statements, as defined in the
Private Securities Litigation Reform Act of 1995, including, without limitation,
all statements regarding the Company's expected future financial position,
results of operations, business strategy, plans or objectives of management and
the potential for future transactions to be completed. Such forward looking
statements include statements containing words such as "believes,"
"anticipates," "estimates," "expects," "may" and words of similar import, or
statements of management's opinion. Although the Company believes that the
expectations reflected in such forward looking statements are based on
reasonable assumptions, no assurance can by given that such expectations will
prove to have been correct, and actual results may differ materially from those
described or implied in such forward looking statements. Factors that could
cause the Company's actual results to differ from the expectations reflected in
forward-looking statements include the risks of operating in a competitive
environment, the market for the Company's products, the market for the Company's
properties, and changes in interest and inflation rates. Moreover, whether any
anticipated future transaction occurs is subject to numerous risks and
uncertainties, many of which are outside our control. For example, the
successful completion of a transaction will be subject to negotiations with
third parties who may not accept terms that are acceptable to the Company.
Similarly, whether or not we can complete any such transactions may be affected
by changes in market conditions or the financial and business conditions of
third parties and other events outside the Company's exclusive control.
Item 1. Business
- ----------------
The Company
- -----------
American Rivers Oil Company (the "Company") was originally incorporated under
the laws of the State of Colorado on February 2, 1981 as Metro Cable
Corporation. On March 31, 1992, the Company reincorporated in the State of
Wyoming and changed its name to Metro Capital Corporation ("Metro"). In December
1995, Metro, upon approval of its shareholders, completed a transaction with
Karlton Terry Oil Company and its affiliates ("KTOC") whereby KTOC exchanged
certain oil and gas properties for 7,717,820 shares of newly created Class B
Common Stock which represented 80% of the then issued and outstanding voting
securities of Metro (the "Transaction" or the "Metro/KTOC Transaction"). The
only class of securities of Metro issued and outstanding prior to the
Transaction was Common Stock. Metro and KTOC previously were not affiliated.
Upon completion of the Transaction, the Company's name was changed to American
Rivers Oil Company. Management of KTOC succeeded to the board of directors and
serve as officers operating the oil and gas properties previously owned by KTOC.
Prior to the Transaction, Metro had been principally engaged in petroleum
operations, real estate development and seeking business opportunities.
Prior to and in connection with the Transaction described above, Metro
transferred to Bishop Capital Corporation ("Bishop") (formerly Bishop Cable
Communications Corporation), a wholly-owned subsidiary, all of the Company's
assets except for $700,000 cash and its working interest in an insignificant oil
property. The assets transferred to Bishop, together with Bishop's previously
owned assets, were operated autonomously by the prior management of Metro who
became officers and directors of Bishop pursuant to the terms of separate
five-year Operating and Voting Agreements. Since the Company did not exercise
control over Bishop's operations, the investment is accounted for by the equity
2
<PAGE>
method prior to the distribution of the outstanding stock of Bishop to the
Company's shareholders in June 1997. The terms of the Metro/KTOC Transaction
also provided that the shares of Bishop owned by the Company would be
distributed to the Company's common shareholders within 36 months of the
Transaction date and that the holders of the Company's Class B Common stock
would not participate in the distribution. On November 8, 1996, the Company's
Board of Directors authorized a spin-off distribution of Bishop's Common Stock
as a partial liquidating dividend to the Company's common shareholders of record
on November 18, 1996 on the basis of one share of Bishop Common Stock for four
shares of the Company's Common Stock. The distribution occurred on June 20,
1997.
At March 31, 1999, the Company had two part-time employees.
Operating Strategy
- ------------------
The Company has sold a significant portion of its producing properties to meet
its current obligations including maturing indebtedness. The Company's operating
objective is to pursue merger or acquisition opportunities with a substantial,
stable company. The Company is currently negotiating with a candidate; however,
no definitive agreement with respect to any acquisition has been reached.
Accordingly, the Company cannot predict whether any agreement may be reached,
the timing of the contemplated transaction or the results of the transaction if
any agreement is reached. Even if an agreement is reached, such a transaction
may not be completed as a result of factors outside of either party's control,
such as regulatory requirements, the failure to secure any necessary security
holder vote or changes in market conditions.
Markets
- -------
The three principal products produced and marketed by the Company during the
last fiscal year were crude oil, natural gas and natural gas liquids. The
Company does not currently use commodity futures contracts or price swaps in the
marketing of its natural gas and crude oil. During the fiscal year the Company
sold all of its producing properties except one well that is shut in awaiting
sale either for salvage value or as a water disposal well to producers in the
area.
Crude oil produced from the Company's properties has generally been sold by
truck or pipeline to unaffiliated third-party purchasers at the prevailing field
price (the "posted price"). As the Company has sold all of its oil producing
properties effective March, 1999, there are no primary purchasers of the
Company's crude oil.
The Company sold its natural gas production at the wellhead to various pipeline
purchasers or natural gas marketing companies. The wellhead contracts have
various terms and conditions, including contract duration. Under each wellhead
contract the purchaser is generally responsible for gathering, transporting,
processing and selling the natural gas and natural gas liquids and the Company
receives a net price at the wellhead. As the Company sold all of its natural gas
producing properties in fiscal 1999, there are no primary purchasers of the
Company's natural gas and natural gas liquids.
3
<PAGE>
Competition
- -----------
The Company has sold its producing properties to meet its current obligations
including eliminating its maturing bank debt. Consequently, the Company is no
longer competing with other oil and gas producers.
Operations of Bishop
- --------------------
As previously discussed, Bishop was operated autonomously by the previous
management of the Company pursuant to the terms of separate five-year Operating
and Voting Agreements which terminated upon the distribution of Bishop's Common
Stock on June 20, 1997.
Item 2. Properties
- ------------------
The Company's has one property in Kentucky that produced for one month on a test
basis in fiscal 1999 to determine its economic viability. It is currently
classified as property held for sale either as salvage or to a producer in the
area who needs additional water disposal capabilities.
Reserves
- --------
Information regarding the Company's proved and proved developed oil and gas
reserves and the standardized measure of discounted future net cash flows and
changes therein is not applicable as the Company does not have producing
properties as of year end.
Since April 1, 1996, the Company has not filed any oil or natural gas reserve
estimates or included any such estimates in reports to any Federal authority or
agency, other than the Securities and Exchange Commission.
Production
- ----------
The following table sets forth information with respect to the Company's oil and
gas production, average sales prices and average production costs for the two
years ended March 31, 1999:
1999 1998
-------- --------
Quantities Produced and Sold
Oil (barrels (Bbls)) 269 17,039
Natural Gas (Mcf) 13,000 197,864
Average Sales Prices
Oil (per Bbl) $ 9.08 $ 17.05
Natural Gas (per Mcf) $ 2.10 $ 1.84
Average Production Cost per BOE(1) $ 15.48 $ 8.17
- -----------
(1) Production units were converted to common units of measure using a
conversion ratio of six Mcf of natural gas equals one barrel of oil
equivalent (BOE). Production costs exclude depreciation and depletion
associated with oil and gas properties.
4
<PAGE>
Productive Wells
- ----------------
Company owns no productive wells at March 31, 1999
Developed and Undeveloped Acreage
- ---------------------------------
At March 31, 1999, the Company does have a negligible amount of developed and
undeveloped acreage which is held for sale as discussed in item 2, properties.
Drilling Activity
- -----------------
The Company only participated in the drilling of one gross (.75 net) well in the
past two years. This well was a development well that was drilled in fiscal 1998
and resulted in a dry hole.
Present Activities
- ------------------
The Company has sold substantially all of its properties to retire its bank
debt. Oil and gas prices have been extremely depressed, and the Company is
considering merger possibilities with other business entities having sustained
cash flow with less price volatility relating to its product. The Company's
auditors have qualified their opinion as to the continuation of the Company as a
going concern. The financial statements are prepared on a going concern basis
which contemplates the realization of assets and the liquidation of liabilities
in the ordinary course of business. The Company is currently negotiating a
merger which is integral to the Company's ability to continue operations. The
success of this merger cannot be assured. See Item I, Business, Operating
Strategy, above.
Item 3. Legal Proceedings
- -------------------------
The Company is a party to legal proceedings. The suit, Consult and Assist v.
American Rivers Oil Company and Karlton Terry, (United States District Court for
the District of Colorado, Case No. 99-K-299) filed February 4, 1999. Plaintiff,
Consult and Assist, a Luxemborg Co, purchased 275,000 shares of common stock of
American Rivers Oil Company on November 11, 1996 for $1.00 per share. The
plaintiff alleges that defendants made untrue statements of material fact and
omitted to state certain other facts in connection with plaintiff's purchase of
common stock. The plaintiff seeks to recover $275,000 plus interest, punitive
damages, attorneys' fees and costs.
Defendants deny the allegations of the Complaint and intend to vigorously defend
against the lawsuit. Defendants have filed an Answer to the Complaint and the
case is currently in the discovery stage.
Item 4. Submission of Matters to a Vote of Security Holders
- -----------------------------------------------------------
No matters were submitted to a vote of the Company's security holders during the
fourth quarter of the fiscal year ended March 31, 1999.
5
<PAGE>
PART II
-------
Item 5. Market for the Company's Common Stock and Related Stockholder Matters
- -----------------------------------------------------------------------------
Common Stock
- ------------
Until December 1997 the Company's common stock was traded on the Nasdaq Stock
Market, SmallCap. Since December 1997 the Company's common stock is traded in
the over-the-counter market and is quoted on the OTC Bulletin Board under the
symbol "AROC." The following table shows the high and low bids for the common
stock of the Company for the periods indicated. Such information was furnished
by Nasdaq for periods prior to and ending on September 30, 1997 and by IDD
Information Services Tradelines for subsequent periods. The quotations represent
prices between dealers and do not include retail mark-up, markdown, or
commission and may not reflect actual transactions.
QUARTER ENDED HIGH BID LOW BID
------------- -------- -------
06/30/97 $1.50 $.56
09/30/97 .81 .44
12/31/97 .69 .11
03/31/98 .25 .05
06/30/98 .13 .06
09/30/98 .11 .03
12/31/98 .06 .02
03/31/99 .05 .02
As of March 31, 1999 there were approximately 2,010 holders of record of the
Company's Common Stock.
Class B Common Stock
- --------------------
The Class B Common Stock, which is not traded in any public trading market, was
issued in connection with the Transaction described in Item 1 and has all of the
rights of currently issued and outstanding shares of the Company's Common Stock
except that the Class B Common Stock was not entitled to participate in the June
20, 1997 distribution of shares of Bishop Capital Corporation. The Class B
Common Stock is convertible on a one-for-one share basis into the Company's
Common Stock. The Company plans to encourage the holders the Class B Common
shares to convert to Common Stock so that there will only be one class of stock
As of March 31, 1999, there were 20 holders of record of the Company's Class B
Common Stock.
Dividends
- ---------
The Company has paid no cash dividends on its Common Stock or Class B Common
Stock and does not intend to pay cash dividends in the foreseeable future.
Payment of cash dividends, if any, in the future will be determined by the
Company's Board of Directors in light of the Company's earnings, financial
condition and other relevant considerations.
6
<PAGE>
Options
- -------
In connection with the Asset Purchase Agreement with Bishop referred to in item
1, the Company agreed to grant a 120 day option to the common stockholders to
acquire common shares at $0.10 per share if certain events did not occur. As the
market price of the common during the exercise period was less than the exercise
price, management elected to forego the administrative cost of distributing the
options to the common shareholders. The option expired in April, 1999.
Item 6. Management's Discussion and Analysis of Financial Condition and Results
of Operations
- --------------------------------------------------------------------------------
The audited consolidated statements of operations and cash flows for the year
ended March 31, 1998 include the unconsolidated operations of Bishop Capital
Corporation using the equity method of accounting until it was distributed on
June 20, 1997. The following discussion and analysis should be read in
conjunction with the Company's Consolidated Financial Statements and Notes
thereto.
Results of Operations
- ---------------------
The Company's revenues were $18,000, a decrease of $640,000 for the fiscal year
ended March 31, 1999 from $658,000 in fiscal 1998. The Company had a net loss in
fiscal 1999 of $114,000 as compared to a net loss of $2,950,000 for fiscal 1998.
The 1999 decrease in the loss arose from the sale of the Company's producing
properties combined with the curtailment of operations. As further described
below, of the Company's $2,950,000 loss in 1998, $2,567,000 is represented by a
charge for impairment to the Company's proved reserves, and $95,000 represents
the Company's equity in the loss incurred by Bishop Capital Corporation, the
Company's subsidiary that was spun-off on June 20, 1997. All losses incurred by
Bishop during 1998 were funded from Bishop's operations and not from the
Company. In fiscal 1999 the Company sold its interests in its producing
properties in the DJ Basin and the Ohio River property realizing a gain of
$293,000. In fiscal 1998, the Company sold its interest in a producing property
in Louisiana, the Lake Hatch prospect, and realized a gain of $92,000 Investors
are urged to be cautious in considering the forward-looking statements contained
in this paragraph and elsewhere herein.
Fiscal 1999 Compared to Fiscal 1998
The Company's oil and gas sales decreased by $637,000 in fiscal 1999 due to the
sale of the bulk of the producing properties in the first quarter and the
remaining producing properties in the second quarter.
The production costs decreased $371,000 in fiscal 1999 compared to 1998 because
of the decreased oil and gas production.
General and administrative expenses increased approximately $89,000 in fiscal
1999 compared to 1998. The components of the change consist of reductions of
$97,000 in officer compensation, $112,000 in legal, accounting and consulting
fees, $18,000 in other compensation and payroll taxes, and $10,000 in other
miscellaneous expenses combined with an increase in the allowance for doubtful
accounts of $150,000.
7
<PAGE>
In fiscal 1998, the Company conducted a comprehensive review of its reserves as
a result of the unsuccessful drilling results of the Kentucky well and in
connection with the fiscal year end. The results of the reevaluation of the
Company's reserves, on a BOE equivalent basis, resulted in a 94% reduction of
proved developed and undeveloped reserves, of which 16% was attributable to the
Lake Hatch property sale. Upon completion of the reevaluation, the Company
recorded an impairment loss of $2,567,440 to reflect the fair value of the oil
and gas properties at March 31, 1998. There were no additional impairment losses
as the Company's producing properties were sold in fiscal 1999.
Depletion decreased by approximately $288,000 in fiscal 1999 compared to 1998.
The decrease principally arises because production was lower due to the sale of
the properties early in the fiscal year.
The Company did not incur a loss from its equity method of accounting for the
investment in Bishop Capital Corporation in 1999 because the Company completed
the spin off of Bishop on June 20, 1997.
The gain on the sale of oil and gas properties increased by $229,000 as one
property, the Lake Hatch property in Louisiana, was sold in 1998 and all of the
DJ Basin properties along with the Ohio River property were sold in fiscal 1999.
Deferred tax benefits decreased by $232,000 because the Company exhausted its
deferred tax benefits totaling $232,000 in 1998. The Company has recorded a full
valuation allowance for its deferred tax assets due to substantial uncertainty
of realization.
The production volumes and average sales prices for the years ended March 31,
1999 and 1998 were as follows:
1999 1998
---- ----
Oil production (Bbls) 269 17,039
Average sales price (per Bbl) $ 9.08 $ 17.05
Natural gas production (mcf) 13,000 197,864
Average sales price (per mcf) $ 2.10 $ 1.84
Production volumes decreased, 95% for gas and 98% for oil. Average prices of gas
increased and oil declined. The average sales price of crude oil decreased 47%
per barrel and gas increased 14% per MCF.
Financial Condition
- -------------------
At March 31, 1999, the Company's working capital deficit amounted to $16,000.
The Company is engaged in negotiations relative to a possible merger or similar
transaction. With no significant operations or producing assets, completion of a
business combination or similar transaction is essential to the Company's
ability to continue operations. These negotiations however, are preliminary in
nature and we can provide no assurance that they will be successful.
8
<PAGE>
The following summary table reflects comparative cash flows for the Company for
the two years ended March 31, 1999:
1999 1998
---- ----
Net cash used in operating activities $(330,000) $(229,000)
Net cash provided by investing activities 334,000 335,000
Net cash used in financing activities (1,000) (243,000)
Net cash used in operating activities increased in fiscal 1999 compared to
fiscal 1998 due to decreased costs and expenses associated with operating the
Company as it became inactive operationally. However, cash was utilized to
reduce payables incurred in 1998 for operating activities which resulted in an
increase in cash utilized in operating activities
Net cash provided by investing activities of $330,000 in fiscal 1999 principally
resulted from the sale of the DJ Basin and Ohio River properties, net of
proceeds used to retire existing debt.
Impact of Inflation
The Company cannot determine the precise effects of inflation. However, the
impact of general price inflation has not had a material adverse effect on the
results of the Company's operations.
Year 2000 Issues
"Year 2000 problems" result primarily from the inability of some computer
software to properly store, recall or use data after December 31, 1999. These
problems may affect many computers and other devices that contain imbedded
computer chips. The Company's operations, however, do not rely extensively on
information technology ("IT") systems. The IT software and hardware systems the
Company operates are all publicly available, pre-packaged systems that are
readily replaceable with other functionally similar systems. Accordingly, the
Company does not believe that it will be materially affected by Year 2000
problems in its IT software and hardware systems.
The Company relies on non-IT systems that may suffer from Year 2000 problems
including telephone systems and facsimile and other office machines. Moreover,
the Company relies on third-parties that may suffer from Year 2000 problems that
could affect the Company's operations, including banks, and utilities. In light
of the Company's substantially reduced operations, the Company does not believe
that such non-IT systems or third-party Year 2000 problems will affect the
Company in a manner that is different or more substantial than such problems
affect other similarly situated companies generally. Consequently, the Company
does not currently intend to conduct a readiness assessment of Year 2000
problems or to develop a detailed contingency plan with respect to Year 2000
problems that may affect the Company's IT and non-IT systems or third-parties.
The foregoing is a "Year 2000 Readiness Disclosure" within the meaning of the
Year 2000 Information and Readiness Disclosure Act of 1998.
9
<PAGE>
Item 7. Financial Statements
- ----------------------------
Information with respect to this item appears on page F-1 of this report. Such
information is incorporated herein by reference.
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
- --------------------------------------------------------------------------------
None.
Part III
--------
Item 9. Directors and Executive Officers of the Registrant
- ----------------------------------------------------------
a. Identification of Directors and Executive Officers
The following are the directors and executive officers of the Company at
March 31, 1999:
Name Age Office
---- --- ------
Karlton Terry 45 Chairman of the Board, President and
Chief Executive Officer
Denis Bell 64 Director
Karlton Terry. Mr. Terry is a graduate of the University of Colorado with
postgraduate work at Brown University and has 17 years experience in the oil and
gas business. He began his career as a landman for Samuel Gary Oil Producer, and
formed and was president of Leed Petroleum Corporation, which was subsequently
sold to Burma Oil of England. After the sale of Leed, he was president of
Karlton Terry Oil Company for twelve years.
Denis Bell. Mr. Bell is executive chairman and a founding shareholder of
Rackwood Mineral Holdings PLC, a coal producing company in the United Kingdom.
He was appointed a director of Rackwood Mineral Holding PLC in 1993. His
experience in mining, particularly open cast mining, commenced in 1968 when he
established his own company to operate a number of open cast sites and two small
underground mines. This company was sold to Mining Investment Corporation
Limited, where he remained a director until 1979. Since then he has been
involved as an Executive Director of a number of private and public mineral
companies, including NSM PLC (from which he resigned in 1989), Anglo United PLC
(from which he resigned in 1991) and Denis Bell Inc. and its subsidiaries. Mr.
Bell, through Haddon, Inc., of which he owns 100%, has owned oil and gas
properties in the United States since 1983.
The directors of the Company are elected to hold office until the next annual
meeting of shareholders or until a successor has been elected and qualified.
Officers of the Company are elected annually by the Board of Directors and hold
office until their successors are duly elected and qualified.
10
<PAGE>
No arrangement or understanding exists between any of the above officers and
directors pursuant to which any one of those persons were selected to such
office or position. None of the directors hold directorships in other companies
except as noted above.
b. Identification of Certain Significant Employees
Not applicable
c. Family Relationships
Not applicable
d. Involvement in Certain Legal Proceedings
Not applicable
e. Compliance with Section 16(a) of the Securities Exchange Act of 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
executive officers and directors, and persons who own more than 10% of the
outstanding Common Stock of the Company to file reports of ownership and changes
in ownership with the SEC and Nasdaq. Based solely on its review of the copies
of such reports received by it, or written representations from certain
reporting persons that no Forms 5 were required for those persons, the Company
believes that during fiscal 1999, its executive officers, directors and greater
than ten percent stockholders complied with all applicable filing requirements.
Item 10. Executive Compensation
- -------------------------------
a. Summary Compensation Table
The following table sets forth the compensation received by the Chief
Executive Officer for the years ended March 31, 1999, 1998 and 1997. No other
executive officer had total annual salary and bonus exceeding $100,000 for the
year ended March 31, 1999.
<TABLE>
<CAPTION>
Long Term
Annual Compensation Compensation Awards
--------------------------------------- --------------------------
Name and Principal Other Annual Restricted Options
Position Year Salary Bonus Compensation Stock Award ($) SARS (#)
- ------------------ ---- --------- ----- ------------ --------------- --------
<S> <C> <C> <C> <C> <C> <C>
Karlton Terry 1999 $ 86,452 $ -- $ -- $ -- --
President, Chief 1998 $ 118,749 -- -- -- --
Executive Officer 1997 $ 125,000 -- -- -- --
and Director (1)
</TABLE>
(1) Karlton Terry became Chief Executive Officer on December 8, 1995
<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] Quarterly Report under Section 13 or 15(d) of the Securities Exchange Act
of 1934 for the
Quarterly Period Ended June 30, 1999
[ ] Transition Report under Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the
Transition Period from __________ to _________
Commission file number 0-10006
AMERICAN RIVERS OIL COMPANY
---------------------------
(Exact name of small business issuer as specified in its charter)
Wyoming 84-0839926
------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
700 East Ninth Avenue, Suite 106, Denver, CO 80203
- -------------------------------------------- ------
(Address of principal executive offices) (Zip Code)
(303) 832-1117
--------------
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No
----- -----
The number of shares outstanding as of June 30, 1999 of the issuer's $.01 par
value Common Stock and $.01 par value Class B Common Stock were 3,565,770 and
7,267,820, respectively.
Transitional Small Business Disclosure Format
(Check one):
Yes No X
----- -----
<PAGE>
American Rivers Oil Company and Subsidiaries
Consolidated Balance Sheet
(Unaudited)
June 30, 1999
<TABLE>
<CAPTION>
Assets
<S> <C> <C>
Current asssets:
Cash and equivalents $ 83
Oil and gas properties held for sale 93,376
-----------
Total current assets $ 93,459
Other assets 3,382
-----------
Total assets $ 96,841
===========
Liabilities and Stockholders' Equity
Current liabilites:
Current maturities of long-term debt $ 75,824
Accounsts payable and accrued expenses 58,883
Payable to related parties 4,475
-----------
Total current liabilites $ 139,182
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.50 par value 5,000,000
shares authorized, no shares issued
Common stock $.01 par value, 20,000,000
shares authorized, 4,713,004 shares issued 47,130
Class B common stock $.01 par value,
8,000,000 shares authorized, 7,267,820 shares
issued and outstanding 72,678
Related party note receivable, net of
origination fee of $12,500 and allowance
for doubtful accounts of $150,000 0
Additional paid-in capital 6,193,892
Accumulated deficit (4,625,236)
Less treasury stock at cost, 1,147,234
common shares (1,730,805)
-----------
Total stockholders' equity (42,341)
-----------
Total liabilities and stockholders' equity $ 96,841
===========
</TABLE>
See accompanying notes to these consolidated financial statements.
2
<PAGE>
American Rivers Oil Company and Subsidiaries
Consolidated Statement of Operations
For the Three Months Ended June 30,
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Oil and gas sales $ 0 $ 18,871
---------- ----------
Total revenue 0 18,871
Expenses:
Production costs 0 21,043
Exploration costs 0 972
General and admin 29,488 82,929
Depletion 0 10,600
---------- ----------
Total expenses 29,488 115,544
---------- ----------
Income (loss) from operations (29,488) (96,673)
Other income (expense):
(Gain) loss on sale Oil & Gas Prop 0 205,174
Interest expense 0 (9,884)
---------- ----------
Income (loss) before income taxes (29,488) 98,617
Income taxes 0 0
---------- ----------
Net income (loss) ($ 29,488) $ 98,617
========== ==========
Net income (loss) per share
Common stock ($ 0.00) $ 0.00
========== ==========
Class B common stock ($ 0.00) $ 0.01
========== ==========
Weighted average number of
shares outstanding
Common stock 3,565,770 3,611,700
========== ==========
Class B common stock 7,267,820 7,267,820
========== ==========
</TABLE>
See accompanying notes to these consolidated financial statements.
3
<PAGE>
American Rivers Oil Company and Subsidiaries
Consolidated Statement of Cash Flows
For the Three Months Ended June 30,
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
----------- ----------
<S> <C> <C>
Cash Flow from operating activities
Net Income (Loss) ($ 29,723) $ 98,617
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation, depletion and amortization 144 10,745
Gain on sale of oil and gas properties (205,174)
Changes in operating assets & liabilities:
(Increase) Decrease in:
Oil and gas sales receivable 68,660
Prepaid expenses 1,077 (1,177)
Accounts receivable, affiliates (150,000)
Increase (Decrease) in:
Accounts payable, class B shareholder 4,475 (42,894)
Accounts payabe and accrued expenses 21,136 (96,312)
---------- ---------
Net cash used in operating activities (2,891) (317,535)
---------- ---------
Cash flows from Investing:
Proceeds from sale of oil and gas properties 0 900,327
---------- ---------
Net cash provided by investing activities 0 900,327
---------- ---------
Cash flows from financing activities:
Principal payments on borrowings 0 (540,000)
---------- ---------
Net cash (used in) Investing activities 0 (540,000)
---------- ---------
Net increase (decrease) in cash and equivalents (2,891) 42,792
Cash Beginning 2,974 80
Cash Ending $ 83 $ 42,872
========== =========
</TABLE>
See accompanying notes to these consolidated financial statements
4
<PAGE>
AMERICAN RIVERS OIL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
In the opinion of management, all adjustments, consisting of normal recurring
accruals, have been made which are necessary for a fair presentation of the
financial position of the Company at June 30, 1999 and the results of operations
and cash flows for the three months ended June 30 1999 and 1998. Quarterly
results are not necessarily indicative of expected annual results. For a more
complete understanding of the Company's operations and financial position,
reference is made to the consolidated financial statements of the Company, and
related notes thereto, filed with the Company's annual report on Form 10-KSB for
the year ended March 31, 1999, previously filed with the Securities and Exchange
Commission.
Certain reclassifications have been made to the 1998 financial statements to
conform to the presentation in 1999. The reclassifications had no effect on the
1998 results of operations.
2. Sale of Oil and Gas Properties -1998
On June 4, 1998, Company entered into an agreement to sell the Company's
Colorado oil and gas properties with an effective date of March 1, 1998, in
order to provide liquidity and to repay short-term bank debt. The Company
realized proceeds from the disposition of these properties in the amount of
$900,327. The proceeds were used as follows:
Bank debt $ 540,000
Payables to related parties 42,894
Advances to affiliates 150,000
Accounts payable and working capital 167,434
-------
900,327
3. Net Loss Per Share
The computation of net loss per share is based on the rights of each class of
common stock. Each class was allocated its pro rata percentage of the
consolidated net income (loss) based on the ratio of common shares outstanding
to total common and Class B shares outstanding.
4. Subsequent Event - Note Payable
On July 7,1999, the Company executed a promissory not to a bank in the amount of
$75,000.00, due December 1, 1999, bearing interest at 1% over Wall Street
Journal prime. The proceeds from the note were used to fund current trade
obligations and provide working capital. The Company's president, Karlton Terry,
also executed the note as a comaker.
5
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AMERICAN RIVERS OIL COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
Company's unaudited consolidated financial statements and notes thereto.
Forward-Looking Statements
The Company believes that this report contains certain forward-looking
statements, as defined in the Private Securities Litigation Reform Act of 1995,
including, without limitation, statements containing the words "believes,"
"anticipates," "estimates," "expects," "may" and words of similar import, or
statements of management's opinion. Such forward-looking statements involve
known and unknown risks, uncertainties and other factors which may cause the
actual results, performance or achievements of the Company to be materially
different from any future results, performance or achievements expressed or
implied by such forward-looking statements.
Results of Operations
Three Months Ended June 30, 1999 Compared to 1998
The Company's oil and gas sales revenue decreased by $19,000 or 100% in the
quarter ended June 30, 1999 compared to the corresponding quarter in 1998. The
primary factor in the decrease is attributed to the sale of the properties
referred to in note 2 to the financial statements.
The production volumes and average sales prices during the periods were as
follows:
<TABLE>
<CAPTION>
Three Months Ended
June 30,
------------------
1999 1998
---- ----
<S> <C> <C>
Oil production (barrels) - 0 - 145
Average sales price per barrel $ n/a $ 11.50
Natural gas production (mcf) - 0 - 8,422
Average sales price per mcf $ n/a $ 2.10
</TABLE>
Oil and gas production costs decreased by $21,000 compared to the corresponding
quarter ended June 30, 1998 because certain producing properties were sold in
1998 (see note 2 to the financial statements). The BOE basis (BOE means barrel
of oil equivalent, using a conversion ratio of six mcf of natural gas to one
barrel of oil), of comparing production costs per BOE were not applicable for
the quarter ended June 30, 1999 and were $13.59 for the comparable quarter of
1998.
General and administrative expenses decreased by $53,000 or 64% for the quarter
ended June 30, 1999 compared to the corresponding quarter in 1998 and is due
primarily to decreases in corporate overhead.
Depreciation, depletion and amortization expense decreased by $10,600, 100% in
the current quarter compared to the corresponding quarter in 1998 due to the
sale of the producing properties referred to in note 2.
Interest expense decreased by $10,000 or 100% for the current quarter of 1999
over the corresponding quarter of 1998 due to a repayment of debt in 1998.
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FINANCIAL CONDITION
At June 30, 1999, the Company had a working capital deficiency of $46,000.
The following summary table reflects the Company's cash flows for the nine
months ended June 30, 1999, and 1998:
<TABLE>
<CAPTION>
Three Months Ended
June 30,
------------------
1999 1998
---- ----
<S> <C> <C>
Net cash used in operating activities $(2,900) $(317,000)
Net cash provided by (used in) investing activities $ 0 $ 900,000
Net cash provided (used in) by financing activities $ 0 $(540,000)
</TABLE>
Net cash used in operating activities decreased $314,000 for the three months
ended June 30, 1999 compared to the three months ended June 30, 1998 is due
primarily to a decrease in operating activities. The Company utilized the
proceeds from the sale of certain properties in 1998 to repay its bank
obligations and currently has no significant operations which accounts for the
changes in investing and financing activities
Operating Strategy
In the fiscal year ended March 31, 1999, the Company has sold a significant
portion of its producing properties to meet its current obligations including
its then maturing indebtedness. The Company's operating objective is to increase
value through pursuing merger or acquisition opportunities with another company.
The Company is currently negotiating with a candidate. The Company cannot
predict whether any agreement may be reached if they are, the timing of the
contemplated transaction or the results of the transaction if any agreement is
reached
In view of the Company's lack of liquidity, if the contemplated merger does not
take place, the Company's value and future potential could be considerably
diminished.
General
Many of the factors which may affect the Company's future operating performance
and long-term liquidity are beyond the Company's control, including, but not
limited to, oil and natural gas prices, the availability and attractiveness of
properties for acquisition, the adequacy and attractiveness of financing and
operational results. The Company is examining alternative sources of long-term
capital, including bank borrowing, the issuance of debt instruments and the sale
of equity securities of the Company. Availability of these sources of capital
and, therefore, the Company's ability to execute its operating strategy will
depend upon a number of factors, some of which are beyond the control of the
Company.
Year 2000 Issues
"Year 2000 problems" result primarily from the inability of some computer
software to property store, recall or use data after December 31, 1999. These
problems may affect may computers and other devices that contain "embedded"
computer chips. The Company's operations, however, do not rely extensively on
information technology ("IT") systems. The IT software and hardware systems the
Company operates are all publicly available, pre-packaged systems that are
readily replaceable with other functionally similar systems. Accordingly, the
Company does not believe that it will be materially affected by Year 2000
problems in its IT software and hardware systems.
The Company relies on non-IT systems that may suffer from Year 2000 problems
including telephone systems and facsimile and other office machines. Moreover,
the Company relies on third parties that may suffer from Year 2000 problems that
could affect the Company's operations, including banks and utilities. In light
of the Company's substantially reduced operations, the Company does not believe
that such non-IT systems or third-party Year 2000 problems will affect the
Company in a manner that is different or more substantial than such problems
affect other similarly situated companies generally. Consequently, the Company
7
<PAGE>
does not currently intend to conduct a readiness assessment of Year 2000
problems or to develop a detailed contingency plan with respect to Year 2000
problems that may affect the Company's IT and non-IT systems or third-parties.
The foregoing is a "Year 2000 Readiness Disclosure" within the meaning of the
Year 2000 Information and Readiness Disclosure Act of 1998.
8
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PART II
OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Default Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
Exhibit 27. Financial Data Schedule (submitted only in
electronic format)
b. Reports on Form 8-K
None
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SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
AMERICAN RIVERS OIL COMPANY
(Registrant)
Date: August 13, 1999 By: /s/ Karlton Terry
-----------------------------
Karlton Terry
President
(Principal Executive Officer)
Date: August 13, 1999 By: /s/ Karlton Terry
-----------------------------
Karlton Terry
President and Acting Chief
Financial Officer
(Principal Financial Officer)
10
